UNITED STATES
                       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 March 31, 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 April 30, 2004,  74,986,491  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 and March 31, 2004
            (unaudited) June 30, 2003                                  3

            Consolidated Statements of Operations (unaudited)
            for the three and nine months ended March 31, 2004
            and 2003                                                   4

            Consolidated Statements of Cash Flows (unaudited)
            for the nine months ended March 31, 2004 and 2003          5

            Notes to Financial Statements                              6

   Item 2.  Management's Discussion and Analysis or Plan of
            Operation                                                 12

   Item 3.  Controls and Procedures                                   15


PART II.  OTHER INFORMATION

   Item 1.  Legal Proceedings                                         16

   Item 2.  Changes in Securities                                     16

   Item 3.  Defaults Upon Senior Securities                           16

   Item 4.  Submission of Matters to a Vote of Security Holders       16

   Item 5.  Other Information                                         16

   Item 6.  Exhibits and Reports on Form 8-K                          16

SIGNATURES                                                            17




                                       2
<PAGE>






                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

<TABLE>
<CAPTION>
                        INTEGRATED SECURITY SYSTEMS, INC.
                           Consolidated Balance Sheets

                                                                     March 31,        June 30,
                                                                       2004             2003
                                                                   ------------     ------------
                                                                   (Unaudited)
<S>                                                                <C>              <C>
                                     ASSETS
Current assets:
   Cash and cash equivalents                                       $     89,281     $    177,078
   Accounts receivable, net of allowance
     for doubtful accounts of $117,814
     and $64,183, respectively                                        2,333,206          545,337
   Inventories                                                        1,176,262          630,995
   Other current assets                                                  55,783           70,071
                                                                   ------------     ------------
     Total current assets                                             3,654,532        1,423,481

Property and equipment, net                                             648,741          481,608
Goodwill                                                              4,444,278             --
Other assets                                                             32,171           15,011
                                                                   ------------     ------------
     Total assets                                                  $  8,779,722     $  1,920,100
                                                                   ============     ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable                                                $  2,066,428     $    538,190
   Accrued liabilities                                                  994,101          510,000
   Current portion of long-term debt - net
     of discount                                                      4,164,155          374,330
                                                                   ------------     ------------
     Total current liabilities                                     $  7,224,684     $  1,422,520
                                                                   ------------     ------------

Long-term debt                                                          600,649        1,919,409

Preferred stock subject to redemption                                      --          7,495,052

Stockholders' equity (deficit):
   Preferred stock, $.01 par value, 750,000
     shares authorized; 100,750 and 161,345
     shares, respectively, issued and
     outstanding (liquidation value of
     $2,015,000 and $3,529,875, respectively)                             1,008            1,613
   Common stock, $.01 par value, 75,000,000
     shares authorized; 74,862,491 and
     12,881,110 shares issued, respectively                             748,625          128,811
   Additional paid in capital                                        30,722,122       18,434,838
   Accumulated deficit                                              (30,398,616)     (27,363,393)
   Treasury stock, at cost - 50,000 common shares                      (118,750)        (118,750)
                                                                   ------------     ------------
     Total stockholders' equity (deficit)                               954,389       (8,916,881)
                                                                   ------------     ------------
       Total liabilities and stockholders' equity (deficit)        $  8,779,722     $  1,920,100
                                                                   ============     ============
</TABLE>

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


                                       3
<PAGE>

<TABLE>
<CAPTION>
                        INTEGRATED SECURITY SYSTEMS, INC.
                      Consolidated Statements of Operations
                                   (Unaudited)


                                        For the Three Months Ended         For the Nine Months Ended
                                                 March 31,                         March 31,
                                       -----------------------------     -----------------------------
                                           2004             2003             2004             2003
                                       ------------     ------------     ------------     ------------
<S>                                    <C>              <C>              <C>              <C>
Sales                                  $  2,779,102     $  1,231,468     $  7,866,881     $  4,170,101
Cost of sales                             1,885,019          821,149        5,233,121        2,671,771
                                       ------------     ------------     ------------     ------------
Gross margin                                894,083          410,319        2,633,760        1,498,330
                                       ------------     ------------     ------------     ------------
Operating expenses:
   Selling, general and
     administrative                       1,353,553          611,993        3,025,194        1,739,132
   Research and product
     development                            138,193          153,082          463,986          246,255
                                       ------------     ------------     ------------     ------------
                                          1,491,746          765,075        3,489,180        1,985,387
                                       ------------     ------------     ------------     ------------

