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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-Q

Quarterly Report Pursuant to
 Section 13 or 15(d) of theSecurities Exchange Act of 1934

FOR THE QUARTER ENDED
 SEPTEMBER 30, 2002

Commission file number 1-9330

INTELLIGENT SYSTEMS
 CORPORATION


---

(Exact name of Registrant
 as specified in its charter)


|Georgia                                                        |  | 58-1964787                          
|-------------------------------------------------------------- |  | ------------------------------------
|                                                              
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

|4355 Shackleford Road,
 Norcross, Georgia |  | 30093     
|----------------------------------------- |  | ----------
|                                         
|(Address
 of principal executive offices) |  | (Zip Code)

Registrants telephone number,
 including area code:
(770) 381-2900

Indicate by a
 check mark whether the registrant (1) has filed all reports required to be filed
 by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
 months (or for such shorter period that the registrant was required to file such reports), and
 (2) has been subject to such filing requirements for the past 90 days.
   Yes  [X]  No  [   ]

Indicate by a check mark whether the registrant
 is an accelerated filer (as defined in Rule
 12b-2 of the Exchange Act).
  Yes  [   ]  No  [X]

As of September 30, 2002, 4,495,530 shares
 of Common Stock were outstanding.

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TABLE OF CONTENTS



|                                                                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I. FINANCIAL INFORMATION                                                                     
|                                                                                                   | Item 1. Financial Statements                                                                 
|Notes to Consolidated Financial Statements                                                        
|                                                                                                   | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                                   | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                                                                   | Item 4. Controls and Procedures                                                              
|                                                                                                   | Item 5. Other Information                                                                    
|Part II. OTHER INFORMATION                                                                        
|                                                                                                   | Item 1. Legal Proceedings                                                                    
|                                                                                                   | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                        
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



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##### Table of Contents






Part I. FINANCIAL INFORMATION




Item 1. Financial Statements

Intelligent Systems Corporation
CONSOLIDATED BALANCE SHEETS(in thousands except share amounts)

|                                                                                                                                  | September 30,2002 |        | December 31,2001
|--------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ------ | ----------------
|                                                                                                                                  |                   |        |                 
|ASSETS                                                                                                                            | (unaudited)       |        | (audited)       
|Current assets:                                                                                                                   |                   |        |                 
|Cash                                                                                                                              | $                 | 5,246  |                 
|Accounts receivable, net                                                                                                          |                   | 2,097  |                 
|Notes and interest receivable                                                                                                     |                   | 532    |                 
|Inventories                                                                                                                       |                   | 626    |                 
|Other current assets                                                                                                              |                   | 573    |                 
|                                                                                                                                  |                   |        |                 
|Total current assets                                                                                                              |                   | 9,074  |                 
|                                                                                                                                  |                   |        |                 
|Long-term investments                                                                                                             |                   | 5,970  |                 
|Property and equipment, at cost
 less accumulated depreciation                                                                    |                   | 889    |                 
|Intangibles, net                                                                                                                  |                   | 3,171  |                 
|Other assets, net                                                                                                                 |                   | 22     |                 
|                                                                                                                                  |                   |        |                 
|Total assets                                                                                                                      | $                 | 19,126 |                 
|                                                                                                                                  |                   |        |                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                              |                   |        |                 
|Current liabilities:                                                                                                              |                   |        |                 
|Notes payable                                                                                                                     | $                 | 133    |                 
|Accounts payable                                                                                                                  |                   | 1,229  |                 
|Deferred revenue                                                                                                                  |                   | 1,797  |                 
|Deferred gain                                                                                                                     |                   | 297    |                 
|Accrued expenses and other current liabilities                                                                                    |                   | 1,885  |                 
|                                                                                                                                  |                   |        |                 
|Total current liabilities                                                                                                         |                   | 5,341  |                 
|                                                                                                                                  |                   |        |                 
|Deferred revenue, net of current portion                                                                                          |                   | 3,535  |                 
|Other long-term liabilities                                                                                                       |                   | 40     |                 
|                                                                                                                                  |                   |        |                 
|Total long term liabilities                                                                                                       |                   | 3,575  |                 
|                                                                                                                                  |                   |        |                 
|Redeemable preferred stock of subsidiary                                                                                          |                   | 266    |                 
|                                                                                                                                  |                   |        |                 
|Minority interest                                                                                                                 |                   | 1,373  |                 
|                                                                                                                                  |                   |        |                 
|Stockholders equity:                                                                                                             |                   |        |                 
|Common stock, $.01 par value, 20,000,000
 shares authorized, 4,495,530 issued and outstanding at Sept. 30, 2002 and Dec. 31, 2001 |                   | 45     |                 
|Paid-in capital                                                                                                                   |                   | 18,438 |                 
|Accumulated other comprehensive loss                                                                                              |                   | (116   | )               
|Accumulated deficit                                                                                                               |                   | (9,796 | )               
|                                                                                                                                  |                   |        |                 
|Total stockholders equity                                                                                                        |                   | 8,571  |                 

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|                                           |   |        |  |  |   |        | 
|------------------------------------------ | - | ------ |  |  | - | ------ | 
|Total liabilities and stockholders equity | $ | 19,126 |  |  | $ | 26,089 | 
|                                           |   |        |  |  |   |        | 

The accompanying
 notes are an integral part of these consolidated balance sheets.

