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 December 31, 2003.

| |      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, 2004,  73,905,319 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, 2003 (unaudited)
               and June 30, 2003                                             3

            Consolidated Statements of Operations (unaudited) for the
               three and six months ended December 31, 2003 and 2002         4

            Consolidated Statements of Cash Flows (unaudited) for the
               six months ended December 31, 2003 and 2002                   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                                17

SIGNATURES                                                                  18



                                       2
<PAGE>


                          PART I. FINANCIAL INFORMATION


Item 1.  Financial Statements.
<TABLE>
<CAPTION>
                        INTEGRATED SECURITY SYSTEMS, INC.
                           Consolidated Balance Sheets

                                                                   December 31,       June 30,
                                                                       2003             2003
                                                                   ------------     ------------
                                                                   (Unaudited)
<S>                                                                <C>              <C>
                                 ASSETS
Current assets:
   Cash and cash equivalents                                       $    300,485     $    177,078
   Accounts receivable, net of allowance for doubtful
     accounts of $104,417 and $64,183, respectively                   2,426,955          545,337
   Inventories                                                          862,108          630,995
   Other current assets                                                  40,518           70,071
                                                                   ------------     ------------
     Total current assets                                             3,630,066        1,423,481

Property and equipment, net                                             629,719          481,608
Goodwill                                                              4,440,282             --
Other assets                                                             34,336           15,011
                                                                   ------------     ------------
     Total assets                                                  $  8,734,403     $  1,920,100
                                                                   ============     ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable                                                $  2,060,400     $    538,190
   Accrued liabilities                                                  718,776          510,000
   Current portion of long-term debt - net of discount                3,515,833          374,330
                                                                   ------------     ------------
     Total current liabilities                                     $  6,295,009     $  1,422,520
                                                                   ------------     ------------

Long-term debt                                                          599,281        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; 73,905,319 and 12,881,110 shares
     issued, respectively                                               739,053          128,811
   Additional paid in capital                                        30,548,057       18,434,838
   Accumulated deficit                                              (29,329,255)     (27,363,393)
   Treasury stock, at cost - 50,000 common shares                      (118,750)        (118,750)
                                                                   ------------     ------------
     Total stockholders' equity (deficit)                             1,840,113       (8,916,881)
                                                                   ------------     ------------
       Total liabilities and stockholders' equity (deficit)        $  8,734,403     $  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 Six Months Ended
                                            December 31,                      December 31,
                                    ----------------------------      ----------------------------
                                        2003            2002              2003            2002
                                    ------------    ------------      ------------    ------------
<S>                                 <C>             <C>               <C>             <C>
Sales                               $  3,367,883    $  1,525,538      $  5,087,780    $  2,938,633
Cost of sales                          2,263,003       1,022,195         3,322,051       1,850,622
                                    ------------    ------------      ------------    ------------
Gross margin                           1,104,880         503,343         1,765,729       1,088,011
                                    ------------    ------------      ------------    ------------

Operating expenses:
   Selling, general and
     administrative                    1,012,037         534,613         1,696,971       1,125,098
   Research and product
     development                         187,557          60,234           326,513          95,215
                                    ------------    ------------      ------------    ------------
                                       1,199,594         594,847         2,023,484       1,220,313
                                    ------------    ------------      ------------    ------------

Loss from operations                     (94,714)        (91,504)         (257,755)       (132,302)

Other income (expense):
   Interest expense                     (411,587)        (74,534)         (664,272)       (127,682)
                                    ------------    ------------      ------------    ------------

Net loss                                (506,301)       (166,038)         (922,027)       (259,984)

Preferred dividends                      (41,400)       (154,950)          (82,800)       (309,900)
                                    ------------    ------------      ------------    ------------

Net loss allocable to common
   stockholders                     $   (547,701)   $   (320,988)     $ (1,004,827)   $   (569,884)
                                    ============    ============      ============    ============

Weighted average common
   shares outstanding -
   basic and diluted                  73,595,757      12,124,568        52,127,485      12,008,197
                                    ============    ============      ============    ============

