<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM 10-QSB
---------------------
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED December 31, 1999.
----------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ___________.
Commission file number 1-11900
INTEGRATED SECURITY SYSTEMS, INC.
---------------------------------
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2422983
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
8200 SPRINGWOOD, SUITE 230, IRVING, TEXAS 75063
(Address of principal executive offices) (Zip Code)
</TABLE>
(972) 444-8280
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of February 1, 2000, 10,564,118 shares of Registrant's common stock were
outstanding.
Page 1 of 9
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Integrated Security Systems, Inc. Consolidated Financial
Statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Balance Sheets......................................................................3
Statements of Operations............................................................4
Statements of Cash Flows............................................................5
Notes to Financial Statements.......................................................6
</TABLE>
Page 2 of 9
<PAGE> 3
INTEGRATED SECURITY SYSTEMS, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 412,652 $ 251,113
Accounts receivable, net of allowance for doubtful
accounts of $61,786 and $54,383, respectively 1,336,875 1,381,879
Inventories 515,795 529,198
Notes receivable, net of $60,000 discount 388,445 340,000
Other current assets 78,915 156,165
Assets of discontinued operations -- 626,220
------------ ------------
Total current assets 2,732,682 3,284,575
Property and equipment, net 953,097 1,019,993
Capitalized software development costs, net 219,089 332,802
Deferred income taxes 205,384 205,384
Other assets 73,778 74,653
------------ ------------
Total assets $ 4,184,030 $ 4,917,407
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 415,660 $ 625,964
Accrued liabilities 458,363 1,004,253
Current portion of long-term debt and other liabilities 1,737,714 1,330,566
Liabilities of discontinued operations -- 249,654
------------ ------------
Total current liabilities $ 2,611,737 $ 3,210,437
------------ ------------
Long-term debt and other liabilities 4,491,720 4,608,003
Stockholders' equity:
Preferred stock, $.01 par value, 750,000 shares
authorized; 91,250 and 10,250 shares,
respectively, issued and outstanding 913 102
Common stock, $.01 par value, 35,000,000 shares
authorized; 10,564,118 and 10,513,993 shares,
respectively, issued; and 10,514,118 and 10,463,993
shares, respectively, outstanding 105,641 105,140
Additional paid-in-capital 14,279,147 12,704,653
Accumulated deficit (17,186,378) (15,592,178)
Treasury stock, 50,000 shares (118,750) (118,750)
------------ ------------
Total stockholders' deficit (2,919,427) (2,901,033)
------------ ------------
Total liabilities and stockholders' deficit $ 4,184,030 $ 4,917,407
============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
Page 3 of 9
<PAGE> 4
INTEGRATED SECURITY SYSTEMS, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
December 31, December 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 1,566,041 $ 1,730,202 $ 3,468,182 $ 2,940,380
Cost of sales 1,021,672 1,092,456 2,196,766 1,931,074
------------ ------------ ------------ ------------
Gross margin 544,369 637,746 1,271,416 1,009,306
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and
administrative 1,211,216 1,228,030 2,359,184 2,368,182
Research and product development
100,290 79,004 191,953 189,532
------------ ------------ ------------ ------------
1,311,506 1,307,034 2,551,137 2,557,714
------------ ------------ ------------ ------------
Loss from operations (767,137) (669,288) (1,279,721) (1,548,408)
Other income (expense):
Interest income 12,362 20,459 22,529 21,407
Interest expense (163,183) (154,778) (311,933) (307,992)
Gain on sale of assets -- 109,221 -- 101,643
Other -- (47,283) -- (51,872)
------------ ------------ ------------ ------------
Loss before income taxes (917,958) (741,669) (1,569,125) (1,785,222)
------------ ------------ ------------ ------------
Net loss from continuing operations
(917,958) (741,669) (1,569,125) (1,785,222)
Income from discontinued operations
-- 103,761 -- 187,232
------------ ------------ ------------ ------------
Net loss $ (917,958) $ (637,908) $ (1,569,125) $ (1,597,990)
Preferred dividends (25,078) -- (25,078) --
------------ ------------ ------------ ------------
