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 December 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 January 31, 2005,  85,056,612 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 December 31, 2004
                (unaudited) and June 30, 2004                               3

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

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

             Notes to Financial Statements                                  6

     Item 2. Management's Discussion and Analysis or Plan of Operation     13

     Item 3. Controls and Procedures                                       16

PART II.  OTHER INFORMATION

     Item 1. Legal Proceedings                                             17

     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   17

     Item 3. Defaults Upon Senior Securities                               17

     Item 4. Submission of Matters to a Vote of Security Holders           17

     Item 5. Other Information                                             17

     Item 6. Exhibits                                                      17

SIGNATURES                                                                 19







                                       2
<PAGE>


                          PART I. FINANCIAL INFORMATION

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

                        INTEGRATED SECURITY SYSTEMS, INC.
                           Consolidated Balance Sheets

                                                                 December 31,       June 30,
                                                                     2004             2004
                                                                 ------------     ------------
                                                                 (Unaudited)
<S>                                                              <C>              <C>
                           ASSETS
Current assets:
   Cash and cash equivalents                                     $  1,422,816     $    172,688
   Accounts receivable, net of allowance for doubtful
     accounts of $98,964 and $109,527, respectively                 2,531,081        1,904,285
   Inventories                                                      2,130,352        1,272,532
   Other current assets                                               149,625           75,020
                                                                 ------------     ------------
     Total current assets                                           6,233,874        3,424,525

Property and equipment, net                                           608,597          681,168
Goodwill                                                            3,714,491        3,547,162
Other assets                                                          415,386           59,956
                                                                 ------------     ------------
     Total assets                                                $ 10,972,348     $  7,712,811
                                                                 ============     ============

         LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable                                              $  1,890,778     $  2,029,963
   Accrued liabilities                                                531,378          708,610
   Current portion of long-term debt                                4,082,632        1,845,949
                                                                 ------------     ------------
     Total current liabilities                                      6,504,788     $  4,584,522
                                                                 ------------     ------------

Long-term debt                                                      5,090,690        2,956,341

Stockholders' equity (deficit):
   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; 84,906,612 and 84,298,984 shares issued,             849,066          842,990
     respectively
   Additional paid in capital                                      31,938,512       31,627,086
   Accumulated deficit                                            (33,292,966)     (32,180,386)
   Treasury stock, at cost - 50,000 common shares                    (118,750)        (118,750)
                                                                 ------------     ------------
     Total stockholders' equity (deficit)                            (623,130)         171,948
                                                                 ------------     ------------
       Total liabilities and stockholders' equity (deficit)      $ 10,972,348     $  7,712,811
                                                                 ============     ============
</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 Six Months Ended
                                              December 31,                      December 31,
                                      ----------------------------      ----------------------------
                                          2004            2003              2004            2003
                                      ------------    ------------      ------------    ------------
<S>                                   <C>             <C>               <C>             <C>
Sales                                 $  3,134,131    $  3,367,883      $  6,530,845    $  5,087,780
Cost of sales                            2,468,066       2,263,003         4,566,339       3,322,051
                                      ------------    ------------      ------------    ------------
Gross profit                               666,065       1,104,880         1,964,506       1,765,729
                                      ------------    ------------      ------------    ------------

Operating expenses:
   Selling, general and
   administrative                        1,286,365       1,012,037         2,463,876       1,696,971
   Research and product
   development                             128,445         187,557           251,748         326,513
                                      ------------    ------------      ------------    ------------
                                         1,414,810       1,199,594         2,715,624       2,023,484
                                      ------------    ------------      ------------    ------------

Loss from operations                      (748,745)        (94,714)         (751,118)       (257,755)

Interest expense                          (212,004)       (411,587)         (360,505)       (664,272)
                                      ------------    ------------      ------------    ------------

Net loss                                  (960,749)       (506,301)       (1,111,623)       (922,027)

Preferred dividends                        (41,400)        (41,400)          (82,800)        (82,800)
                                      ------------    ------------      ------------    ------------

Net loss allocable to common
   stockholders                       $ (1,002,149)   $   (547,701)     $ (1,194,423)   $ (1,004,827)
                                      ============    ============      ============    ============

Weighted average common shares
   outstanding - basic
   and diluted                          84,663,078      73,595,757        84,481,031      52,127,485
                                      ============    ============      ============    ============

