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<SEC-DOCUMENT>0001000096-03-000229.txt : 20030514
<SEC-HEADER>0001000096-03-000229.hdr.sgml : 20030514
<ACCEPTANCE-DATETIME>20030514121430
ACCESSION NUMBER:		0001000096-03-000229
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20030331
FILED AS OF DATE:		20030514

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INTEGRATED SURGICAL SYSTEMS INC
		CENTRAL INDEX KEY:			0000894871
		STANDARD INDUSTRIAL CLASSIFICATION:	SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
		IRS NUMBER:				680232575
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-12471
		FILM NUMBER:		03697657

	BUSINESS ADDRESS:	
		STREET 1:		1850 RESEARCH PARK DR
		CITY:			DAVIS
		STATE:			CA
		ZIP:			95616-4884
		BUSINESS PHONE:		5307922600

	MAIL ADDRESS:	
		STREET 1:		1850 RESEARCH PARK
		CITY:			DAVIS
		STATE:			CA
		ZIP:			95616-4884
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>integratedmay13.txt
<DESCRIPTION>FORM 10-QSB  (3-31-2003)
<TEXT>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                   FORM 10-QSB

[X]      Quarterly Report under Section 13 or 15(d) of the Securities
         Exchange Act of 1934 For the quarterly period ended March 31, 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: 1-12471

                        INTEGRATED SURGICAL SYSTEMS, INC.
         ---------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

         Delaware                                              68-0232575
         --------                                              ----------
(State or other jurisdiction of                               (IRS Employer
incorporation or organization)                              Identification No.)

             1850 Research Park Drive, Davis, California 95616-4884
             ------------------------------------------------------
                    (Address of principal executive offices)

                                 (530) 792-2600
                                 --------------
                           (Issuer's telephone number)

                                       N/A
              (Former name, former address and formal fiscal year,
                         if changed since last report)

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The number of shares of the issuer's
common stock outstanding as of May 12, 2003 was 41,978,469.

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

<PAGE>


                        Integrated Surgical Systems, Inc.
                                   Form 10-QSB
                      For the quarter ended March 31, 2003



                                Table of Contents



                                                                          Page
                                                                          ----

Part I.       Financial Information

              Item 1.    Financial Statements (unaudited)                   2

                         Consolidated Balance Sheet at March 31, 2003       2

                         Consolidated Statements of Operations for
                         the three months ended March 31, 2003 and 2002     3

                         Consolidated Statements of Cash Flows for
                         the three months ended March 31, 2003 and 2002     4

                         Notes to Consolidated Financial Statements         5

              Item 2.    Management's Discussion and Analysis               9

              Item 3.    Controls and Procedures                           13

Part II.      Other Information

              Item 2.    Changes in Securities                             13

              Item 5.    Other Information                                 13

              Item 6.    Exhibits and Reports on Form 8-K                  13

Signature                                                                  14

Certifications                                                             15


<PAGE>


Part I. Financial Information

        Item 1.  Financial Statements (unaudited)


                        Integrated Surgical Systems, Inc.
                           Consolidated Balance Sheet
                                 March 31, 2003
                                   (Unaudited)

Assets
Current assets:
     Cash                                                          $    161,219
     Accounts receivable, less allowance
        for doubtful accounts of $65,366                              1,207,861
     Inventory                                                        1,593,173
     Other current assets                                               248,406
                                                                   ------------
Total current assets                                                  3,210,659

Property and equipment, net                                             154,108
Leased equipment, net                                                   167,205
Other assets                                                             10,603
                                                                   ------------
                                                                   $  3,542,575
                                                                   ============


Liabilities and stockholders' deficit
Current liabilities:
     Accounts payable                                              $  2,398,670
     Accrued payroll and related expense                                707,904
     Accrued liabilities                                                261,384
     Unearned income                                                  2,644,203
     Other current liabilities                                          454,952
                                                                   ------------
Total current liabilities                                             6,467,113

Note payable                                                            106,222
Commitments and contingencies

Convertible preferred stock, $0.01 par value,
     1,000,000 shares authorized;
     250 shares issued and outstanding
    ($250,496 aggregate liquidation value)                              250,496

Stockholders' deficit:
     Common stock, $0.01 par value,
         100,000,000 shares authorized;
         41,978,469 shares issued and outstanding                       419,785
     Additional paid-in capital                                      61,849,581
     Accumulated other comprehensive loss                            (1,239,623)
     Accumulated deficit                                            (64,310,999)
                                                                   ------------
Total stockholders' deficit                                          (3,281,256)
                                                                   ------------
                                                                   $  3,542,575
                                                                   ============



See accompanying notes.