Net loss per share - basic
   and diluted                      $      (0.01)   $      (0.03)     $      (0.02)   $      (0.05)
                                    ============    ============      ============    ============

</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,
                                                                ---------------------------
                                                                   2003            2002
                                                                -----------     -----------
<S>                                                             <C>             <C>
Cash flows from operating activities:
   Net loss                                                     $  (922,027)    $  (259,984)
   Adjustments to reconcile net loss to net cash
     used by operating activities:
     Depreciation                                                    79,665          63,185
     Provision for bad debt                                          15,500         (30,000)
     Provision for warranty reserve                                  30,000          39,000
     Provision for inventory reserve                                  1,000          26,000
     Amortization of debt discount                                  300,032            --
     Expenses paid with stock, warrants and options                 237,047          79,126
   Changes in operating assets and liabilities,
     net of effects of acquisition:
     Accounts receivable                                           (808,874)        174,481
     Inventories                                                    115,568             642
     Other assets                                                    29,329           7,366
     Accounts payable                                               582,590          17,428
     Accrued liabilities                                             39,789          (1,883)
                                                                -----------     -----------
           Net cash provided (used) in operating activities        (300,381)        115,361
                                                                -----------     -----------

Cash flows from investing activities:
   Purchase of property and equipment                              (111,347)        (43,279)
   Purchase of business, net of cash acquired                      (733,134)           --
   Capitalized software development costs                              --          (224,900)
                                                                -----------     -----------
           Net cash used in investing activities                   (844,481)       (268,179)
                                                                -----------     -----------

Cash flows from financing activities:
   Employee stock option exercise                                    48,125           4,125
   Payments on debt and other liabilities                          (371,354)        (38,502)
   Proceeds from notes payable and long-term debt                 1,591,498         184,020
                                                                -----------     -----------
           Net cash provided by financing activities              1,268,269         149,643
                                                                -----------     -----------

Increase (decrease) in cash and cash equivalents                    123,407          (3,175)
Cash and cash equivalents at beginning of period                    177,078          28,958
                                                                -----------     -----------
Cash and cash equivalents at end of period                      $   300,485     $    25,783
                                                                ===========     ===========

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     $    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)
                   Six Months Ended December 31, 2003 and 2002

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., 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.

                                                         December 31,
                                                  ---------------------------
                                                     2003            2002
                                                  -----------     -----------

  Accounts receivable:
     Trade receivables                            $ 2,531,372     $   956,992
     Less: allowance for doubtful receivables        (104,417)        (65,641)
                                                  -----------     -----------
                                                  $ 2,426,955     $   891,351
                                                  ===========     ===========

  Allowance for doubtful receivables:
     Beginning Balance                            $    64,183     $   100,692
          Bad debt expense (credit)                    15,500         (30,000)
          Accounts written-off                        (28,827)         (5,051)
          ARMR Services Corporation merger             53,561              --
                                                  -----------     -----------
     Ending Balance                               $   104,417     $    65,641
                                                  ===========     ===========


                                       6
<PAGE>

Note 4 - Software Development Costs

We account for  software  developments  costs in  accordance  with  Statement of
Financial  Accounting  Standards  ("SFAS") No. 86,  "Accounting for the Costs of
Computer  Software to be Sold,  Leased,  or  Otherwise  Marketed."  Accordingly,
qualifying 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 December 31, 2003 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 December  31, 2002 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:

                                                     December 31,
                                               -----------------------
                                                 2003          2002
                                               ---------     ---------
     Liability, beginning of year              $ 135,471     $  97,095
     Expense for new warranties issued            30,000        39,000
     Warranty Claims                             (55,853)      (74,872)
                                               ---------     ---------
     Liability, end of period                  $ 109,618     $  61,223
                                               =========     =========




                                       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 ("SFAS
123"),  based on the fair value at the grant dates,  the Company's pro forma net
loss and net loss per share would have been as follows:

