U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                         -------------------------------

                                   Form 10-QSB

                         -------------------------------


|X|      QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 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 or other jurisdiction of                (I.R.S. Employer
        incorporation or organization)               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 [ ]   No [ ]

As of April 30, 2003,  12,546,256  shares of the Registrant's  common stock were
outstanding.

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



<PAGE>


                        INTEGRATED SECURITY SYSTEMS, INC.
                                      INDEX

                                                                         Page
PART I.  FINANCIAL INFORMATION

         Item 1.  Financial Statements

                  Consolidated Balance Sheets at March 31,
                     2003 (unaudited) and June 30, 2002                    3

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

                  Consolidated Statements of Cash Flows
                     (unaudited) for the nine months ended
                     March 31, 2003 and 2002                               5

                  Notes to Financial Statements                            6

         Item 2.  Management's Discussion and Analysis
                    or Plan of Operation                                  10

         Item 3.  Controls and Procedures                                 13

PART II.  OTHER INFORMATION

         Item 1.  Legal Proceedings                                       14

         Item 2.  Changes in Securities                                   14

         Item 3.  Defaults Upon Senior Securities                         14

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

         Item 5.  Other Information                                       14

         Item 6.  Exhibits and Reports on Form 8-K                        14

SIGNATURES                                                                15



                                       2
<PAGE>



                          PART I. FINANCIAL INFORMATION

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

                                                                March 31,        June 30,
                                                                  2003             2002
                                                              ------------     ------------
                                                               (Unaudited)
                                     ASSETS
<S>                                                           <C>              <C>
Current assets:
   Cash and cash equivalents                                  $     52,756     $     28,958
   Accounts receivable, net of allowance for doubtful
     accounts of $64,183 and $100,692, respectively                801,506        1,035,833
   Inventories                                                     646,204          710,700
   Other current assets                                             66,634           74,999
                                                              ------------     ------------
     Total current assets                                        1,567,100        1,850,490

Property and equipment, net                                        517,291          551,935
Capitalized software development costs                             224,900             --
Other assets                                                        18,181           18,181
                                                              ------------     ------------
     Total assets                                             $  2,327,472     $  2,420,606
                                                              ============     ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
   Accounts payable                                           $    623,684     $    684,146
   Accrued liabilities                                             514,700          477,873
   Current portion of long-term debt                             1,759,127          631,779
                                                              ------------     ------------
     Total current liabilities                                $  2,897,511     $  1,793,798
                                                              ------------     ------------

Long-term debt                                                     594,069        1,230,916

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

Stockholders' deficit:
   Preferred stock, $.01 par value, 750,000 shares
     authorized; 161,345 shares issued and outstanding
     (liquidation value of $3,529,875)                               1,613            1,613
   Common stock, $.01 par value, 75,000,000 shares
     Authorized; 12,507,348 and 11,834,589 shares,
     respectively, issued                                          125,073          118,346
   Additional paid in capital                                   17,474,744       17,234,734
   Accumulated deficit                                         (26,141,840)     (25,335,103)
   Treasury stock, at cost - 50,000 shares                        (118,750)        (118,750)
                                                              ------------     ------------
     Total stockholders' deficit                                (8,659,160)      (8,099,160)
                                                              ------------     ------------
       Total liabilities and stockholders' deficit            $  2,327,472     $  2,420,606
                                                              ============     ============
</TABLE>
               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                       3
<PAGE>

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


                                               For the Three Months Ended         For the Nine Months Ended
                                                        March 31,                         March 31,
                                              -----------------------------     -----------------------------
                                                  2003             2002             2003             2002
                                              ------------     ------------     ------------     ------------
<S>                                           <C>              <C>              <C>              <C>
Sales                                         $  1,231,468     $  1,185,051     $  4,170,101     $  3,388,848
Cost of sales                                      821,149          722,966        2,671,771        2,207,887
                                              ------------     ------------     ------------     ------------
Gross margin                                       410,319          462,085        1,498,330        1,180,961
                                              ------------     ------------     ------------     ------------

