UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 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 September 30, 2004.

| |      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)


                  Delaware                       75-2422983
          ------------------------    ---------------------------------
          (State of incorporation)    (IRS Employer Identification No.)


          8200 Springwood Drive, Suite 230, Irving, Texas      75063
          -----------------------------------------------    ----------
             (Address of principal executive offices)        (Zip Code)


                                 (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 October 31, 2004,  84,346,536 shares of the Registrant's common stock were
outstanding.

Transitional Small Business  Disclosure Format:   Yes [ ]   No [X]



<PAGE>


                        INTEGRATED SECURITY SYSTEMS, INC.
                                      INDEX

                                                                       Page
PART I.  FINANCIAL INFORMATION

     Item 1.  Financial Statements

              Consolidated  Balance Sheets at September 30, 2004
                (unaudited) and June 30, 2004                            3

              Consolidated Statements of Operations (unaudited)
                for the three months ended September 30, 2004
                and 2003                                                 4

              Consolidated Statements of Cash Flows (unaudited)
                for the three months ended September 30, 2004
                and 2003                                                 5

              Notes to Financial Statements                              6

     Item 2.  Management's Discussion and Analysis or Plan of
                Operation                                               11

     Item 3.  Controls and Procedures                                   13


PART II. OTHER INFORMATION

     Item 1.  Legal Proceedings                                         14

     Item 2.  Unregistered  Sales of Equity Securities and Use
                of Proceeds                                             14

     Item 3.  Defaults Upon Senior Securities                           14

     Item 4.  Submission of Matters to a Vote of Security Holders       14

     Item 5.  Other Information                                         14

     Item 6.  Exhibits                                                  14

SIGNATURES                                                              16



                                       2
<PAGE>

                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.
<TABLE>
<CAPTION>

                        INTEGRATED SECURITY SYSTEMS, INC.
                           Consolidated Balance Sheets

                                                              September 30,       June 30,
                                                                  2004              2004
                                                              -------------     -------------
                                                               (Unaudited)
<S>                                                           <C>               <C>
                                     ASSETS
Current assets:
   Cash and cash equivalents                                  $      89,325     $     172,688
   Accounts receivable, net of allowance for doubtful
     accounts of $98,426 and $109,527, respectively               2,560,913         1,904,285
   Inventories                                                    1,578,975         1,272,532
   Other current assets                                              23,282            75,020
                                                              -------------     -------------
     Total current assets                                         4,252,495         3,424,525

Property and equipment, net                                         658,722           681,168
Goodwill                                                          3,626,759         3,547,162
Other assets                                                         65,961            59,956
                                                              -------------     -------------
     Total assets                                             $   8,603,937     $   7,712,811
                                                              =============     =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                           $   1,635,441     $   2,029,963
   Accrued liabilities                                              821,907           708,610
   Current portion of long-term debt                              4,571,736         1,845,949
                                                              -------------     -------------
     Total current liabilities                                $   7,029,084     $   1,584,522
                                                              -------------     -------------

Long-term debt                                                    1,553,781         2,956,341

Stockholders' equity:
   Preferred stock, $.01 par value, 750,000 shares
     authorized; 100,750 shares issued and
     outstanding (liquidation value of $2,015,000)                    1,008             1,008
   Common stock, $.01 par value, 150,000,000 shares
     authorized; 84,298,984 shares issued                           842,990           842,990
   Additional paid in capital                                    31,627,086        31,627,086
   Accumulated deficit                                          (32,331,262)      (32,180,386)
   Treasury stock, at cost - 50,000 common shares                  (118,750)         (118,750)
                                                              -------------     -------------
     Total stockholders' equity                                      21,072           171,948
                                                              -------------     -------------
       Total liabilities and stockholders' equity             $   8,603,937     $   7,712,811
                                                              =============     =============
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       3
<PAGE>

                        INTEGRATED SECURITY SYSTEMS, INC.
                      Consolidated Statements of Operations
                                   (Unaudited)


                                                 For the Three Months Ended
                                                       September 30,
                                                ----------------------------
                                                    2004            2003
                                                ------------    ------------
Sales                                           $  3,396,714    $  1,719,896
Cost of sales                                      2,098,273       1,068,280
                                                ------------    ------------
Gross profit                                       1,298,441         651,616
                                                ------------    ------------

Operating expenses:
  Selling, general and administrative              1,177,511         675,700
  Research and product development                   123,303         138,957
                                                ------------    ------------
                                                   1,300,814         814,657
                                                ------------    ------------

Loss from operations                                  (2,373)       (163,041)

Other expense:
  Interest expense                                  (148,503)       (252,686)
                                                ------------    ------------

Net loss                                            (150,876)       (415,727)

Preferred dividends                                  (41,400)        (41,400)
                                                ------------    ------------

Net loss allocable to common stockholders       $   (192,276)   $   (457,127)
                                                ============    ============