Net loss per share - basic and
   diluted                            $      (0.01)   $      (0.01)     $      (0.01)   $      (0.02)
                                      ============    ============      ============    ============
</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 Six Months Ended
                                                                    December 31,
                                                             ---------------------------
                                                                2004            2003
                                                             -----------     -----------
<S>                                                          <C>             <C>
Cash flows from operating activities:
   Net loss                                                  $(1,111,623)    $  (922,027)
   Adjustments to reconcile net loss to net cash
     used by operating activities:
     Depreciation                                                109,694          79,665
     Amortization                                                 11,266            --
     Provision for bad debt                                        4,749          15,500
     Provision for warranty reserve                              160,000          30,000
     Provision for inventory reserve                                --             1,000
     Amortization of debt discount                                  --           300,032
     Expenses paid with stock, warrants and options              229,690         237,047
     Changes in operating assets and liabilities,
       net of effects of acquisition:
         Accounts receivable                                    (490,380)       (808,874)
         Inventories                                            (734,058)        115,568
         Other assets                                           (441,301)         29,329
         Accounts payable                                       (198,870)        582,590
         Accrued liabilities                                    (337,357)         39,789
                                                             -----------     -----------
           Net cash used in operating activities              (2,799,190)       (300,381)
                                                             -----------     -----------

Cash flows from investing activities:
   Purchase of property and equipment                            (37,125)       (111,347)
   Purchase of businesses, net of cash acquired                 (255,528)       (733,134)
                                                             -----------     -----------
           Net cash used in investing activities                (292,653)       (844,481)
                                                             -----------     -----------

Cash flows from financing activities:
   Employee stock option exercise                                   --            48,125
   Payments on debt and other liabilities                       (156,708)       (371,354)
   Proceeds from notes payable and long-term debt              4,498,679       1,591,498
                                                             -----------     -----------
           Net cash provided by financing activities           4,341,971       1,268,269
                                                             -----------     -----------

Increase in cash and cash equivalents                          1,250,128         123,407
Cash and cash equivalents at beginning of period                 172,688         177,078
                                                             -----------     -----------
Cash and cash equivalents at end of period                   $ 1,422,816     $   300,485
                                                             ===========     ===========

Supplemental disclosure of noncash financing activities:
   Conversion preferred stock                                $      --       $ 7,495,052
   Issuance of company common stock in payment of
    preferred stock dividends                                $      --       $ 1,043,830

</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)
                   Six Months Ended December 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, 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.

In December 2004, the Financial  Accounting Standards Board issued a revision of
FASB Statement No. 123,  "Accounting  for Stock-Based  Compensation"  ("SFAS No.
123R").  SFAS No. 123R  supercedes  APB Opinion  No. 25,  "Accounting  for Stock
Issued  to  Employees"  and  requires  a public  entity to  measure  the cost of
employee services received in exchange for an award of equity  instruments based
on the  grant-date  fair value of the award,  and  recognize  that cost over the
vesting  period.  SFAS No.  123R is  effective  for the first  interim or annual
period  beginning  after June 15,  2005 and the Company  will begin  recognizing
option expense July 1, 2005.

The following table illustrates the effect on net loss and earnings per share if
the Company had applied the fair value  recognition  provisions of SFAS No. 123R
to stock-based employee compensation:
<TABLE>
<CAPTION>

                                       For the Three Months Ended       For the Six Months Ended
                                              December 31,                    December 31,
                                       --------------------------      --------------------------
                                          2004           2003             2004           2003
                                       -----------    -----------      -----------    -----------
<S>                                    <C>            <C>              <C>            <C>
Net loss, as reported                  $  (960,749)   $  (506,301)     $(1,111,623)   $  (922,027)
Deduct:  Total stock-based
   employee compensation
   expense determined under
   fair value based method                 (56,135)      (144,638)        (112,271)      (335,614)
                                       -----------    -----------      -----------    -----------
Pro forma net loss                     $(1,016,884)   $  (650,939)     $(1,223,894)   $(1,257,641)
                                       ===========    ===========      ===========    ===========

Earnings per share:
   Basic and Diluted-as reported       $     (0.01)   $     (0.01)     $     (0.01)   $     (0.02)
                                       ===========    ===========      ===========    ===========
   Basic and Diluted-pro forma         $     (0.01)   $     (0.01)     $     (0.01)   $     (0.03)
                                       ===========    ===========      ===========    ===========
</TABLE>