                                      -2-
<PAGE>
<TABLE>
<CAPTION>



                                   Integrated Surgical Systems, Inc.
                                Consolidated Statements of Operations
                                            (Unaudited)



                                                                         Three months ended March 31,
                                                                      -----------------------------------
                                                                          2003                   2002
                                                                      ------------           ------------

<S>                                                                   <C>                    <C>
Net revenue                                                           $  3,020,602           $    908,735
Cost of revenue                                                          1,666,931                388,615
                                                                      ------------           ------------
                                                                         1,353,671                520,120
Operating expenses:
     Selling, general and administrative                                   778,563                845,685
     Research and development                                              448,269                705,805
     Amortization of intangibles                                              --                  209,760
                                                                      ------------           ------------
                                                                         1,226,832              1,761,250
                                                                      ------------           ------------
Operating income (loss)                                                    126,839             (1,241,130)

Other income (expense), net:                                                43,152                (22,841)
                                                                      ------------           ------------
Net income (loss)                                                     $    169,991           $ (1,263,971)
                                                                      ============           ============

Basic net income (loss) per common share                              $       0.00           $      (0.03)
                                                                      ============           ============
Diluted net income (loss) per common share                            $       0.00           $      (0.03)
                                                                      ============           ============

Shares used in computing basic net income (loss) per share              41,978,469             38,309,715
                                                                      ============           ============
Shares used in computing diluted net income (loss) per share            53,349,941             38,309,715
                                                                      ============           ============



See accompanying notes.



                                                    -3-
<PAGE>



                                    Integrated Surgical Systems, Inc.
                            Consolidated Statements Cash Flows (Unaudited)
                                     Increase (Decrease) in Cash



                                                                  Three months ended March 31,
                                                              ------------------------------------
                                                                  2003                    2002
                                                              -----------              -----------
Cash flows from operating activities:
Net income (loss)                                             $   169,991              $(1,263,971)
Adjustments to reconcile net income (loss) to
 net cash used in operating activities:
     Depreciation                                                  70,964                  225,494
     Amortization of intangible assets                               --                    209,760
     Stock compensation, non-employees                               --                        508
     Changes in operating assets and liabilities:
        Accounts receivable                                       332,688                 (547,981)
        Inventory                                                 139,126                    7,912
        Other current assets                                       42,934                  (83,187)
        Accounts payable                                          101,800                  (41,129)
        Accrued payroll and related expenses                       95,486                    7,540
        Accrued liabilities                                       (27,146)                 (63,050)
        Unearned income                                        (1,070,479)                 986,140
        Other current liabilities                                  62,996                  (36,373)
                                                              -----------              -----------
Net cash used in operating activities                             (81,640)                (598,337)

Cash flows from investing activities:
Purchases of property and equipment                               (17,708)                  (3,081)
                                                              -----------              -----------
Net cash used in investing activities                             (17,708)                  (3,081)

Cash flows from financing activities:
Proceeds from officer advances, deferred salaries and
    unreimbursed travel expenses                                  118,873                   22,500
Payments on officer advances, deferred salaries and
    unreimbursed travel expenses                                  (28,364)                 (22,500)
                                                              -----------              -----------
Net cash provided by financing activities                          90,509                     --

Effect of exchange rate changes on cash                            87,989                   17,905
                                                              -----------              -----------
Net increase (decrease) in cash                                    79,150                 (583,513)
Cash at beginning of period                                        82,069                  800,374
                                                              -----------              -----------
Cash at end of period                                         $   161,219              $   216,861
                                                              ===========              ===========

See accompanying notes


                                         -4-

</TABLE>

<PAGE>



                        Integrated Surgical Systems, Inc.
             Notes to Consolidated Financial Statements (unaudited)
                                 March 31, 2003

1. Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included.