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Intelligent Systems Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited, in thousands except share amounts)



|                                            | Three Months EndedSeptember 30, |           | Nine Months EndedSeptember 30,
|------------------------------------------- | ------------------------------- | --------- | ------------------------------
|                                            |                                 |           |                               
|                                            | 2002                            |           | 2001                          
|                                            |                                 |           |                               
|Revenue                                     |                                 |           |                               
|Products                                    | $                               | 1,849     |                               
|Services                                    |                                 | 1,124     |                               
|                                            |                                 |           |                               
|Total revenue                               |                                 | 2,973     |                               
|                                            |                                 |           |                               
|Cost of sales                               |                                 |           |                               
|Products                                    |                                 | 889       |                               
|Services                                    |                                 | 760       |                               
|                                            |                                 |           |                               
|Total cost of sales                         |                                 | 1,649     |                               
|                                            |                                 |           |                               
|Gross profit                                |                                 | 1,324     |                               
|Expenses                                    |                                 |           |                               
|Marketing                                   |                                 | 725       |                               
|General & administrative                    |                                 | 1,199     |                               
|Research & development                      |                                 | 2,285     |                               
|                                            |                                 |           |                               
|Loss from operations                        |                                 | (2,885    | )                             
|                                            |                                 |           |                               
|Other income, net                           |                                 |           |                               
|Interest income                             |                                 | 30        |                               
|Investment income (loss), net               |                                 | (360      | )                             
|Equity gain (loss) of affiliate companies   |                                 | 23        |                               
|Other income, net                           |                                 | 133       |                               
|                                            |                                 |           |                               
|Income (loss) before tax provision          |                                 | (3,059    | )                             
|                                            |                                 |           |                               
|Income tax provision (benefit)              |                                 | (362      | )                             
|                                            |                                 |           |                               
|Net income (loss)                           | $                               | (2,697    | )                             
|                                            |                                 |           |                               
|Basic net income (loss) per share           | $                               | (0.60     | )                             
|Diluted net income (loss) per share         | $                               | (0.60     | )                             
|                                            |                                 |           |                               
|Basic weighted average shares outstanding   |                                 | 4,495,530 |                               
|Diluted weighted average shares outstanding |                                 | 4,495,530 |                               
|                                            |                                 |           |                               

The accompanying notes are
 an integral part of these consolidated statements.

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Intelligent Systems Corporation
CONSOLIDATED STATEMENTS OF CASH FLOW(unaudited, in thousands)



|                                                                                                                                                       | Nine Months EndedSeptember 30,
|------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------
|                                                                                                                                                       |                               
|CASH PROVIDED BY (USED FOR):                                                                                                                           | 2002                          
|                                                                                                                                                       |                               
|OPERATIONS:                                                                                                                                            |                               
|Net income (loss)                                                                                                                                      | $                             
|Adjustments to reconcile net income (loss)
 to net cash provided by (used for) operating activities, net of effects of
 acquisitions and dispositions: |                               
|Depreciation and amortization                                                                                                                          |                               
|Investment income (loss), net                                                                                                                          |                               
|Equity loss of affiliate companies                                                                                                                     |                               
|Changes in operating assets and liabilities, net
 of effects of acquisition                                                                            |                               
|Accounts receivable                                                                                                                                    |                               
|Inventories                                                                                                                                            |                               
|Other assets                                                                                                                                           |                               
|Accounts payable                                                                                                                                       |                               
|Accrued expenses and other liabilities                                                                                                                 |                               
|                                                                                                                                                       |                               
|Cash provided by (used for) continuing operations                                                                                                      |                               
|                                                                                                                                                       |                               
|INVESTING ACTIVITIES:                                                                                                                                  |                               
|Proceeds from sales of investments                                                                                                                     |                               
|Acquisition of company, net of cash acquired                                                                                                           |                               
|Acquisitions of long-term investments                                                                                                                  |                               
|Repayments under notes and interest receivable                                                                                                         |                               
|Advances under notes and interest receivable                                                                                                           |                               
|Purchases of property and equipment, net                                                                                                               |                               
|                                                                                                                                                       |                               
|Cash provided by investing activities                                                                                                                  |                               
|                                                                                                                                                       |                               
|FINANCING ACTIVITIES:                                                                                                                                  |                               
|Repayments under short-term borrowing arrangements                                                                                                     |                               
|Purchase and retirement of stock                                                                                                                       |                               
|Foreign currency translation adjustment                                                                                                                |                               
|                                                                                                                                                       |                               
|Cash used for financing activities                                                                                                                     |                               
|                                                                                                                                                       |                               
|Net increase (decrease) in cash                                                                                                                        |                               
|Cash at beginning of period                                                                                                                            |                               
|Cash at end of period                                                                                                                                  | $                             
|                                                                                                                                                       |                               

The accompanying notes are an integral
 part of these consolidated statements.

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Notes to Consolidated Financial Statements



|1. |  | Throughout this report, the terms
 we, us, ours, and ISC refer to Intelligent Systems Corporation,
 including its subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | The unaudited consolidated financial
 statements presented in this Form 10-Q have been prepared in
 accordance with accounting principles generally accepted in the United States applicable to interim
 financial statements. Accordingly, they do not include all of the information and notes required for
 complete financial statements. In the opinion of ISC management, these consolidated financial
 statements contain all adjustments (which comprise only normal and recurring accruals) necessary to
 present fairly the financial position as of September 30, 2002. The interim results for the three and nine
 months ended September 30, 2002 are not necessarily indicative of the results to be expected for the full
 year. These statements should be read in conjunction with our combined financial statements and
 notes thereto for the fiscal year ended December 31, 2001, as filed in our annual report
 on Form 10-K.
|  
|3. |  | Comprehensive Income - In accordance with Financial
 Accounting Standards Board Statement No. 130, Reporting Comprehensive Income,
 comprehensive income is the total of net income and all other non-owner changes in equity
 in a period. A summary follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Consolidated
 Statements of Comprehensive Income (Loss)(unaudited, in thousands)