                                       6
<PAGE>


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,  respectively,  with  expected
volatility and risk-free interest rates as outlined in the following table:
<TABLE>
<CAPTION>

                             For the Three Months Ended       For the Six Months Ended
                                    December 31,                    December 31,
                             --------------------------      --------------------------
                                2004            2003            2004            2003
                             ----------      ----------      ----------      ----------
<S>                          <C>             <C>             <C>             <C>
Expected volatility             107.85%         108.34%         107.85%         108.31%

Risk-free interest rate           3.33%           3.31%           3.33%           3.30%
</TABLE>


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  customer's   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.


                                                           December 31,
                                                    ---------------------------
                                                       2004            2003
                                                    -----------     -----------
Accounts receivable:
   Trade receivables                                $ 2,630,045     $ 2,531,372
   Less:  allowance for doubtful receivables            (98,964)       (104,417)
                                                    -----------     -----------
                                                    $ 2,531,081     $ 2,426,955
                                                    ===========     ===========


                                                     For the Six Months Ended
                                                           December 31,
                                                    ---------------------------
                                                       2004            2003
                                                    -----------     -----------
Allowance for doubtful receivables:
   Beginning Balance                                $   109,527     $    64,183
        Bad debt expense                                  4,749          15,500
        Accounts written-off                            (15,312)        (28,827)
        ARMR Services Corporation merger                   --            53,561
                                                    -----------     -----------
   Ending Balance                                   $    98,964     $   104,417
                                                    ===========     ===========





                                       7
<PAGE>


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:

                                                     December 31,
                                                -----------------------
                                                  2004          2003
                                                ---------     ---------
        Liability, beginning of year            $  94,157     $ 135,471
        Expense for new warranties issued         160,000        30,000
        Warranty Claims                          (218,291)      (55,853)
                                                ---------     ---------
        Liability, end of period                $  35,866     $ 109,618
                                                =========     =========


Note 6 - Preferred Stock Dividend Arrearage

At December  31,  2004,  the Company had  dividends  in arrears in the amount of
$328,913 related to its outstanding Series A and Series D preferred stock, which
consists of the following:

                               ------------------------------
                                 Shares            Dividends
                               Outstanding         In Arrears
                               ------------------------------
           Series A $20              9,500         $     --
           Series D $20             91,250            328,513
                               ------------------------------
                                   100,750         $  328,513
                               ==============================


Note 7 - Net Loss Per Share

The Company  computes  basic loss per common  share using the  weighted  average
number of common shares.  At December 31, 2004 and 2003,  there were  18,915,450
and 15,094,125 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 December 31, 2004 and 2003,  the Company had  approximately  110,294,424  and
100,288,021 shares,  respectively,  of common stock and common stock equivalents
outstanding,   which   comprises  all  of  the  Company's   outstanding   equity
instruments.


Note 8 - Financing

The Company  received a $500,000 cash investment on October 27, 2004 from BFS US
Special  Opportunities Trust PLC ("BFS"). This investment by BFS was included as
a part of the Company's  placement of subordinated  10%  convertible  promissory
notes on November  30, 2004 (see Note 10 -  Financing  Agreement - Placement  of
Subordinated 10% Convertible Promissory Notes).




                                       8
<PAGE>


Note 9 - Financing Arrangement - Asset Based Lending Facility

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
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 10 - Financing Agreement - Placement of Subordinated 10% Convertible
          Promissory Notes

On  November  30,  2004,  the  Company  entered  into  a Loan  Agreement  ("Loan
Agreement")  with  several   purchasers  (the   "Investors")  of  the  Company's
Subordinated  10%  Convertible  Promissory  Notes  (individually,  a "Note"  and
collectively  the  "Notes").  The  Company  issued  $4,118,000  in  Notes to the
Investors  and others (as payment of fees) who  effected  the  placement  of the
Notes. Each of the Investors is an accredited investor. Pursuant to the terms of
the Loan  Agreement:  (i) the Company was authorized to sell to the Investors an
aggregate principal amount of up to $6,000,000 in Notes and (ii) the Notes could
have been sold by the Company to the  Investors in multiple  closings so long as
the final closing was  consummated no later than the fifteenth day following the
initial closing.