Operating expenses:
   Selling, general and
   administrative                                  611,993          619,238        1,739,132        2,118,680
   Research and product development
                                                   153,082          105,988          246,255          323,043
                                              ------------     ------------     ------------     ------------
                                                   765,075          725,226        1,985,387        2,441,723
                                              ------------     ------------     ------------     ------------

Loss from operations                              (354,756)        (263,141)        (487,057)      (1,260,762)

Other income (expense):
   Other income                                       --            203,834             --            203,834
   Interest expense                                (99,439)        (449,570)        (227,121)        (831,453)
                                              ------------     ------------     ------------     ------------

Net loss                                      $   (454,195)    $   (508,877)    $   (714,178)    $ (1,888,381)

Preferred dividends                               (151,581)        (151,581)        (461,481)        (461,481)
                                              ------------     ------------     ------------     ------------
Net loss allocable to common
   stockholders                               $   (605,776)    $   (660,458)    $ (1,175,659)    $ (2,349,862)
                                              ============     ============     ============     ============
Weighted average common shares
   outstanding - basic
   and diluted                                  12,455,837       11,233,291       12,155,232       11,021,544
                                              ============     ============     ============     ============
Net loss per share - basic and
   diluted                                    $      (0.05)    $      (0.06)    $      (0.10)    $      (0.21)
                                              ============     ============     ============     ============

</TABLE>

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



                                       4
<PAGE>

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


                                                                 For the Nine Months Ended
                                                                         March 31,
                                                                ---------------------------
                                                                   2003            2002
                                                                -----------     -----------
<S>                                                             <C>             <C>
Cash flows from operating activities:
   Net loss                                                     $  (714,178)    $(1,888,381)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
     Depreciation                                                    96,072          97,097
     Gain on sale of assets                                            --          (192,668)
     Provision for bad debt                                         (30,000)         34,750
     Provision for warranty reserve                                  74,000          32,000
     Provision for inventory reserve                                 41,000          13,500
     Expenses paid with stock, warrants and options                 150,054         800,182
     Changes in operating assets and liabilities:
       Accounts receivable                                          264,326         318,476
       Inventories                                                   23,496         (93,861)
       Other assets                                                   8,365          51,127
       Accounts payable                                             (60,462)       (321,647)
       Accrued liabilities                                          (37,173)         16,987
                                                                -----------     -----------
           Net cash used in operating activities                   (184,500)     (1,132,438)
                                                                -----------     -----------

Cash flows from investing activities:
   Purchase of property and equipment                               (61,428)        (40,763)
   Proceeds from disposal of assets                                    --           203,834
   Capitalized product development costs                           (224,900)           --
                                                                -----------     -----------
           Net cash provided/(used) in investing activities        (286,328)        163,071

Cash flows from financing activities:
   Issuance of preferred stock                                         --           200,000
   Employee stock option exercise                                     4,125          60,625
   Payments on debt                                                (136,776)       (112,789)
   Proceeds from notes payable and long-term debt                   627,277         846,045
                                                                -----------     -----------
           Net cash provided by financing activities                494,626         993,881
                                                                -----------     -----------

Increase in cash and cash equivalents                                23,798          24,514
Cash and cash equivalents at beginning of period                     28,958          70,583
                                                                -----------     -----------
Cash and cash equivalents at end of period                      $    52,756     $    95,097
                                                                ===========     ===========
Supplemental disclosure
   Noncash activities
     Issuance of company common stock in payment of
     preferred stock dividends                                       92,558          26,604
</TABLE>


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



                                       5
<PAGE>


                        INTEGRATED SECURITY SYSTEMS, INC.
             Notes to Consolidated Financial Statements (Unaudited)
                    Nine Months Ended March 31, 2003 and 2002

Note 1 - Basis of Presentation

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial information.  Accordingly,  they do not include all of the information
and footnotes required by generally accepted accounting  principles 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, 2003.

The  accompanying  financial  statements  include  the  accounts  of  Integrated
Security  Systems,  Inc.  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 2002 Annual  Report on Form 10-KSB filed on September 30,
2002 with the Securities and Exchange Commission.