<TABLE>
<CAPTION>
                                     For the Three Months Ended         For the Six Months Ended
                                            December 31,                      December 31,
                                     ---------------------------       ---------------------------
                                        2003            2002              2003            2002
                                     -----------     -----------       -----------     -----------
<S>                                  <C>             <C>               <C>             <C>
Net loss, as reported                $  (506,301)    $  (166,038)      $  (922,027)    $  (259,984)
Deduct:  Total stock-based
   employee compensation
   expense determined under
   fair value based method              (144,638)        (32,245)         (335,614)        (44,366)
                                     -----------     -----------       -----------     -----------
Pro forma net loss                   $  (650,939)    $  (198,283)      $(1,257,641)    $  (304,350)
                                     ===========     ===========       ===========     ===========

Earnings per share:
   Basic and Diluted-as reported     $     (0.01)    $     (0.03)      $     (0.02)    $     (0.05)
                                     ===========     ===========       ===========     ===========
   Basic and Diluted-pro forma       $     (0.01)    $     (0.03)      $     (0.03)    $     (0.05)
                                     ===========     ===========       ===========     ===========
</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 Six Months Ended
                                       December 31,                           December 31,
                            ----------------------------------     ----------------------------------
                                 2003               2002                2003               2002
                            ---------------    ---------------     ---------------    ---------------
<S>                         <C>                <C>                 <C>                <C>
Expected volatility             108.34%            107.50%             108.31%            108.36%

Risk-free interest rate           3.31%              2.50%               3.30%              2.56%
</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 December  31,  2003,  the Company had  dividends  in arrears in the amount of
$265,913  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          265,913
                           -----------      -----------
                               100,750      $   265,913
                           ===========      ===========

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 through the issuance of a $500,000 convertible  promissory note in
September  2003. 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. 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:


                                       9
<PAGE>

                                            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                 (400,000)
                Current debt                        (337,000)
                Long-term debt                       (63,000)
                Goodwill                           4,440,000
                                            ----------------
                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 Six Months Ended
                                          December 31,                       December 31,
                                  -----------------------------      -----------------------------
                                      2003             2002               2003              2002
                                  ------------     ------------      ------------     ------------
<S>                               <C>              <C>               <C>              <C>
Sales                             $  4,053,810     $  3,317,826      $  5,733,707     $  6,523,210
Net loss allocable to
    common stockholders           $   (725,481)    $   (194,909)     $ (1,182,608)    $   (317,727)
Net loss per share allocable
    to common stockholders,
    basic and diluted             $      (0.01)    $      (0.01)     $      (0.02)    $      (0.01)

Weighted average shares
    outstanding,
    basic and diluted               73,595,757       22,124,568        55,714,441       21,994,570
</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 December 31, 2003 and
2002,  26,998,622 and 63,996,275  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 January 31, 2004, the Company had approximately  100,903,941 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 - Financing

In exchange for an aggregate of $400,000 cash  investment,  the Company issued a
promissory note to each of Frost National Bank FBO Renaissance  Capital Growth &
Income  Fund  III,  Inc.  and  Frost  National  Bank FBO  Renaissance  US Growth
Investment  Trust PLC on October 1, 2003. Each of the two promissory notes is in
the original principal amount of $200,000 and has an annual interest rate of 7%.
The  promissory  notes,  plus  interest,  are due on April 1, 2004.  Interest is
payable in monthly  installments  on the first day of each  month.  As a part of
this  transaction,  on October  1, 2003,  the  Company  issued a stock  purchase
warrant to each of Frost National Bank FBO  Renaissance  Capital Growth & Income
Fund III, Inc. and Frost  National  Bank FBO  Renaissance  US Growth  Investment
Trust PLC.  Each of the two stock  purchase  warrants  entitles the  Renaissance
entities to  purchase  from the Company  250,000  fully paid and  non-assessable
shares of Common Stock,  $0.01 par value, of the Company for $0.40 per share.The
value  assigned to these  warrants of $145,450 is being  amortized as additional
interest expense over the terms of the notes.