Each Note sold by the Company to each Investor:  (i) is  subordinated to certain
other indebtedness of the Company, (ii) is due and payable on November 30, 2009,
(iii)  provides  interest  to the holder  thereof at a rate of 10% per annum and
(iv) is convertible  into the Company's Common Stock, par value $0.01 per share,
at the conversion rate of $0.38 per share of Common Stock.  Each share of Common
Stock that the  Investor  receives  as a result of the  conversion  of the Notes
shall be registered with the Securities and Exchange Commission.

As a part of this transaction,  BFS exchanged a promissory note in the amount of
$1,000,000,  originally  issued on August 5, 2004, as a part of the placement of
the Notes.  In  addition,  BFS  included  an  investment  made in the Company on
October 27, 2004 (see Note 8 - Financing) as a part of this placement.

Also included with this placement of the Notes, C. A. Rundell, Jr., Chairman and
Chief  Executive  Officer of the Company,  exchanged a $150,000  promissory note
with an annual  interest rate of 9%,  originally  issued on July 28, 2004 to B&B
ARMR for a $150,000 Note.


                                       9
<PAGE>

The Company paid fees in this transaction to Roth Capital Partners, LLC ("Roth")
in the form of a Note in the amount of $168,000  with the same general terms and
conditions as the other  participants  in the  transaction  discussed  above. As
further  consideration,  the Company also issued a stock purchase  warrant dated
November 30, 2004 with a five year life and an exercise price of $0.38 per share
to Roth for the purchase of 276,316  common  shares of the  Company's  $0.01 par
value common stock.


Note 11 - Debt

As of December 31, 2004,  the Company's  current and long-term debt consisted of
the following:
<TABLE>
<CAPTION>

                                                             Current     Long-term      Total
                                                            ----------   ----------   ----------
<S>                                                         <C>          <C>          <C>
Notes  payable to  stockholders;  interest at 8% due in
monthly installments of $11,333;  principal and accrued
unpaid interest due September 30, 2005.................     $2,400,000   $     --     $2,400,000

Asset based lending facility with a financing  company.
The loan with the asset  based  lending  facility  is a
demand  loan,  but  has  a  three-year   term  expiring
November 10, 2007; interest at 2% above the prime rate;
secured by accounts  receivable  and  inventory  of B&B
ARMR Corporation.......................................      1,201,330         --      1,201,330

Convertible note payable to stockholder; interest at 7%
due in monthly  installments  of $2,917;  principal and
accrued   unpaid   interest  due   September  5,  2008;
convertible  at the option of the  shareholder at $0.40
per share; Company may call the note at $0.60 per share
(based on certain restrictions)........................           --        500,000      500,000

Note  payable to bank and secured by a letter of credit
in the amount of $500,000 from Chief Executive Officer;
interest at the prime rate of Bank One, N.A.  (4.25% as
of  June  30,  2004);   principal  and  accrued  unpaid
interest  due January 26,  2005........................        330,000         --        330,000

Term note payable to a bank;  due in monthly  principal
and interest installments of $10,500; interest at 10.5%
and  10% at  June  30,  2004  and  2003,  respectively;
secured by first mortgage on real estate and equipment;
maturity  date of February 26,  2006...................         76,091      427,852      503,943

Convertible  notes  payable;  interest  at  10%  due in
semi-annual  installments  of $205,900;  principal  and
accrued   unpaid   interest   due  November  30,  2009;
convertible  at the option of the  shareholder at $0.38
per share; Company may call the note at $0.60 per share
(based on certain restrictions)........................           --      4,118,000    4,118,000

Other..................................................         75,211       44,838      120,049
                                                            ----------   ----------   ----------
                                                            $4,082,632   $5,090,690   $9,173,322
                                                            ==========   ==========   ==========
</TABLE>