Net loss allocable to common
stockholders $ (943,036) $ (637,908) $ (1,594,203) $ (1,597,990)
============ ============ ============ ============
Weighted average common shares
outstanding 10,514,118 9,135,757 10,502,959 8,806,426
Basic and diluted loss per share:
Continuing operations $ (0.09) $ (0.08) $ (0.15) $ (0.20)
Discontinued operations -- 0.01 -- 0.02
------------ ------------ ------------ ------------
Net loss per share $ (0.09) $ (0.07) $ (0.15) $ (0.18)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
Page 4 of 9
<PAGE> 5
INTEGRATED SECURITY SYSTEMS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
December 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,569,125) $(1,597,990)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 229,682 175,287
Bad debt expense 11,400 9,760
Provision for warranty reserve 28,000 64,652
Provision for inventory reserve 2,500 3,000
Deferred revenue 47,183 (66,758)
Other non-cash expenses paid with stock 107,176 129,464
Discontinued operations -- 187,232
Changes in operating assets and liabilities:
Accounts receivable 33,602 (231,254)
Inventories 10,902 (49,096)
Restricted cash -- (78,843)
Other assets (17,351) (118,106)
Accounts payable (210,301) 587,640
Accrued liabilities (197,324) (88,141)
----------- -----------
Cash used in continuing operations (1,523,656) (1,073,153)
Cash provided by discontinued operations -- 4,889
----------- -----------
Net cash used in operating activities (1,523,656) (1,068,264)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (49,072) (201,891)
----------- -----------
Net cash used in investing activities (49,072) (201,891)
----------- -----------
Cash flows from financing activities:
Issuance of common stock -- 17
Issuance of preferred stock 1,468,481 --
Dividends on preferred stock (25,078) --
Payments on long-term debt and other liabilities (678,332) (342,502)
Proceeds from long-term debt 969,196 1,588,869
----------- -----------
Net cash provided by financing activities 1,734,267 1,246,384
----------- -----------
Increase (decrease) in cash and cash equivalents 161,539 (23,771)
Cash and cash equivalents at beginning of period 251,113 49,747
----------- -----------
Cash and cash equivalents at end of period $ 412,652 $ 25,976
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
Page 5 of 9
<PAGE> 6
INTEGRATED SECURITY SYSTEMS, INC.
Notes to Consolidated Financial Statements (Unaudited)
Six Months Ended December 31, 1999 and 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (all of
which are normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the interim period are
not necessarily indicative of the results that may be expected for the fiscal
year ending June 30, 2000.
The accompanying financial statements include the accounts of Integrated
Security Systems, Inc. ("ISSI" or the "Company") and all of its subsidiaries,
with all significant intercompany accounts and transactions eliminated. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's fiscal 1999 Annual Report on Form
10-KSB filed October 13, 1999.
NOTE 2 - RECLASSIFICATION
Certain reclassification of prior year amounts have been made to conform to the
current period presentation. In October 1998, the Company sold a portion of its
Golston Company, Inc. ("Golston") subsidiary and in May 1999 sold the remaining
operations of Golston. In August 1999, the Company sold its Tri-Coastal Systems,
Inc. subsidiary. The Company has reflected the disposition of these subsidiaries
as discontinued operations in the accompanying financial statements for the
three and six months ended December 31, 1998. Accordingly, the consolidated
statement of operations and statement of cash flows for the six months ended
December 31, 1998 and the related footnotes have been reclassified.
NOTE 3 - FINANCING
In October and November 1999, the Company raised $1.855 million through a
private placement of 92,750 shares of preferred stock. The preferred stock
provides for dividends of 9% per annum and is convertible into common stock at a
rate of 25 common shares for each preferred share. Each investor in the private
placement also received a warrant to purchase 16 2/3 shares of common stock for
each share of preferred stock purchased. The warrant exercise price is $1.00 per
share and the warrants expire in October 2004. The Company believes proceeds
from this funding combined with results from operations and borrowings under its
credit facility will be sufficient to finance its future cash requirements
through fiscal 2000.