Loss from operations                       (597,663)        (354,756)        (855,420)        (487,057)

Other income (expense):
   Interest expense                        (420,847)         (99,439)      (1,085,122)        (227,121)
                                       ------------     ------------     ------------     ------------

Net loss                                 (1,018,510)        (454,195)      (1,940,542)        (714,178)

Preferred dividends                         (40,950)        (151,581)        (123,750)        (461,481)
                                       ------------     ------------     ------------     ------------

Net loss allocable to common
   stockholders                        $ (1,059,460)    $   (605,776)    $ (2,064,292)    $ (1,175,659)
                                       ============     ============     ============     ============

Weighted average common shares
   outstanding - basic and diluted       74,440,513       12,455,837       59,511,069       12,155,232
                                       ============     ============     ============     ============

Net loss per share - basic and
   diluted                             $      (0.01)    $      (0.05)    $      (0.03)    $      (0.10)
                                       ============     ============     ============     ============

</TABLE>

               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 Nine Months Ended
                                                                     March 31,
                                                            ---------------------------
                                                               2004            2003
                                                            -----------     -----------
<S>                                                         <C>             <C>
Cash flows from operating activities:
   Net loss                                                 $(1,940,542)    $  (714,178)
   Adjustments to reconcile net loss to net cash
     used by operating activities:
     Depreciation                                               142,399          96,072
     Provision for bad debt                                      39,500         (30,000)
     Provision for warranty reserve                             105,000          74,000
     Provision for inventory reserve                              1,000          41,000
     Amortization of debt discount                              578,627          96,333
     Expenses paid with stock, warrants and options             249,834          53,721
     Changes in operating assets and liabilities,
       net of effects of acquisition:
          Accounts receivable                                  (739,125)        264,326
          Inventories                                          (198,586)         23,496
          Other assets                                           16,228           8,365
          Accounts payable                                      588,623         (60,462)
          Accrued liabilities                                   240,113         (37,173)
                                                            -----------     -----------
           Net cash used in operating activities               (916,929)       (184,500)
                                                            -----------     -----------

Cash flows from investing activities:
   Purchase of property and equipment                          (193,102)        (61,428)
   Purchase of business, net of cash acquired                  (737,130)           --
   Capitalized software development costs                          --          (224,900)
                                                            -----------     -----------
           Net cash used in investing activities               (930,232)       (286,328)
                                                            -----------     -----------

Cash flows from financing activities:
   Employee stock option exercise                                48,125           4,125
   Warrant exercise                                             120,000            --
   Payments on debt and other liabilities                      (411,838)       (136,776)
   Proceeds from notes payable and long-term debt             2,003,077         627,277
                                                            -----------     -----------
           Net cash provided by financing activities          1,759,364         494,626
                                                            -----------     -----------

Increase (decrease) in cash and cash equivalents                (87,797)         23,798
Cash and cash equivalents at beginning of period                177,078          28,958
                                                            -----------     -----------
Cash and cash equivalents at end of period                  $    89,281     $    52,756
                                                            ===========     ===========

Supplemental disclosure of noncash financing activities
     Conversion preferred stock                             $ 7,495,052     $      --
     Issuance of company common stock in payment of
      preferred stock dividends                             $ 1,094,680     $    92,558

</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)
                    Nine Months Ended March 31, 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, 2004.

The  accompanying  financial  statements  include  the  accounts  of  Integrated
Security Systems,  Inc. and both of its  subsidiaries,  B&B ARMR Corporation and
Intelli-Site, Inc. (collectively, the "Company"), with all intercompany accounts
and transactions eliminated. For further information,  refer to the consolidated
financial statements and footnotes thereto included in the Company's fiscal 2003
Annual Report on Form 10-KSB filed on October 14, 2003 with the  Securities  and
Exchange Commission.


Note 2 - Reclassification

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


Note 3 - 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.

