<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998

                          Commission file number 1-9330

                         INTELLIGENT SYSTEMS CORPORATION
             (Exact name of Registrant as specified in its charter)

           GEORGIA                                               58-1964787
  (State or other jurisdiction                                (I.R.S. Employer 
of incorporation or organization)                            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 / /

         As of September 30, 1998, 5,104,467 shares of Common Stock were
outstanding.

<PAGE>   2

ITEM 1.  FINANCIAL STATEMENTS

                         INTELLIGENT SYSTEMS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                       (in thousands except share amounts)

<TABLE>
<CAPTION>
                                                                                   SEPTEMBER 30,    DECEMBER 31,
                                                                                       1998            1997
                                                                                     --------        --------
ASSETS                                                                                       (Unaudited)
<S>                                                                                  <C>             <C>     
Current assets:
  Cash                                                                               $    724        $     43
  Accounts receivable, net                                                              2,680           3,855
  Notes and interest receivable                                                           159             330
  Inventories                                                                             685             611
  Other current assets                                                                  1,158             788
                                                                                     --------        --------
    Total current assets                                                                5,406           5,627
                                                                                     --------        --------
Long-term investments                                                                   7,592           9,512
Long-term notes receivable                                                                 80             133
Property and equipment, at cost less accumulated depreciation and amortization          2,612           2,848
Excess of cost over underlying net assets of businesses acquired,
      net of accumulated amortization                                                      24             971
Other assets                                                                            1,300              --
                                                                                     --------        --------
Total assets                                                                         $ 17,014        $ 19,091
                                                                                     ========        ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings                                                              $  2,000        $  1,979
  Accounts payable                                                                      1,773           1,285
  Accrued expenses and other current liabilities                                        2,864           3,431
                                                                                     --------        --------
    Total current liabilities                                                           6,637           6,695
                                                                                     --------        --------
Long-term debt                                                                            900           1,000
                                                                                     --------        --------
Minority interest                                                                         183              --
                                                                                     --------        --------
Stockholders' equity:
  Common stock, $.01 par value, 20,000,000 authorized, 5,104,467
     outstanding at September 30, 1998 and December 31, 1997                               51              51
  Paid-in capital                                                                      24,046          24,046
  Foreign currency translation adjustment                                                (214)           (193)
  Unrealized gain in available-for-sale securities                                        391             836
  Accumulated deficit                                                                 (14,980)        (13,344)
                                                                                     --------        --------
    Total stockholders' equity                                                          9,294          11,396
                                                                                     --------        --------
Total liabilities and stockholders' equity                                           $ 17,014        $ 19,091
                                                                                     ========        ========
</TABLE>

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


                                                                          Page 2
<PAGE>   3

                         INTELLIGENT SYSTEMS CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (unaudited, in thousands except share amounts)

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                                       SEPTEMBER 30,                        SEPTEMBER 30,
                                                                 1998              1997               1998                1997
                                                             -----------        -----------        -----------        -----------
<S>                                                          <C>                <C>                <C>                <C>        
Net sales                                                    $     4,409        $     5,248        $    14,535        $    15,676
Expenses:
  Cost of sales                                                    3,253              3,210             10,187              9,542
  Marketing                                                          867              1,043              2,731              2,841
  General & administrative                                         2,300              2,418              6,159              5,832
  Research & development                                              82              1,182              1,753              1,281
                                                             -----------        -----------        -----------        -----------
Loss from operations                                              (2,093)            (2,605)            (6,295)            (3,820)
                                                             -----------        -----------        -----------        -----------
Other income (expense):
  Interest income (expense), net                                     (49)                53               (198)               396
  Investment income (expense)                                      2,604             (4,292)             4,872             (3,763)
  Other expense                                                     (330)              (137)              (160)               (69)
                                                             -----------        -----------        -----------        -----------
Income (loss) before income tax provision and
  minority interest                                                  132             (6,981)            (1,781)            (7,256)
                                                             -----------        -----------        -----------        -----------
Income tax provision (benefit)                                      (152)                --               (152)                 4
                                                             -----------        -----------        -----------        -----------
Income (loss) before minority interest                               284             (6,981)            (1,629)            (7,260)
                                                             -----------        -----------        -----------        -----------
Minority interest                                                      2                  3                  7                  8
                                                             -----------        -----------        -----------        -----------
Net income (loss)                                            $       282        $    (6,984)       $    (1,636)       $    (7,268)
                                                             ===========        ===========        ===========        ===========
Basic net income (loss) per share based upon basic
  weighted average shares                                    $      0.06        $     (1.37)       $     (0.32)       $     (1.43)
                                                             -----------        -----------        -----------        -----------
Diluted net income (loss) per share based upon diluted
  weighted average shares                                    $      0.05        $     (1.37)       $     (0.32)       $     (1.43)
                                                             -----------        -----------        -----------        -----------
Basic weighted average shares outstanding                      5,104,467          5,081,078          5,104,467          5,087,252
                                                             -----------        -----------        -----------        -----------
Diluted weighted average shares outstanding                    5,397,461          5,081,078          5,104,467          5,087,252
                                                             ===========        ===========        ===========        ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                                                          Page 3
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                         INTELLIGENT SYSTEMS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                            (unaudited, in thousands)