NOTE 4 - BUSINESS SEGMENTS
Information for the Company's reportable segments for the three and six months
ended December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
December 31, December 31,
-------------------------------- --------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales
B&B $ 1,392,747 $ 1,589,667 $ 2,901,745 $ 2,799,793
ISI 173,294 140,535 566,437 140,587
----------- ----------- ----------- -----------
$ 1,566,041 $ 1,730,202 $ 3,468,182 $ 2,940,380
=========== =========== =========== ===========
Income (loss) from operations
B&B $ 106,891 $ 38,441 $ 289,500 $ (145,881)
ISI (546,033) (347,113) (899,624) (806,590)
Corporate (327,995) (360,616) (669,597) (595,937)
----------- ----------- ----------- -----------
$ (767,137) $ (669,288) $(1,279,721) $(1,548,408)
=========== =========== =========== ===========
</TABLE>
Page 6 of 9
<PAGE> 7
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
GENERAL
The following information contains certain forward-looking statements. It is
important to note that ISSI's actual results could differ materially from those
projected by such forward-looking statements. Important factors that could cause
actual results to differ materially from those projected in the forward-looking
statements include, but are not limited to, the following: operations may not
improve as projected, new products may not be accepted by the marketplace as
anticipated, or new products may take longer to develop than anticipated.
RESULTS OF OPERATIONS
Quarter Ended December 31, 1999 Compared to Quarter Ended December 31, 1998
Sales. The Company's sales decreased by $0.2 million (9.5%) to $1.5 million
during the quarter ended December 31, 1999 from $1.7 million during the
comparable 1998 period. This decrease is the result of lower sales of perimeter
security products at the Company's B&B Electromatic, Inc. ("B&B") subsidiary
coupled with a decrease of end-user system installations at the Company's
Intelli-Site, Inc. ("ISI") subsidiary.
For the quarter ended December 31, 1999, approximately 89% of the Company's
revenues were generated from the sale of products manufactured by the Company
compared to 92% for the same 1998 period.
Research and Product Development. Research and product development expenses
increased by approximately $20,000 during the quarter ended December 31, 1999
compared to the comparable 1998 period due to increased expenditures at the
Company's B&B subsidiary.
Six Months Ended December 31, 1999 Compared to Six Months Ended December 31,
1998
Sales. The Company's sales increased by $0.5 million (18%) to $3.4 million
during the six months ended December 31, 1999 from $2.9 million during the
comparable 1998 period. This increase is primarily due to increased software and
first quarter end-user system installations.
For the six months ended December 31, 1999, approximately 84% of the Company's
revenues were generated from the sale of products manufactured by the Company
compared to 95% for the same 1998 period.
Cost of Sales and Gross Margin. Gross margin as a percent of sales increased to
37% for the six months ended September 30, 1999 from 34% during the comparable
1998 period due to a more favorable product mix at B&B, coupled with an increase
in software sales at ISI.
Research and Product Development. Research and product development expenses
remained comparable for the six months ended December 31, 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position increased $161,539 during the second half of fiscal
2000. At December 31, 1999, the Company had $412,652 in cash and cash
equivalents and had $326,153 outstanding under its $1 million revolving credit
facility. The credit facility, which is secured by accounts receivable, property
and equipment, and inventory, permits the Company to borrow up to $1 million,
subject to availability under its borrowing base. As of December 31, 1999, the
Company had approximately $82,000 of additional borrowing availability under its
credit facility. The facility expires in December 2001.
Page 7 of 9
<PAGE> 8
For the six months ended December 31, 1999, the Company's operating activities
used $1,523,656 of cash compared to $1,068,264 of cash used in operations during
the six months ended December 31, 1998. The increase in cash used in operations
is primarily due to the timing of certain payments to the Company's vendors.
The Company used $49,072 for the purchase of property and equipment during the
first half of fiscal 2000 compared to $201,891 for the previous six month fiscal
1999 period. The purchases from fiscal 1999 of a new computer system and truck
at B&B and a trade show booth at ISI accounted for the majority of this
variance.
During the second half of fiscal 2000, the Company financed its operations from
cash flow from long-term borrowings of $969,196 and received $1,468,481 in
exchange for preferred stock. The Company made payments of $678,332 on debt and
other liabilities.
In October and November 1999, the Company raised $1.855 million through a
private placement of 92,750 shares of preferred stock. The preferred stock
provides for dividends of 9% per annum and is convertible into common stock at a
rate of 25 common shares for each preferred share. Each investor in the private
placement also received a warrant to purchase 16 2/3 shares of common stock for
each share of preferred stock purchased. The warrant exercise price is $1.00 per
share and the warrants expire in October 2004. The Company believes proceeds
from this funding combined with results from operations and borrowings under its
credit facility will be sufficient to finance its future cash requirements
through fiscal 2000.