                                                          March 31,
                                                  --------------------------
                                                     2004           2003
                                                  -----------    -----------

Accounts receivable:
     Trade receivables                            $ 2,451,020    $   865,689
     Less:  allowance for doubtful receivables       (117,814)       (64,183)
                                                  -----------    -----------
                                                  $ 2,333,206    $   801,586
                                                  ===========    ===========

Allowance for doubtful receivables:
     Beginning Balance                            $    64,183    $   100,692
          Bad debt expense (credit)                    39,500        (30,000)
          Accounts written-off                        (39,430)        (6,509)
          ARMR Services Corporation merger             53,561           --
                                                  -----------    -----------
     Ending Balance                               $   117,814    $    64,183
                                                  ===========    ===========



                                       6
<PAGE>

Note 4 - Software Development Costs

Qualifying  software  development  costs that are deemed to be  recoverable  are
capitalized  and  amortized  using  the  greater  of the  revenue  method or the
straight-line  method  over five  years.  At March 31,  2004 and June 30,  2003,
software  development  costs had not been  capitalized  because  of  uncertainty
regarding  their  recoverability.  Capitalized  software  development  costs  of
$224,900 at March 31,  2003 were  expensed  during the fourth  quarter of fiscal
2003 due to the unrecoverability and resulting impairment of these costs.


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:

                                                       March 31,
                                                -----------------------
                                                  2004          2003
                                                ---------     ---------
        Liability, beginning of year            $ 135,471     $  97,095
        Expense for new warranties issued         105,000        74,000
        Warranty Claims                          (118,346)      (99,873)
                                                ---------     ---------
        Liability, end of period                $ 122,125     $  71,222
                                                =========     =========








                                       7
<PAGE>

Note 6 - 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, 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       For the Nine Months Ended
                                              March 31,                       March 31,
                                     ---------------------------     ---------------------------
                                        2004            2003            2004            2003
                                     -----------     -----------     -----------     -----------
<S>                                  <C>             <C>             <C>             <C>
Net loss, as reported                $(1,018,510)    $  (454,195)    $(1,940,542)    $  (714,178)
Deduct:  Total stock-based
   employee compensation
   expense determined under
   fair value based method               (60,015)         (2,718)       (395,629)        (47,083)
                                     -----------     -----------     -----------     -----------
Pro forma net loss                   $(1,078,525)    $  (456,913)    $(2,336,171)    $  (761,261)
                                     ===========     ===========     ===========     ===========

Earnings per share:
   Basic and Diluted-as reported     $     (0.01)    $     (0.05)    $     (0.03)    $     (0.10)
                                     ===========     ===========     ===========     ===========
   Basic and Diluted-pro forma       $     (0.02)    $     (0.05)    $     (0.04)    $     (0.10)
                                     ===========     ===========     ===========     ===========
</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 and 2003,  respectively:  no dividend
yield,  expected  lives of three and five years  with  expected  volatility  and
risk-free interest rates as outlined in the following table:

<TABLE>
<CAPTION>
                                     For the Three Months Ended       For the Nine Months Ended
                                              March 31,                       March 31,
                                     ---------------------------     ---------------------------
                                        2004            2003            2004            2003
                                     -----------     -----------     -----------     -----------
<S>                                  <C>             <C>             <C>             <C>
Expected volatility                      108.04%         106.38%         108.28%         108.19%

Risk-free interest rate                    3.20%           1.88%           3.29%           2.50%
</TABLE>





                                       8
<PAGE>

Note 7 - Preferred Stock Conversion

During the first  quarter of fiscal  2004,  all of the holders of the  Company's
Series F and Series G Preferred Stock converted all of these shares at a rate of
125 shares of Common Stock for each share of the Preferred  Stock and all of the
related accrued  dividends at a rate of $0.20 into the Company's $0.01 par value
common stock. These conversions are detailed in the following tables.