<TABLE>
<CAPTION>
                                                                         NINE MONTHS ENDED SEPTEMBER 30,
CASH PROVIDED BY (USED FOR):                                                 1998            1997
                                                                            -------        -------
<S>                                                                         <C>            <C>     
OPERATIONS:
   Net loss                                                                 $(1,635)       $(7,268)
   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                                        1,941          1,895
         Loss (gain) from sale of assets                                     (5,109)           919
         Equity in net loss of affiliates                                       236          2,968
         Changes in operating assets and liabilities:
            Accounts receivable                                               1,499            (79)
            Inventories                                                         (73)           (12)
            Other current assets                                               (368)            86
            Accounts payable                                                    399            641
            Accrued expenses and other current liabilities                   (1,284)         1,031
                                                                            -------        -------
Cash provided by (used for) continuing operations                            (4,394)           181
                                                                            -------        -------
INVESTING ACTIVITIES:
   Proceeds from sales of investments                                         5,367          3,278
   Proceeds from sale of discontinued operations                                 --            100
   Acquisitions of companies, net of cash acquired                               83           (870)
   Maturity of certificate of deposit                                            --          1,056
   Acquisitions of long-term investments                                       (300)        (3,451)
   Increase in minority interest                                                  7             --
   Repayments of (advances under) notes receivable, net                         262         (1,431)
   Dispositions (purchases) of property and equipment                           355           (982)
                                                                            -------        -------
Cash provided by (used for) investing activities                              5,774         (2,300)
                                                                            -------        -------
FINANCING ACTIVITIES:
   Net borrowings (repayments) under short-term
     borrowing arrangements                                                    (679)           299
   Purchase and retirement of stock                                              --           (160)
   Exercise of stock options                                                     --             11
   Foreign currency translation adjustment                                      (20)            16
                                                                            -------        -------
Cash provided by (used for) financing activities                               (699)           166
                                                                            -------        -------
Net increase (decrease) in cash                                                 681         (1,953)
Cash at beginning of period                                                      43          2,434
                                                                            =======        =======
Cash at end of period                                                       $   724        $   481
                                                                            =======        =======
</TABLE>

The accompanying notes are an integral part of these statements.


                                                                          Page 4
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                         INTELLIGENT SYSTEMS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       You may notice that we changed some of the text in the management's
         discussion section related to last year's results. The substance is the
         same but we have made it more readable by incorporating the "plain
         English" guidelines recently issued by the Securities and Exchange
         Commission. We hope this is helpful to you. Throughout this report, the
         term "we" refers to Intelligent Systems Corporation, including its
         subsidiaries.

2.       These financial statements include all adjustments and normal recurring
         accruals that we think are necessary for a fair statement of the
         results for the periods presented. However, our first quarter results
         do not necessarily indicate the results you can expect for the full
         year. You should read Note 1 to the Consolidated Financial Statements
         in the Company's Report on Form 10-K for the year ended December 31,
         1997 to understand the accounting policies we follow.

