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**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**Washington,        D.C. 20549**

**FORM        10-QSB**

| R   | QUARTERLY                  REPORT UNDER SECTION 13 OR 15(d)                  OF THE SECURITIES EXCHANGE ACT OF                  1934 |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------|

| o   | TRANSITION                  REPORT UNDER SECTION 13 OR 15(d)                  OF THE SECURITIES EXCHANGE ACT OF                  1934 |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------|

| **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)                                                |

**(770)        381-2900**

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**TABLE          OF CONTENTS**

|   |                                                                                                                   |                                                                              |  Page |
|--------|------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|------------|
|   |                                                                                                                   |                                                                              |            |   |
|   |                                                                                                                   | Item 1. Financial                Statements                                       | 2          |   |
|   |                                                                                                                   | Item 2. Management's                Discussion and Analysis or Plan of Operations |  7    |   |
|   |                                                                                                                   | Item 3. Controls                and                Procedures                     |  12   |   |
|   | Part                II. OTHER                INFORMATION                                                               |  12                                                                          |       |
|   |                                                                                                                   | Item 6.                Exhibits                                                   |  12   |   |
|   | SIGNATURES                                                                                                             |  13                                                                          |       |
|   | EX-31.1                SECTION 302 CERTIFICATION OF CHIEF                EXECUTIVE OFFICER                             |  14                                                                          |       |
|   | EX-31.2                SECTION 302 CERTIFICATION OF CHIEF                FINANCIAL OFFICER                             |  15                                                                          |       |
|   | EX-32.1                SECTION 906 CERTIFICATION OF CHIEF                EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER |  16                                                                          |       |

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**Item** **1.        Financial Statements**

**Intelligent        Systems Corporation**

**CONSOLIDATED        BALANCE SHEETS **

*(in        thousands, except share amounts)*

|                                                                                                                                                                                                                 |         |                               |         |                              |         |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|------------------------------------|--------------|-----------------------------------|--------------|
|                                                                                                                                                                                                                 |         | **September                  30,** |         | **December                  31,** |         |
|                                                                                                                                                                                                                 |         | **2005**                           |         | **2004**                          |         |
| **ASSETS**                                                                                                                                                                                                           |    | *(unaudited)*                      |    |                         |    |
| Current                  assets:                                                                                                                                                                                     |         |                               |         |                              |         |
|   Cash                                                                                                                                                                                                     |         | $                                  | 1,674        |                              | $            | 670 |   |
|   Accounts                  receivable, net                                                                                                                                                                |         |                               | 2,133        |                              |         | 2,931 |   |
|   Inventories                                                                                                                                                                                              |         |                               | 802          |                              |         | 653 |   |
|   Other                  current assets                                                                                                                                                                    |         |                               | 360          |                              |         | 217 |   |
|     Total                  current assets                                                                                                                                                        |         |                               | 4,969        |                              |         | 4,471 |   |
| Long-term                  investments                                                                                                                                                                               |         |                               | 4,907        |                              |         | 4,879 |   |
| Property                  and equipment, at cost less accumulated depreciation                                                                                                                                       |         |                               | 859          |                              |         | 781 |   |
| Goodwill,                  net                                                                                                                                                                                       |         |                               | 2,047        |                              |         | 2,049 |   |
| Other                  intangibles, net                                                                                                                                                                              |         |                               | 575          |                              |         | 699 |   |
| Other                  assets, net                                                                                                                                                                                   |         |                               | 17           |                              |         | 25 |   |
| Total                  assets                                                                                                                                                                                        |         | $                                  | 13,374       |                              | $            | 12,904 |   |
|                                                                                                                                                                                                                 |         |                               |         |                              |         |   |   |
| **LIABILITIES                  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                      |         |                               |         |                              |         |   |   |
| Current                  liabilities:                                                                                                                                                                                |         |                               |         |                              |         |   |   |
| Short-term                  borrowings                                                                                                                                                                               |         | $                                  | —      |                              | $            | 267 |   |
| Accounts                  payable                                                                                                                                                                                    |         |                               | 884          |                              |         | 867 |   |
| Deferred                  revenue                                                                                                                                                                                    |         |                               | 6,029        |                              |         | 4,895 |   |
| Accrued                  payroll                                                                                                                                                                                     |         |                               | 999          |                              |         | 928 |   |
| Accrued                  expenses and other current liabilities                                                                                                                                                      |         |                               | 777          |                              |         | 552 |   |
|     Total                  current liabilities                                                                                                                                                   |         |                               | 8,689        |                              |         | 7,509 |   |
| Long-term                  liabilities                                                                                                                                                                               |         |                               | 238          |                              |         | 310 |   |
| Commitments                  and contingencies (Note 9)                                                                                                                                                              |         |                               |         |                              |         |   |   |
| Minority                  interest                                                                                                                                                                                   |         |                               | 1,516        |                              |         | 1,516 |   |
| Stockholders’                  equity:                                                                                                                                                                         |         |                               |         |                              |         |   |   |
| Common                  stock, $0.01 par value, 20,000,000 shares authorized, 4,478,971                  shares                  issued and outstanding at September 30, 2005 and December 31,                  2004 |         |                               | 45           |                              |         | 45 |   |
| Paid-in                  capital                                                                                                                                                                                     |         |                               | 18,410       |                              |         | 18,410 |   |
| Accumulated                  other comprehensive loss                                                                                                                                                                |         |                               | (80          | )                                 |         | (124 | ) |
| Accumulated                  deficit                                                                                                                                                                                 |         |                               | (15,444      | )                                 |         | (14,762 | ) |
|     Total                  stockholders’ equity                                                                                                                                            |         |                               | 2,931        |                              |         | 3,569 |   |
| Total                  liabilities and stockholders’ equity                                                                                                                                                    |         | $                                  | 13,374       |                              | $            | 12,904 |   |