                                       10
<PAGE>

Note 12 - Business Segments

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

                                       December 31,       June 30,
                                           2003             2003
                                       ------------     ------------
        Assets
          B&B ARMR Corporation         $  8,620,033     $  1,720,137
          Intelli-Site, Inc.                 75,434           51,754
          Corporate                          38,936          148,209
                                       ------------     ------------
                                       $  8,734,403     $  1,920,100
                                       ============     ============

Information for the Company's  reportable  segments for the three and six months
ended December 31, 2003 and 2002 is as follows:

<TABLE>
<CAPTION>
                                  For the Three Months Ended        For the Six Months Ended
                                         December 31,                     December 31,
                                  ---------------------------      ---------------------------
                                     2003            2002             2003            2002
                                  -----------     -----------      -----------     -----------
<S>                               <C>             <C>              <C>             <C>
Sales
   B&B ARMR Corporation           $ 3,293,548     $ 1,447,911      $ 4,921,534     $ 2,822,791
   Intelli-Site, Inc.                  74,335          77,627          166,246         115,842
                                  -----------     -----------      -----------     -----------
                                  $ 3,367,883     $ 1,525,538      $ 5,087,780     $ 2,938,633
                                  ===========     ===========      ===========     ===========

Income (loss) from operations
   B&B ARMR Corporation           $    74,113     $    24,656      $    84,747     $   137,754
   Intelli-Site, Inc.                 (89,325)        (49,111)        (184,027)       (121,342)
   Corporate                          (79,502)        (67,049)        (158,475)       (148,714)
                                  -----------     -----------      -----------     -----------
                                  $   (94,714)    $   (91,504)     $  (257,755)    $  (132,302)
                                  ===========     ===========      ===========     ===========
</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 December 31, 2003 Compared to Three Months Ended December 31,
2002

Sales.  The Company's  total sales  increased by $1.8 million,  or 121%, to $3.4
million  during the quarter ended December 31, 2003 from $1.5 million during the
quarter  ended  December 31, 2002.  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 $0.6 million,  or 120%, to $1.1 million
during the quarter ending December 31, 2003 from $0.5 million during the quarter
ending  December 31, 2002.  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 December 31, 2003 and 2002.

Selling,  General  and  Administrative.   Selling,  general  and  administrative
expenses  increased by  approximately  $477,000 or 89% during the quarter  ended
December 31, 2003 compared to the quarter ended December 31, 2002. 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.


                                       12
<PAGE>

Research  and Product  Development.  Research and product  development  expenses
increased by  approximately  $127,000 during the quarter ended December 31, 2003
compared to the quarter ended December 31, 2002.  This increase is primarily due
to approximately  $87,000 in software  development  costs in the current quarter
compared to the capitalization of approximately  $96,000 in software development
costs at the Company's  Intelli-Site,  Inc. subsidiary during the same quarter a
year ago. Research and development  expenditures increased approximately $40,000
related to the Company's B&B ARMR subsidiary.

Interest Expense.  Interest expense  increased by approximately  $337,000 during
the quarter ended  December 31, 2003 compared to the quarter ended  December 31,
2002 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 December 31, 2002.

Six Months  Ended  December 31, 2003  Compared to Six months Ended  December 31,
2002

Sales.  The Company's  total sales  increased by $2.2  million,  or 73%, to $5.1
million  during the six months ended  December 31, 2003 from $2.9 million during
the six months ended December 31, 2002. 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 $0.7 million,  or 62%, to $1.8 million
during the six months ending  December 31, 2003 from $1.1 million during the six
months  ending  December  31,  2002.  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 35% and 37%  for the six  months  ended
December 31, 2003 and 2002.

Selling,  General  and  Administrative.   Selling,  general  and  administrative
expenses increased by approximately  $572,000 or 51% during the six months ended
December  31, 2003  compared to the six months ended  December  31,  2002.  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.

Research  and Product  Development.  Research and product  development  expenses
increased by approximately $230,000 or 243% during the six months ended December
31, 2003  compared to the six months ended  December 31, 2002.  This increase is
primarily due to  approximately  $173,000 in software  development  costs in the
current  six  month  period  compared  to the  capitalization  of  approximately
$160,000 in  software  development  costs at the  Company's  Intelli-Site,  Inc.
subsidiary during the same six month period a year ago. Research and development
expenditures  increased  approximately $58,000 related to the Company's B&B ARMR
subsidiary.