Note 2 - Reclassification

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

Note 3 - Software Capitalization

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." All costs incurred
to establish the  technological  feasibility  of a computer  product to be sold,
leased or otherwise marketed are charged to research and development  expense as
incurred.   Technological   feasibility  of  a  computer   software  product  is
established when the Company has completed all planning,  designing,  coding and
testing  activities  that are  necessary  to  establish  that the product can be
produced to meet its design  specifications  including  functions,  features and
technical performance  requirements.  Software development costs are capitalized
once  technological  feasibility of a product is established  and such costs are
determined to be recoverable.

Prior to a product's release,  we expense, as part of product development costs,
capitalized  costs when we believe  such  amounts are not  recoverable.  Amounts
related  to  development  which  are not  capitalized  are  charged  to  product
development  expense. The capitalized costs relate to software which will become
an integral part of the Company's revenue  producing  products and are amortized
in relation to expected  revenues from the product.  Such capitalized  costs are
reported at the lower of unamortized cost or net realizable value.

The Company ceases capitalization of computer software costs when the product is
available for general  release to customers.  Cost of  maintenance  and customer
support are charged to expense when the related  revenue is  recognized  or when
those costs are incurred, whichever occurs first.

We evaluate the future  recoverability of capitalized software development costs
on a  quarterly  basis.  These  software  development  costs  are  reviewed  for
impairment,  and a loss is recognized  when the net realizable  value by product
falls below the unamortized cost.


                                       6
<PAGE>

Prior to July 1, 2002 the Company did not capitalize software  development costs
because of the uncertain  recoverability  of these costs.  Because revenues have
not met the  Company's  expectations  through  March 31,  2003,  the Company has
suspended the capitalization of software  development costs effective January 1,
2003. Unamortized computer software costs were $224,900 and $0 at March 31, 2003
and 2002,  respectively.  Amortization  expense  related  to  computer  software
development  costs was $0 for each of the nine  months  ended March 31, 2003 and
2002.

Note 4 - Warranties

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

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

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

                                                           March 31,
                                                  ---------------------------
                                                    2003               2002
                                                  --------           --------
Liability, beginning of year                      $ 97,095           $ 71,180
Expense for new warranties issued                   74,000             32,000
Warranty Claims                                    (99,873)           (31,920)
                                                  --------           --------
Liability, end of period                          $ 71,222           $ 71,260
                                                  ========           ========

Note 5 - Stock Options

The Company  accounts for stock options using the intrinsic  value method,  and,
therefore,  recorded no expense related to the issuance of stock options for any
of the periods  presented.  If the Company  recognized  compensation  expense as
permitted  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 March 31,
                          ---------------------------------------------------------------------------
                                        2003                                      2002
                          -------------------------------           ---------------------------------
                          As reported          Pro forma            As reported            Pro forma
                          -----------         -----------           -----------           -----------
<S>                       <C>                 <C>                   <C>                   <C>
Net loss                  $  (454,195)        $  (494,080)          $  (508,877)          $  (582,932)
Loss per common share     $     (0.05)        $     (0.05)          $     (0.06)          $     (0.07)

<CAPTION>
                                             For the Nine Months Ended March 31,
                          ---------------------------------------------------------------------------
                                        2003                                      2002
                          -------------------------------           ---------------------------------
                          As reported          Pro forma            As reported            Pro forma
                          -----------         -----------           -----------           -----------
<S>                       <C>                 <C>                   <C>                   <C>
Net loss                  $  (714,178)        $  (866,833)          $(1,888,381)          $(2,110,546)
Loss per common share     $     (0.10)        $     (0.11)          $     (0.21)          $     (0.23)

</TABLE>


                                       7
<PAGE>


Note 6 - Preferred Stock Dividend Arrearage

At March 31,  2003,  the  Company  had  dividends  in  arrears  in the amount of
$992,776 related to its outstanding  Series A, D, F and G preferred stock, which
consists of the following:

                         -------------------------------
                           Shares             Dividends
                         Outstanding         In Arrears
                         -----------         -----------
Series A $20                   9,500         $        --
Series D $20                  91,250             139,919
Series F $25                  60,595             143,394
                         -----------         -----------
                             161,345         $   283,313
                         ===========         ===========
Convertible Preferred Stock Subject to Redemption
Series G $25                 299,802         $   709,463
                         ===========         ===========
Total Dividends in Arrears                   $   992,776
                                             ===========


Note 7 - Financing

In exchange for an aggregate of $100,000 cash  investment,  on January 13, 2003,
the Company issued a promissory note to The Rundell  Foundation.  C. A. Rundell,
Jr.,  who is Chairman  and Chief  Executive  Officer of the  Company,  is also a
Trustee  of the  Rundell  Foundation.  The  promissory  note is in the  original
principal  amount  of  $100,000  and has an  annual  interest  rate  of 9%.  The
promissory note, plus interest,  is due on January 13, 2004. Interest is payable
in  monthly  installments  on the  first  day of each  month.  As a part of this
transaction, on January 13, 2003, the Company issued a stock purchase warrant to
The Rundell  Foundation.  The stock purchase warrants entitles the foundation to
purchase from the Company 500,000 fully paid and non-assessable shares of Common
Stock,  $0.01 par value, of the Company for $0.20 per share. These warrants were
valued at $85,000 and are being amortized over the term of these notes.

In exchange for an aggregate of $250,000 cash  investment  received on March 14,
2003, the Company issued a promissory  note to HSBC Global Custody Nominee (U.K)
Limited, Designation No. 896414 on March 11, 2003. The promissory note is in the
original principal amount of $250,000 and has an annual interest rate of 8%. The
promissory note, plus interest, is due on March 15, 2004. Interest is payable in
monthly  installments  on the  first  day of  each  month.  As a  part  of  this
transaction,  on March 11, 2003 the Company issued a stock  purchase  warrant to
HSBC Global Custody  Nominee (U.K) Limited,  Designation  No. 896414.  The stock
purchase  warrant  entitles  the HSBC  Global  Custody  Nominee  (U.K)  Limited,
Designation  No.  896414 to purchase from the Company  1,250,000  fully paid and
non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20
per share.  These warrants were valued at $212,500 and are being  amortized over
the term of these notes.

Note 8 - Subsequent Event - Financing

In exchange for an aggregate of $200,000 cash  investment  received on April 24,
2003,  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 April 23, 2003.  Each of the two
promissory  notes is in the  original  principal  amount of $100,000  and has an
annual  interest rate of 8%. The promissory  notes,  plus  interest,  are due on
April 23, 2004. Interest is payable in monthly  installments on the first day of
each month. As a part of this transaction, on April 23, 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  500,000  fully  paid and
non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20
per share.


                                       8
<PAGE>

In exchange for an aggregate of $100,000 cash  investment  received on April 25,
2003, the Company issued a promissory  note to HSBC Global Custody Nominee (U.K)
Limited, Designation No. 896414 on April 23, 2003. The promissory note is in the
original principal amount of $100,000 and has an annual interest rate of 8%. The
promissory note, plus interest, is due on April 23, 2004. Interest is payable in
monthly  installments  on the  first  day of  each  month.  As a  part  of  this
transaction,  on April 23, 2003 the Company issued a stock  purchase  warrant to
HSBC Global Custody  Nominee (U.K) Limited,  Designation  No. 896414.  The stock
purchase  warrant  entitles  the HSBC  Global  Custody  Nominee  (U.K)  Limited,
Designation  No.  896414 to  purchase  from the Company  500,000  fully paid and
non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20
per share.