The cash position of Integrated Surgical Systems, Inc. (the "Company") is
inadequate and the Company has not yet identified sources of sufficient cash to
assure continuing operations. At May 12, 2003, the Company was in violation of
certain covenants contained in financing arrangements with vendors.

The Company is working to address this shortfall by attempting to negotiate cash
advances for undelivered systems, accelerate payment terms of other contracts,
defer additional salary from employees and obtain new equity investment.
However, the Company can offer no assurance that attempts to strengthen cash
flows will be successful. Unless the Company can secure sufficient funds on a
timely basis to satisfy short-term operating requirements, the Company may have
to cease operations or seek bankruptcy protection.

The reports of the Company's independent auditors in the 2002 and 2001
consolidated financial statements included explanatory paragraphs stating that
there is substantial doubt with respect to the Company's ability to continue
operating as a going concern. The Company's plan to address this issue -
increasing sales of products in existing markets, increasing sales of system
upgrades and reducing operating expenses - can only be realized to the extent
that the Company generates sufficient cashflow to meet obligations. In the event
that the Company is unsuccessful, it is possible that the Company will cease
operations or seek bankruptcy protection. The consolidated financial statements
do not include any adjustments to reflect the uncertainties related to the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from an inability on the Company's part to continue
as a going concern.

Operating results for the three month period ending March 31, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-KSB for the year ending December 31, 2002.

2. Inventories

At March 31, 2003, the components of inventory were:

      Raw materials                                        $  308,104
      Work-in-process                                         322,756
      Finished goods                                          734,390
      Deferred product development contract costs             227,923
                                                           ----------
                                                           $1,593,173
                                                           ==========

                                      -5-

<PAGE>


3. Warranty and Service Contracts

The Company offers a one-year warranty for parts and labor on all ROBODOC and
NeuroMate systems commencing upon the completion of training and installation,
except when the sales contract requires formal customer acceptance. In most
cases, the Company's customers purchase a service contract, which includes
warranty coverage (parts and labor) unspecified product maintenance updates,
customer support services and various consumables required during surgical
procedures. Revenue from service contracts is initially deferred and then
recognized ratably over the term of the agreements. Service contracts can be
renewed at the customers' option, annually thereafter. Where the Company's
products are not covered by separate service agreements, the Company provides
for the estimated cost of product warranties at the time revenue is recognized.
The warranty obligation is affected by product failure rates, material usage and
service delivery costs incurred in correcting a product failure. Should actual
product failure rates, material usage or service delivery costs differ from
these estimates, revisions to the estimated warranty liability would be
required. The Company periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary.



Changes in the Company's product liability for warranties and deferred service
revenue during the period are as follows:

  December 31, 2002 balance                                     $  666,000
  Service contracts and warranties issued during the period        874,000
  Settlements made during the period                                (3,000)
  Changes in liability for pre-existing service
    contracts and warranties during the period,
    including expirations                                         (478,000)
                                                                ----------
  March 31, 2003 balance                                        $1,059,000
                                                                ==========

4. Stockholders' equity

During the three month period ended March 31, 2003, the Company issued no shares
of common stock.

5. Stock Based Compensation

The Company uses the intrinsic value method in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under the intrinsic value method, when the
exercise price of the Company's employee stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.

Option valuation models were developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected life of the option. Because the Company's
employee stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions can
materially affect the fair value estimates, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.

                                      -6-

<PAGE>


For the three months ending March 31, 2003 and 2002, respectively, the fair
value of the Company's stock-based awards to employees was estimated using the
following weighted-average assumptions: risk-free interest rates of 3.0% and
3.5%; dividend yield of 0%; volatility factors of the expected market price of
the common stock of 0.931 and 0.955; and an expected life of the option of 4
years.
<TABLE>
<CAPTION>