Interest  Expense.  Interest expense decreased by $537,000 during the six months
ended  December 31, 2003 compared to the six months ended  December 31, 2002 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 six
months ending December 31, 2002.

Liquidity and Capital Resources

The Company's  cash position  increased by $123,407  during the six months ended
December  31, 2003.  At December 31, 2003,  the Company had $300,485 in cash and
cash equivalents and had approximately  $845,000  outstanding under its accounts
receivable factoring facilities. The factoring facilities,  which are secured by
accounts  receivable  and  inventory,  permits  the  Company  to  borrow up to a
combined $1.8 million, subject to availability under its borrowing base.


                                       13
<PAGE>

For the six months ended December 31, 2003, the Company's  operating  activities
used $300,381 of cash compared to $115,361 of cash provided in operations during
the six months ended December 31, 2002.

The Company used $111,347 for the purchase of property and equipment  during the
six months ended December 31, 2003, compared to $43,729 for the six months ended
December 31, 2002. In addition,  the Company used cash of $733,134 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 six months ending  December 31, 2003,  the Company issued 3.8 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
financial statements above for details regarding this transaction.

During  the six months  ended  December  31,  2003,  the  Company  financed  its
operations  with cash flows from  borrowings of $1,591,498  compared to $184,020
during the six months  ended  December 31,  2002.  The Company made  payments of
$371,354 on debt and other liabilities  during the six months ended December 31,
2003,  compared to payments of $38,502 on debt and other liabilities  during the
six months ended December 31, 2002.

During the six months  ending  December 31, 2003,  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  financial  statements  above  for  details  regarding  this
transaction.

During the six months ended December 31, 2003, 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 January 31,  2004,  the
Company's  backlog was approximately  $6.5 million.  The Company expects that it
will fill the majority of this backlog by March 31, 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 has begun 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 into
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 six months ended December 31, 2003,  the Company issued  unregistered
securities in connection with the transactions described below. 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.

In exchange for an aggregate of $400,000 cash  investment,  the Company issued a
promissory note to each of Frost National Bank FBO Renaissance  Capital Growth &
Income  Fund  III,  Inc.  and  Frost  National  Bank FBO  Renaissance  US Growth
Investment  Trust PLC on October 1, 2003. Each of the two promissory notes is in
the original principal amount of $200,000 and has an annual interest rate of 7%.
The  promissory  notes,  plus  interest,  are due on April 1, 2004.  Interest is
payable in monthly  installments  on the first day of each  month.  As a part of
this  transaction,  on October  1, 2003,  the  Company  issued a stock  purchase
warrant to each of Frost National Bank FBO  Renaissance  Capital Growth & Income
Fund III, Inc. and Frost  National  Bank FBO  Renaissance  US Growth  Investment
Trust PLC.  Each of the two stock  purchase  warrants  entitles the  Renaissance
entities to  purchase  from the Company  250,000  fully paid and  non-assessable
shares of Common Stock, $0.01 par value, of the Company for $0.40 per share.


Item 3.  Defaults Upon Senior Securities.

None.


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

None.


Item 5.  Other Information.

None.





                                       16
<PAGE>


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/A on November 21, 2003 as an
     amendment  to the Current  Report on Form 8-K filed on  September  22, 2003
     which  reported the  acquisition  of ARMR Services  Corporation in a merger
     whereby,  effective September 5, 2003, ARMR Services Corporation was merged
     with and into a  wholly-owned  subsidiary  of the Company,  on September 5,
     2003.








                                       17
<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 17, 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:   February 17, 2004           /s/ RICHARD B. POWELL
                                    ------------------------------------------
                                    Richard B. Powell
                                    Vice President, Chief Accounting Officer,
                                    Secretary (Principal Accounting Officer)





                                       18
<PAGE>