|                                        | Three Months Ended
September 30, |        | Nine Months Ended
September 30,
|--------------------------------------- | -------------------------------- | ------ | -------------------------------
|                                        |                                  |        |                                
|                                        | 2002                             |        | 2001                           
|                                        |                                  |        |                                
|Net income (loss)                       | $                                | (2,697 | )                              
|Other comprehensive income (loss):      |                                  |        |                                
|Foreign currency translation adjustment |                                  | 4      |                                
|Unrealized gain (loss)                  |                                  | (350   | )                              
|                                        |                                  |        |                                
|Comprehensive income (loss)             | $                                | (3,051 | )                              
|                                        |                                  |        |                                

|4. |  | Acquisition of Controlling Interest in
 CoreCard Software, Inc. (CoreCard), (formerly Delos Payment
 Systems, Inc.) - Delos Payment Systems Inc. changed its name to CoreCard Software, Inc. in May
 2002. All references in this discussion refer to the entity by its current name, CoreCard. We acquired
 a 27 percent interest in CoreCard as a result of the spin-off of CoreCard to the shareholders of PaySys
 prior to its sale in April 2001. In 2001, we loaned $1,500,000 to CoreCard. The carrying value of the loan
 on our balance sheets at December 31, 2001 was $80,000 due to recording our pro rata share of
 CoreCard losses during 2001 under the equity method of accounting. As a result of a default on the loan
 in January 2002, we acquired the right to elect a majority of the CoreCard board of directors and
 therefore we consolidate the CoreCard operations as of January 2002. As a result of consolidating
 CoreCard, we recorded intangible assets upon consolidation in the first quarter of 2002 in accordance
 with SFAS 141. Of the intangibles acquired, $642,000 was allocated to our pro rata share of acquired
 software which is being amortized over a five-year period, and $289,000 was recorded as goodwill. In the
 second quarter of 2002, we converted $3,173,000 of principal and interest of loans to CoreCard into
 Series B Convertible Preferred Stock of CoreCard, and another minority shareholder converted
 $1,373,000 into CoreCards Series B Preferred Stock as well. As a result, we now own 65% of the
 outstanding shares of CoreCard. We are providing additional borrowings, at our sole discretion, to
 CoreCard under a secured loan to fund ongoing operating losses. The loan eliminates
 in consolidation.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|5.  |  | Sale of Interest
 in Risk Laboratories, LLC (Risk) - On March 14, 2002, we sold our remaining interest
 in Risk, a former affiliate company, to American Home Assurance Company (AHAC) for a total of
 $474,000 cash. We recorded a gain of $474,000 based on a cost basis of $0, which is included in
 investment income in the accompanying statement of operations for the nine months ended September
 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|6.  |  | Sale of
 Interest in Atherogenics, Inc. (Atherogenics) - On various dates during the three and nine
 months ended September 30, 2002, we sold 91,000 and 292,000 shares, respectively, of common stock
 of Atherogenics [NASDAQ: AGIX], a company in which we were an early minority investor. The average
 price per share for shares sold during the third quarter was $7.24. We received a total of $649,000 and
 $2,013,000 in cash in the three and nine month periods ended September 30, 2002 from the sales and
 recorded gains of $334,000 and $1,000,000 in the three and nine month periods, respectively, on the
 sale transactions. These amounts are included in investment income in the accompanying statements of
 operations for the nine months ended September 30, 2002.                                 
|   
|7.  |  | Write-down of Daw
 Technologies, Inc. Stock - During the second quarter of 2002, we wrote off
 $1,246,000 relating to our holdings of common stock of Daw Technologies, Inc. We had acquired
 restricted common stock of Daw in a prior period sale of a former subsidiary to Daw and had
 accumulated $1,184,000 of unrealized loss as of the end of June 2002 as a result of a decline in the
 market price of Daw stock. In the second quarter, we determined that the value of our Daw stock was
 permanently impaired due to Daws second quarter 2002 restatement of its financial results (including a
 going concern opinion), lack of liquidity and delisting from NASDAQ. Consequently, we wrote off the
 unrealized loss of $1,184,000 and reserved $62,000 against the remaining carrying value of the
 investment.
|   
|8.  |  | Write-down of
 Lumenor, Inc. Investment - During the first quarter of 2002, we wrote down the carrying
 value of our minority investment in Lumenor, Inc., an early stage software company, by $250,000 based
 on the terms and valuation of a pending funding round by other investors. In the third quarter of 2002, we
 wrote off the remaining $250,000 investment value because the funding round failed to close and we do
 not expect to recover our investment.                                                                                                                                                                                                                                                                                                                                                        
|   
|9.  |  | Write-down of Nutec Sciences, Inc.
 Investment - In the third quarter of 2002, we recorded a charge of
 $444,000 to write-down to net realizable value the value of our minority interest in Nutec Sciences based
 on a pending sale of our holdings following Nutecs failure to raise new capital. The sale closed in
 October 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|10. |  | Other Transactions - In the
 second quarter of 2002, we reserved $187,000 to reflect a reduction in the
 value of our remaining small interest in Novient, Inc., a privately held software company that agreed to a
 merger at a price per share less than our current carrying value. We previously recognized a gain on the
 sale of part of our interest in Novient and have an overall gain on the investment. Also in the second
 quarter, MarketRing, Inc., a software firm in which we owned a small interest, was acquired by Matria
 Healthcare, Inc., a publicly traded company, for restricted stock of Matria. The value of the shares of
 Matria stock we received in exchange for our MarketRing shares was $48,000 at the time of the
 transaction.                                                             
|   
|11. |  | New Accounting Pronouncements - In
 August 2001, FASB issued SFAS No. 144, Accounting for the
 Impairment of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the
 impairment or disposal of long-lived assets. This Statement is effective for financial statements issued for
 fiscal years beginning after December 15, 2001 and interim periods within those years. The adoption of
 SFAS No. 144 did not have a significant impact on our financial statements.                                                                                                                                                                                                                                                                                                                         
|   
|12. |  | Industry Segments - Our consolidated
 subsidiaries are involved in two industry segments: information
 technology products and services, and industrial products. Operations in information technology
 products and services include development and sales of software licenses and related professional
 services and software maintenance contracts. Operations in the industrial product segment include the
 manufacture and sale of bio-remediating parts washers by ChemFree Corporation, our subsidiary. Total
 revenue by industry segment includes sales to unaffiliated customers. Sales between our                                                                                                                                                                                                                