                                                            Quarter Ended March 31,
                                                           2003              2002
                                                       -----------       ------------
<S>                                                    <C>               <C>
Net income (loss), as reported                         $   169,991       $ (1,263,971)
Add:  stock-based employee compensation
          included in reported net income (loss)              --                 --
Less: stock-based employee compensation
          expense, determined under fair value
          method for all awards                            (26,131)           (34,649)
                                                       -----------       ------------
Pro forma net income (loss)                            $   143,860       $ (1,298,620)
                                                       ===========       ============

Income (loss) per share:
    Basic net income (loss) per share                  $      0.00       $      (0.03)
                                                       ===========       ============
    Diluted net income (loss) per share                $      0.00       $      (0.03)
                                                       ===========       ============

    Pro forma basic net income (loss) per share        $      0.00       $      (0.03)
                                                       ===========       ============
    Pro forma diluted net income (loss) per share      $      0.00       $      (0.03)
                                                       ===========       ============
</TABLE>

6. Net income (loss) per share

Basic net income (loss) per share is computed by dividing the net income (loss)
available to common stockholders for the period by the weighted average number
of common shares outstanding during the period. Diluted net income (loss) per
share is computed by dividing the net income (loss) for the period by the
weighted average number of common and potential common shares outstanding during
the period if their effect is dilutive. Potential common shares are comprised of
outstanding employee stock options, outstanding warrants and outstanding
preferred stock issuable upon the exercise of the stock option, warrant or
preferred stock. The potential common shares issuable under stock options,
warrants and preferred stock to purchase common shares have been excluded for
the three months ending March 31, 2002 from the determination of diluted net
income (loss) per share because the effect of such shares would have been
anti-dilutive.

At March 31, 2003, the Company had outstanding options to purchase 2,663,067
shares of common stock (with exercise prices ranging from $0.025 to $8.50),
7,476,354 outstanding warrants to purchase 8,011,544 shares of common stock
(with exercise prices from $0.01 to $8.34), and 12,524,800 shares of common
stock issuable upon conversion of Series G convertible preferred stock. Of these
options, warrants and preferred stock, 11,371,472 of these potential shares of
common stock were considered in the calculation of diluted earnings per share.
The exercise price and the ultimate number of shares of common stock issuable
upon conversion of the warrants are subject to adjustments based upon the
occurrence of certain future events.

                                      -7-

<PAGE>


7. Accumulated other comprehensive loss


                                                  Three months ended March 31,
                                                  ----------------------------
                                                      2003          2002
                                                   ----------   -----------

     Net income (loss)                             $  169,991   $ (1,263,971)

     Other comprehensive income (loss):

            Foreign currency translation              (21,716)       158,127
                                                   -----------  --------------

     Comprehensive income (loss)                   $  148,275    $(1,105,844)
                                                   ===========  ==============

8. Income Taxes

The Company recorded no income tax expense during the quarter ending March 31,
2003. The Company had, at December 31, 2002, a net operating loss carryover of
approximately $40,544,000 for federal income tax purposes which expires between
2005 and 2022, a net operating loss carryforward of approximately $8,150,000 for
state income tax purposes which expires between 2004 and 2012, and a net
operating loss carryforward of approximately $1,541,000, for foreign income tax
purposes of which approximately $347,000 expires between 2003 and 2007. The
Company had, at December 31, 2002, research and development credit carryovers of
approximately $1,256,000 and $1,017,000 for federal and state income tax
purposes, respectively.

As a result of stock sales through December 31, 1995, a change of ownership (as
defined in Section 382 of the Internal Revenue Code of 1986, as amended) has
occurred. As a result of this change, the federal and state net operating loss
carryforwards will be subject to a total annual limitation in the amount of
approximately $400,000. Subsequent to this change of ownership an additional
change in ownership may have occurred. As a result, the net operating loss
carryforwards may be further limited.

9. Recent accounting pronouncements

In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and associated
asset retirement costs. The new rules apply to legal obligations associated with
the retirement of long-lived assets that result from the acquisition,
construction, development and (or) normal operation of a long-lived asset. The
Company adopted SFAS No. 143 on January 1, 2003, and the adoption did not have
an impact on the consolidated financial position, cash flows or results of
operations.