Weighted average common and
   common equivalent shares
   Outstanding - basic and diluted                84,298,984      30,659,213
                                                ============    ============

Net loss per share - basic and diluted          $       --      $      (0.02)
                                                ============    ============



               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                       4
<PAGE>
<TABLE>
<CAPTION>
                        INTEGRATED SECURITY SYSTEMS, INC.
                      Consolidated Statements of Cash Flows
                                   (Unaudited)


                                                            For the Three Months Ended
                                                                  September 30,
                                                           ----------------------------
                                                              2004             2003
                                                           -----------      -----------
<S>                                                        <C>              <C>
Cash flows from operating activities:
   Net loss                                                $  (150,876)     $  (415,727)
   Adjustments to reconcile net loss to net cash
     used by operating activities:
      Depreciation                                              48,950           32,806
      Provision for bad debt                                     4,749            5,500
      Provision for warranty reserve                            80,000           10,000
      Provision for inventory reserve                             --              2,000
      Amortization of debt discount                               --            166,888
      Expenses paid with stock, warrants and options              --             48,847
   Changes in operating assets and liabilities,
     net of effects of acquisition:
       Accounts receivable                                    (661,377)        (244,651)
       Inventories                                            (306,443)         (82,659)
       Other assets                                             45,733           11,331
       Accounts payable                                       (394,522)         235,675
       Accrued liabilities                                      33,297          199,400
                                                           -----------      -----------
           Net cash used in operating activities            (1,300,489)         (30,590)
                                                           -----------      -----------

Cash flows from investing activities:
   Purchase of property and equipment                          (26,504)         (13,793)
   Purchase of business                                        (79,597)        (586,915)
                                                           -----------      -----------
           Net cash used in investing activities              (106,101)        (600,708)
                                                           -----------      -----------

Cash flows from financing activities:

   Employee stock option exercise                                 --              9,375
   Payments on debt and other liabilities                      (33,061)        (266,597)
   Proceeds from notes payable and long-term debt            1,356,288          958,400
                                                           -----------      -----------
           Net cash provided by financing activities         1,323,227          701,178
                                                           -----------      -----------

Increase (decrease) in cash and cash equivalents               (83,363)          69,880
Cash and cash equivalents at beginning of period               172,688          177,078
                                                           -----------      -----------
Cash and cash equivalents at end of period                 $    89,325      $   246,958
                                                           ===========      ===========

Supplemental disclosure of noncash financing activities
   Conversion preferred stock                                     --        $ 7,495,052
   Issuance of company common stock in payment of
     preferred stock dividends                                    --        $ 1,043,829

</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                       5
<PAGE>

                        INTEGRATED SECURITY SYSTEMS, INC.
             Notes to Consolidated Financial Statements (Unaudited)
                   Quarters Ended September 30, 2004 and 2003


Note 1 - Basis of Presentation

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information.  Accordingly,  they do not include
all of the information and footnotes required 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, 2005.

The  accompanying  financial  statements  include  the  accounts  of  Integrated
Security  Systems,  Inc. (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 2004 Annual Report on Form 10-KSB filed
on October 13, 2004 with the Securities and Exchange Commission.


Note 2 - Stock Options

The  Company  accounts  for  stock-based  compensation  to  employees  using the
intrinsic value method. Accordingly, compensation cost for stock options granted
to  employees is measured as the excess,  if any, of the quoted  market price of
the Company's  common stock at the date of the grant over the amount an employee
must pay to acquire the stock. If the Company recognized compensation expense as
recommended  under  Statement of Financial  Accounting  Standards No. 123 ("SFAS
123"),  based on the fair value at the grant dates,  the Company's pro forma net
loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>
                                                         For the Three Months Ended
                                                               September 30,
                                                         --------------------------
                                                            2004            2003
                                                         ----------      ----------
<S>                                                      <C>             <C>
  Net loss, as reported                                  $ (150,876)     $ (531,874)
  Add:  Stock-based employee compensation
      expense determined under the intrinsic
      value method included in reported net loss               --              --

  Deduct:  Stock-based employee compensation
      expense determined under the fair value method        (42,700)       (252,454)
                                                         ----------      ----------
  Pro forma net loss                                     $ (193,576)     $ (784,328)
                                                         ==========      ==========

  Earnings per share:
      Basic and Diluted - as reported                    $     --        $    (0.02)
                                                         ==========      ==========
      Basic and Diluted - pro forma                      $     --        $    (0.03)
                                                         ==========      ==========
</TABLE>

The fair value of these  options  was  estimated  at the date of grant using the
Black-Sholes   option  pricing  model  with  the  following   weighted   average
assumptions  used for  grants  in  fiscal  2004:  no  dividend  yield,  expected
volatility  of  108.3%;  risk-free  interest  rates of  approximately  3.31% and
expected lives of three and five years.



                                       6
<PAGE>

Note 3 - Reclassifications

Certain reclassifications of prior year amounts have been made to conform to the
current period presentation.