                        Convertible Preferred Stock
    --------------------------------------------------------------------
         Preferred Stock            Number of              Number of
             Series             Preferred Shares         Common Shares
      ----------------------    ----------------         -------------
      Series F                            60,595             7,574,375
      Series G                           299,802            37,475,250

               Convertible Preferred Stock Accrued Dividends
    --------------------------------------------------------------------
         Preferred Stock            Amount of              Number of
             Series             Accrued Dividends        Common Shares
      ----------------------    -----------------        -------------
      Series F                  $         175,350              876,750
      Series G                            868,480            4,342,400


Note 8 - Preferred Stock Dividend Arrearage

At March 31,  2004,  the  Company  had  dividends  in  arrears  in the amount of
$256,013  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         256,013
                               -----------     -----------
                                   100,750     $   256,013
                               ===========     ===========


Note 9 - Acquisition of Assets

On September  5, 2003,  the Company  acquired 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, in a merger  transaction.  In exchange  for all the  outstanding  shares of
ARMR, the Company paid the selling  stockholders  approximately  $3.8 million in
common stock (10 million shares) of the Company and $500,000 in cash,  which had
been obtained in September  2003 through the issuance of a $500,000  convertible
promissory  note. In addition,  the Company and the sellers executed an earn-out
agreement for maximum additional payments of approximately $2.2 million based on
sales over the next three years. Any additional  consideration will increase the
recorded goodwill. The Company entered into this merger transaction seeing it as
an opportunistic  acquisition that would allow it to expand its product offering
and customer base in conjunction with the Company's  strategic growth plans. The
acquisition  and merger of ARMR was accounted  for using the purchase  method of
accounting.  As such, the assets and  liabilities of ARMR were recorded at their
estimated  fair value and the results of  operations  have been  included in the
Company's  consolidated results of operations from the date of acquisition.  The
purchase  price in excess of the book value of the net assets  acquired has been
allocated to goodwill.  The Company is in the process of allocating the purchase
price to the assets acquired. Any adjustment resulting from this allocation will
reduce the amount of goodwill and any required amortization will be recorded.


                                       9
<PAGE>

It is expected this  allocation will be completed by the end of fiscal 2004. The
table below summarizes the current allocation of the purchase price based on the
estimated fair values of the assets acquired:

                                         Estimated Values
                                         ----------------
        Cash and cash equivalents        $         29,000
        Accounts receivable                     1,088,000
        Inventory                                 348,000
        Property and equipment                    116,000
        Other assets                               19,000
        Accounts payable                         (940,000)
        Accrued liabilities                      (404,000)
        Current debt                             (337,000)
        Long-term debt                            (63,000)
        Goodwill                                4,444,000
                                         ----------------
        Purchase price                   $      4,300,000
                                         ================

The following  unaudited pro forma  consolidated  statements of operations  have
been  prepared  as if  the  acquisition  discussed  above  had  occurred  at the
beginning of each period presented.

<TABLE>
<CAPTION>
                                      For the
                                 Three Months Ended        For the Nine Months Ended
                                      March 31,                    March 31,
                                 ------------------      -----------------------------
                                        2003                 2004             2003
                                 ------------------      ------------     ------------
<S>                              <C>                     <C>              <C>
Sales                            $        2,248,986      $  8,552,808     $  8,772,195
Net loss allocable to
  common stockholders            $         (738,046)     $ (2,201,122)    $ (1,055,771)
Net loss per share allocable
  to common stockholders,
  basic and diluted              $            (0.03)     $      (0.04)    $      (0.05)

Weighted average shares
  outstanding,
  basic and diluted                      22,455,837        61,911,069       22,155,232
</TABLE>

Note 10 - Net Loss Per Share

The Company  computes  basic loss per common  share using the  weighted  average
number of common  shares  outstanding  during the period.  At March 31, 2004 and
2003,  26,598,622 and 66,019,423  potentially dilutive common shares outstanding
were not included in the  computation  of diluted loss per share  because  their
effect is antidilutive due to the net loss for the period.

At April 30, 2004, the Company had  approximately  101,103,941  shares of common
and common stock equivalents  outstanding,  which is in excess of the authorized
shares of 75,000,000.  The Company will be seeking  shareholder  approval for an
increase in the number of authorized  shares,  in order to accommodate  for this
excess, at the next annual shareholders' meeting.


Note 11 - Subsequent Events - Financing

In exchange for an aggregate of $240,000 cash  investment,  the Company issued a
promissory note to C. A. Rundell,  Jr.,  Chairman and Chief Executive Officer of
the Company on April 14, 2004. The promissory note is in the original  principal
amount of $240,000 and has an annual  interest  rate of 6 1/2%.  The  promissory
note, plus interest,  is due on August 14, 2004.  Interest is payable in monthly
installments  on the first day of each month.  This  promissory note was paid in
full, including unpaid and accrued interest, on May 7, 2004.