In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" ("SFAS 148"). SFAS 148 amends SFAS No.
123, "Accounting for Stock-Based Compensation", and provides alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS 148 also amends the
disclosure requirements of SFAS 123 to require more prominent and frequent
disclosure requirements in financial statements about the effects of stock-based
compensation. The transition guidance and annual disclosure provisions of SFAS
148 are effective for financial statements issued for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002. The adoption of SFAS 148 did not have a material impact on
the Company's consolidated financial position, cash flows or results of
operations.

In November 2002, FASB issued Interpretation Number 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). This interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for
interim and annual periods ending after December 15, 2002 and the Company has
adopted those requirements for the financial statements included in this Form
10-QSB. The initial recognition and initial measurement requirements of FIN 45
are effective prospectively for guarantees issued or modified after December 31,
2002. The adoption of FIN 45 did not have a material impact on the consolidated
financial position, cash flows or results of operations.

                                      -8-

<PAGE>


In January 2003, FASB issued Interpretation Number 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements", to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies to the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company does not believe
the adoption of FIN 46 will have a material impact on the consolidated financial
position, cash flows or results of operations.

In November 2002, the EITF reached a consensus on Issue 00-21,
"Multiple-Deliverable Revenue Arrangements" ("EITF 00-21"). EITF 00-21 addresses
how to account for arrangements that may involve the delivery or performance of
multiple products, services, and/or rights to use assets. The consensus mandates
how to identify whether goods or services or both that are to be delivered
separately in a bundled sales arrangement should be accounted for separately
because they are "separate units of accounting". The guidance can affect the
timing of revenue recognition for such arrangements, even though it does not
change rules governing the timing or pattern of revenue recognition of
individual items accounted for separately. The final consensus will be
applicable to agreements entered into in fiscal years beginning after June 15,
2003, with early adoption permitted. Additionally, companies will be permitted
to apply the consensus guidance to all existing arrangements as the cumulative
effect of a change in accounting principle in accordance with APB Opinion No.
20, "Accounting Changes". The Company is assessing whether the adoption of EITF
00-21 will have a material impact on the Company's consolidated financial
position, cash flows or results of operations, but at this time does not believe
such adoption will have a material impact.

     Item 2.  Management's Discussion and Analysis

Overview

The following discussion and analysis relates to the consolidated operations of
the Company and should be read in conjunction with the unaudited consolidated
financial statements of the Company, including the notes thereto, appearing
elsewhere in this report.

The Company designs, manufactures, sells and services image-directed,
computer-controlled robotic software and hardware products for use in
orthopaedic and neurosurgical procedures.

The Company's revenue consists of product revenue, specialized product
development revenue and parts and service revenue.

Product revenue consists of the Company's principal orthopaedic product, the
ROBODOC(R) Surgical Assistant System ("ROBODOC"), which integrates the
ORTHODOC(R) Presurgical Planner ("ORTHODOC") with a computer-controlled robot
for use in joint replacement surgeries. Also included in product revenue is the
NeuroMate(TM) System ("NeuroMate"), which the Company designs, manufactures,
sells and services, and consists of a computer-controlled robotic arm, head
stabilizer, presurgical planning workstation and the proprietary software used
to position and precisely hold critical tools during stereotactic brain surgery.

The Company develops specialized operating software for several implant
manufacturing companies. These implant manufacturers contract with the Company
for the development of particular lines of new prosthesis software to be used
with the ROBODOC system.

The Company's customers purchase warranty coverage (parts and labor) as well as
surgical disposables through annual service and maintenance agreements. The
Company's technical staff trains medical professionals in the use of the
products and provides field service.

                                      -9-

<PAGE>


Results of Operations

For the three months ending March 31, 2003, revenue increased and operating
expenses were reduced when compared to the three months ending March 31, 2002,
yielding operating income of $127,000 and net income of $170,000 as compared to
an operating loss of $1,241,000 and net loss of $1,264,000, respectively. This
is the second consecutive quarterly profit for the Company. This is a milestone
for the Company, because these are the first profitable quarters since the
Company's incorporation in 1990. Revenue of $3,021,000 for the three months
ending March 31, 2003, increased 232% or $2,112,000 when compared to $909,000
for the three months ending March 31, 2002. There can be no assurance that the
Company will be able to maintain the revenue levels, operating profit and net
income in future periods.