                                       10
<PAGE>


Note 12 - Acquisition

On December 15,  2004,  the Company  acquired all of the issued and  outstanding
shares of Common Stock of DoorTek  Corporation  ("DoorTek"),  a manufacturer  of
access control systems and other physical security system products.  In exchange
for all of the outstanding shares of DoorTek,  the Company issued 228,572 shares
of its $0.01 par value  Common  Stock,  which has been  preliminarily  valued at
approximately  $87,000.  The Company  also paid  $120,000  in cash to  DoorTek's
former  stockholders.  In  addition,  the Company  and the  sellers  executed an
earn-out  agreement for maximum  additional  payments of approximately  $100,000
based on net profits over the next two years. Any additional  consideration will
increase the recorded goodwill. The Company entered into this acquisition seeing
it as an opportunity to significantly  enhance its services,  allow it to expand
its  product  offering  and  customer  base in  conjunction  with the  Company's
strategic  growth plans.  The acquisition of DoorTek was accounted for using the
purchase  method of accounting.  As such, the assets and  liabilities of DoorTek
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. To date, the purchase price paid in excess of the estimated fair
value of the net assets  acquired has been  allocated to goodwill,  which is not
deductible  for federal  income tax purposes.  A  preliminary  assessment of the
other  identifiable  intangible  assets related to this acquisition  transaction
yielded  no  assignment  of value  thereto.  The  Company  is in the  process of
finalizing  the  allocation of the purchase  price to the assets  acquired.  Any
adjustment resulting form this allocation will reduce the amount of goodwill and
any required  amortization will be recorded. It is expected this allocation will
be competed by the end of fiscal 2005.  The table below  summarizes  the current
allocation  of the  purchase  price  based on the  estimated  fair values of the
assets acquired and liabilities assumed:

                                           Estimated
                                            Values
                                           ---------

            Cash and cash equivalents      $  29,000
            Accounts receivable              141,000
            Inventories                      124,000
            Accounts payable                 (60,000)
            Accrued liabilities               (1,000)
            Long-term debt                   (29,000)
            Goodwill                          22,000
                                           ---------
            Purchase price                 $ 226,000
                                           =========

The  following   unaudited  pro  forma  consolidated   statement  of  operations
information has 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 Six Months Ended
                                          December 31,                      December 31,
                                  ----------------------------      ----------------------------
                                      2004            2003              2004            2003
                                  ------------    ------------      ------------    ------------
<S>                               <C>             <C>               <C>             <C>
Sales                             $  3,281,491    $  3,547,083      $  6,955,808    $  5,400,948
Net loss allocable to
  common stockholders             $   (993,591)   $   (565,246)     $ (1,164,861)   $ (1,029,348)
Net loss per share allocable
  To common stockholders,
  basic and diluted               $      (0.01)   $      (0.01)     $      (0.01)   $      (0.02)
Weighted average shares
  outstanding,
  basic and diluted                 84,849,414      73,824,329        84,574,199      52,356,057
</TABLE>



                                       11
<PAGE>


Note 13 - Business Segments

Information for the Company's  reportable  segments for the three and six months
ended December 31, 2004 and 2003 is as follows:
<TABLE>
<CAPTION>

                                    For the Three Months Ended       For the Six Months Ended
                                            December 31,                    December 31,
                                    --------------------------      --------------------------
                                       2004           2003             2004           2003
                                    -----------    -----------      -----------    -----------
<S>                                 <C>            <C>              <C>            <C>
Sales
   B&B ARMR Corporation             $ 2,942,566    $ 3,293,548      $ 6,123,051    $ 4,921,534
   Intelli-Site, Inc.                   160,111         74,335          376,340        166,246
   DoorTek Corporation (1)               31,454           --             31,454           --
                                    -----------    -----------      -----------    -----------
                                    $ 3,134,131    $ 3,367,883      $ 6,530,845    $ 5,087,780
                                    ===========    ===========      ===========    ===========

Income (loss) from operations
   B&B ARMR Corporation             $  (590,214)   $    74,113      $  (598,244)   $    84,747
   Intelli-Site, Inc.                   (46,644)       (89,325)         (35,467)      (184,027)
   DoorTek Corporation (1)                1,010           --              1,010           --
   Corporate                           (112,897)       (79,502)        (118,417)      (158,475)
                                    -----------    -----------      -----------    -----------
                                    $  (748,745)   $   (94,714)     $  (751,118)   $  (257,755)
                                    ===========    ===========      ===========    ===========
</TABLE>

(1) Includes only data since acquisition date.





                                       12
<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 December 31, 2004 Compared to Three Months Ended December 31,
2003

Sales.  The  Company's  total sales  decreased by $0.2  million,  or 7%, to $3.1
million  during the quarter ended December 31, 2004 from $3.3 million during the
quarter ended December 31, 2003. This decrease is due to an overall reduction in
sales volume at the Company's B&B ARMR subsidiary.