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

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**Intelligent        Systems Corporation**

**CONSOLIDATED        STATEMENTS OF OPERATIONS**

*(unaudited;        in thousands, except share and per share amounts)*

|                                                                             |   | **Three                  Months Ended****September                  30,** |      | **Nine                  Months Ended****September                  30,** |   |
|----------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|-----------|--------------------------------------------------------------------------|--------|
|                                                                             |   | **2005**                                                                  |      | **2004**                                                                 |   | **2005** |   | **2004** |   |
| Revenue                                                                          |   |                                                                      |      |                                                                     |   |   |   |   |   |
|                     Products                                           |   | $                                                                         | 1,637     |                                                                     | $      | 4,291 |   | $ | 6,520 |   | $ | 9,303 |   |
|                     Services                                           |   |                                                                      | 1,641     |                                                                     |   | 6,125 |   |   | 4,998 |   |   | 9,068 |   |
|     Total                  revenue                           |   |                                                                      | 3,278     |                                                                     |   | 10,416 |   |   | 11,518 |   |   | 18,371 |   |
| Cost                  of sales                                                   |   |                                                                      |      |                                                                     |   |   |   |   |   |   |   |   |   |
|                     Products                                           |   |                                                                      | 735       |                                                                     |   | 1,054 |   |   | 2,466 |   |   | 2,843 |   |
|                     Services                                           |   |                                                                      | 787       |                                                                     |   | 2,775 |   |   | 2,636 |   |   | 4,292 |   |
|     Total                  cost of sales                     |   |                                                                      | 1,522     |                                                                     |   | 3,829 |   |   | 5,102 |   |   | 7,135 |   |
| Operating                  expenses                                              |   |                                                                      |      |                                                                     |   |   |   |   |   |   |   |   |   |
|     Marketing                                                |   |                                                                      | 457       |                                                                     |   | 634 |   |   | 1,599 |   |   | 1,981 |   |
|     General                  & administrative            |   |                                                                      | 951       |                                                                     |   | 996 |   |   | 2,710 |   |   | 2,805 |   |
|     Research                  & development              |   |                                                                      | 1,742     |                                                                     |   | 1,684 |   |   | 5,044 |   |   | 5,885 |   |
| Income                  (loss) from operations                                   |   |                                                                      | (1,394    | )                                                                        |   | 3,273 |   |   | (2,937 | ) |   | 565 |   |
| Other                  income (expense)                                          |   |                                                                      |      |                                                                     |   |   |   |   |   |   |   |   |   |
|     Interest                  income (expense), net          |   |                                                                      | 1         |                                                                     |   | 2 |   |   | 20 |   |   | (6 | ) |
|     Investment                  income (loss), net           |   |                                                                      | (48       | )                                                                        |   | 1,728 |   |   | 1,908 |   |   | 1,357 |   |
|     Equity                  in income of affiliate companies |   |                                                                      | 358       |                                                                     |   | 46 |   |   | 393 |   |   | 59 |   |
|     Other                  income (loss), net                |   |                                                                      | (22       | )                                                                        |   | (33 | ) |   | (1 | ) |   | 17 |   |
| Income                  (loss) before income tax provision                       |   |                                                                      | (1,105    | )                                                                        |   | 5,016 |   |   | (617 | ) |   | 1,992 |   |
| Income                  tax provision                                            |   |                                                                      | 53        |                                                                     |   | — |   |   | 65 |   |   | — |   |
| Net                  income (loss)                                               |   | $                                                                         | (1,158    | )                                                                        | $      | 5,016 |   | $ | (682 | ) | $ | 1,992 |   |
| Basic                  net income (loss) per share                               |   | $                                                                         | (0.26     | )                                                                        | $      | 1.12 |   | $ | (0.15 | ) | $ | 0.44 |   |
| Diluted                  net income (loss) per share                             |   | $                                                                         | (0.26     | )                                                                        | $      | 1.09 |   | $ | (0.15 | ) | $ | 0.43 |   |
| Basic                  weighted average shares outstanding                       |   |                                                                      | 4,478,971 |                                                                     |   | 4,478,971 |   |   | 4,478,971 |   |   | 4,478,971 |   |
| Diluted                  weighted average shares outstanding                     |   |                                                                      | 4,478,971 |                                                                     |   | 4,584,210 |   |   | 4,478,971 |   |   | 4,585,742 |   |