The Company's backlog, calculated as the aggregate sales price of firm orders
received from customers less revenue recognized, was approximately $2.5 million
at February 1, 2000. Due to the Company transferring its sales from end-users to
third parties. The Company anticipates its backlog may decrease by approximately
$1 million during the next 60 days. The Company expects that the majority of the
remaining backlog will be filled during fiscal 2000 and the first quarter of
fiscal 2001.
YEAR 2000 ISSUE
The Year 2000 issue concerned the ability of computer software programs,
including the logic contained within embedded chips, to correctly identify and
process date-sensitive calculations across and beyond the Year 2000 dateline.
The Company's products and systems it manufactures were unaffected by the Year
2000 issue. The Company utilizes third-party equipment and software that was
unaffected by the Year 2000 issue. The Company implemented solutions for the
areas it felt could potentially be affected by the Year 2000 issue. The Company
implemented solutions for all known areas affected by the Year 2000 issue, and
there was no disruption and the Company did not incur significant costs to avoid
such disruptions.
Page 8 of 9
<PAGE> 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.76 Form of Subscription Agreement for Series D Convertible
Preferred Stock.
10.77 Amended and Restated Certificate of Incorporation of the
Company.
27.1 Financial Data Schedule.
(b) Reports filed on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Integrated Security Systems, Inc.
-----------------------------------------------
(Registrant)
Date: February 14, 2000 /s/ GERALD K. BECKMANN
-----------------------------------------------
Gerald K. Beckmann
Director, President and Chief Executive Officer
Page 9 of 9
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.76 Form of Subscription Agreement for Series D Convertible
Preferred Stock.
10.77 Amended and Restated Certificate of Incorporation of the
Company.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.76
FORM OF
INTEGRATED SECURITY SYSTEMS, INC.
SUBSCRIPTION AGREEMENT
Integrated Security Systems, Inc.
8200 Springwood Drive
Suite 230
Irving, Texas 75063
Gentlemen:
This Subscription Agreement ("Agreement") has been executed by the
undersigned in connection with the private placement of up to 150,000 shares
(the "Shares") of Series D Convertible Preferred Stock, par value $0.01 per
share (the "Preferred Stock"), of Integrated Security Systems, Inc. (the
"Company"). The undersigned hereby makes the following representations,
warranties and agreements:
1. INFORMATION. The undersigned has received and carefully reviewed the
Company's Confidential Offering Memorandum dated August 1999 (the "Offering
Memorandum"). The Company represents and warrants to the undersigned that from
the date of the Offering Memorandum to the date of acceptance of this Agreement
by the Company, the Offering Memorandum, as such may be supplemented or amended,
will not contain any untrue statement of a material fact or omit to state a
material fact in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The representations
and warranties herein contained shall survive the execution and delivery of this
Agreement and the sale of the Shares hereunder.
2. AGREEMENT TO SUBSCRIBE. The undersigned hereby subscribes for
__________ Shares at a price of $20.00 per Share, payment for which in the
amount of $______________________ is made herewith. Payment for such
subscription is being made by check, bank draft or money order.
The Company may accept or reject any subscription in whole or in part
or otherwise alter the terms under which subscriptions may be accepted. The
Company, its officers, directors, current shareholders and their affiliates may
purchase Shares on the same basis as other subscribers.
The undersigned understands that except as provided under state
securities laws, this subscription is irrevocable and that the execution and
delivery of this Agreement will not constitute an agreement between the
undersigned and the Company until this Agreement has been accepted by the
Company. No subscription shall be deemed accepted until the subscription has
been accepted and, if necessary, any subsequent acts have been taken which shall
be deemed an acceptance of this Agreement by the Company.
3. ACCESS TO INFORMATION. The undersigned acknowledges that the
undersigned is subscribing for the Shares after what the undersigned deems to be
adequate investigation of the business and prospects of the Company by the
undersigned. The undersigned has been furnished with the Offering Memorandum and
any other materials relating to the business and operation of the Company that
have been requested by him, her or it and has been given an opportunity to make
any further inquiries desired of the management and any other personnel of the
Company. The undersigned has received complete and satisfactory answers to any
such inquiries.