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| |  | industry segments are not
 material. Operating profit (loss) is total revenue less operating expenses. None of the
 corporate overhead expense is allocated to the individual industry segments.
 Identifiable assets by industry segment are those assets that are used in our
 subsidiaries in each industry segment. Corporate assets are
 principally cash, notes receivable and investments.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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The table following contains unaudited
 segment information for the three and nine month periods ended September 30,
 2002 and 2001:



|                          | Three Months Ended
September 30, |        | Nine Months Ended
September 30,
|------------------------- | -------------------------------- | ------ | -------------------------------
|                          |                                  |        |                                
|(unaudited, in thousands) | 2002                             |        | 2001                           
|                          |                                  |        |                                
|Information Technology    |                                  |        |                                
|Revenue                   | $                                | 1,372  |                                
|Operating loss            |                                  | (2,683 | )                              
|Industrial Products       |                                  |        |                                
|Revenue                   |                                  | 1,601  |                                
|Operating income (loss)   |                                  | 44     |                                
|                          |                                  |        |                                
|Consolidated Segments     |                                  |        |                                
|Revenue                   |                                  | 2,973  |                                
|Operating loss            |                                  | (2,639 | )                              

A reconciliation of consolidated segment
 data above to consolidated income (loss) and assets follows:



|                               | Three Months Ended
September 30, |        | Nine Months Ended
September 30,
|------------------------------ | -------------------------------- | ------ | -------------------------------
|                               |                                  |        |                                
|(unaudited, in thousands)      | 2002                             |        | 2001                           
|                               |                                  |        |                                
|Consolidated segments          |                                  |        |                                
|operating loss                 | $                                | (2,639 | )                              
|Corporate expenses             |                                  | (246   | )                              
|                               |                                  |        |                                
|Consolidated operating loss    |                                  | (2,885 | )                              
|Interest income                |                                  | 30     |                                
|Investment income (loss)       |                                  | (360   | )                              
|Equity of affiliates           |                                  | 23     |                                
|Other income                   |                                  | 133    |                                
|                               |                                  |        |                                
|Income (loss) before taxes     |                                  | (3,059 | )                              
|                               |                                  |        |                                
|Income tax provision (benefit) |                                  | (362   | )                              
|                               |                                  |        |                                
|Net income (loss)              | $                                | (2,697 | )                              
|                               |                                  |        |                                

|(unaudited, in thousands)                 | September 30,
2002 |        | December 31,
2001
|----------------------------------------- | ------------------ | ------ | -----------------
|                                          |                    |        |                  
|Identifiable Assets                       |                    |        |                  
|Information Technology                    | $                  | 5,452  |                  
|Industrial Products                       |                    | 1,850  |                  
|                                          |                    |        |                  
|Consolidated segments identifiable assets |                    | 7,302  |                  
|Corporate assets                          |                    | 11,824 |                  
|                                          |                    |        |                  
|Consolidated assets                       | $                  | 19,126 |                  
|                                          |                    |        |                  

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|Item 2. Managements Discussion
 and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Results
 of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|The following
 discussion should be read in conjunction with the consolidated financial statements
 and the notes thereto presented in this Form 10-Q.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Overview - Our consolidated subsidiaries during 2002 operate in two industry segments:
 Information Technology and Industrial Products. Included in the Information Technology
 sector are QS Technologies, Inc. (software for health and human services), VISaer,
 Inc. (software for maintenance, repair and overhaul operations in the aerospace
 industry) and CoreCard Software, Inc. (a development stage company developing software
 for the credit card processing market). The Industrial Products segment includes
 ChemFree Corporation (bio-remediating parts washers).                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Revenue
 in the three and nine month periods ended September 30, 2002 was $2,973,000 and
 $7,354,000, respectively, an increase of 32 percent and 34 percent, respectively,
 compared to the same periods in 2001. Our net loss from operations in the three
 and nine months ended September 30, 2002 was $2,885,000 and $10,013,000, respectively,
 compared to a net operating loss of $8,350,000 and $9,172,000 in the same periods
 of 2001. The operating results of the three and nine month periods ended September
 30, 2002 are not directly comparable to those of last year for several reasons:



| |  | We consolidate
 the results of operations of CoreCard since January 1, 2002, and
 thus the 2001 periods do not reflect this consolidation. Further our results for
 the three and nine month periods ended September 30, 2002 include the operations
 of VISaer on a consolidated basis, which consolidation was not completed until the
 third quarter of 2001. An explanation of the transactions by which we acquired
 a controlling interest in each of these companies is provided in more detail in
 Notes 2 and 20 to our consolidated financial statements for the fiscal year ended
 December 31, 2001 as included in our annual report on Form 10-K for 2001, and in
 Note 4 of this Form 10-Q. Both of the new subsidiaries are generating operating
 losses related to significant research and development expense needed to complete
 new software products. In the case of VISaer, the company is deriving software
 license fees and support revenue for its current software products but revenue from
 the new web-native product is being deferred until the software is delivered and
 accepted, which is expected to be in late 2003 or 2004. Consequently, VISaer will
 generate operating losses in 2002 and at least part of 2003. In the case of CoreCard,
 the company installed the first version of its software at a customer site in the
 third quarter of 2002 but does not expect to generate revenue until late 2002 or
 early 2003.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | As a result, operating losses
 are expected to continue through 2002
 and into 2003. At both VISaer and CoreCard, we expect the amount of cash to be used
 in operations to be lower during the fourth quarter of 2002 and 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | A second major factor accounting
 for the difference in financial results for the three and nine month periods ended September 30,
 2002 as compared to the same periods last year is the fact that we sold our ownership in a former
 affiliate company, PaySys International, Inc. in April 2001. The sale transaction resulted in
 one-time investment income of $17,770,000 that was responsible for the record net income reported
 in the three and nine month periods last year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | A third factor that impacts the
 comparability of the 2001 and 2002 periods reported
 in this Form 10-Q relates to non-recurring charges totaling $6,428,000 in the third
 quarter of last year related to the acquisition of a controlling interest in VISaer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Sales- Total revenue in the third quarter of 2002 was $2,973,000,
 an increase of 32 percent compared to revenue of $2,257,000 in the same period last
 year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Product revenue, which
 includes sales of equipment in our Industrial Products segment
 as well as software license fees related to the Information Technology segment,
 increased 79 percent in the quarter ended September 30, 2002 compared to the year
 earlier period. For the nine month period ended September 30, 2002, product revenue
 increased by 27 percent compared to 2001. The growth in product revenue during the
 third quarter and year-to-date periods reflects increased volume of product sales
 by the ChemFree subsidiary in both the domestic and international markets as well
 as more software license sales at the QS Technologies subsidiary. Not included
 in these revenue figures is $3,535,000 in long-term deferred revenue that has been
 accrued by our VISaer subsidiary related to a contract with a significant air carrier
 to license its new software product. The customer has advanced $5,000,000 cash
 in milestone payments which offset part of the development expenses but all revenue
 related to this contract is being deferred under the completed contracts accounting
 rules until the software is accepted, which is expected to be in late 2003 or 2004.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Service revenue, all of which is
 related to the Information Technology segment,
 declined by eight percent in the third quarter of 2002 but increased 48 percent
 in the nine month period compared to the respective periods last year. The period-to-period
 decline in service revenue in the third quarter of 2002 reflects the fact that VISaer
 has fewer software installations in 2002 that require professional services due
 to the pending completion of its new software product. The increase in service
 revenue in the nine month period this year compared to last year reflects mainly
 the fact that VISaers revenue is included for the full nine months this year
 but was only included for the third quarter of 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Cost of
 Sales- In both the three and nine months ended September 30,
 2002, cost of sales was approximately 55 percent of revenue, compared to 57 percent
 and 49 percent in the respective periods last year. Cost of product sales was basically
 unchanged at 48 percent of revenue in the three and nine month periods ended September
 30, 2002 but substantially lower as a percent of product revenue than in the comparable
 periods in 2001. This improvement reflects better utilization of fixed production
 overhead costs across a higher production volume. Cost of service sales as a percentage
 of sales (all of which relates to the Information Technology segment) increased
 in the three and nine months ended September 30, 2002 compared to last year due
 to the inclusion of VISaer costs in 2002. VISaer professional services have a higher
 labor cost than similar services provided by QS Technologies and, in the first nine
 months of 2002, VISaer experienced some underutilization of professional service
 employees due to fewer software implementations, pending the release of VISaers
 new product.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Operating Expenses - In
 the three month period ended September 30, 2002, total
 operating expenses were $4,209,000 compared to $9,320,000 in the comparable period
 last year. For the nine month period ended September 30, 2002, total expenses were
 $13,345,000 compared to $11,944,000 in the same period of 2001. Three major factors
 account for much of the difference in total expenses between periods:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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| |  | non-recurring charges totaling
 $6.4 million related to the acquisition of VISaer
 in the third quarter last year;                    
| | - | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  | consolidation of the expenses
 of CoreCard in 2002 but not in 2001; and                                                               
|
| |  | inclusion of expenses of the
 VISaer subsidiary for the full nine months in 2002 but only for three months of
 the same period in 2001



Marketing expenses were up
 17 percent and 63 percent in the three and nine month periods ended September
 30, 2002, respectively, compared to 2001, reflecting mainly
 the inclusion of VISaer and CoreCard expenses in 2002 for the full periods in 2002
 and an increase in personnel and promotion expense at QS Technologies. In addition,
 the ChemFree subsidiary added personnel to support a new sales initiative in California
 which caused an increase in its marketing expenses in the third quarter of 2002
 compared to the prior year period. Consolidated general and administrative expenses
 were $1,199,000 and $3,545,000 in the three and nine month periods ended September
 30, 2002, a decline compared to the respective periods last year. This difference
 reflects the net effect of a non-recurring charge in the third quarter of 2001 of
 $6,003,000 for impairment of goodwill associated with VISaer, offset by the inclusion
 of expenses at VISaer and CoreCard for the full periods in 2002, higher depreciation
 and amortization expense in 2002 (reflecting amortization of intangible assets acquired
 in the VISaer and CoreCard transactions) and increased legal expenses at ChemFree
 in 2002 related to a long-standing lawsuit to protect its intellectual property.
 Research and development expense increased by $737,000 and $5,634,000 in the three
 and nine month periods ended September 30, 2002, respectively, compared to the same
 periods last year. The significant increases in both periods in 2002 are related
 to the inclusion of R&D expenses of VISaer and CoreCard, mainly for new software
 development initiatives. We expect this level of expense to continue for most of
 2003 at VISaer with a reduction in expense at CoreCard by the end of 2002. In the
 three and nine month periods ended September 30, 2001, R&D expense includes
 a non-recurring charge of $425,000 for purchased research and development projects
 of VISaer that had not reached technological feasibility and that did not have an
 alternative future use.