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

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**Intelligent        Systems Corporation**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

*(unaudited,        in thousands)*

|                                                                                                                                                  |   | **Nine                  Months Ended September 30,** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|
| **CASH                  PROVIDED BY (USED FOR):**                                                                                                     |   | **2005**                                             |   | **2004** |   |
|                                                                                                                                                  |   |                                                 |   |   |   |
| **OPERATIONS:**                                                                                                                                       |   |                                                 |   |   |   |
|                     Net income (loss)                                                                                                       |   | $                                                    | (682 | ) | $ | 1,992 |   |
|                     Adjustments to reconcile net income (loss) to net cash used for                  operating                  activities: |   |                                                 |   |   |   |   |   |
|                           Depreciation and amortization                                                       |   |                                                 | 382 |   |   | 432 |   |
|                           Deferred gain recognized                                                            |   |                                                 | — |   |   | (34 | ) |
|                           Investment income                                                                   |   |                                                 | (1,908 | ) |   | (1,357 | ) |
|                           Equity in income of affiliate companies                                             |   |                                                 | (393 | ) |   | (59 | ) |
|                           Changes in operating assets and liabilities                                         |   |                                                 |   |   |   |   |   |
|             Accounts                  receivable                                          |   |                                                 | 798 |   |   | (584 | ) |
|             Inventories                                                                   |   |                                                 | (149 | ) |   | 44 |   |
|             Other                  current assets                                         |   |                                                 | (143 | ) |   | (87 | ) |
|             Other                  non-current assets                                     |   |                                                 | 8 |   |   | (12 | ) |
|             Accounts                  payable                                             |   |                                                 | 17 |   |   | 154 |   |
|             Deferred                  revenue                                             |   |                                                 | 1,134 |   |   | (2,970 | ) |
|             Accrued                  payroll                                              |   |                                                 | 71 |   |   | (344 | ) |
|             Accrued                  expenses and other current liabilities               |   |                                                 | 153 |   |   | 388 |   |
| Net                  cash used for operating activities                                                                                               |   |                                                 | (712 | ) |   | (2,437 | ) |
|                                                                                                                                                  |   |                                                 |   |   |   |   |   |
| **INVESTING                  ACTIVITIES:**                                                                                                            |   |                                                 |   |   |   |   |   |
|                     Proceeds related to sale of investments                                                                                 |   |                                                 | 2,243 |   |   | 2,645 |   |
|                     Distributions from long-term investments                                                                                |   |                                                 | 28 |   |   | 180 |   |
|                     Repayments under notes receivable                                                                                       |   |                                                 | — |   |   | 15 |   |
|                     Purchases of intangible assets                                                                                          |   |                                                 | (6 | ) |   | — |   |
|                     Purchases of property and equipment                                                                                     |   |                                                 | (329 | ) |   | (178 | ) |
| Net                  cash provided by investing activities                                                                                            |   |                                                 | 1,936 |   |   | 2,662 |   |
|                                                                                                                                                  |   |                                                 |   |   |   |   |   |
| **FINANCING                  ACTIVITIES:**                                                                                                            |   |                                                 |   |   |   |   |   |
|                     Borrowings under short-term borrowing arrangements                                                                      |   |                                                 | 836 |   |   | 1,835 |   |
|                     Repayments under short-term borrowing arrangements                                                                      |   |                                                 | (1,103 | ) |   | (1,960 | ) |
| Net                  cash used for financing activities                                                                                               |   |                                                 | (267 | ) |   | (125 | ) |
|                                                                                                                                                  |   |                                                 |   |   |   |   |   |
| Effects                  of exchange rate changes on cash                                                                                             |   |                                                 | 47 |   |   | (18 | ) |
| Net                  increase in cash                                                                                                                 |   |                                                 | 1,004 |   |   | 82 |   |
| Cash                  at beginning of period                                                                                                          |   |                                                 | 670 |   |   | 1,133 |   |
| Cash                  at end of period                                                                                                                |   | $                                                    | 1,674 |   | $ | 1,215 |   |
|                                                                                                                                                  |   |                                                 |   |   |   |   |   |
| **SUPPLEMENTAL                  DISCLOSURE OF CASH FLOW INFORMATION:**                                                                                |   |                                                 |   |   |   |   |   |
| Cash                  paid during the period for interest                                                                                             |   | $                                                    | 7 |   | $ | 6 |   |