Note 9 - Business Segments

Information for the Company's  reportable segments for the three and nine months
ended March 31, 2003 and 2002 is as follows:
<TABLE>
<CAPTION>
                                    For the Three Months Ended         For the Nine Months Ended
                                             March 31,                          March 31,
                                   -----------------------------      -----------------------------
                                       2003           2002              2003             2002
                                   ------------     ------------      -----------      ------------
<S>                                <C>              <C>              <C>               <C>
Sales
   B&B Electromatic, Inc.          $  1,210,611     $  1,155,116     $  4,033,402      $  3,284,094
   Intelli-Site, Inc.                    20,857           29,935          136,699           104,754
                                   ------------     ------------     ------------      ------------
                                   $  1,231,468     $  1,185,051     $  4,170,101      $  3,388,848
                                   ============     ============     ============      ============

Income (loss) from operations
   B&B Electromatic, Inc.          $    (96,460)    $        944     $     41,294      $   (128,392)
   Intelli-Site, Inc.                  (183,701)        (242,491)        (305,043)         (930,778)
   Corporate                            (74,595)         (21,594)        (223,308)         (201,592)
                                   ------------     ------------     ------------      ------------
                                   $   (354,756)    $   (263,141)    $   (487,057)     $ (1,260,762)
                                   ============     ============     ============      ============
</TABLE>




                                       9
<PAGE>


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

Forward Looking Statements

This  quarterly  report on Form  10-QSB  includes  "forward-looking  statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking
statements can be identified by the use of  forward-looking  terminology such as
"may," "believe," "expect," "intend," "plan," "seek," "anticipate,"  "estimate,"
or "continue"  or the negative of those words or other  variations or comparable
terminology.

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

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

Results of Operations

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Sales.  The Company's  total sales  remained  comparable at  approximately  $1.2
million for the quarters ending March 31, 2003 and March 31, 2002.

For the  quarter  ended  March  31,  2003,  approximately  98% of the  Company's
revenues were generated from the sale of products  manufactured  by the Company,
compared to 97% for the quarter ended March 31, 2002.

Gross Margin.  Gross margin as a percent of sales decreased by  approximately 5%
to 34% for the quarter  ending  March 31,  2003 from 39% for the quarter  ending
March 31, 2002 due to a less favorable product mix at the B&B subsidiary.

Selling,  General  and  Administrative.   Selling,  general  and  administrative
expenses  remained  comparable  at  approximately  $0.6 million for the quarters
ending March 31, 2003 and March 31, 2002.

Research  and Product  Development.  Research and product  development  expenses
increased  by  approximately  $47,000 or 44% during the quarter  ended March 31,
2003 compared to the quarter  ended March 31, 2002  primarily due to an increase
in  research  and  development  expenditures  of  approximately  $59,000  at the
Company's B&B subsidiary.  This decrease was partially  offset by a reduction in
research  and  development  expenditures  at the  Company's  Intelli-Site,  Inc.
subsidiary.


                                       10
<PAGE>

Interest  Expense.  Interest  expense  decreased by $350,000  during the quarter
ended March 31, 2003 compared to the quarter ended March 31, 2002. This decrease
is due to a reduction of  approximately  $318,000 during the quarter ended March
31,  2003  compared to the  quarter  ended  March 31, 2002 in non-cash  interest
charges  incurred due to the issuance of warrants in  conjunction  with securing
additional debt required to meet working capital needs.

Nine Months Ended March 31, 2003 Compared to Nine Months Ended March 31, 2002

Sales.  The Company's total sales increased by  approximately  $0.8 million,  or
23%,  to $4.2  million  during the nine  months  ended  March 31, 2003 from $3.4
million during the nine months ended March 31, 2002.  This increase is due to an
overall increase in sales at the Company's B&B Electromatic, Inc. subsidiary.

For the nine months ended March 31,  2003,  approximately  97% of the  Company's
revenues were generated from the sale of products  manufactured  by the Company,
compared to 97% for the nine months ended March 31, 2002.

Gross  Margin.  Gross  margin  as a  percent  of sales  remained  comparable  at
approximately 36% and 35% for the nine months ended March 31, 2003 and March 31,
2002, respectively.

Selling,  General  and  Administrative.   Selling,  general  and  administrative
expenses  decreased by approximately  17% or $0.4 million during the nine months
ended March 31, 2003  compared to the nine  months  ended March 31,  2002.  This
decrease is due to the significant cost reductions made company wide.