Note 4 - Accounts Receivable

The majority of the Company's accounts  receivable are due from companies in the
perimeter security and road and bridge  industries.  Credit is extended based on
evaluation  of  a  customers'   financial  condition  and  credit  history  and,
generally,  collateral is not required.  Accounts  receivable  are due within 30
days and are  stated at  amounts  due from  customers  net of an  allowance  for
doubtful  accounts.  Accounts  outstanding  longer than the contractual  payment
terms  are  considered  past  due.  The  Company  determines  its  allowance  by
considering  a number of factors,  including  the length of time trade  accounts
receivable  are past due, the Company's  previous loss history,  the  customer's
current  ability to pay its obligation to the Company,  and the condition of the
general  economy and the industry as a whole.  The Company  writes-off  accounts
receivable when they become uncollectible, and payments subsequently received on
such receivables are credited to the allowance for doubtful accounts.

                                                          September 30,
                                                    -------------------------
                                                       2004          2003
                                                    -----------   -----------
   Accounts receivable:
     Trade receivables                              $ 2,659,339   $ 1,968,942
     Less:  allowance for doubtful receivables          (98,426)      (96,210)
                                                     -----------   -----------
                                                    $ 2,560,913   $ 1,872,732
                                                    ===========   ===========

   Allowance for doubtful receivables:
     Beginning Balance                              $   109,527   $    64,183
        Bad debt expense                                  4,749         5,500
        Accounts written-off                            (15,850)      (27,034)
        ARMR Services Corporation merger                   --          53,561
                                                     ----------    ----------
     Ending Balance                                 $    98,426   $    96,210
                                                    ===========   ===========


Note 5 - Product Warranties

The Company offers  one-year,  two-year and five-year  warranties on products it
manufactures. The length of the warranty is dictated by competition. The Company
provides for repair or  replacement of components  and/or  products that contain
defects of material or workmanship.  When the Company uses other  manufacturers'
components,  the warranties of the other manufacturers are passed to the dealers
and end users.

The  Company  records a  liability  for an  estimate of costs that it expects to
incur under its basic  limited  warranty  when  product  revenue is  recognized.
Factors affecting the Company's  warranty  liability include the number of units
sold and historical  and  anticipated  rates of claims and costs per claim.  The
Company  periodically  assesses the adequacy of its warranty  liability based on
changes in these factors.

The changes in the Company's product warranty liability are as follows:

                                                    September 30,
                                               -----------------------
                                                 2004          2003
                                               ---------     ---------
     Liability, beginning of year              $  94,157     $ 135,471
     Expense for new warranties issued            80,000        10,000
     Warranty claims                             (99,579)      (25,119)
                                               ---------     ---------
     Liability, end of period                  $  74,578     $ 120,352
                                               =========     =========


                                       7
<PAGE>

Note 6 - Preferred Stock Dividend Arrearage

At  September  30, 2004,  the Company had  dividends in arrears in the amount of
$287,513  related to its  outstanding  Series A, and D  preferred  stock,  which
consists of the following:

                                   Shares         Dividends
                                 Outstanding     In Arrears
                                 -----------     -----------
          Series A $20                 9,500     $      --
          Series D $20                91,250         287,513
                                 -----------     -----------
                                     100,750     $   287,513
                                 ===========     ===========


Note 7 - Net Loss Per Share

The Company  computes  basic loss per common  share using the  weighted  average
number of common shares.  At September 30, 2004 and 2003,  there were 10,601,897
and 15,044,356 shares, respectively, of in-the-money potentially dilutive common
shares  outstanding,   which  were  not  included  in  weighted  average  shares
outstanding  because their effect is antidilutive due to the Company's  reported
net loss.

At September 30, 2004 and 2003, the Company had  approximately  102,551,045  and
98,808,353  shares,  respectively,  of common stock and common stock equivalents
outstanding,   which   comprises  all  of  the  Company's   outstanding   equity
instruments.


Note 8 - Financing

In exchange for an aggregate of $1,000,000 cash investment, the Company issued a
convertible promissory note to BFS US Special Opportunities Trust PLC ("BFS"), a
public limited  company  registered in England and Wales, on August 5, 2004. The
convertible  promissory note is in the original  principal amount of $1,000,000,
has an annual  interest rate of 10%, and is payable in monthly  installments  on
the first day of each month. The convertible  promissory note, plus interest, is
due on August 5, 2009.  The  convertible  promissory  note is convertible at the
option of BFS into common  stock of the Company at a  conversion  price of $0.38
per share. The Company has the right to call the convertible  promissory note if
the market price of the common stock of the Company is above $0.60 per share for
a period of 60 days. The Company's board of directors  ratified this transaction
on August 20, 2004.

In addition to the above transaction, the board of directors of the Company also
ratified an amended and restated  pledge  agreement  and an amended and restated
security  agreement,  both of which are  between  the  Company  and  Renaissance
Capital Growth & Income Fund III,  Renaissance US Growth  Investment  Trust PLC,
BFS and Renaissance Capital Group, Inc.