| *The                  accompanying notes are an integral part of these consolidated financial                  statements.* |
|-----------------------------------------------------------------------------------------------------------------------------|

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**Intelligent        Systems Corporation**

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

| 1.   | Throughout                  this report, the terms “we”, “us”, “ours”, “ISC” and “company” refer to                  Intelligent Systems Corporation, including its majority-owned                  subsidiaries. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | The                  unaudited consolidated financial statements presented in this Form                  10-QSB                  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 and results of operations as of and for the                  three and                  nine month periods ended September 30, 2005 and 2004. The interim                  results                  for the three and nine months ended September 30, 2005 are not                  necessarily                  indicative of the results to be expected for the full year. These                  financial statements should be read in conjunction with our consolidated                  financial statements and notes thereto for the fiscal year ended                  December                  31, 2004, as filed in our annual report on Form                  10-KSB. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3*.*   | *Change                  in Accounting Policy*                  -                  Effective April 1, 2005, we changed our method of depreciation                  for                  machinery, equipment, furniture and fixtures placed in service                  after March                  31, 2005 to the straight-line method. This change was applied on                  a                  prospective basis to assets acquired after that date. Our previous                  policy                  of depreciation for additions of such assets was the 150% declining                  balance method. Assets placed in service prior to the effective                  date of                  the change continue to be depreciated using accelerated methods.                  We                  changed our method of depreciation based upon management’s belief that the                  straight-line method provides a better matching of costs and revenues.                  Given our circumstances and the character of our assets and operations,                  we                  believe the straight-line method is preferable. There is no cumulative                  effect of this change. The effect of this change on net income                  for the                  quarter ended September 30, 2005 was to reduce the net loss by                  approximately $3,000 or $0.001 per share ($8,000 or $0.002 per                  share since                  April 1, 2005.) * * |
|------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.   | *Stock-Based                  Compensation*                  -                  At September 30, 2005, we had two stock-based compensation plans.                  We                  account for the plans under the intrinsic value recognition and                  measurement principles of Accounting Principles Board (“APB”) No. 25,                  “Accounting for Stock Issued to Employees,” and related interpretations.                  The intrinsic value recognition is measured by the difference between                  the                  exercise price and the market value of the underlying securities.                  Based on                  the additional disclosure requirements of Statement of Financial                  Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based                  Compensation - Transition and Disclosure - an Amendment to SFAS                  No. 123”,                  the following table illustrates the effect of net income (loss)                  and                  earnings (loss) per share if we had applied the fair value recognition                  provisions of SFAS No. 123, “Accounting for Stock-Based                  Compensation”. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                            |   | Three                  Months Ended 9/30, |    | Nine                  MonthsEnded 9/30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|-----------------------------------------|--------|
| *(in                  thousands, except per share data)*                                                                                                        |   | 2005                                      |    | 2004                                    |   | 2005 |   | 2004 |   |
| Net                  income (loss), reported                                                                                                                    |   | $                                         | (1,158  | )                                       | $      | 5,016 |   | $ | (682 | ) | $ | 1,992 |   |
| Add:                  stock-based employee compensation included in reported net income                  (loss)                                                 |   |                                      | — |                                    |   | — |   |   | — |   |   | — |   |
| Deduct:                      stock-based compensation expense determined under fair value                      based method                      for all awards |   |                                      | (10     | )                                       |   | (10 | ) |   | (28 | ) |   | (30 | ) |
| Pro                  forma net income (loss)                                                                                                                    |   | $                                         | (1,168  | )                                       | $      | 5,006 |   | $ | (710 | ) | $ | 1,962 |   |
| Pro                  forma net income (loss) per common share, basic                                                                                            |   | $                                         | (0.26   | )                                       | $      | 1.12 |   | $ | (0.16 | ) | $ | 0.44 |   |
| Pro                  forma net income (loss) per common share, diluted                                                                                          |   | $                                         | (0.26   | )                                       | $      | 1.09 |   | $ | (0.16 | ) | $ | 0.43 |   |