Research  and Product  Development.  Research and product  development  expenses
decreased by approximately $77,000 or 24% during the nine months ended March 31,
2003 compared to the nine months ended March 31, 2002 due to the  capitalization
of approximately $160,000 in software development costs coupled with a reduction
of  approximately  $61,000 in research and  development  costs at the  Company's
Intelli-Site, Inc. subsidiary. This decrease was partially offset by an increase
in  research  and  development  expenditures  of  approximately  $144,000 at the
Company's B&B subsidiary.

Interest Expense.  Interest expense decreased by $604,000 during the nine months
ended March 31, 2003  compared to the nine  months  ended March 31,  2002.  This
decrease is due to a reduction of approximately  $608,000 during the nine months
ended  March 31,  2003  compared  to the nine  months  ended  March 31,  2002 in
non-cash   interest  charges  incurred  due  to  the  issuance  of  warrants  in
conjunction  with  securing  additional  debt  required to meet working  capital
needs.

Liquidity and Capital Resources

The Company's  cash position  increased by $23,798  during the nine months ended
March 31,  2003.  At March 31,  2003,  the  Company had $52,756 in cash and cash
equivalents and had $479,000 outstanding under its accounts receivable factoring
facility.  The factoring  facility,  which is secured by accounts receivable and
inventory,  permits  the  Company  to  borrow  up to $0.8  million,  subject  to
availability under its borrowing base.

For the nine months ended March 31, 2003,  the  Company's  operating  activities
used $184,500 of cash  compared to $1,132,438 of cash used in operations  during
the nine months ended March 31, 2002. The decrease in cash used in operations is
primarily  due to the decrease in net loss and an increase in expenses paid with
stock, warrants and options, offset by a decrease in accounts payable.


                                       11
<PAGE>

The Company used $61,428 for the purchase of property and  equipment  during the
nine months ended March 31, 2003,  compared to $40,763 for the nine months ended
March 31, 2002.

During the nine months ended March 31, 2003, the Company financed its operations
with cash flows from  long-term  borrowings  of  $627,277  compared  to $846,045
during the nine months ended March 31, 2002.

The Company made payments of $136,776 on debt and other  liabilities  during the
nine months ended March 31,  2003,  compared to payments of $112,789 on debt and
other liabilities during the nine months ended March 31, 2002.

The cash  that the  Company  receives  from the  accounts  receivable  factoring
facility is utilized to support Company-wide  operations.  The Company's working
capital  requirements  will depend upon many factors,  including future sales of
the  Company's  products,   the  Company's  operating  results,  the  status  of
competitive  products,  and actual  profits  compared to the Company's  business
plan. The Company is currently experiencing declining liquidity,  which makes it
difficult  for the  Company  to  meet  its  current  cash  requirements  and may
jeopardize  the Company's  ability to continue as a going  concern.  The Company
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.

In exchange for an aggregate of $100,000 cash  investment,  on January 13, 2003,
the Company issued a promissory note to The Rundell  Foundation.  C. A. Rundell,
Jr.,  who is Chairman  and Chief  Executive  Officer of the  Company,  is also a
Trustee  of the  Rundell  Foundation.  The  promissory  note is in the  original
principal  amount  of  $100,000  and has an  annual  interest  rate  of 9%.  The
promissory note, plus interest,  is due on January 13, 2004. Interest is payable
in  monthly  installments  on the  first  day of each  month.  As a part of this
transaction, on January 13, 2003, the Company issued a stock purchase warrant to
The Rundell  Foundation.  The stock purchase warrants entitles the foundation to
purchase from the Company 500,000 fully paid and non-assessable shares of Common
Stock,  $0.01 par value, of the Company for $0.20 per share. These warrants were
valued at $85,000 and are being amortized over the term of these notes.