Gross Margin.  Gross profit decreased by  approximately  $0.4 million during the
quarter  ended  December  31, 2004,  or 40%,  compared to with the same the same
quarter a year ago due to a less favorable product mix at the Company's B&B ARMR
subsidiary.

Selling,  General  and  Administrative.   Selling,  general  and  administrative
expenses increased by approximately $0.3 million or 27% during the quarter ended
December 31, 2004 compared to the quarter ended December 31, 2003. This increase
is  primarily  due to an increase  in the  professional  staffing  levels at the
Company's B&B ARMR subsidiary.

Research  and Product  Development.  Research and product  development  expenses
decreased  by  approximately  2% during the  quarter  ended  December  31,  2004
compared to the quarter ended December 31, 2003.  This decrease is primarily due
to a reduction in research and product  development  expenditures  Company-wide,
which the Company  expects will  continue at these lower levels  through  fiscal
2005. Interest Expense. Interest expense decreased by approximately $0.2 million
during the  quarter  ended  December  31, 2004  compared  to the  quarter  ended
December 31, 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 ended December 31, 2003.  This  approximately
$0.3 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 ended December 31, 2004, coupled with the Company's placement
of $3.8 million in subordinated 10% convertible promissory notes (see Note 10 to
the Company's Consolidated Financial Statements in Item 1 above).



                                       13
<PAGE>

Six Months  Ended  December 31, 2004  Compared to Six Months Ended  December 31,
2003

Sales.  The Company's  total sales  increased by $1.4  million,  or 28%, to $6.5
million  during the six months ended  December 31, 2004 from $5.1 million during
the six months ended December 31, 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 in to
B&B ARMR Corporation ("B&B ARMR") in September 2003.

Gross Margin.  Gross profit  increased by $0.2 million,  or 11%, to $1.9 million
during the six months ending  December 31, 2004 from $1.7 million during the six
months ending  December 31, 2003 due to higher sales volume at the Company's B&B
ARMR subsidiary.  Gross margin decreased to 30% from 35% for the same period due
to a less favorable product mix at the Company's B&B ARMR subsidiary.

Selling,  General  and  Administrative.   Selling,  general  and  administrative
expenses  increased by  approximately  $0.8 million or 12% during the six months
ended December 31, 2004 compared to the six months ended December 31, 2003. This
increase is primarily  due to the inclusion of ARMR  Services  Corporation  as a
result of the merger  with B&B  Electromatic,  Inc.,  as well as an  increase in
warranty costs at the Company's B&B ARMR  subsidiary due to the increased  level
of sales.

Research  and Product  Development.  Research and product  development  expenses
decreased  by  approximately  1% during the six months  ended  December 31, 2004
compared to the six months ended  December 31, 2003.  This decrease is primarily
due  to  a  reduction   in  research   and  product   development   expenditures
Company-wide,  which the Company  expects  will  continue at these lower  levels
through fiscal 2005.

Interest  Expense.  Interest  expense  decreased by $0.3 million  during the six
months  ended  December 31, 2004  compared to the six months ended  December 31,
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 ended December 31, 2003. This approximately $0.5 million
decrease was offset by an increase of approximately  $0.2 million of interest on
additional  debt that was  obtained to meet  working  capital  needs  during the
quarter  ending  December 31,  2004,  coupled  with the  Company's  placement of
$4,118,000 in subordinated 10% convertible  promissory notes (see Note 10 to the
Company's Consolidated Financial Statements in Item 1 above).

Liquidity and Capital Resources

The  Company's  cash  position  increased by $1.2 million  during the six months
ended  December 31, 2004. At December 31, 2004,  the Company had $1.4 million in
cash and cash equivalents and had approximately  $1.2 million  outstanding under
its asset based lending  facility.  The asset based lending  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 facility
is  discussed  further  in  Note  9  to  the  Company's  Consolidated  Financial
Statements in Item 1 above.


                                       14
<PAGE>

For the six months ended December 31, 2004, the Company's  operating  activities
used $2.8 million of cash  compared to $0.3  million of cash used in  operations
during the six months ended  December 31, 2003,  primarily  due to the Company's
net loss and the increased levels of accounts receivable and inventories.