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| 5.   | *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 provided through three                  subsidiaries: QS Technologies, Inc., VISaer, Inc., and CoreCard                  Software,                  Inc. Operations in the Industrial Products segment include the                  manufacture                  and sale of bio-remediating parts washing systems by our ChemFree                  Corporation subsidiary. Total revenue by industry segment includes                  sales                  to unaffiliated customers. Sales between our 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.                  The table following contains segment information for the three                  and nine                  months ended September 30, 2005 and                  2004. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                            |   | Three                  Months EndedSeptember                  30, |   | Nine                  Months EndedSeptember                  30, |   |
|-----------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|
| *(unaudited*,                  *in                  thousands)* |   | 2005                                                              |   | 2004                                                             |   | 2005 |   | 2004 |   |
| *Information                  Technology*                       |   |                                                              |   |                                                             |   |   |   |   |   |
| Revenue                                                         |   | $                                                                 | 1,862  |                                                             | $      | 9,072 |   | $ | 6,956 |   | $ | 13,662 |   |
| Operating                  income (loss)                        |   |                                                              | (1,221 | )                                                                |   | 3,615 |   |   | (2,722 | ) |   | 1,099 |   |
| *Industrial                  Products*                          |   |                                                              |   |                                                             |   |   |   |   |   |   |   |   |   |
| Revenue                                                         |   |                                                              | 1,416  |                                                             |   | 1,344 |   |   | 4,562 |   |   | 4,709 |   |
| Operating                  income (loss)                        |   |                                                              | 31     |                                                             |   | (129 | ) |   | 473 |   |   | 95 |   |
| *Consolidated                  Segments*                        |   |                                                              |   |                                                             |   |   |   |   |   |   |   |   |   |
| Revenue                                                         |   | $                                                                 | 3,278  |                                                             | $      | 10,416 |   | $ | 11,518 |   | $ | 18,371 |   |
| Operating                  income (loss)                        |   |                                                              | (1,190 | )                                                                |   | 3,486 |   |   | (2,249 | ) |   | 1,194 |   |

|                                                                        |   |   |   |   |   |    |   |   |   |   |   |    |   |
|-----------------------------------------------------------------------------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|---------|--------|
| Consolidated                    segments operating  income (loss) |   | $      | (1,190 | )      | $      | 3,486   |   | $      | (2,249 | )      | $      | 1,194   |   |
| Corporate                    expenses                                       |   |   | (204   | )      |   | (213    | )      |   | (688   | )      |   | (629    | )      |
| Consolidated                    operating income (loss)                     |   | $      | (1,394 | )      | $      | 3,273   |   | $      | (2,937 | )      | $      | 565     |   |
| Interest                    income (expense)                                |   |   | 1      |   |   | 2       |   |   | 20     |   |   | (6      | )      |
| Investment                    income (loss)                                 |   |   | (48    | )      |   | 1,728   |   |   | 1,908  |   |   | 1,357   |   |
| Equity                    in income of affiliates                           |   |   | 358    |   |   | 46      |   |   | 393    |   |   | 59      |   |
| Other                    income (loss)                                      |   |   | (22    | )      |   | (33     | )      |   | (1     | )      |   | 17      |   |
| Income                    (loss) before income tax                          |   | $      | (1,105 | )      | $      | 5,016   |   | $      | (617   | )      | $      | 1,992   |   |
| Income                    tax provision                                     |   |   | 53     |   |   | — |   |   | 65     |   |   | — |   |
| Net                    income (loss)                                        |   | $      | (1,158 | )      | $      | 5,016   |   | $      | (682   | )      | $      | 1,992   |   |
|                                                                        |   |   |   |   |   |    |   |   |   |   |   |    |   |
| *Depreciation                    and Amortization*                          |   |   |   |   |   |    |   |   |   |   |   |    |   |
| Information                    Technology                                   |   | $      | 63     |   | $      | 61      |   | $      | 197    |   | $      | 279     |   |
| Industrial                    Products                                      |   |   | 59     |   |   | 49      |   |   | 176    |   |   | 132     |   |
| Consolidated                    segments                                    |   |   | 122    |   |   | 110     |   |   | 373    |   |   | 411     |   |
| Corporate                                                                   |   |   | 2      |   |   | 8       |   |   | 9      |   |   | 21      |   |
| Consolidated                    depreciation and amortization               |   | $      | 124    |   | $      | 118     |   | $      | 382    |   | $      | 432     |   |
| *Capital                    Expenditures*                                   |   |   |   |   |   |    |   |   |   |   |   |    |   |
| Information                    Technology                                   |   | $      | 44     |   | $      | 15      |   | $      | 101    |   | $      | 16      |   |
| Industrial                    Products                                      |   |   | 14     |   |   | 55      |   |   | 194    |   |   | 160     |   |
| Consolidated                    segments                                    |   |   | 58     |   |   | 70      |   |   | 295    |   |   | 176     |   |
| Corporate                                                                   |   |   | 3      |   |   | 3       |   |   | 34     |   |   | 2       |   |
| Consolidated                    capital expenditures                        |   | $      | 61     |   | $      | 73      |   | $      | 329    |   | $      | 178     |   |