In exchange for an aggregate of $150,000  cash,  the Company issued a promissory
note to C. A. Rundell, Jr., Chairman and Chief Executive Officer of the Company,
on July 28, 2004. The  promissory  note is in the original  principal  amount of
$150,000,  has an annual  interest  rate of 9% which is due at  maturity  and is
secured  by a  specific  invoice of B&B ARMR  issued to Horne  Engineering.  The
promissory  note, plus accrued  interest,  was due on October 28, 2004. B&B ARMR
will pay this note plus all  accrued  and unpaid  interest in full by the end of
the December 2005.


                                       8
<PAGE>

Note 9 - Subsequent Event - Financing

The Company  received a $500,000  cash  investment on October 27, 2004 from BFS.
The final terms and  conditions of this  investment in the Company are currently
being  negotiated.  The  contemplated  security to be sold is a 10% subordinated
convertible  promissory note, convertible at $0.38 per share, callable after the
second year at the equivalent of $0.60 per share and with a five-year  term. The
Company anticipates the completion of this transaction by November 30, 2004.


Note 10 - Subsequent Event - Financing Arrangement

On  November  10,  2004,  the  Company's  wholly-owned   subsidiary,   B&B  ARMR
Corporation ("B&B ARMR"),  entered into a loan agreement with Briar Capital L.P.
("Briar")  to provide a  $3,000,000  discretionary  demand  asset based  lending
credit facility. Under the terms of the loan agreement, working capital advances
are made available to B&B ARMR based on the value of its accounts receivable and
inventory. Although payable on demand, the loan agreement has a stated three (3)
year term. In connection  with the loan  agreement,  B&B ARMR issued a revolving
promissory  note dated  November  10, 2004 to Briar in the  principal  amount of
$3,000,000.  The note has an annual interest rate of two percent above the prime
rate, but in no event will interest exceed the maximum nonusurious interest rate
allowable under applicable law.

In connection with the loan agreement  between B&B ARMR and Briar,  the Company,
B&B  ARMR,  and  Intelli-Site,   Inc.  ("Intelli-Site"),   another  wholly-owned
subsidiary of the Company,  also entered into a subordination  agreement,  dated
November 10, 2004,  with Briar,  Renaissance  Capital  Growth & Income Fund III,
Inc. ("RENN III"),  Renaissance US Growth  Investment Trust PLC ("RUSGIT"),  and
BFS  (together  with  RENN  III  and  RUSGIT,  collectively,  the  "Subordinated
Lenders").   Pursuant  to  the  terms  of  the  subordination   agreement,   the
Subordinated  Lenders agreed to subordinate their indebtedness,  liens and other
obligations to Briar's indebtedness, liens and other obligations.

Also in  connection  with the loan  agreement  between  B&B ARMR and Briar,  the
Company and Intelli-Site  unconditionally guaranteed the obligations of B&B ARMR
pursuant to the terms of separately executed guaranty agreements, dated November
10, 2004.  The Company's and  Intelli-Site's  guaranty  obligations to Briar are
secured  by  a  first   priority   security   interest  in  the   Company's  and
Intelli-Site's  personal property pursuant to the terms of a guarantor  security
agreement, dated November 10, 2004.


Note 11 - Business Segments

Information  for the  Company's  reportable  segments for the three months ended
September 30, 2004 and 2003 is as follows:

                                         For the Three Months Ended
                                               September 30,
                                         --------------------------
                                            2004           2003
                                         -----------    -----------
     Sales
        B&B ARMR Corporation             $ 3,180,485    $ 1,627,895
        Intelli-Site, Inc.                   216,229         91,911
                                         -----------    -----------
                                         $ 3,396,714    $ 1,719,896
                                         ===========    ===========

     Income (loss) from operations
        B&B ARMR Corporation             $    62,918    $    10,635
        Intelli-Site, Inc.                    11,176        (94,703)
        Corporate                            (76,467)       (78,973)
                                         -----------    -----------
                                         $    (2,373)   $  (163,041)
                                         ===========    ===========


                                       9
<PAGE>

Note 12 - Merger

On September 5, 2003, the Company acquired, in a merger transaction,  all of the
issued  and  outstanding  shares of common  stock of ARMR  Services  Corporation
("ARMR"), a manufacturing  company that engineers and manufactures high security
crash rated barriers,  parking control  equipment and other security systems for
business and  government  use. The following  unaudited  pro forma  consolidated
statements of  operations  have been  prepared as if the  acquisition  discussed
above had occurred at July 1, 2003.

                                         For the Three Months Ended
                                             September 30, 2003
                                         ---------------------------

        Sales                                   $  2,405,823
        Net loss allocable to
          common stockholders                   $   (634,907)
        Net loss per share allocable
          to common stockholders,
          basic and diluted                     $      (0.02)
        Weighted average shares
          outstanding,
          basic and diluted                       30,659,213





                                       10
<PAGE>

Item 2.  Management's Discussion and Analysis or Plan of Operation.