The Company used $37,125 for the purchase of property and  equipment  during the
six months ended December 31, 2004,  compared to $0.1 million for the six months
ended  December  31,  2003.  The Company  anticipates  capital  expenditures  to
increase  through the  remainder of fiscal  2005,  commensurate  with  increased
sales.  The Company also used $0.3 million in cash related to the acquisition of
two businesses,  consisting of $146,000 related to earn-out  agreements executed
as a part of the  B&B  ARMR  merger  transaction  and  $139,000  related  to the
purchase of DoorTek Corporation.

During  the six months  ended  December  31,  2004,  the  Company  financed  its
operations  with cash flows from  borrowings  of $4.5  million  compared to $1.6
million during the six months ended December 31, 2003. The borrowings during the
first six months of fiscal 2005 consisted of an additional $4.2 million from the
issuance of subordinated  10% convertible  promissory  notes. See Note 10 to the
Company's  consolidated  financial  statements for a detail  description of this
transaction.  The Company also  borrowed an  additional  $0.2 million  under the
Company's asset based lending facility. The Company made payments of $156,708 on
debt and other  liabilities  during  the six months  ended  December  31,  2004,
compared to payments  of $371,354 on debt and other  liabilities  during the six
months ended December 31, 2003.

The cash  that the  Company  received  from the  placement  of $4.2  million  in
subordinated 10% convertible  promissory notes and availability  under its asset
based lending facility will be 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.

Principal  payments  required under  long-term debt  outstanding at December 31,
2004 are as follows:

                            Year Ending June 30,
                          ------------------------
                          2005         $ 1,662,963
                          2006           2,869,072
                          2007              20,810
                          2008               2,477
                          2009           4,618,000
                                       -----------
                                       $ 9,173,322

The Company's backlog is calculated as the aggregate sales prices of firm orders
received  from  customers  less revenue  recognized.  At January 31,  2005,  the
Company's  backlog was approximately  $4.9 million.  The Company expects that it
will fill the majority of this backlog by March 31, 2006.




                                       15
<PAGE>


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.  The  Company  and  audit
committee is  taking the steps necessary to correct this  identified  reportable
condition.  Effective  January 2005, the Company has hired an experienced  Chief
Financial Officer at the Company's B&B ARMR subsidiary. In addition, the Company
has begun an intense  search for  additional  staffing  within the  finance  and
accounting department at the corporate office.

         (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, other than described above. Additionally,  the Company
has and will  continue to improve  both the quality and the quantity of staffing
in order to effect  significant  improvements in the Company's  internal control
structure.






                                       16
<PAGE>


                           PART II. OTHER INFORMATION


Item 1. Legal Proceedings.

None.


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

During the six months ended December 31, 2004,  the Company issued  unregistered
securities in connection with the transaction  described below. The issuances of
the convertible promissory notes were exempt from the registration  requirements
of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof, as
transactions not involving a public offering.

On  November  30,  2004,  the  Company  entered  into  a Loan  Agreement  ("Loan
Agreement")  with  several   purchasers  (the   "Investors")  of  the  Company's
Subordinated  10%  Convertible  Promissory  Notes  (individually,  a "Note"  and
collectively  the  "Notes").  The  Company  issued  $4,118,000  in  Notes to the
Investors  and others (as payment of fees) who  effected  the  placement  of the
Notes. Each of the Investors is an accredited investor. Pursuant to the terms of
the Loan  Agreement:  (i) the Company was authorized to sell to the Investors an
aggregate principal amount of up to $6,000,000 in Notes and (ii) the Notes could
have been sold by the Company to the  Investors in multiple  closings so long as
the final closing was  consummated no later than the fifteenth day following the
initial closing.

Each Note sold by the Company to each Investor:  (i) is  subordinated to certain
other indebtedness of the Company, (ii) is due and payable on November 30, 2009,
(iii)  provides  interest  to the holder  thereof at a rate of 10% per annum and
(iv) is convertible  into the Company's Common Stock, par value $0.01 per share,
at the conversion rate of $0.38 per share of Common Stock.  Each share of Common
Stock that the  Investor  receives  as a result of the  conversion  of the Notes
shall be registered with the Securities and Exchange Commission.  The Company is
currently in the process of preparing a Registration  Statement on form SB-2 for
filing with the  Securities  and Exchange  Commission  to register the shares of
common stock issuable upon the conversion of the  convertible  promissory  notes
and selected other currently unregistered equity instruments.