|                                    |   | September                  30, 2005 |   | December                  31, 2004 |   |
|-----------------------------------------|--------|-------------------------------------|--------|------------------------------------|--------|
|                                    |   |  *(unaudited)*                 |        |                               |   |
| *Identifiable                  Assets*  |   |                                |   |                               |   |
| Information                  Technology |   | $                                   | 4,259  |                               | $      | 4,777 |   |
| Industrial                  Products    |   |                                | 3,266  |                               |   | 3,013 |   |
| Consolidated                  segments  |   |                                | 7,525  |                               |   | 7,790 |   |
| Corporate                               |   |                                | 5,849  |                               |   | 5,114 |   |
| Consolidated                  assets    |   | $                                   | 13,374 |                               | $      | 12,904 |   |

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| 6.   | *Comprehensive                  Income (Loss)*                  -                  In accordance with Financial Accounting Standards Board Statement                  No. 130,                  “Reporting Comprehensive Income”, comprehensive income (loss) is the total                  of net income (loss) and all other non-owner changes in equity                  in a                  period. A summary follows: |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Consolidated                  Statements of Comprehensive Income (Loss)                |   | Three                  Months Ended 9/30, |   | Nine                  Months Ended 9/30, |   |
|----------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------|--------|
| *(unaudited,                  in thousands)*                                           |   | 2005                                      |   | 2004                                     |   | 2005 |   | 2004 |   |
| Net                  income (loss)                                                     |   | $                                         | (1,158 | )                                        | $      | 5,016 |   | $ | (682 | ) | $ | 1,992 |   |
| Other                  comprehensive income (loss):                                    |   |                                      |   |                                     |   |   |   |   |   |   |   |   |   |
|   Foreign                  currency translation adjustment                   |   |                                      | 15     |                                     |   | 2 |   |   | 47 |   |   | (18 | ) |
|   Unrealized                  income (loss) on available-for-sale securities |   |                                      | 82     |                                     |   | (13 | ) |   | (3 | ) |   | (13 | ) |
| Comprehensive                  income (loss)                                           |   | $                                         | (1,061 | )                                        | $      | 5,005 |   | $ | (638 | ) | $ | 1,961 |   |

| 7.* * | *Concentration                  of Revenue**** ****-**** ***The                  following table indicates the percentage of consolidated revenue                  represented by each customer for any period in which such customer                  represented more than 10% of consolidated                  revenue. |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                 |   | Three                  Months Ended Sept. 30 |    | Nine                  Months Ended Sept. 30, |   |
|--------------------------------------|--------|----------------------------------------------|---------|----------------------------------------------|--------|
| *(unaudited)*                        |   | 2005                                         |    | 2004                                         |   | 2005 |   | 2004 |   |
| VISaer                  Customer A   |   |                                         | — |                                         |   | 72% |   |   | — |   |   | 41% |   |
| VISaer                  Customer B   |   |                                         | 12%     |                                         |   | — |   |   | 11% |   |   | — |   |
| ChemFree                  Customer C |   |                                         | 10%     |                                         |   | — |   |   | — |   |   | — |   |

