Integrated Security Systems, Inc. Announces Operating Profit in FY 2010

September 27, 2010

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CARROLLTON, Texas--(BUSINESS WIRE)-- Integrated Security Systems, Inc. (OTCBB: IZZI) today reported results for its fiscal 2010 year ended June 30, 2010.

For fiscal 2010, the Company reported Income from Operations of $224,000 compared to a Loss from Operations of $32,000 in the prior year. Further, the Company reported a net loss of $68,000 compared to net income of $5,459,000 in the prior year. The prior year results included a $6,599,000 gain on conversation of debt which contributed to the net income figure.

The improvement in Operating Income occurred despite a decline in sales of 4.2% to $8,160,000, down from $8,517,000 in fiscal year 2009. The sales decline occurred in the Company’s high-security perimeter barrier business, B&B ARMR, at which sales of $5,112,000 in fiscal year 2009 declined 19.2% to $4,130,000 in fiscal year 2010. This sales decline was partially offset by the Company’s road and bridge barrier business, B&B Roadway, at which sales increased 18.4% from $3,405,000 in fiscal year 2009 to $4,030,000 in fiscal year 2010. The sales decline at B&B ARMR was caused by the loss of a major service contract in July 2009 ($650,000) and a temporary decline in quote activity caused by employee turnover. The sales and marketing staff at B&B ARMR has been fully staffed since December 2009, and quote activity has recently exceeded historical levels, the result of which may be seen in the later months of fiscal year 2011. B&B Roadway sales rose significantly in the fourth quarter of fiscal year 2010 (50% over the fourth quarter of fiscal year 2009), resulting in the year-over-year increase, and the B&B Roadway backlog indicates higher sales are expected in fiscal year 2011.

Gross profit percentage declined from 35.1% to 33.9% due to the shift in product mix from higher profit high-security perimeter barrier business to the road and bridge barrier business. This decline was more than offset by a reduction of selling, general and administrative costs, which declined 15.9% from fiscal year 2009 to fiscal year 2010, primarily due to reductions in employee and other operating costs as we continue to improve administrative efficiencies.

Net loss was favorably affected by a decrease in interest expense of $1,108,000, due to the conversion of debt in fiscal year 2009 and overall lower borrowing levels in fiscal year 2010. The fiscal year 2009 results also included a one-time gain from the sale of assets of $249,000.

Mr. Brooks Sherman, Chairman and Chief Executive Officer, commented, “We are pleased that the Company reached its first operating profit in its history. We are confident the years of significant losses are behind us and are focused on reversing the recent sales decline trend through improved marketing efforts and the development of new products. The backlog is strong, particularly at B&B Roadway, and we are optimistic the recent trend in operating profit improvement will continue. While liquidity continues to be a concern as the Company is dependent on factoring its accounts receivable, operating cash flow was positive in fiscal year 2010, interest expense and debt service requirements are at an historical low and the reported June 30, 2010 balance sheet reflects positive working capital for the first time since 2003.“

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding our expectations, beliefs, intentions, plans, projections, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are not historical facts. Actual results may differ materially from those expressed or implied by the forward-looking statements contained in this release. Forward-looking statements are subject to numerous risks, uncertainties and assumptions about us and our business. Important factors that could cause actual results to differ materially from those in the forward looking statements include the discussion of financial position and liquidity discussed in Part I of our Form 10-K Report for the year ended June 30, 2010, including but not limited to the “Management's Discussion and Analysis of Financial Condition and Results of Operations,” which discussion is incorporated herein by this reference. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

About ISSI

Headquartered in Carrollton, Texas, ISSI designs, develops and markets security and traffic control products to the commercial, industrial and governmental sectors. ISSI is a leading provider of anti-terrorist barriers, security gates and gate operators for perimeter security applications through its subsidiary, B&B ARMR. ISSI also designs, manufactures and distributes warning gates, lane changers, airport and navigational lighting through its subsidiary, B&B Roadway. For more information, please visit www.integratedsecurity.com, www.bb-armr.com, www.bbroadway.com.