Forward Looking Statements

This  quarterly  report on Form  10-QSB  includes  "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 can be identified by the use of  forward-looking  terminology such as
"may," "believe," "expect," "intend," "plan," "seek," "anticipate,"  "estimate,"
or "continue"  or the negative of those words or other  variations or comparable
terminology.

All  statements  other than  statements  of  historical  fact  included  in this
quarterly report on Form 10-QSB,  including the statements under "Part I. --Item
2.  Management's  Discussion  and  Analysis  or Plan of  Operation"  and located
elsewhere  in this  quarterly  report on Form  10-QSB  regarding  the  financial
position and liquidity of the Company are forward-looking  statements.  Although
the Company  believes  that the  expectations  reflected in the  forward-looking
statements are reasonable,  it can give no assurance that such expectations will
prove  to  have  been  correct.   Important  factors  regarding  forward-looking
statements,  including certain risks and  uncertainties  that could cause actual
results to differ materially from the Company's  expectations,  are disclosed in
this  quarterly  report on Form  10-QSB.  The  Company  does not  undertake  any
obligation to publicly revise its  forward-looking  statements to reflect events
or  circumstances  that arise  after the date of this  quarterly  report on Form
10-QSB.

Important  factors that could cause  actual  results to differ  materially  from
those in the forward-looking  statements in this quarterly report on Form 10-QSB
include changes from anticipated  levels of operations,  customer  acceptance of
existing and new products,  anticipated  development  schedules of new products,
anticipated   levels  of  sales,   future  national  or  regional  economic  and
competitive  conditions,  changes in  relationships  with  customers,  access to
capital,  casualty to or other disruption of the Company's  production  facility
and equipment, delays and disruptions in the shipment of the Company's products,
government  regulations  and the  ability  of the  Company  to meet  its  stated
business  goals.  All  subsequent  written and oral  forward-looking  statements
attributable  to the  Company  or persons  acting on its  behalf  are  expressly
qualified in their entirety by the Company's cautionary statements.

Results of Operations

Three Months Ended  September 30, 2004 Compared to Three Months Ended  September
30, 2003

Sales.  The Company's  total sales  increased by $1.7  million,  or 97%, to $3.4
million during the quarter ended September 30, 2004 from $1.7 million during the
quarter ended  September 30, 2003.  This increase is due to the inclusion of the
sales of ARMR Services  Corporation,  as a result of the merger of ARMR Services
Corporation with the Company's B&B Electromatic,  Inc.  subsidiary into B&B ARMR
Corporation in September 2003.

Gross Margin.  Gross profit increased by  approximately  $0.6 million during the
quarter  ended  September  30,  2004  due  to the  inclusion  of  ARMR  Services
Corporation,  but as a percentage of sales remained comparable at 38% during the
same quarter a year ago.

Selling,  General  and  Administrative.   Selling,  general  and  administrative
expenses increased by approximately $0.5 million or 74% during the quarter ended
September  30, 2004  compared to the quarter  ended  September  30,  2003.  This
increase is primarily  due to the inclusion of ARMR  Services  Corporation  as a
result of the merger of B&B Electromatic, Inc. and ARMR Services Corporation, as
well as in increase in the warranty reserve at the Company's B&B ARMR subsidiary
due to the increased level of sales.


                                       11
<PAGE>

Research  and Product  Development.  Research and product  development  expenses
decreased  by  approximately  12% during the quarter  ended  September  30, 2004
compared to the quarter ended September 30, 2003. This increase is primarily due
a reduction  in research and  development  expenditures  company-wide  which the
Company  expects will  continue at these lower levels  through the first part of
fiscal 2005.

Interest  Expense.  Interest  expense  decreased by  approximately  $0.1 million
during the  quarter  ended  September  30, 2004  compared  to the quarter  ended
September 30, 2003.  This decrease is due to the Company no longer  accreting to
interest  expense  the value of warrants  issued in  conjunction  with  securing
additional  debt during the quarter end September 30, 2003.  This  approximately
$0.2 million decrease was offset by an increase of approximately $0.1 million of
interest on  additional  debt that was  obtained to meet working  capital  needs
during the quarter ending September 30, 2004.

Liquidity and Capital Resources

The  Company's  cash  position  decreased  by $83,363  during the quarter  ended
September 30, 2004.  At September 30, 2004,  the Company had $89,325 in cash and
cash  equivalents  and had  approximately  $1.0  million  outstanding  under its
accounts receivable factoring facility. The factoring facility, which is secured
by accounts  receivable and inventory,  permits the Company to borrow up to $3.0
million,  subject to  availability  under its  borrowing  base.  This  factoring
facility  was replaced by a  discretionary  demand  asset based  lending  credit
facility on November 10, 2004. Please see Note 10 to the Company's  Consolidated
Financial  Statements included under Item 1 above for a detailed  description of
this transaction.