| 8.   | *Distributions                  from ISC Guernsey, Ltd.* -                  In the first and second quarters of 2005, we received cash distributions                  from ISC Guernsey, Ltd. in the amount of $1,042,000 and $1,075,000,                  respectively. Such amounts are reflected in investment income for                  the nine                  month period ended September 30, 2005. We do not expect to receive                  any                  additional distributions related to ISC Guernsey. For further information                  on the ISC Guernsey transaction, please refer to Note 2 to our                  Consolidated Financial Statements included in our 2004 Form                  10-KSB. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 9.**  ** | *Commitments                  and Contingencies -*Please                  refer to Note 8 to our Consolidated Financial Statements included                  in our                  2004 Form 10-KSB for a description of our commitments and                  contingencies. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.* * | *Write-down                  of Carrying Value of Investment -*During the quarter ended June 30,                  2005, we recorded a charge of $76,000 and $85,000, respectively,                  against                  the carrying values of our minority investments in privately-held                  Aderis                  Pharmaceuticals, Inc. and LanCope, Inc. to reflect our estimate                  of                  realizable value. Both entities had recent new financing transactions                  that                  indicated a non-temporary diminution in value of the asset. Such                  amounts                  are reflected in net investment income for the nine months ended                  September                  30, 2005. |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Item        2. Management’s Discussion and Analysis or Plan of        Operations**

*In        addition to historical information, this Form 10-QSB may contain forward-looking        statements relating to ISC. All statements, trend analysis and other information        relative to markets for our products and trends in revenue, gross margins        and        anticipated expense levels, as well as other statements including words such        as“anticipate”, “believe”, “plan”, “estimate”, “expect”, and “intend”, and other        similar expressions, constitute forward-looking statements. Prospective        investors are cautioned that any such forward-looking statements are not        guarantees of future performance and involve risks and uncertainties, and        that        actual results may differ materially from those contemplated by such        forward-looking statements included those factors described below under “Factors        That May Affect Future Performance”. ISC undertakes no obligation to update or        revise forward-looking statements to reflect changed assumptions, the occurrence        of unanticipated events or changes in future operating        results.*

*For        purposes of this discussion and analysis, we are assuming and relying upon        the        reader’s familiarity with the information contained in Item 6 Management’s        Discussion and Analysis or Plan of Operation, in the Form 10-KSB for the        year        ended December 31, 2004 as filed with the Securities and Exchange Commission.        *

**Overview**

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| ·                    | A                  change in revenue level at one of our subsidiaries may impact consolidated                  revenue or be offset by an opposing change at another                  subsidiary. |
|------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | Economic                  and marketplace trends may impact our subsidiaries differently                  or not at                  all and two of our software subsidiaries have limited experience                  in their                  marketplaces which makes it difficult to identify and evaluate                  trends that                  may impact their business. |
|------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | Two                  of our software subsidiaries, CoreCard Software and VISaer, have                  been                  involved in major new product development initiatives for the past                  four                  years and have limited experience delivering and installing their                  new                  products at customer sites, making it difficult to predict with                  certainty                  when they will recognize revenue on individual software contracts. |
|------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | Our                  subsidiaries are relatively small in revenue size and, in the Information                  Technology sector, license revenue at a subsidiary in a given period                  may                  consist of a relatively small number of contracts. Consequently,                  even                  small delays in a subsidiary’s delivery or customer acceptance under a                  software contract (which may be out of its control) could have                  a                  significant and unpredictable impact on consolidated revenue that                  we can                  recognize in a given quarterly or annual period. |
|------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Results        of Operations**

***Revenue***

***Cost        of Sales***

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***Operating        Expenses***

***Interest        Income (Expense)***

***Investment        Income (Loss)***

***Equity        in Income of Affiliate Companies***
*-*

***Other        Income (Loss), Net***
*-*

***Income        Taxes***

**Liquidity        and Capital Resources **

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**Critical        Accounting Policies and Estimates**

**Factors        That May Affect Future Operations**

| ·                    | Delays                  in software development projects which could cause our customers                  to delay                  implementations, delay payments or cancel contracts, which would                  increase                  our costs, reduce our revenue and increase our cash requirements.                  Presently both VISaer and CoreCard are behind on software development,                  testing and quality assurance for two key customer contracts. |
|------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | Undetected                  software errors which may delay product releases, increase our                  costs,                  result in non-acceptance of our software by customers or delay                  revenue                  recognition. |
|------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | Competitive                  pressures (including pricing, changes in customer requirements                  and                  preferences, and competitor product offerings) which may cause                  prospective                  customers to choose an alternative product solution, resulting                  in lower                  revenue and profits (or increased                  losses). |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·                    | The                  inability of our CoreCard or VISaer subsidiaries to establish a                  base of                  referenceable customers for their new product offerings, resulting                  in                  lower revenue and profits (or increased losses), increased cash                  needs and                  possibly leading to restructuring or cutting back of the subsidiary’s                  operations. |
|------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | Failure                  of our products’ specifications and features to achieve market                  acceptance. |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|