Interest Income - In
 the three and nine months periods ended September
 30, 2002, we recorded $30,000 and $107,000 in interest income compared to interest
 income of $167,000 and $891,000 in the same periods in 2001. The change compared
 to 2001 is mainly because we earned significant interest through April 2001 on a
 short-term, high-interest $3,500,000 note receivable of our PaySys affiliate, prior
 to the sale of PaySys in April 2001. In 2002, we earned less interest income due
 to lower bank interest rates and cash balances, we had a lower principal amount
 of and interest rate on notes receivable and we included interest expense related
 to a loan from a minority shareholder of CoreCard (which was converted to equity
 at the end of June 2002).

Investment Income - In
 the third quarter and year-to-date periods ended September 30, 2002, we reported net
 investment losses of $360,000 and $902,000,
 respectively. This compares with investment income of $305,000 and $19,948,000
 earned in the respective periods last year. The significant difference in the nine
 month period reflects a gain in the second quarter of last year of $17,770,000 on
 the PaySys sale transaction, as explained in more detail in the Overview section
 at the beginning of this Item 2. In the third quarter this year, we wrote off the
 remaining $250,000 carrying value of our minority investment in Lumenor, Inc., a
 start-up software company. In the first quarter this year, we recorded a reserve
 of $250,000 to write down the carrying value of our original investment in Lumenor
 based on a pending third party financing which subsequently failed to close resulting
 in the additional charge in our third quarter. We have included in the three and
 nine month periods in 2002 a write-down of $444,000 related to our minority interest
 in Nutec Sciences based on a pending sale (which closed early in the fourth quarter
 of 2002) of our interest following Nutecs failure to raise new capital. In
 addition, in the nine months ended September 30, 2002, we wrote-off $1,246,000 related
 to our holdings in Daw Technologies, Inc. as explained in more detail in Note 7
 to these financial statements and reserved $187,000 to reflect a reduction in value
 in our shares of Novient, Inc., a privately held software company, based on the
 valuation of its merger with another company. Offset against these losses were
 gains of $334,000 and $1,000,000 in the three and nine month periods ended September
 30, 2002, respectively, on sales of shares of Atherogenics stock and $474,000 on
 the sale of our remaining interest in a former affiliate company, Risk Labs, in
 the first quarter of this year. In 2001, in addition to the PaySys gain, we recorded
 gains of $1,029,000 and $1,922,000 in the three and nine month periods, respectively,
 on two sales of part of our interest in Risk Labs.

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Equity Losses of Affiliates -
 On a quarterly basis, we recognize our pro rata
 share of the earnings or losses of affiliate companies based on the equity method
 of accounting. Affiliate companies are those companies in which we own 20 to 50
 percent of the capital stock, which are organized as limited liability companies
 or in which we exert significant influence. We recorded $23,000 in net equity income
 and $103,000 of net equity losses in the three and nine month periods ended September
 30, 2002, respectively, compared to net equity losses of $69,000 and $558,000 in
 the same periods last year. The difference between periods reflects the fact that
 one of our affiliate companies generated income in the third quarter of 2002 and
 the consolidation of VISaer in July 2001.

Other Income - Other
 income/expense in the three and nine month periods
 ended September 30, 2002 includes $133,000 and $1,035,000, respectively, mainly
 reflecting recognition of deferred gain from the sale of a VISaer product line in
 an earlier period.

Taxes - In the three and
 nine month periods ended September
 30, 2002, as a result of a change in the tax code, we recorded an income tax benefit
 of $362,000 representing a refund for income tax recorded in 2001 for alternative
 minimum tax liability on the PaySys sale.

Common Shares
 The basic weighted average number of shares outstanding
 in the three and nine month periods ended September 30, 2002 is lower than in the
 same periods of 2001 because we repurchased shares of our common stock in 2001,
 including 1,000,000 shares repurchased in our self-tender offer completed in July
 2001. No shares have been repurchased in the nine months ended September 30, 2002
 although we expect to repurchase a limited number of our common shares under an
 ongoing share repurchase program at the currently prevailing market prices.

Liquidity and Capital Resources

During the first nine months of 2002,
 cash decreased by $6,780,000. Our principal
 sources of cash were $2,013,000 from the sale of shares of Atherogenics stock and
 $474,000 from the sale of our remaining Risk Labs interest. During the nine month
 period ended September 30, 2002, our principal uses of cash in addition to regularly
 recurring corporate expenses were $3,205,000 to fund CoreCard product development,
 $4,800,000 to fund operating losses at VISaer due mainly to new product development,
 a $1,250,000 investment and $250,000 secured loan to Horizon Software International,
 Inc., a privately held software company, and a $243,000 follow-on investment in
 Medizeus, Inc., a health care software company. In the second quarter of 2002,
 we made a short-term $3,000,000 secured loan to a third party that was repaid in
 full on the maturity date in August 2002.