In exchange for an aggregate of $250,000 cash  investment  received on March 14,
2003, the Company issued a promissory  note to HSBC Global Custody Nominee (U.K)
Limited, Designation No. 896414 on March 11, 2003. The promissory note is in the
original principal amount of $250,000 and has an annual interest rate of 8%. The
promissory note, plus interest, is due on March 15, 2004. Interest is payable in
monthly  installments  on the  first  day of  each  month.  As a  part  of  this
transaction,  on March 11, 2003 the Company issued a stock  purchase  warrant to
HSBC Global Custody  Nominee (U.K) Limited,  Designation  No. 896414.  The stock
purchase  warrant  entitles  the HSBC  Global  Custody  Nominee  (U.K)  Limited,
Designation  No.  896414 to purchase from the Company  1,250,000  fully paid and
non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20
per share.  These warrants were valued at $212,500 and are being  amortized over
the term of these notes.

In exchange for an aggregate of $200,000 cash  investment  received on April 24,
2003,  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 April 23, 2003.  Each of the two
promissory  notes is in the  original  principal  amount of $100,000  and has an
annual  interest rate of 8%. The promissory  notes,  plus  interest,  are due on
April 23, 2004. Interest is payable in monthly  installments on the first day of
each month. As a part of this transaction, on April 23, 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  500,000  fully  paid and
non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20
per share.


                                       12
<PAGE>

In exchange for an aggregate of $100,000 cash  investment  received on April 25,
2003, the Company issued a promissory  note to HSBC Global Custody Nominee (U.K)
Limited, Designation No. 896414 on April 23, 2003. The promissory note is in the
original principal amount of $100,000 and has an annual interest rate of 8%. The
promissory note, plus interest, is due on April 23, 2004. Interest is payable in
monthly  installments  on the  first  day of  each  month.  As a  part  of  this
transaction,  on April 23, 2003 the Company issued a stock  purchase  warrant to
HSBC Global Custody  Nominee (U.K) Limited,  Designation  No. 896414.  The stock
purchase  warrant  entitles  the HSBC  Global  Custody  Nominee  (U.K)  Limited,
Designation  No.  896414 to  purchase  from the Company  500,000  fully paid and
non-assessable shares of Common Stock, $0.01 par value, of the Company for $0.20
per share.

If the  Company's  liquidity  does  not  improve,  it may  have to seek a merger
partner,  limit its operations or seek protection  under the federal  bankruptcy
laws. Any of the foregoing  options may be on terms that are  unfavorable to the
Company or disadvantageous to the Company's stockholders.

The Company's backlog is calculated as the aggregate sales prices of firm orders
received  from  customers  less  revenue  recognized.  At April  30,  2003,  the
Company's  backlog was approximately  $1.7 million.  The Company expects that it
will fill the majority of this backlog by March 31, 2004.

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 principal 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.


                                       13
<PAGE>



                           PART II. OTHER INFORMATION


Item 1.  Legal Proceedings.

None.


Item 2.  Changes in Securities.

None.


Item 3.  Defaults Upon Senior Securities.

None.


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

None.


Item 5.  Other Information.

None.


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

(a)  Exhibits

(b)  Reports filed on Form 8-K.

         The Company filed a Current  Report on Form 8-K on February 14, 2003 to
         report the  certification  of C. A. Rundell,  Jr., the Company's  Chief
         Executive Officer and Principal Executive and Financial Officer,  under
         Section 906 of the  Sarbanes-Oxley  Act of 2002, and  certification  of
         Richard B. Powell,  the  Company's  Vice  President,  Chief  Accounting
         Officer,  Secretary and Principal Accounting Officer, under Section 906
         of the Sarbanes-Oxley Act of 2002.

         The  Company  filed a Current  Report on Form 8-K on April 22,  2003 to
         report the approval by the  Company's  board of directors of a one-year
         extension of the warrants  initially  issued with the  Company's  April
         1993 Initial Public Offering,  which warrants were subsequently swapped
         for the current outstanding warrants.

         The  Company  filed a Current  Report on Form 8-K on March 25,  2003 to
         report an  additional  investment of $250,000 in cash on March 11, 2003
         HSBC Global Custody Nominee (U.K.)  Limited,  Designation No. 896414 in
         exchange for promissory  notes and stock purchase  warrants,  issued to
         HSBC Global Custody Nominee (U.K.) Limited, Designation No. 896414.