3.       Accounting Changes - Effective December 31, 1997, we adopted Statement
         of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
         Share", which changes the method of computing earnings per share. The
         new standard requires presentation of "basic earnings per share" and
         "diluted earnings per share", as defined. For the nine month periods
         ended September 30, 1998 and 1997 and the three month period ended
         September 30, 1997, basic and diluted weighted average shares
         outstanding are the same because all of the company's common stock
         equivalents (stock options) are non-dilutive since the company reported
         a loss for each period. For the three month period ended September 30,
         1998, the company's diluted weighted average shares outstanding include
         the assumed conversion of stock options resulting in an increase of
         292,994 shares outstanding.

         Effective January 1, 1998, we adopted the SFAS No. 130, "Reporting
         Comprehensive Income". The statement requires companies to report
         comprehensive income and its components in their financial statements.
         Comprehensive income is the total of net income and all other non-owner
         changes in equity in a period.

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

<TABLE>
<CAPTION>
                                                                   Three Months Ended             Nine Months Ended
                                                                      September 30,                 September 30
                                                                 ----------------------        ----------------------
                                                                   1998           1997           1998           1997
                                                                 -------        -------        -------        -------
<S>                                                              <C>            <C>            <C>            <C>     
Net income (loss)                                                $   282        $(6,984)       $(1,636)       $(7,268)
Other Comprehensive Income (Loss):
   Foreign currency translation adjustments                           (8)             6            (21)            16
   Unrealized gain (loss) in available-for-sale securities          (117)           254           (445)        (2,472)
                                                                 -------        -------        -------        -------
Other comprehensive income (loss)                                   (125)           260           (466)        (2,456)
                                                                 -------        -------        -------        -------
Comprehensive income (loss)                                      $   157        $(6,724)       $(2,102)       $(9,724)
                                                                 =======        =======        =======        =======
</TABLE>

4.       Acquisition of JK, Inc. - Effective January 1, 1998, we acquired all
         the common stock of JK, Inc. in a transaction that is explained in more
         detail in Note 16 to the Consolidated Financial Statements of our
         Report on Form 10-K for the year ended December 31, 1997. The
         acquisition was accounted for as a purchase. In the first quarter of
         1998, we expensed $944,000 of purchased research and development
         projects that had not reached technological feasibility and that did
         not


                                                                          Page 5
<PAGE>   6

         have an alternative future use. Since the acquisition, we have
         consolidated the results of operations of JK, Inc.

5.       Sale of Assets of Intelligent Enclosures Corporation ("IE") - Effective
         April 1, 1998, we sold substantially all of the assets and the business
         of our IE subsidiary to Daw Technologies, Inc. ("Daw"), a publicly
         traded company, in exchange for common stock of Daw. The number of
         shares of common stock of Daw that we will receive for the assets will
         be determined at a second closing two years from the date of the sale
         (or earlier based on certain events). The sales price was fixed;
         therefore, the trading price of Daw shares determines the number of Daw
         shares that we will receive.

6.       Sale of Interest in Paragon Interface, Inc. ("Paragon") - Effective
         April 17, 1998, we sold our minority interest in Paragon, a data
         mapping and translation software company, for $839,000 cash. At the
         closing of the sale, Paragon also repaid a $150,000 loan from us.

7.       Sale of Partial Interest in PaySys International, Inc. ("PaySys") -
         Effective July 1, 1998, we sold 437,063 shares of common stock of
         PaySys to a large venture capital firm for $5.72 per share, aggregating
         $2,500,000 cash. In the quarter ended September 30, 1998, we recorded a
         gain of $2,500,000 on the sale. We continue to own 3,606,382 shares of
         common stock of PaySys.

8.       HumanSoft Subsidiary Discontinues of Certain Operations - During the
         third quarter of 1998, our HumanSoft subsidiary discontinued activities
         related to certain major product lines because revenues related to
         sales and support of the product lines were below the cost of
         developing and maintaining increasingly complex software applications.
         As a result of this decision, in the quarter ended September 30, 1998,
         we recorded a one-time charge of $955,000 to wind down related
         operations. Subsequent to the quarter end, three creditors of HumanSoft
         filed to put HumanSoft into an involuntary Chapter 7 bankruptcy.
         HumanSoft is presently preparing its response, which may include a
         voluntary Chapter 11 reorganization of the HumanSoft subsidiary.

1.       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
         AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

Direct comparisons between periods are impacted by recent sales and
acquisitions. We include the results of two software companies acquired July 1,
1997 and January 1, 1998 in our consolidated financials for the three and
nine-month periods in 1998 but include only the results of the first acquisition
for the third quarter in 1997. We do not include the results of IE following its
sale on April 1, 1998 but we do include the IE results for all prior periods.