For  the  three  months  ended  September  30,  2004,  the  Company's  operating
activities  used  $1,300,489  of cash  compared  to $30,590 of cash  provided in
operations  during the three months ended  September 30, 2003,  primarily due to
increased levels of accounts receivable, inventories and accounts payable.

The Company used $26,504 for the purchase of property and  equipment  during the
quarter  ended  September  30, 2004,  compared to $13,793 for the quarter  ended
September 30, 2003. The Company  anticipates  capital  expenditures  to increase
through the remainder of fiscal 2005,  commensurate  with increased  sales.  The
Company also incurred an additional  $72,000 during the quarter ending September
30, 2004  related to earn-out  agreements  executed as a part of the ARMR merger
transaction.

During the quarter ended September 30, 2004, the Company financed its operations
with cash flows from  borrowings of $1,356,288  compared to $958,400  during the
quarter ended  September 30, 2003.  The  borrowings  during the first quarter of
fiscal 2004 consisted of an additional $1.0 million from BFS, an additional $0.2
million from the  Company's  factoring  facility  and a  promissory  note in the
amount of $150,000  issued to C. A. Rundell,  Jr.,  Chairman and Chief Executive
Officer  of the  Company  (see Note 8 to the  Company's  Consolidated  Financial
Statements  included  under  Item 1 above  for a  detailed  description  of this
transaction), The Company made payments of $33,061 on debt and other liabilities
during the quarter ended September 30, 2004, compared to payments of $266,597 on
debt and other liabilities during the quarter ended September 30, 2003.

The cash  that the  Company  received  from the  accounts  receivable  factoring
facility  and will  receive  from its recent  discretionary  demand  asset based
lending  credit  facility is utilized to support  Company-wide  operations.  The
Company's working capital requirements will depend upon many factors,  including
future sales of the Company's  products,  the Company's  operating results,  the
status of competitive  products,  and actual  profits  compared to the Company's
business plan. The Company is currently experiencing declining liquidity,  which
makes it difficult for the Company to meet its current cash requirements and may
jeopardize the Company's  ability to continue as a going concern.  The Company's
auditor issued a going concern  modification in their  auditors'  report for the
fiscal year ended June 30, 2004.  The Company  intends to address its  liquidity
problems by controlling costs,  seeking additional funding and maintaining focus
on revenues and collections. In the foreseeable future, the Company will need to
obtain additional  financing either through equity placement or additional debt.
There  can be no  assurance  that  the  Company  will  be able  to  secure  such
financing.  If the  Company's  liquidity  does not  improve by the end of fiscal
2005,  it may  have to seek a  merger  partner,  limit  its  operations  or seek
protection under the federal  bankruptcy laws. Any of the foregoing  options may
be on terms  that are  unfavorable  to the  Company  or  disadvantageous  to the
Company's stockholders.


                                       12
<PAGE>

Principal  payments  required under long-term debt  outstanding at September 30,
2004 are as follows:

                           Year Ending June 30,
                          ----------------------
                          2005       $ 2,161,010
                          2006         2,441,220
                          2007            20,810
                          2008             2,477
                          2009         1,500,000
                                     -----------
                                     $ 6,125,517
                                     ===========

The Company's backlog is calculated as the aggregate sales prices of firm orders
received  from  customers  less revenue  recognized.  At October 31,  2004,  the
Company's  backlog was approximately  $6.3 million.  The Company expects that it
will fill the majority of this backlog by December 31, 2005.


Item 3.  Controls and Procedures.

         (a)    Evaluation of Disclosure  Controls and Procedures.  Based on his
evaluation as of the end of the period covered by this Quarterly  Report on Form
10-QSB, the Company's  principal  executive and principal  financial officer has
concluded that the Company's  disclosure  controls and procedures (as defined in
Rules  13a-15(e) and 15d-15(e)  under the  Securities  Exchange Act of 1934 (the
"Exchange  Act"))  are  effective  to ensure  that  information  required  to be
disclosed by the Company in reports that it files or submits  under the Exchange
Act is recorded,  processed,  summarized  and  reported  within the time periods
specified in the rules and forms of the Securities and Exchange Commission.

         We strive to  maintain  disclosure  controls  and  procedures  that are
designed to ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed,  summarized and reported within the requirements
specified in the SEC's rules and forms, and that such information is accumulated
and  communicated to our management,  including our chief executive  officer and
chief  financial  officer,  as appropriate,  to allow for appropriate  decisions
regarding required disclosure.

         Our independent  registered  public accounting firm has communicated to
our audit  committee a  reportable  condition  regarding  our system of internal
controls.  They noted a reportable  condition  with respect to the inadequacy of
staffing  levels in our  financial  reporting  function that could result in our
inability to meet  financial  reporting  objectives.  We believe the Company and
audit committee are in the process of taking the steps necessary to correct this
identified reportable condition.