Since year-end 2001, property,
 plant and equipment increased by $225,000 mainly due
 to the consolidation of CoreCard. Intangibles increased by $900,000 in the first
 nine months of 2002, as a result of intangible assets recorded in the consolidation
 of CoreCard. Of the intangibles acquired, $642,000 was allocated to our pro rata
 share of acquired software which is being amortized over a five-year period and
 $289,000 was recorded as goodwill. Inventory increased to support ChemFrees
 trial sales program in California which required an initial level of demonstration
 inventory to support sales efforts. Accounts payable increased by $216,000 since
 December 31, 2001 mainly due to increased purchases to build ChemFree inventory
 to support increased product sales, evaluations and leases coupled with longer payment
 cycles. Notes payable increased to $133,000 at September 30, 2002 compared to zero
 at year-end December 31, 2001 as a result of consolidating a loan to CoreCard from
 a minority shareholder of CoreCard (for which Intelligent Systems does not have
 any corporate liability). Deferred gain is lower at September 30, 2002 compared
 to December 31, 2001 because we recognized the difference in deferred gain as other
 income during 2002. Long-term deferred revenue increased by $939,000 in the first
 nine months of 2002 due to milestone payments by a VISaer customer on a software
 license contract. Minority interest increased by $1,373,000 compared to year-end
 2001 reflecting a minority shareholders investment in CoreCard software.
 Finally, unrealized loss of $359,000 at December 31, 2001 changed to an unrealized
 loss of $110,000 at September 30, 2002 mainly due to the net effect of two transactions:
 recognition of unrealized losses related to Daw Technology stock in the second quarter
 and recognition of unrealized gains on sales of Atherogenics shares in the first
 nine months of 2002.

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In the past year, our
 Information Technology segment, in particular VISaer has experienced
 delays in contract awards and implementations which have had a negative impact on
 results of operations and increased VISaers cash requirements. VISaer has
 built a substantial prospect pipeline and has recently been awarded new contracts
 and additions to existing contracts which we believe provide a strong endorsement
 of VISaers product offering. Contracts typically have a cash deposit and
 milestone payments but VISaer has needed additional cash to finish the new software
 product that will be sold and installed under its new contracts. Current projections
 show that VISaer will be able to fund operations from cash flow in 2003. CoreCard
 has ongoing cash requirements as well. However, with the completion of the initial
 product offering and installation of the first customer, we expect to be able to
 reduce the cash outlay for product development expenses at CoreCard. We believe
 we have adequate cash to meet corporate and subsidiary needs in the foreseeable
 future.

In connection with the investment
 and loan to Horizon Software discussed above, subsequent
 to the third quarter ended September 30, 2002, we invested an additional $1,000,000
 cash in Horizon Software and converted our $250,000 loan to additional equity based
 on Horizons achievement of certain milestones during 2002. We do not have
 other off-balance sheet arrangements, relationships, transactions or guarantees
 with third parties or related parties that would affect our liquidity or results
 of operations.

Critical Accounting Policies and Estimates

The discussion and analysis of our
 financial condition and results of operations
 are based upon our consolidated financial statements which have been prepared in
 accordance with accounting principles generally accepted in the United States.
 The preparation of these financial statements requires us to make estimates and
 judgments that affect the reported amount of assets, liabilities, revenues and expenses.
 We consider certain accounting policies related to revenue recognition, valuation
 of acquired intangibles and impairment of long-lived assets, and valuation of investments
 to be critical policies due to the estimation processes involved in each. For a
 detailed description on the application of these and other accounting policies,
 see Note 1 to the Consolidated Financial Statements contained in our annual report
 on Form 10-K for 2001.

Revenue Recognition -
 Our product revenue consists of fees from software licenses
 and sales or leases of industrial products. Our service revenue consists of fees
 for implementation, consulting, training, maintenance and support for software products.
 A portion of our revenue is derived from software contracts that contain significant
 production, modification and/or customization requirements and license fees for
 such contracts are recognized using contract accounting. In these cases, we recognize
 revenue on a percentage of completion basis that involves estimating our progress
 on the contract based on input measures. We recognize revenue and the related costs
 in the same proportion that the amount of labor hours incurred to date bears to
 the total estimated hours required for contract completion. If reliable estimates
 cannot be determined or if there is an acceptance clause in the contract, all revenue
 is deferred until the customer has accepted the software and any refund rights have
 expired. If we do not accurately estimate the resources required or the scope of
 work to be performed, or we do not manage the contract properly, in future periods
 we may need to restate revenues or to incur additional cost which would impact our
 margins and reported results.

Valuation of Intangibles -
 Purchase accounting for an acquisition requires
 use of accounting estimates and judgments to allocate the purchase price to the
 fair market value of the assets and liabilities purchased. Our business acquisitions
 typically result in goodwill and other intangible assets. The determination of
 the value of such intangible assets requires management to make estimates and assumptions
 that affect the amount of future period amortization expenses and possible impairment
 expense that we will incur. Periodically we review the values assigned to long-lived
 assets using an estimate of the undiscounted cash flows of the entity over the remaining
 life of the asset. Any resulting impairment could require a write-down that would
 have a material adverse impact on our financial condition or results of operations.