                                       10
<PAGE>

In exchange for an aggregate of $100,000 cash  investment,  the Company issued a
promissory note to C. A. Rundell,  Jr.,  Chairman and Chief Executive Officer of
the Company on April 28, 2004. The promissory note is in the original  principal
amount of $100,000 and has an annual  interest  rate of 6 1/2%.  The  promissory
note, plus interest,  is due on August 28, 2004.  Interest is payable in monthly
installments on the first day of each month.


Note 12 - Business Segments

Information for the Company's reportable segments at March 31, 2004 and June 30,
2003 is as follows:

                                        March 31,       June 30,
                                          2004            2003
                                       -----------     -----------
        Assets/(liabilities)
           B&B ARMR Corporation        $ 8,732,075     $ 1,720,137
           Intelli-Site, Inc.               60,779          51,754
           Corporate                       (13,132)        148,209
                                       -----------     -----------
                                       $ 8,779,722     $ 1,920,100
                                       ===========     ===========

Information for the Company's  reportable segments for the three and nine months
ended March 31, 2004 and 2003 is as follows:

<TABLE>
<CAPTION>
                                 For the Three Months Ended        For the Nine Months Ended
                                          March 31,                        March 31,
                                 ---------------------------      ---------------------------
                                    2004            2003             2004            2003
                                 -----------     -----------      -----------     -----------
<S>                              <C>             <C>              <C>             <C>
Sales
   B&B ARMR Corporation          $ 2,730,605     $ 1,210,611      $ 7,652,138     $ 4,033,042
   Intelli-Site, Inc.                 48,497          20,857          214,743         136,699
                                 -----------     -----------      -----------     -----------
                                 $ 2,779,102     $ 1,231,468      $ 7,866,881     $ 4,170,101
                                 ===========     ===========      ===========     ===========

Income (loss) from operations
   B&B ARMR Corporation          $  (392,537)    $   (96,460)     $  (307,793)    $    41,294
   Intelli-Site, Inc.               (107,205)       (183,701)        (291,232)       (305,043)
   Corporate                         (97,921)        (74,595)        (256,395)       (223,308)
                                 -----------     -----------      -----------     -----------
                                 $  (597,663)    $  (354,756)     $  (855,420)    $  (487,057)
                                 ===========     ===========      ===========     ===========
</TABLE>



                                       11
<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 March 31, 2004 Compared to Three Months Ended March 31, 2003

Sales.  The Company's  total sales  increased by $1.5 million,  or 126%, to $2.7
million  during the quarter  ended March 31, 2004 from $1.2  million  during the
quarter ended March 31, 2003. This increase is due to the inclusion of the sales
of ARMR  Services  Corporation,  as a  result  of the  merger  of ARMR  with the
Company's  B&B  Electromatic,  Inc.  subsidiary  into  B&B ARMR  Corporation  on
September 5, 2003.

Gross Margin.  Gross margin increased by $0.5 million,  or 118%, to $0.9 million
during the quarter  ended March 31,  2004 from $0.4  million  during the quarter
ended  March 31,  2003.  This  increase  is due to  inclusion  of ARMR  Services
Corporation  as a  result  of the  merger  of B&B  Electromatic,  Inc.  and ARMR
Services Corporation.  Gross margin as a percentage of sales remained comparable
for the three months ended March 31, 2004 and 2003.

Selling,  General  and  Administrative.   Selling,  general  and  administrative
expenses  increased by  approximately  $742,000 or 121% during the quarter ended
March 31, 2004  compared to the quarter  ended March 31, 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
approximately  $190,000  incurred  in  connection  with  the  relocation  of the
manufacturing  operations of B&B ARMR  Corporation  from  Manassas,  Virginia to
Norwood, Louisiana.



                                       12
<PAGE>

Research  and Product  Development.  Research and product  development  expenses
remained  comparable,  with a slight  decrease of  approximately  $15,000 or 10%
during the quarter  ended March 31, 2004 compared to the quarter ended March 31,
2003.