The majority of the increase in revenue in the period ending March 31, 2003 was
a result of the Company recognizing revenue of $2,464,000 from unearned income
for three ROBODOC systems (one in Japan, one in India and one in France) and one
NeuroMate system (in France) that were shipped in 2002 as compared to one
NeuroMate system in the period ending March 31, 2002. The remainder of the
revenue for the quarters ending March 31, 2003 and 2002 came from the Company's
systems parts and services revenue. The Company's unearned income includes one
ROBODOC system and one NeuroMate system to be recognized as revenue upon the
completion of training and installation of the equipment at the end user site,
except when the sales contract requires formal acceptance, product development
projects and ongoing installed base service contracts.

Gross margin decreased from 57% in the three months ending March 31, 2002 to 45%
in the three months ending March 31, 2003 due to the change in product mix
favoring the stronger margins of system parts and service revenue in the three
month period ending March 31, 2002 over the lower margins realized in system
sales in the three month period ending March 31, 2003.

Total operating expenses have continued to decline as a result of the Company's
cost reduction program. Selling and general administrative expenses are
comprised of salaries, commissions, travel expenses and costs associated with
trade shows as well as the finance, legal and human resources departments and
professional support fees for these functions. Selling and general
administrative expenses for the three month period ending March 31, 2003
decreased 8% to $779,000 from $846,000 for the three month period ending March
31, 2002. The decrease in selling and general administrative expenses was
primarily due to decreased staffing and staffing related expenses.

Research and development expenses are comprised of the engineering and related
costs associated with the development of innovative image-directed
computer-controlled robotic products for surgical applications, along with
specialized operating software and hardware systems to support these products,
quality assurance and testing. Research and development expenses decreased 36%
to $448,000 during the three month period ending March 31, 2003 as compared to
$706,000 for the three month period ending March 31, 2002 due to decreased
staffing and staffing related expenses.


Other income, net of $43,000 when compared to other expense, net of $23,000 for
the three month periods ending March 31, 2003 and 2002, respectively, increased
due to slightly favorable currency exchange rates for the three month period
ending March 31, 2003 compared to relatively flat rates for the three month
period ending March 31, 2002.

Critical Accounting Policies and Estimates

The Company's discussion and analysis of the financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these consolidated financial statements

                                      -10-

<PAGE>


requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
estimates, including those related to bad debts, inventories, warranties,
contingencies and litigation. Estimates are based on historical experience and
on other assumptions that the Company believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

The Company believes the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of consolidated
financial statements:

     The Company recognizes revenue from sales of systems upon the completion of
     equipment installation and training at the end-user's site, except when the
     sales contract requires formal customer acceptance. Equipment sales with
     contractual customer acceptance provisions are recognized as revenue upon
     written notification of customer acceptance, which generally occurs after
     the completion of installation and training. Furthermore, due to business
     customs in Japan and the Company's interpretation of Japanese law, all
     equipment sales to Japan are recognized after customer acceptance, which
     generally occurs after the completion of installation and training. Revenue
     related to maintenance and service contracts is recognized ratably over the
     duration of the contracts.

     The Company maintains allowances for doubtful accounts for estimated losses
     resulting from the inability of customers to make required payments. If the
     financial condition of customers were to deteriorate, resulting in an
     impairment of their ability to make payments, additional allowances may be
     required.

     Where products are not covered by separate service agreements, the Company
     provides for the estimated cost of product warranties at the time revenue
     is recognized. The Company's warranty obligation is affected by product
     failure rates, material usage and service delivery costs incurred in
     correcting a product failure. Should actual product failure rates, material
     usage or service delivery costs differ from estimates, revisions to the
     estimated warranty liability may be required.

     It is Company policy to write down inventory for estimated obsolescence or
     unmarketable inventory equal to the difference between the cost of
     inventory and the estimated market value based upon assumptions about
     future demand and market conditions. If actual market conditions are less
     favorable than those projected, additional inventory write-downs may be
     required.

     Property, plant and equipment and intangible assets are amortized over
     their useful lives. Useful lives are based on estimates of the period that
     the assets will generate revenue. Property and equipment and intangible
     assets are reviewed for impairment whenever events or changes in
     circumstances indicate that the carrying amount of an asset may not be
     recoverable.