         (b)    Changes in Internal Controls.  There were no significant changes
in the Company's internal control over financial  reporting that occurred during
the company's last completed fiscal quarter that has materially affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.



                                       13
<PAGE>

PART II.  OTHER INFORMATION


Item 1. Legal Proceedings.

None.


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

During  the  three  months  ended   September  30,  2004,   the  Company  issued
unregistered  securities in connection with the transaction described below. The
issuances of the convertible  promissory note were exempt from the  registration
requirements  of the  Securities  Act,  as  amended,  by virtue of Section  4(2)
thereof, as transactions not involving a public offering.

In exchange for an aggregate of $1,000,000 cash investment, the Company issued a
convertible promissory note to BFS US Special Opportunities Trust PLC ("BFS"), a
public limited  company  registered in England and Wales, on August 5, 2004. The
convertible  promissory note is in the original  principal  amount of $1,000,000
and has an annual interest rate of 10% and is payable in monthly installments on
the first day of each month. The convertible  promissory note, plus interest, is
due on August 5, 2009.  The  convertible  promissory  note is convertible at the
option of BFS into the  common  stock of the  Company at a  conversion  price of
$0.38 per share.  The Company has the right to call the  convertible  promissory
note if the market  price of the common  stock of the Company is above $0.60 per
share for a period of 60 days.  The Company's  board of directors  ratified this
transaction on August 20, 2004.


Item 3.  Defaults Upon Senior Securities.

None.


Item 4.  Submission of Matters to a Vote of Security Holders.

None.


Item 5.  Other Information.

In exchange for an aggregate of $150,000  cash,  the Company issued a promissory
note to C. A. Rundell, Jr., Chairman and Chief Executive Officer of the Company,
on July 28, 2004. The  promissory  note is in the original  principal  amount of
$150,000,  has an annual  interest  rate of 9% which is due at  maturity  and is
secured  by a  specific  invoice of B&B ARMR  issued to Horne  Engineering.  The
promissory  note, plus accrued  interest,  was due on October 28, 2004. B&B ARMR
will pay this note plus all  accrued  and unpaid  interest in full by the end of
the December 2005. The Company  believes that the terms of this  transaction was
on  terms  no  less  favorable  to the  Company  than  could  be  obtained  from
unaffiliated third parties.


Item 6.  Exhibits.

10.1+    Promissory Note, dated July 28, 2004, payable to C. A. Rundell,  Jr. in
         the amount of $150,000.

10.2     Promissory  Note,  dated  August 5,  2004,  payable  to BFS US  Special
         Opportunities Trust PLC in the amount of $1,000,000. (1)

10.3     Amended and Restated Pledge  Agreement,  dated August 5, 2004,  between
         the Company,  Renaissance US Growth  Investment Trust PLC,  Renaissance
         Capital Growth & Income Fund III,  Inc.,  BFS US Special  Opportunities
         Trust PLC and Renaissance Capital Group, Inc. (1)


                                       14
<PAGE>

10.4     Amended and Restated Security Agreement,  dated August 5, 2004, between
         the Company, B&B ARMR Corporation,  Intelli-Site,  Inc., Renaissance US
         Growth Investment Trust PLC,  Renaissance  Capital Growth & Income Fund
         III,  Inc.,  BFS US  Special  Opportunities  Trust PLC and  Renaissance
         Capital Group, Inc. (1)

10.5     Letter Agreement by the Company, B&B ARMR Corporation and Intelli-Site,
         Inc.  in favor of, and agreed to and  accepted  on August 20,  2004 by,
         Renaissance US Growth Investment Trust PLC,  Renaissance Capital Growth
         & Income Fund III,  Inc.,  BFS US Special  Opportunities  Trust PLC and
         Renaissance Capital Group, Inc. (1)

10.6     Loan Agreement,  dated November 10, 2004,  among B&B ARMR  Corporation,
         Integrated  Security  Systems,  Inc.,  Intelli-Site,   Inc.  and  Briar
         Capital, L.P. (2)

10.7     Revolving  Promissory Note, dated November 10, 2004, issued by B&B ARMR
         Corporation to Briar Capital, L.P. (2)

10.8     Subordination  Agreement,  dated  November  10,  2004,  among  B&B ARMR
         Corporation,  Integrated Security Systems,  Inc.,  Intelli-Site,  Inc.,
         Briar  Capital,  L.P.,  Renaissance  US Growth  Investment  Trust  PLC,
         Renaissance  Capital Growth & Income Fund III, Inc., and BFS US Special
         Opportunities Trust PLC. (2)

10.9     Subordination  Agreement,  dated  November  10,  2004,  among  B&B ARMR
         Corporation, C. A. Rundell, Jr. and Briar Capital, L.P. (2)

10.10    Guaranty  Agreement,  dated  November 10, 2004, by Integrated  Security
         Systems, Inc. in favor of Briar Capital, L.P. (2)

10.11    Guarantor  Security  Agreement,  dated November 10, 2004, by Integrated
         Security Systems, Inc. in favor of Briar Capital, L.P. (2)

10.12    Guaranty  Agreement,  dated November 10, 2004, by Inteli-Site,  Inc. in
         favor of Briar Capital, L.P. (2)

10.13    Guarantor Security Agreement,  dated November 10, 2004, by Inteli-Site,
         Inc. in favor of Briar Capital, L.P. (2)

31.1+    Officer's Certificate Pursuant to Section 302

32.1+    Officer's Certificate Pursuant to Section 906
______________

+        Filed herewith.