Valuation of Investments -
 We hold minority interests in non-publicly traded
 companies whose values are difficult to determine and are based on managements
 estimate of realizability of the carrying value of the investment. Future adverse
 changes in market conditions, poor operating results or lack of progress of

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the underlying investment could
 result in losses or an inability to recover the current
 carrying value of the investment. Our policy is to record an impairment charge
 when we believe an investment has experienced a decline in value that is other than
 temporary. In the first nine months of 2002, we wrote down the value of several
 of our investments, as explained in more detail in Notes 7, 8, 9, and 10 to the
 financial statements in this Form 10-Q. Other such charges in future periods could
 have a material adverse impact on our financial condition or results of operations.
 We also hold minority interests in several publicly-traded companies whose shares
 experience price volatility and are thinly traded. The carrying value of these
 investments reflects the market value of the shares at the balance sheet date.
 Future values could increase or decrease and we may not be able to realize the current
 carrying value due to changes in the market price of the stock or limited liquidity
 of the stock.

Factors That May Affect Future Operations

Future operations in both the Information
 Technology and Industrial Products segments
 are subject to risks and uncertainties that may negatively impact our results or
 projected cash requirements. In addition, the value of our investments are impacted
 by a number of factors beyond our control. Among the factors that may affect our
 consolidated results of operations are delays in product development, undetected
 software errors, competitive pressures, technical difficulties, market acceptance
 of our products, availability of technical personnel, changes in customer requirements,
 delays in customer orders and payments, changes in financial markets, performance
 and financial condition of affiliate companies or our investments, and general economic
 conditions.

As explained in Note 4 to the
 financial statements in this Form 10-Q, in early January
 2002, we acquired the right to elect a majority of CoreCards board of directors
 as a result of a default under a secured loan. We provided additional advances
 under the loan and in June 2002, along with another shareholder lender, we converted
 $3,173,000 of principal and interest owed to us into Series B Preferred stock of
 CoreCard. As a result, our ownership increased to approximately 65 percent. CoreCard
 will incur operating losses that are included in our consolidated statements of
 operations and it will require cash to operate in 2002 and into 2003. While we have
 no contractual requirement to provide additional funding, we are using part of our
 available cash balances to support the CoreCard operations in the near-term. If
 CoreCard is unsuccessful or if we decide to suspend funding, we may not recover
 all of these funds.

Furthermore, CoreCard is subject
 to a number of risks that may impact negatively
 its future performance, including significant non-competition restrictions entered
 into at the time of the sale of PaySys in April 2001 that limit who CoreCard can
 sell its products to for varying time periods through 2006, risks associated with
 completing and installing the initial software application, lack of a proven business
 model and installed base of customers, a limited operating history, an extended
 sales cycle and unproven market acceptance of the software offering and company
 profile.




Item 3. Quantitative and Qualitative
 Disclosures About Market Risk

We do not have any material market
 risk because we have no long-term borrowings.




Item 4. Controls and Procedures.

Within 90 days prior to the filing
 date of this report on Form 10-Q, management of
 ISC conducted an evaluation, under the supervision and with the participation of
 ISCs management, including our Chief Executive Officer and Chief Financial
 Officer, of the effectiveness of the design and operation of our disclosure controls
 and procedures. Based on this evaluation, the Chief Executive Officer and Chief
 Financial Officer concluded that ISCs disclosure controls and procedures are
 effective in ensuring that information required to be disclosed by ISC in the reports
 that it files or submits under the Securities Exchange Act of 1934 is recorded,
 processed, summarized and reported within the time periods specified by the Securities
 and Exchange Commissions rules and forms. In addition, ISC management, including
 our Chief Executive Officer and Chief Financial Officer, reviewed our internal controls,
 and there have been no significant changes in our internal controls or in other
 factors that could significantly affect those controls subsequent to the date of
 our last evaluation.

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Item 5. Other Information.

Certifications Under Section 906 of
 the Sarbanes-Oxley Act of 2002

The certifications of our Chief Executive
 Officer and Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002,
 have been submitted to the SEC as additional correspondence accompanying this report.




Part II. OTHER INFORMATION




Item 1. Legal Proceedings

On October 30, 2002, the Ninth Judicial
 Circuit Court of Orange County, Florida ruled in our favor with respect to a lawsuit filed in
 2001, in which we were named as defendant. The lawsuit had been filed by former employees of
 PaySys claiming rights to acquire certain shares of PaySys stock that we acquired in 1993 from a PaySys
 founder.




Item 6. Exhibits and Reports on Form 8-K

There are no exhibits filed with this
 report and we have not filed a Form 8-K during the period covered by this report.



|SIGNATURES                                                                                                                                                                                
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                          
|Pursuant to the
 requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report
 to be signed on its behalf by the undersigned, hereunto duly authorized.
|                                                                                                                                                                                          
|                                                                                                                                                                                          
|                                                                                                                                                                                          
|                                                                                                                                                                                          
|Date: November 14, 2002                                                                                                                                                                   
|                                                                                                                                                                                          
|                                                                                                                                                                                          
|                                                                                                                                                                                          
|Date: November 14, 2002                                                                                                                                                                   
|                                                                                                                                                                                          
|                                                                                                                                                                                          

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CERTIFICATION OF CHIEF EXECUTIVE
 OFFICER PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



|I, J. Leland
 Strange, the Chief Executive Officer of Intelligent Systems Corporation,
 certify that:
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|Date: November 14, 2002                                                                              



| | /S/ J. LELAND STRANGE                                   
| | --------------------------------------------------------
| |                                                         
| | J. Leland
 StrangeChief Executive
 Officer and President

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CERTIFICATION OF CHIEF FINANCIAL
 OFFICER PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



|I, Bonnie
 L. Herron, the Chief Financial Officer of Intelligent Systems Corporation,
 certify that:
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|Date: November 14, 2002                                                                             



| | /s/ BONNIE L. HERRON                    
| | ----------------------------------------
| |                                         
| | Bonnie
 L. HerronChief Financial Officer

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