<PAGE> 2
4. CERTAIN REPRESENTATIONS. The undersigned represents and warrants
that the information provided in the Accredited Investor Questionnaire submitted
herewith to the Company by or on behalf of the undersigned is true and correct
as of the date hereof. The representations, warranties, agreements, undertakings
and acknowledgments made by the undersigned in this Agreement are made with the
intent that they be relied upon by the Company in determining the undersigned's
suitability as a purchaser of the Shares, and shall survive its purchase. In
addition, the Investor undertakes to notify the Company immediately of any
change in any representation, warranty or other information relating to the
undersigned set forth herein.
(a) If the undersigned is a corporation, it is duly organized,
validly existing and in good standing under the laws of the state and
country of its incorporation; that the corporation has the corporate
power to carry on its business and to make the investment contemplated
herein and that this investment is for a proper corporate purpose; that
this Agreement has been duly and validly authorized, executed and
delivered and when accepted by the Company will constitute the valid,
binding and enforceable agreement of the undersigned; that the
corporation has not been organized solely for the purpose of acquiring
the Shares; that the corporation has sufficient liquid assets to pay
the full acquisition costs in connection with the Shares it proposes to
acquire; and that the corporation has sufficient assets such that it
can afford a total loss of its investment in the Shares.
(b) If the undersigned is a partnership or association, it has
not been organized solely for the purpose of acquiring the Shares; that
each individual partner of the partnership or member of the association
can bear the economic risks of his, her or its pro rata share of this
investment and can afford a total loss of his, her or its investment;
and that each individual partner or member has sufficient liquid assets
to pay his, her or its portion of the full acquisition costs in
connection with the Shares the partnership or association has agreed to
acquire, has adequate means of providing for his, her or its current
needs and possible personal contingencies, and has no present need for
liquidity of his, her or its investment.
(c) The undersigned has been advised that Offering of the
Shares is not being registered under the Securities Act of 1933, as
amended (the "Act"), on the basis of the exemption provided for in Rule
506 of Regulation D thereof and on the representations made by the
undersigned herein. The undersigned understands that no federal or
state agency has passed on or made any recommendation or endorsement of
the Shares and that the Company is relying on the truth and accuracy of
the representations, declarations and warranties herein made by the
undersigned in offering the Shares for sale to the undersigned without
having first registered the same under the Act.
(d) The undersigned is acquiring the Shares for investment for
the undersigned's own account and not with a view to their resale or
distribution and does not intend to divide his, her or its
participation with others or to resell or otherwise dispose of all or
any part of the Shares unless and until they are subsequently
registered under the Act, or an exemption from such registration is
available.
(e) The undersigned has the ability to evaluate the merits and
risks of an investment in the Company based upon his, her or its
knowledge and experience in financial and business matters.
<PAGE> 3
(f) The undersigned understands that, in the view of the
Securities and Exchange Commission (the "Commission"), the statutory
exemption referred to above would not be available if, notwithstanding
the undersigned's representations, the undersigned has in mind merely
acquiring the Shares for immediate resale or distribution upon a market
developing therefor.
(g) The undersigned further understands that in the event Rule
144 under the Securities Act ("Rule 144") hereafter becomes applicable
to the Shares, any routine sale of the Shares made thereunder can be
made only in limited amounts in accordance with the terms and
conditions of this Agreement and of Rule 144 and that in the event Rule
144 is not applicable, compliance with a disclosure exemption will be
required before the undersigned can transfer part or all of the Shares.
(h) The undersigned accepts the condition that before any
transfer of any of the Shares can be made by the undersigned, written
approval must first be obtained from the Company's counsel. The basis
of such approval shall be in compliance with the requirements of the
federal and state statutes regulating securities. The undersigned
understands that a legend to this effect will be placed on the Shares
and that stop-transfer instructions will be issued by the Company to
its transfer agent.
(i) The undersigned understands and agrees that if the
undersigned's subscription is accepted, the undersigned may be required
to execute other documents to effectuate or evidence his, her or its
purchase of the Shares.
(j) No one acting on behalf of the Company has made any
representation, warranty, or agreement to or with the undersigned with
respect to purchase of the Shares, except as described herein and in
the Offering Memorandum.
(k) The undersigned's investment in the Company has not been
solicited by means of public solicitation or advertisement and all of
the information and representations contained herein, particularly
those representations relating to the undersigned's general ability to
bear the risks of the investment being made hereby and the
undersigned's suitability as an investor, are true and correct.