Interest Expense.  Interest expense  increased by approximately  $320,000 during
the quarter  ended March 31, 2004  compared to the quarter  ended March 31, 2003
due to the  amortization  of the value of warrants  issued in  conjunction  with
securing  additional  debt and the  interest  on debt that was  obtained to meet
working capital needs coupled with  additional debt financing  subsequent to the
quarter ending March 31, 2003.

Nine Months Ended March 31, 2004 Compared to Nine months Ended March 31, 2003

Sales.  The Company's  total sales  increased by $3.7  million,  or 89%, to $7.9
million during the nine months ended March 31, 2004 from $4.2 million during the
nine months ended March 31, 2003.  This  increase is due to the inclusion of the
sales of ARMR Services  Corporation,  as a result of the merger of ARMR with the
Company's  B&B  Electromatic,  Inc.  subsidiary  into  B&B ARMR  Corporation  on
September 5, 2003.

Gross Margin.  Gross margin  increased by $1.1 million,  or 76%, to $2.6 million
during the nine months  ended March 31, 2004 from $1.5  million  during the nine
months ended March 31, 2003.  This increase is due to inclusion of ARMR Services
Corporation  as a  result  of the  merger  of B&B  Electromatic,  Inc.  and ARMR
Services Corporation.  Gross margin as a percentage of sales decreased slightly,
but remained  comparable at 33% and 36% for the nine months ended March 31, 2004
and 2003.

Selling,  General  and  Administrative.   Selling,  general  and  administrative
expenses  increased by approximately  $1.3 million or 74% during the nine months
ended March 31, 2004  compared to the nine  months  ended March 31,  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 approximately $190,000 incurred in connection with the relocation of the
manufacturing  operations of B&B ARMR  Corporation  from  Manassas,  Virginia to
Norwood, Louisiana.

Research  and Product  Development.  Research and product  development  expenses
increased  by  approximately  $218,000 or 88% during the nine months ended March
31, 2004  compared to the nine months  ended March 31,  2003.  This  increase is
primarily due to  approximately  $263,000 in software  development  costs in the
current  nine  month  period  compared  to  approximately  $95,000  in  software
development costs at the Company's Intelli-Site, Inc. subsidiary during the same
nine month period a year ago.  Research and development  expenditures  increased
approximately $50,000 related to the Company's B&B ARMR subsidiary.

Interest Expense.  Interest expense increased by $858,000 during the nine months
ended March 31, 2004 compared to the nine months ended March 31, 2003 due to the
amortization  of the value of  warrants  issued  in  conjunction  with  securing
additional  debt and the  interest  on debt that was  obtained  to meet  working
capital  needs coupled with  additional  debt  financing  subsequent to the nine
months ended March 31, 2003.

Liquidity and Capital Resources

The Company's  cash position  decreased by $87,797  during the nine months ended
March 31,  2004.  At March 31,  2004,  the  Company had $89,281 in cash and cash
equivalents and had  approximately  $1.2 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 a
combined $3.0 million, subject to availability under its borrowing base.

For the nine months ended March 31, 2004,  the  Company's  operating  activities
used $916,929 of cash compared to $184,500 of cash used in operations during the
nine months ended March 31, 2003.


                                       13
<PAGE>

The Company used $193,102 for the purchase of property and equipment  during the
nine months ended March 31, 2004,  compared to $61,428 for the nine months ended
March 31,  2003.  In addition,  the Company used cash of $737,130 in  connection
with the asset  purchase and merger with ARMR Services  Corporation.  Please see
Note 9  (Acquisition  of Assets) to the financial  statements  above for details
regarding this transaction.

During the nine months ending March 31, 2004, the Company  issued  approximately
$3.8  million (10  million  shares) of its $0.01 par value  common  stock in the
asset  purchase  and merger with ARMR  Services  Corporation.  Please see Note 9
(Acquisition  of Assets) to the  consolidated  financial  statements for details
regarding this transaction.

During the nine months ended March 31, 2004, the Company financed its operations
with cash flows from  borrowings of $2,003,007  compared to $627,277  during the
nine months ended March 31, 2003.  The Company made payments of $411,838 on debt
and other liabilities  during the nine months ended March 31, 2004,  compared to
payments of $136,776 on debt and other liabilities  during the nine months ended
March 31, 2003.