Liquidity and Capital Resources

The cash position of Integrated Surgical Systems, Inc. (the "Company") is
inadequate and the Company has not yet identified sources of sufficient cash to
assure continuing operations. At May 12, 2003, the Company was in violation of
certain covenants contained in financing arrangements with vendors.

The Company is working to address this shortfall by attempting to negotiate cash
advances for undelivered systems, accelerate payment terms of other contracts,
defer additional salary from employees and obtain new equity investment.
However, the Company can offer no assurance that attempts to strengthen cash
flows will be successful. Unless the Company can secure sufficient funds on a
timely basis to satisfy short-term operating requirements, the Company may have
to cease operations or seek bankruptcy protection.

                                      -11-

<PAGE>


The reports of our independent auditors on the Company's 2002 and 2001
consolidated financial statements included explanatory paragraphs stating that
there is substantial doubt with respect to the Company's ability to continue
operating as a going concern. The Company's plan to address this issue -
increasing sales of the Company's products in existing markets, increasing sales
of system upgrades and reducing operating expenses - can only be realized to the
extent that the Company can generate sufficient cash to meet obligations. In the
event that the Company is unsuccessful, it is possible that the Company will
cease operations or seek bankruptcy protection. The consolidated financial
statements do not include any adjustments to reflect the uncertainties related
to the recoverability and classification of assets or the amounts and
classification of liabilities that may result from an inability on the Company's
part to continue as a going concern.

At March 31, 2003 the Company's "quick ratio" (cash and accounts receivable
divided by current liabilities), a conservative liquidity measure designed to
predict the Company's ability to pay bills, was only .21. It has been difficult
for the Company to meet obligations, including payroll, as they come due, and
the Company expects this situation to continue through 2003.

Net cash used in operating activities was $82,000 for the three months ended
March 31, 2003. This primarily resulted from the income from continuing
operations of $170,000, plus a decrease in accounts receivable of $333,000, a
decrease in inventory of $139,000 and an increase of $197,000 in accounts
payable and accrued payroll and related expenses, offset by a decrease in
unearned income of $1,071,000. The increase in accounts payable is directly
related to delayed vendor payments. The Company expects to derive most of the
cash required to support operations through sales of the ROBODOC System.
Continued conversion of the inventory balance into cash, as well as collection
of the account receivables, is critical to the Company's survival in 2003.

At March 31, 2003, the Company had amounts due to the executive officers of the
Company of approximately $474,000, in the aggregate, in the form of an interest
bearing advance, deferred salaries and unreimbursed travel expenses.
Approximately $107,000, $245,000 and $57,000 are included in accrued payroll and
related expense, accounts payable and accrued liabilities, respectively, due to
Ramesh C. Trivedi, president and chief executive officer of the Company,
approximately $25,000 and $18,000 are included in accrued payroll and related
expense and accounts payable, respectively, due to Leland Witherspoon, vice
president of engineering of the Company, and approximately $12,000, $5,000 and
$5,000 are included in accrued payroll and related expense, accounts payable and
accrued liabilities, respectively, due to Charles J. Novak, chief financial
officer of the Company.

The financial statements of Integrated Surgical Systems, S.A. ("ISS-SA"), the
wholly-owned French subsidiary, for the three months ended March 31, 2003 have
net assets of less than 50% of ISS-SA's capital stock. This equity deficit is
considered to be a sign of bankruptcy under French law. Unless this situation is
remedied, a third party or the French courts could petition for correction or
the dissolution of ISS-SA. The Company plans to correct this equity deficiency
by converting a portion of ISS-SA's intercompany payables into equity of ISS-SA.

On May 12, 2003 there were 42.0 million shares of common stock outstanding,
trading in the over-the-counter market at $0.030 per share, giving the Company a
market capitalization of $1.3 million. It is not likely, therefore, that the
Company will be able to raise significant funds in the equity markets.