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.

10.1     Loan Agreement,  dated November 10, 2004,  among B&B ARMR  Corporation,
         Integrated  Security  Systems,  Inc.,  Intelli-Site,   Inc.  and  Briar
         Capital, L.P. (1)

10.2     Revolving  Promissory Note, dated November 10, 2004, issued by B&B ARMR
         Corporation to Briar Capital, L.P. (1)




                                       17
<PAGE>

10.3     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. (1)

10.4     Subordination  Agreement,  dated  November  10,  2004,  among  B&B ARMR
         Corporation, C. A. Rundell, Jr. and Briar Capital, L.P. (1)

10.5     Guaranty  Agreement,  dated  November 10, 2004, by Integrated  Security
         Systems, Inc. in favor of Briar Capital, L.P. (1)

10.6     Guarantor  Security  Agreement,  dated November 10, 2004, by Integrated
         Security Systems, Inc. in favor of Briar Capital, L.P. (1)

10.7     Guaranty Agreement,  dated November 10, 2004, by Intelli-Site,  Inc. in
         favor of Briar Capital, L.P. (1)

10.8     Guarantor Security Agreement, dated November 10, 2004, by Intelli-Site,
         Inc. in favor of Briar Capital, L.P. (1)

10.9     Loan  Agreement,  dated November 30, 2004,  among  Integrated  Security
         Systems, Inc. and certain Investors. (2)

10.10    Subordinated 10% Convertible  Promissory Note, dated November 30, 2004,
         among Integrated Security Systems, Inc. and certain Investors. (2)

10.11    Registration   Rights   Agreement,   dated  November  30,  2004,  among
         Integrated Security Systems, Inc. and certain Investors. (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 November
         16, 2004.

(2)      Incorporated  by reference to the Company's  Form 8-K filed on December
         3, 2004.





                                       18
<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:   February 14, 2005                   /s/ C. A. RUNDELL, JR.
                                            ----------------------
                                            C. A. Rundell, Jr.
                                            Director, Chairman of the Board, and
                                            Chief Executive Officer (Principal
                                            Executive and Financial Officer)


Date:   February 14, 2005                   /s/ RICHARD B. POWELL
                                            ---------------------
                                            Richard B. Powell
                                            Vice President, Chief Accounting
                                            Officer and Secretary (Principal
                                            Accounting Officer)




                                       19
<PAGE>


                                  EXHIBIT INDEX


10.1     Loan Agreement,  dated November 10, 2004,  among B&B ARMR  Corporation,
         Integrated  Security  Systems,  Inc.,  Intelli-Site,   Inc.  and  Briar
         Capital, L.P. (1)

10.2     Revolving  Promissory Note, dated November 10, 2004, issued by B&B ARMR
         Corporation to Briar Capital, L.P. (1)

10.3     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. (1)

10.4     Subordination  Agreement,  dated  November  10,  2004,  among  B&B ARMR
         Corporation, C. A. Rundell, Jr. and Briar Capital, L.P. (1)

10.5     Guaranty  Agreement,  dated  November 10, 2004, by Integrated  Security
         Systems, Inc. in favor of Briar Capital, L.P. (1)

10.6     Guarantor  Security  Agreement,  dated November 10, 2004, by Integrated
         Security Systems, Inc. in favor of Briar Capital, L.P. (1)

10.7     Guaranty Agreement,  dated November 10, 2004, by Intelli-Site,  Inc. in
         favor of Briar Capital, L.P. (1)

10.8     Guarantor Security Agreement, dated November 10, 2004, by Intelli-Site,
         Inc. in favor of Briar Capital, L.P. (1)

10.9     Loan  Agreement,  dated November 30, 2004,  among  Integrated  Security
         Systems, Inc. and certain Investors. (2)

10.10    Subordinated 10% Convertible  Promissory Note, dated November 30, 2004,
         among Integrated Security Systems, Inc. and certain Investors. (2)

10.11    Registration   Rights   Agreement,   dated  November  30,  2004,  among
         Integrated Security Systems, Inc. and certain Investors. (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 November
         16, 2004.

(2)      Incorporated  by reference to the Company's  Form 8-K filed on December
         3, 2004.



                                       20
<PAGE>