(l) The undersigned is aware that the Shares are a speculative
investment involving a very high degree of risk and that there is no
guarantee that the undersigned will realize any gain from the
undersigned's investment. The undersigned is (i) able to bear the
economic risk of this investment, (ii) able to hold the Shares
indefinitely, and (iii) presently able to afford a complete loss of
this investment. The undersigned has consulted the undersigned's own
attorney, accountant or investment advisor with respect to the
undersigned's investment in the Shares and its suitability for the
undersigned.
(m) The undersigned has adequate other means of providing for
the undersigned's current needs and personal contingencies and therefor
has no need for liquidity in this investment. The undersigned's overall
commitment to investments that are not readily marketable is not
disproportionate to the undersigned's net worth and the undersigned's
investment in the Shares will not cause such overall commitment to
become excessive.
<PAGE> 4
(n) The undersigned represents that the funds provided for
this investment are either separate property of the undersigned,
community property over which the undersigned has the right of control
or are otherwise funds as to which the undersigned has the right of
management.
(o) The undersigned understands the meaning and legal
consequences of the representations and warranties made herein, all of
which are true and correct as of the date hereof and will be true and
correct as of the date of the undersigned's acquisition of the Shares
subscribed for herein. Each such representation and warranty shall
survive such purchase.
(p) The undersigned is a bona fide resident of the state set
forth on the signature page hereof, maintains his, her or its principal
residence there and is at least 21 years of age.
(q) The undersigned has relied on his, her or its own legal
counsel to the extent the undersigned has deemed necessary as to all
legal matters and questions presented with reference to the offering
and sale of the Shares subscribed for herein.
(r) The undersigned hereby agrees that this subscription is
irrevocable and that the representations and warranties set forth in
this Agreement shall survive the acceptance hereof by the Company.
(s) The undersigned hereby agrees and acknowledges that the
agreements and representations herein set forth shall become effective
and binding upon the undersigned and the undersigned's heirs, legal
representatives, successors and assigns upon the Company's acceptance
hereof.
(t) The undersigned is an accredited investor as defined in
Rule 501 of Regulation D under the Act.
(u) (For Residents of All States). The undersigned understands
and agrees to the following:
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY
ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE
SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE,
THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE
THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
<PAGE> 5
(v) (For New York Residents Only). The undersigned understands
and agrees to the following:
THE COMPANY'S PRIVATE OFFERING MEMORANDUM HAS NOT
BEEN REVIEWED BY THE ATTORNEY GENERAL OF THE STATE OF NEW YORK
PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE
STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF
THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
(w) (For Texas Residents Only). The undersigned understands
and agrees to the following:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
TEXAS SECURITIES ACT AND, IF OFFERED IN TEXAS OR TO TEXAS
RESIDENTS, ARE BEING SOLD IN RELIANCE UPON THE EXEMPTION
CONTAINED IN SECTION 5 OF SUCH ACT. THEY CANNOT BE RESOLD
UNLESS THEY ARE REGISTERED UNDER THE ACT OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
5. INDEMNIFICATION. The undersigned recognizes that the offer of the
Shares was made in reliance upon the undersigned's representations, warranties
and the acknowledgments and agreements set forth above. The undersigned agrees
to provide, if requested, any additional information that may reasonably be
required to determine the eligibility of the undersigned to purchase the Shares.
The undersigned hereby agrees to indemnify the Company and its affiliates and
controlling persons and to hold each of them harmless from and against any loss,
damage or liability due to or arising out of a breach of any representation,
warranty or agreement of the undersigned contained in this Agreement or in any
other document provided by the undersigned to the Company in connection with the
undersigned's investment in the Shares. The undersigned hereby agrees to
indemnify the Company and its affiliates and controlling persons and to hold
them harmless against all liabilities, costs or expenses (including reasonable
attorneys' fees) arising as a result of the sale or distribution of the Shares
by the undersigned in violation of the Securities Act or other applicable law or
any misrepresentation or breach by the undersigned with respect to the matters
set forth herein. In addition, the undersigned agrees to indemnify the Company
and its affiliates and controlling persons and to hold them harmless from and
against, any and all loss, damage, liability or expense, including costs and
reasonable attorneys' fees, to which they may be put or which they may incur or
sustain by reason of or in connection with any representation made by the
undersigned with respect to the matters about which representations or
warranties are required by the terms of this Agreement, or any breach of any
such warranties or any failure to fulfill any covenants or agreements set forth
herein or included in and as defined in the Offering Memorandum. Notwithstanding
any provision of this Agreement, the undersigned does not waive any rights
granted to it under applicable securities laws.