INTEGRATED SECURITY SYSTEMS, INC.
Consolidated Statements of Operations

	For the Years Ended
	June 30,
	2010			2009
Revenue:
Sales	$	8,159,917		$	8,517,350
Other revenue		16,379			110,704
Total revenue		8,176,296			8,628,054
Cost of sales		5,413,995			5,642,413

Gross profit		2,762,301			2,985,641

Selling, general and administrative		2,538,371			3,017,438

Income (loss) from operations		223,930			(31,797	)

Interest expense		(64,737	)		(1,172,806	)
Gain on sale of assets		3,500			248,771
Impairment of other assets		(81,647	)		-
Gain on conversion of debt		-			6,599,275

Net income from continuing operations		81,046			5,643,443

Loss from discontinued operations		(2,956	)		(111,862	)

Net income		78,090			5,531,581

Income attributable to the noncontrolling interest		(146,597	)		(72,937	)

Net (loss) income attributable to common stockholders	$	(68,507	)	$	5,458,644

Weighted average common shares
outstanding - basic		559,640,769			139,526,110

Weighted average common shares
outstanding - diluted		559,640,769			140,041,110

Basic and diluted earnings per share - continuing operations	$	-		$	0.04

Basic and diluted earnings per share	$	-		$	0.04

INTEGRATED SECURITY SYSTEMS, INC.
Consolidated Balance Sheets

	June 30,			June 30,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	22,690		$	30,944
Short term investments		32,420			56,000
Accounts receivable, net of allowances
of $214,389 and $204,803, respectively		1,324,461			1,487,175
Inventory, net of reserves		410,611			314,430
Other current assets		222,300			242,509
Total current assets		2,012,482			2,131,058

Property and equipment, net		14,089			28,884
Goodwill		1,707,953			1,707,953
Other assets		78,988			218,199

Total Assets	$	3,813,512		$	4,086,094

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,149,204		$	1,252,517
Accrued liabilities		433,548			923,537
Demand note payable		389,049			287,985
Current portion of long-term debt		32,847			7,657
Liabilities related to discontinued operations		14,117			20,892
Total current liabilities		2,018,765			2,492,588

Long-term debt		150,544			15,299


Equity:
Convertible preferred stock, $0.01 par value, 750,000 shares authorized; 22,500
shares issued and outstanding ($450,000 of liquidation value)		225			225
Common stock, $0.01 par value, 800,000,000 shares authorized; 559,193,604 and
559,126,805 shares issued, respectively		5,591,936			5,591,268
Treasury stock, at cost; 278,522 common shares		(125,606	)		(125,606	)
Additional paid in capital		37,999,910			37,888,178
Accumulated deficit		(41,849,478	)		(41,780,971	)
Accumulated other comprehensive loss (available for sale security)		(36,394	)		(12,000	)
Total stockholders’ equity		1,580,593			1,561,094
Noncontrolling interest		63,610			17,113
Total equity		1,644,203			1,578,207

Total liabilities and equity	$	3,813,512		$	4,086,094

INTEGRATED SECURITY SYSTEMS, INC.
Consolidated Statements of Cash Flows

	For the Years Ended
	June 30,			June 30,
	2010			2009
Cash flows from operating activities:
Net (loss) income	$	(68,507	)	$	5,458,644
Loss from discontinued operations		2,956			111,862
(Loss) income from continuing operations		(65,551	)		5,570,506
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation		19,395			27,886
Gain on sale of assets		(3,500	)		(248,771	)
Gain on conversion of debt		-			(6,599,275	)
Impairment of other assets		81,647			-
Bad debt expense		7,932			(102,292	)
Provision for warranty reserve		26,993			(13,065	)
Provision for inventory reserve		62,554			79,839
Stock option expense		69,275			54,279
Gain on extinguishment of liability		(222,205	)		-
Expenses paid with stock		43,125			865,472
Noncontrolling interest		146,597			72,937
Changes in assets and liabilities:
Accounts receivable		136,299			278,727
Inventory		(158,736	)		117,189
Other assets		100,065			82,513
Accounts payable		27,246			265,557
Accrued liabilities		(252,717	)		(20,402	)
Net cash provided by operating activities		18,419			431,100

Cash flows from investing activities:
Purchase of property and equipment		(4,600	)		-
Proceeds from sale of assets		3,500			5,300
Net cash (used in) provided by investing activities		(1,100	)		5,300

Cash flows from financing activities:
Net borrowings (payments) of debt		84,258			(540,043	)
Amortization of deferred debt costs		-			111,181
Proceeds from issuance of stock		-			90,000
Distribution to noncontrolling interest		(100,100	)		(205,632	)
Net cash used in financing activities		(15,842	)		(544,494	)

Cash flows from discontinued operations:
Operating activities		(9,731	)		(30,018	)
Net cash used in discontinued operations		(9,731	)		(30,018	)

Net decrease in cash		(8,254	)		(138,112	)

Cash at beginning of period		30,944			169,056
Cash at end of period	$	22,690		$	30,944