Sales - The company generates revenue from operations in two industry segments:
technology-related products and services, and health care services. For the
three-month period ended September 30, 1998, net sales were $4,409,000, a
decline of 16 percent compared to the third quarter last year. For the nine
month period ended September 30, 1998, revenue was down by seven percent
compared to last year. The revenue decline in the third quarter is due to the
sale of IE, lower revenue from health care services and a decrease in software
sales at the HumanSoft operation. For the nine-month period, the revenue decline
is tied to the sale of IE and lower health care revenue. Our health care
services subsidiary, PsyCare America, had fewer hospital-based programs in
operation in the first nine months of this year as compared to last year. Price
pressure and expense reductions in the managed care


                                                                          Page 6
<PAGE>   7

environment reduced further the revenue contribution from each program. The
InterQuad subsidiary reported relatively flat year-to-year revenue comparisons
in a very competitive market while the ChemFree subsidiary recorded substantial
period-to-period increases in the volume of products and services sold.

Cost of sales - Cost of sales as a percentage of revenue was significantly
higher in the third quarter this year compared to the same period last year and
relatively flat in the nine month periods in 1998 and 1997. Part of the increase
in the third quarter this year is due to the HumanSoft subsidiary. Their revenue
in the third quarter dropped dramatically compared to earlier periods in 1998
while employee costs, which make up the bulk of cost of sales, remained steady
for most of the quarter. By the end of the third quarter, HumanSoft had reduced
employee headcount significantly, reflecting the decision to discontinue certain
operations. In addition, cost of sales at the PsyCare subsidiary represented a
higher percentage of revenue in the third quarter this year compared to last
year because of lower average reimbursement rates for hospital programs. By
contrast, ChemFree's cost of sales was lower in the three and nine-month periods
in 1998 than in 1997 mainly due to receipt of a non-recurring payment on a
military contract and lower levels of product returns.

Operating Expenses - In the health care services sector, marketing and general
and administrative expenses declined in absolute dollars and as percent of
revenue in the three and nine months ended September 30, 1998 compared to the
same periods last year. PsyCare reduced personnel and marketing expenses as the
number of program locations declined. In the technology sector, marketing and
general and administrative expenses increased both absolutely and as a percent
of revenue in both the three and nine month periods in 1998 compared to last
year to support a corresponding increase in technology revenue in the first half
of the year. We include the expenses of two acquired companies, QS, Inc. and JK,
Inc., in 1998 but not in 1997. The consolidation of the operations of JK, Inc.
with those of the HumanSoft subsidiary was slower and more costly than expected.
At the same time, buying decisions and revenue recognition on some anticipated
customer contracts were delayed. Following the decision to discontinue certain
HumanSoft operations, we recorded a one-time charge in general and
administrative expense of $955,000 in the third quarter of 1998. In addition to
the $955,000 charge, the nine-month general and administrative figures for 1998
include a restructuring charge of $191,000 in the first quarter related to
certain personnel and facility reductions. Year-to-date research and development
expense for 1998 includes a first quarter non-recurring charge of $944,000 to
allocate a portion of the JK, Inc. purchase price to in-process research and
development. Research and development expense in the third quarter and
year-to-date last year includes a one-time expense of $952,000 to allocate a
portion of the QS, Inc. purchase price to in-process research and development.

Interest Income (Expense) - We had net interest expense of $49,000 and $198,000,
respectively, for the three and nine month periods in 1998 compared to net
interest income of $53,000 and $396,000, respectively, in the same periods last
year. This year, we had interest expense on notes payable principally to sellers
of QS and JK. Interest income on notes receivable was lower than in the
comparable periods last year because we had a lower level of notes outstanding
due to note repayments in the past twelve months.