| ·                    | Delays                  in anticipated customer payments for any reason which would increase                  our                  cash requirements and possibly our                  losses. |
|------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | Declines                  in performance, financial condition or valuation of minority-owned                  companies which could cause us to write-down the carrying value                  of our                  investment or postpone an anticipated liquidity event, which could                  negatively impact our earnings and                  cash. |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | A                  worsening trend in the financial results, condition or outlook                  for the                  commercial aviation industry worldwide which could impact VISaer’s                  near-term customer purchases, thus increasing its losses and need                  for                  cash. |
|------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | The                  relatively limited sales and marketing experience of our VISaer                  and                  CoreCard subsidiaries in their respective markets could cause them                  to                  misinterpret or fail to interpret or adjust to a trend in the market                  or to                  underestimate the sales cycle time                  frame. |
|------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | In                  the Industrial Products market, failure by ChemFree to achieve                  its                  budgeted growth in international markets or to reverse the stagnation                  in                  sales through its domestic distributor network could cause lower                  than                  anticipated sales and profits. |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | An                  insufficient number of potential CoreCard customers decide to purchase                  and                  run an in-house software system and instead choose to outsource                  their                  account transaction processing which could result in lower revenue,                  increased costs and greater cash                  requirements. |
|------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | Budget                  reductions by state and local governments for information technology                  products that delay award of contracts or implementations for our                  QS                  Technologies subsidiary. |
|------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·                    | Other                  general economic and political conditions, particularly those which                  may                  cause international business and domestic government customers                  to delay or                  cancel software purchase decisions. |
|------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Item        3. Controls and Procedures**

**Part        II. OTHER INFORMATION**

**Item        6. Exhibits**

| 3(i) | Amendedand                    Restated Articles of Incorporation of the Registrant dated November                    14,                    1991, as amended November 25, 1997. (Incorporated by reference                    to Exhibit                    3.1 to the Registrant’s Annual Report on Form 10-K for the year ended                    December 31, 1991 and to Exhibit 3.1 to the Registrant’s Report on Form                    8-K dated November 25, 1997.) |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(ii) | Bylaws                  of the Registrant dated June 6, 1997. (Incorporated by reference                  to                  Exhibit 3(ii) of the Registrant’s Form 10-K/A for the year ended December                  31, 1997.) |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.1 | Rights                    Agreement dated as of November 25, 1997 between the Registrant                    and                    American Stock Transfer & Trust Company as Rights Agent. (Incorporated                    by reference to Exhibit 4.1 of the Registrant’s Report on Form 8-K dated                    November 25, 1997 and filed on December 16,                    1997.) |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.2 | Form                    of Rights Certificate. (Incorporated by reference to Exhibit                    4.2 of the                    Registrant’s Report on Form 8-K dated November 25, 1997 and filed on                    December 16, 1997.) |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 31.1 | Certification                    of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley                    Act of 2002. |
|------|-------------------------------------------------------------------------------------------------------------------------------------------|

| 31.2 | Certification                    of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley                    Act of 2002. |
|------|-------------------------------------------------------------------------------------------------------------------------------------------|

| 32.1 | Certification                      of Chief Executive Officer and Chief Financial Officer furnished                      as                      required by Section 906 of the Sarbanes-Oxley Act of                      2002. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**SIGNATURES**

|                                     |                                                                                      |                                                      |
|------------------------------------------|-------------------------------------------------------------------------------------------|-----------------------------------------------------------|
|                                     | INTELLIGENT                  SYSTEMS CORPORATION                                          |
|                                     | Registrant                                                                                |
|                                |                                                                                 |                                                 |
| Date:                  November 14, 2005 | By:                                                                             | */s/                  J.                  Leland Strange* |
|                                     | J.                    Leland StrangeChief                    Executive Officer, President |
|                                     |                                                                                      |

|                                       |                                                                                  |                                                         |
|--------------------------------------------|---------------------------------------------------------------------------------------|--------------------------------------------------------------|
|                                       |                                                                                  |                                                         |
| Date:                    November 14, 2005 | By:                                                                         | */s/                    Bonnie                    L. Herron* |
|                                       | Bonnie                        L. HerronChief                        Financial Officer |
|                                       |                                                                                  |

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