         The  Company  filed a  Current  Report  on Form 8-K on May 12,  2003 to
         report an  additional  investment of $200,000 in cash on April 23, 2003
         from each of  Renaissance  Capital  Growth & Income Fund III,  Inc. and
         Renaissance  US Growth & Income  Trust PLC in exchange  for  promissory
         notes and stock  purchase  warrants,  issued to each of Frost  National
         Bank FBO  Renaissance  Capital Growth & Income Fund III, Inc. and Frost
         National Bank FBO Renaissance US Growth & Income Trust PLC.

         The Current  Report on Form 8-K filed on May 12, 2003 also  reported an
         additional  investment  of $100,000 in cash on April 23, 2003 from HSBC
         Global  Custody  Nominee  (U.K.)  Limited,  Designation  No.  896414 in
         exchange for promissory  notes and stock purchase  warrants,  issued to
         HSBC Global Custody Nominee (U.K.) Limited, Designation No. 896414.


                                       14
<PAGE>


                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
         caused  this  report  to be signed  on its  behalf by the  undersigned,
         thereunto duly authorized.

                                         Integrated Security Systems, Inc.
                                         ---------------------------------
                                                   (Registrant)



Date:   May 20, 2003                     /s/ C. A. RUNDELL, JR.
                                         ------------------------------------
                                         C. A. Rundell, Jr.
                                         Director, Chairman of the Board, and
                                         Chief Executive Officer (Principal
                                         Executive and Financial Officer)


Date:   May 20, 2003                     /s/ RICHARD B. POWELL
                                         ------------------------------------
                                         Richard B. Powell
                                         Vice President, Chief Accounting
                                         Officer (Principal Accounting Officer)





                                       15
<PAGE>



                                  CERTIFICATION

I, C. A. Rundell, Jr., certify that:

1.  I have reviewed this quarterly report on Form 10-QSB of Integrated  Security
Systems, Inc.;

2.  Based on my  knowledge,  this  quarterly  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.  I am responsible for  establishing and maintaining  disclosure  controls and
procedures  (as  defined  in  Exchange  Act Rules  13a-14  and  15d-14)  for the
registrant and have:

         (a)    designed such disclosure  controls and procedures to ensure that
                material information  relating to the registrant,  including its
                consolidated subsidiaries,  is made known to me by others within
                those  entities,  particularly  during  the period in which this
                quarterly report is being prepared;

         (b)    evaluated  the  effectiveness  of  the  registrant's  disclosure
                controls and procedures as of a date within 90 days prior to the
                filing date of this quarterly  report (the  "Evaluation  Date");
                and

         (c)    presented  in this  quarterly  report my  conclusions  about the
                effectiveness of the disclosure controls and procedures based on
                my evaluation as of the Evaluation Date;

5.  I have disclosed,  based on my most recent  evaluation,  to the registrant's
auditors and the audit  committee  of the  registrant's  board of directors  (or
persons performing the equivalent functions):

         (a)    all  significant  deficiencies  in the  design or  operation  of
                internal  controls which could adversely affect the registrant's
                ability to record, process,  summarize and report financial data
                and have identified for the  registrant's  auditors any material
                weaknesses in internal controls; and

         (b)    any fraud, whether or not material,  that involves management or
                other employees who have a significant  role in the registrant's
                internal controls; and

6.  I have  indicated  in  this  quarterly  report  whether  or not  there  were
significant  changes  in  internal  controls  or in  other  factors  that  could
significantly  affect internal controls subsequent to the date of my most recent
evaluation,   including  any  corrective  actions  with  regard  to  significant
deficiencies and material weaknesses.

 Date:  May 20, 2003

 /s/ C. A. RUNDELL, JR.
 ---------------------------
 C. A. Rundell, Jr.,
 Chief Executive Officer and
 Principal Executive and
 Financial Officer


                                       16
<PAGE>