(1)      Incorporated by reference to the Company's Form 8-K filed on August 31,
         2004.

(2)      Incorporated  by reference to the Company's  Form 8-K filed on November
         16, 2004.



                                       15
<PAGE>


                                   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:  November 19, 2004                  /s/ C. A. RUNDELL, JR.
                                          ----------------------
                                          C. A. Rundell, Jr.
                                          Director, Chairman of the Board, and
                                          Chief Executive Officer (Principal
                                          Executive and Financial Officer)


Date:  November 19, 2004                  /s/ RICHARD B. POWELL
                                          ---------------------
                                          Richard B. Powell
                                          Vice President, Chief Accounting
                                          Officer, Secretary (Principal
                                          Accounting Officer)




                                       16
<PAGE>

                                 EXHIBIT INDEX


10.1+    Promissory Note, dated July 28, 2004, payable to C. A. Rundell,  Jr. in
         the amount of $150,000.

10.2     Promissory  Note,  dated  August 5,  2004,  payable  to BFS US  Special
         Opportunities Trust PLC in the amount of $1,000,000. (1)

10.3     Amended and Restated Pledge  Agreement,  dated August 5, 2004,  between
         the Company,  Renaissance US Growth  Investment Trust PLC,  Renaissance
         Capital Growth & Income Fund III,  Inc.,  BFS US Special  Opportunities
         Trust PLC and Renaissance Capital Group, Inc. (1)

10.4     Amended and Restated Security Agreement,  dated August 5, 2004, between
         the Company, B&B ARMR Corporation,  Intelli-Site,  Inc., Renaissance US
         Growth Investment Trust PLC,  Renaissance  Capital Growth & Income Fund
         III,  Inc.,  BFS US  Special  Opportunities  Trust PLC and  Renaissance
         Capital Group, Inc. (1)

10.5     Letter Agreement by the Company, B&B ARMR Corporation and Intelli-Site,
         Inc.  in favor of, and agreed to and  accepted  on August 20,  2004 by,
         Renaissance US Growth Investment Trust PLC,  Renaissance Capital Growth
         & Income Fund III,  Inc.,  BFS US Special  Opportunities  Trust PLC and
         Renaissance Capital Group, Inc. (1)

10.6     Loan Agreement,  dated November 10, 2004,  among B&B ARMR  Corporation,
         Integrated  Security  Systems,  Inc.,  Intelli-Site,   Inc.  and  Briar
         Capital, L.P. (2)

10.7     Revolving  Promissory Note, dated November 10, 2004, issued by B&B ARMR
         Corporation to Briar Capital, L.P. (2)

10.8     Subordination  Agreement,  dated  November  10,  2004,  among  B&B ARMR
         Corporation,  Integrated Security Systems,  Inc.,  Intelli-Site,  Inc.,
         Briar  Capital,  L.P.,  Renaissance  US Growth  Investment  Trust  PLC,
         Renaissance  Capital Growth & Income Fund III, Inc., and BFS US Special
         Opportunities Trust PLC. (2)

10.9     Subordination  Agreement,  dated  November  10,  2004,  among  B&B ARMR
         Corporation, C. A. Rundell, Jr. and Briar Capital, L.P. (2)

10.10    Guaranty  Agreement,  dated  November 10, 2004, by Integrated  Security
         Systems, Inc. in favor of Briar Capital, L.P. (2)

10.11    Guarantor  Security  Agreement,  dated November 10, 2004, by Integrated
         Security Systems, Inc. in favor of Briar Capital, L.P. (2)

10.12    Guaranty  Agreement,  dated November 10, 2004, by Inteli-Site,  Inc. in
         favor of Briar Capital, L.P. (2)

10.13    Guarantor Security Agreement,  dated November 10, 2004, by Inteli-Site,
         Inc. in favor of Briar Capital, L.P. (2)

31.1+    Officer's Certificate Pursuant to Section 302

32.1+    Officer's Certificate Pursuant to Section 906
______________

+        Filed herewith.

(1)      Incorporated by reference to the Company's Form 8-K filed on August 31,
         2004.

(2)      Incorporated  by reference to the Company's  Form 8-K filed on November
         16, 2004.


                                       17
<PAGE>