6. GENERAL.
(a) All notices or other communications given or made
hereunder shall be in writing and shall be delivered or mailed by
registered or certified mail, return receipt requested, postage
prepaid, to the undersigned at the undersigned's address set forth
below and to the Company at the address set forth above.
<PAGE> 6
(b) Notwithstanding the place where this Agreement may be
executed by any of the parties hereto, the parties expressly agree that
all the terms and provisions hereof shall be construed in accordance
with and governed by the internal laws of the State of Texas, without
giving effect to conflicts of law.
(c) This Agreement constitutes the entire Agreement between
the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by all parties. The undersigned
agrees not to transfer or assign this Agreement, or any of his, her or
its interest herein, without the express written consent of the
Company.
(d) The undersigned agrees that counsel to the Company shall
not be liable for taking any action pursuant to this Agreement in the
absence of gross negligence, misfeasance, malfeasance or fraud.
(e) The undersigned has enclosed with this Agreement
appropriate evidence of the authority of the individual executing this
Agreement to act on its behalf (i.e., if a trust, a copy of the trust
agreement; if a corporation, certified corporate resolution authorizing
the signature and a copy of the articles of incorporation; or if a
partnership, a copy of the partnership agreement).
Kindly deliver the certificates for the Shares registered as
follows:
-------------------------------------------------
(Name)
-------------------------------------------------
(Street and No.)
-------------------------------------------------
(City, State and Zip Code)
-------------------------------------------------
(Social Security No. or Federal Employer ID No.)
-------------------------------------------------
(Date of Birth)
Very truly yours,
---------------------------------------
(Signature of Subscriber)
Dated: , 1999
--------------------
ACCEPTED AND AGREED:
INTEGRATED SECURITY SYSTEMS, INC.
By:
---------------------------------
Gerald K. Beckmann, President and CEO
<PAGE> 1
EXHIBIT 10.77
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
INTEGRATED SECURITY SYSTEMS, INC.
Integrated Security Systems, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
FIRST: The name of the Corporation is Integrated Security Systems, Inc.
SECOND: The Board of Directors of the Corporation, by the unanimous
written consent of its members, adopted a resolution proposing and declaring
advisable that the number of authorized shares of the Corporation's Common
Stock, par value $.01 per share, be increased from 30,000,000 shares to
35,000,000 by adopting the following amendment to the Restated Certificate of
Incorporation of the Corporation:
Article FOURTH shall be amended in its entirety as follows:
"FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 35,750,000 shares, of
which 35,000,000 shares shall be Common Stock, par value $.01 per share
("Common Stock"), and 750,000 shares shall be Preferred Stock, par
value $.01 per share ("Preferred Stock")."
THIRD: The resolution adopted by the Board of Directors has been duly
adopted by vote of the holders of a majority of the outstanding Common Stock at
a Special Meeting of Stockholders called and held in accordance with the
provisions of Sections 211 and 222 of the General Corporation Law of the State
of Delaware, as an amendment to the Restated Certificate of Incorporation of the
Corporation.
FOURTH: The aforesaid amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, Integrated Security Systems, Inc. has caused this
certificate to be signed by its President and attested to by its Secretary, as
of December 17, 1999.
INTEGRATED SECURITY SYSTEMS, INC.
By:
------------------------------------
Gerald K. Beckmann
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 412,652
<SECURITIES> 0
<RECEIVABLES> 1,336,875
<ALLOWANCES> 0
<INVENTORY> 515,795
<CURRENT-ASSETS> 2,732,682
<PP&E> 953,097
<DEPRECIATION> 0
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<CURRENT-LIABILITIES> 2,611,737
<BONDS> 0
0
913
<COMMON> 105,641
<OTHER-SE> (3,025,981)
<TOTAL-LIABILITY-AND-EQUITY> 4,184,030
<SALES> 3,468,182
<TOTAL-REVENUES> 3,468,182
<CGS> 2,196,766
<TOTAL-COSTS> 2,196,766
<OTHER-EXPENSES> 2,551,137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 289,404
<INCOME-PRETAX> (1,569,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,569,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,569,125)
<EPS-BASIC> (0.15)
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