During the nine months ended March 31, 2004, the holders of the Company's Series
F and Series G preferred  stock converted all the Series F and G preferred stock
and  related  accrued  dividends  into  approximately  50 million  shares of the
Company's  $0.01 par value  common  stock.  Please see Note 7  (Preferred  Stock
Conversion) to the consolidated  financial statements for details regarding this
transaction.

During the nine months ended March 31, 2004,  the Company  received  $500,000 in
cash from BFS US Special  Opportunities  Trust PLC in exchange for a convertible
promissory  note in  order  to  finance  the  purchase/merger  of ARMR  Services
Corporation.

The cash  that the  Company  receives  from the  accounts  receivable  factoring
facilities 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  and the
Company's auditor issued a going concern  modification in their auditors' report
for our year ended June 30, 2003.  The Company  intends to address its liquidity
problems by controlling costs,  seeking additional funding and maintaining focus
on revenues and collections.  At the present time and 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, 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.

The Company's backlog is calculated as the aggregate sales prices of firm orders
received  from  customers  less  revenue  recognized.  At April  30,  2004,  the
Company's  backlog was approximately  $6.0 million.  The Company expects that it
will fill the majority of this backlog by June 30, 2005.



                                       14
<PAGE>

Item 3.  Controls and Procedures

         (a)   Evaluation of Disclosure  Controls and  Procedures.  Based on his
evaluation  as of a date  within 90 days of the  filing  date of this  Quarterly
Report on Form 10-QSB, the Company's  principal  executive and financial officer
has concluded that the Company's  disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) 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.

         (b)   Changes in Internal Controls.  There were no significant  changes
in the Company's internal controls or in other factors that could  significantly
affect these controls  subsequent to the date of his  evaluation,  including any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.  The Company is continuing to integrate the  operations of the newly
acquired  operations  of ARMR  Services  Corporation  into its current  internal
control  program and  procedures  that are currently in place at the Company and
anticipates  this  integration  to be completed by the end of fiscal 2004.  This
integration  is  resulting in changes to  virtually  all areas of the  Company's
internal  controls in order to provide  effective  monitoring and control of the
newly integrated operations.




                                       15
<PAGE>


                           PART II. OTHER INFORMATION


Item 1. Legal Proceedings.

None.


Item 2.  Changes in Securities.

During the nine months ended March 31,  2004,  the Company  issued  unregistered
securities in connection  with  financing  received  during the six months ended
December 31, 2003. The issuances of  convertible  promissory  notes,  promissory
notes and convertible warrants 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 and an  appropriate  restrictive
legend was affixed to the warrants.


Item 3.  Defaults Upon Senior Securities.

None.


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

None.


Item 5.  Other Information.

None.


Item 6.  Exhibits and Reports on Form 8-K.

(a)  Exhibits

         31.1   Officer's Certificate Pursuant to Section 302

         32.1   Officer's Certificate Pursuant to Section 906

(b)  Reports filed on Form 8-K.

         The  Company  filed a current  Report on Form 8-K on April 21,  2004 to
         report the approval by the  Company's  board of directors of a one-year
         extension of the warrants  initially  issued with the  Company's  April
         1993 Initial Public Offering, which warrants were subsequently repriced
         and swapped for the current outstanding warrants.

         The  Company  filed a Current  Report on Form 8-K on April 21,  2004 to
         report an additional investment of $240,000 in cash from C. A. Rundell,
         Jr.,  who is  Chairman  and Chief  Executive  Officer of the Company in
         exchange for a promissory note issued to Mr. Rundell.

         The Company filed a Current Report on Form 8-K on May 6, 2004 to report
         an additional  investment of $100,000 in cash from C. A. Rundell,  Jr.,
         who is Chairman and Chief Executive  Officer of the Company in exchange
         for a promissory note issued to Mr. Rundell.



                                       16
<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:   May 12, 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:   May 12, 2004                     /s/ RICHARD B. POWELL
                                         ------------------------------------
                                         Richard B. Powell
                                         Vice President, Chief Accounting
                                         Officer, Secretary (Principal
                                         Accounting Officer)





                                       17
<PAGE>