Investment Income - In the third quarter of 1998, we realized a gain of $2.5
million on the sale 437,063 shares of common stock of PaySys (refer to note 7)
and recognized $105,000 equity in income, net, of investee companies accounted
for by the equity method. By comparison, in the third quarter last year, we
incurred one-time charges totaling $3.0 million related to a minority-owned
investment and $1,294,000 equity in losses of investee companies accounted for
by the equity method (almost all of which relates to a one-time compensation
expense charge at PaySys). Investment income year-to-date in 1998 includes the
$2.5 million gain described above, a gain of $1.2 million on the sale of the IE


                                                                          Page 7
<PAGE>   8

business (refer to note 5), a gain of $457,000 on the sale of our interest in
Paragon (refer to note 6), a gain of $947,000 on the sale of 104,000 shares of
common stock of IQ Software, Inc., and approximately $236,000 equity in losses,
net, of investee companies accounted for by the equity method. By comparison, in
the nine month period last year, investment income includes the $3.0 million
charge discussed above, a first quarter gain of $1.9 million on the sale of
50,537 shares of common stock of PaySys, a second quarter gain of $217,000 on
the sale of 104,484 shares of common stock of OrCAD, Inc. (a former subsidiary
of the company) and $2,969,000 equity in net losses of investee companies
accounted for by the equity method.

Other Expense - Other expense is composed of a number of relatively small items
of income and expense at various subsidiaries. The major reason for the
period-to-period increases in 1998 compared to 1997 is an expense of
approximately $330,000 to write off certain fixed assets of discontinued
HumanSoft operations.

Minority Interest - This amount represents the pro rata ownership share of
minority shareholders in certain non-wholly-owned subsidiaries of the company.

Common Shares - The basic weighted average number of shares outstanding
increased in the three and nine month periods in 1998 compared to the same
periods last year because company officers exercised options to acquire 25,000
shares of common stock.

FINANCIAL CONDITION

In the first nine months of 1998, we derived most of our cash from the sale of
104,000 shares of common stock of IQ Software for $1.1 million, the sale of our
interest in Paragon Software and payment of a Paragon note for a total of
$989,000, a net return of $589,000 on another investment, and the sale of shares
of PaySys common stock for $2.5 million. We used approximately $4.4 million cash
during the first nine months of 1998 to fund operating losses at certain
domestic and international subsidiaries (the majority of which relates to the
HumanSoft operation), $200,000 for the initial payment related to the
acquisition of JK, Inc., and $500,000 for a principal payment on a note related
to the acquisition of QS.

Accounts receivable are lower at September 30, 1998 than at December 31, 1997
mainly because of improved collection activity and lower revenue levels at
certain subsidiaries. Since December 31, 1997, long-term investments and
unrealized gain in available-for-sale securities have declined principally due
to sales of stock of IQ Software and Paragon. Goodwill is lower at September 30,
1998 than at December 31, 1997 mainly because we wrote off $558,000 in goodwill
related to the discontinued HumanSoft operation. The increase of $1.3 million in
other assets reflects the value realized on the sale of the IE business, payable
at a future date in common stock of the acquirer (refer to note 5).

While our cash position will limit new investments in the near future, we
presently believe we have adequate cash and access to capital through bank
borrowings or sales of assets to support current operations and plans.


                                                                          Page 8
<PAGE>   9

                           PART II. OTHER INFORMATION

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not invest excess funds in derivative financial instruments or other
market risk sensitive instruments for the purpose of managing foreign currency
exchange rate risk or for any other purposes. Further, our business activities
do not involve foreign currency transactions.

ITEM 5. OTHER MATTERS

Our company Bylaws contain an advance notice provision that states that, among
other things, in order for business to be brought properly before an annual
meeting of shareholders by a shareholder, the shareholder must have given timely
notice of the business in writing to the Secretary of the company. To be timely,
a shareholder's notice must be delivered or mailed to and received at the
principal offices of the company at least 120 days before the anniversary date
for the immediately preceding annual meeting of the company.

ITEM 6. EXHIBITS, REPORTS ON FORM 8-K

A.       The following exhibit is filed with this report: Exhibit 27 Financial
         Data Schedule (for SEC use only).

B.       The Company has not filed any Reports on 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.

                                   INTELLIGENT SYSTEMS CORPORATION
                                   Registrant

Date: November 13, 1998            By:  /s/  J. LELAND STRANGE                  
                                      ------------------------------------------
                                            J. Leland Strange
                                            Chairman of the Board, President

Date: November 13, 1998            By:  /s/  HENRY H. BIRDSONG                  
                                      ------------------------------------------
                                            Henry H. Birdsong
                                            Chief Financial Officer


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