The Company has the following contractual obligations and commercial commitments
at March 31, 2003:
<TABLE>
<CAPTION>

                                                       Less than                 More than
                                          Total          1 year     1-3 years      3 years
                                          -----        --------     ---------     --------

<S>                                     <C>            <C>          <C>           <C>
Facility operating leases               $1,038,000     $490,000     $548,000      $    -
Equipment operating leases              $   34,000     $ 34,000     $   -         $    -
Research grant                          $  106,000     $   -        $   -         $    -
</TABLE>


                                      -12-

<PAGE>


For further information, readers are referred to the Management's Discussion and
Analysis section included in the Company's Annual Report on Form 10-KSB for the
year ending December 31, 2002.

     Item 3.   Controls and Procedures

Within the 90 days prior to the filing of this report, the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design of 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. Based on that evaluation, the Chief Executive Officer and
the Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective, in all material respects, to ensure that the
information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
as and when required.

There have been no significant changes (including corrective actions with
regards to significant deficiencies and material weaknesses) in the Company's
internal controls or in other factors subsequent to the date the Company carried
out its evaluation that could significantly affect these controls.

Part II. Other Information

     Item 2.  Changes in Securities

None.

     Item 5.  Other Information

None.


     Item 6.   Exhibits and Reports on Form 8-K

(a)Exhibits

99.1   Statements under Section 906 of the Sarbanes-Oxley Act of 2002.


(b)Reports on Form 8-K.

None.


                                      -13-

<PAGE>



                                    SIGNATURE

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                      INTEGRATED SURGICAL SYSTEMS, INC.


                            By: /s/ CHARLES J. NOVAK
                                ------------------------------------------------
                                    Charles J. Novak
                                    (Principal Financial and Accounting Officer)

Dated: May 12, 2003





                                      -14-


<PAGE>



     I, Ramesh C. Trivedi, certify that:

     1. I have reviewed this quarterly report on Form 10-QSB of Integrated
Surgical 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. The registrant's other certifying officers and I are 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 us 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 our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

     5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of 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. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.





         Date: May 12, 2003                  RAMESH C. TRIVEDI
                                             -----------------------------------
                                             Ramesh C. Trivedi
                                             Principal Executive Officer


<PAGE>


     I, Charles J. Novak, certify that:

     1. I have reviewed this quarterly report on Form 10-QSB of Integrated
Surgical 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. The registrant's other certifying officers and I are 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 us 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 our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

     5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of 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. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.





         Date: May 12, 2003           CHARLES J. NOVAK
                                      ------------------------------------------
                                      Charles J. Novak
                                      Principal Financial and Accounting Officer







</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>3
<FILENAME>integratednew991.txt
<DESCRIPTION>STATEMENTS UNDER SECTION 906
<TEXT>

                                                                    Exhibit 99.1


                  STATEMENT PURSUANT TO 18 U.S.C. SECTION 1350,

                             AS ADOPTED PURSUANT TO

                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


          I, Ramesh C. Trivedi, Chief Executive Officer and President of
Integrated Surgical Systems, Inc. (the "Company"), certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:

          (1) the Company's Quarterly Report on Form 10-QSB for the quarterly
period ended March 31, 2003 (the "Report"), which this statement accompanies,
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and

          (2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


Dated: May 12, 2003                        /s/ Ramesh C. Trivedi
                                           -------------------------------------
                                           Ramesh C. Trivedi
                                           Chief Executive Officer and President


A signed original of this written statement required by Section 906 has been
provided to Integrated Surgical Systems, Inc. and will be retained by Integrated
Surgical Systems, Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.



<PAGE>



                  STATEMENT PURSUANT TO 18 U.S.C. SECTION 1350,

                             AS ADOPTED PURSUANT TO

                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


          I, Charles J. Novak, Chief Financial Officer of Integrated Surgical
Systems, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


          (1) the Company's Quarterly Report on Form 10-QSB for the quarterly
period ended March 31, 2003 (the "Report"), which this statement accompanies,
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and


          (2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


Dated: May 12, 2003                                 /s/ Charles J. Novak
                                                    ----------------------------
                                                    Charles J. Novak
                                                    Chief Financial Officer


A signed original of this written statement required by Section 906 has been
provided to Integrated Surgical Systems, Inc. and will be retained by Integrated
Surgical Systems, Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
