##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 1-9330
 INTELLIGENT SYSTEMS CORPORATION
  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
 þ o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer
o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



Intelligent Systems Corporation
 Index
Form 10-Q
 PagePart I Financial InformationItem 1 Financial StatementsConsolidated Balance Sheets at March 31, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 4 Controls and Procedures
    
    
    14Part II Other InformationItem 1 Legal Proceedings
    
    
    15Item 6 Exhibits
    
    
    15Signatures
    
    
    16Ex. 31.1 Section 302 Certification of Chief Executive OfficerEx. 31.2 Section 302 Certification of Chief Financial OfficerEx. 32.1 Section 906 Certification of Chief Executive Officer and Chief Financial Officer
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Part I FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Intelligent Systems Corporation
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share amounts)
 March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assets:Cash
    
    $
    588
    
    
    $
    1,074Accounts receivable, net
    
    
    1,636
    
    
    
    1,570Notes and interest receivable, current portion
    
    
    223
    
    
    
    353Inventories
    
    
    966
    
    
    
    1,051Other current assets
    
    
    270
    
    
    
    280Total current assets
    
    
    3,683
    
    
    
    4,328Long-term investments
    
    
    1,217
    
    
    
    1,209Notes and interest receivable, net of current portion
    
    
    1,338
    
    
    
    1,318Property and equipment, at cost less accumulated depreciation
    
    
    1,454
    
    
    
    1,583Other intangibles, net
    
    
    256
    
    
    
    268Total assets
    
    $
    7,948
    
    
    $
    8,706LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term borrowings
    
    $
    342
    
    
    $
    325Accounts payable
    
    
    938
    
    
    
    922Deferred revenue
    
    
    980
    
    
    
    983Accrued payroll
    
    
    425
    
    
    
    497Accrued expenses and other current liabilities
    
    
    950
    
    
    
    970Total current liabilities
    
    
    3,635
    
    
    
    3,697Long-term liabilities, net of current portion
    
    
    226
    
    
    
    249Commitments and contingencies (Note 8)Intelligent Systems Corporation stockholders equity:Common stock, $0.01 par value, 20,000,000 shares authorized, 4,478,971 shares
issued and outstanding at March 31, 2009 and December 31, 2008
    
    
    45
    
    
    
    45Additional paid-in capital
    
    
    18,459
    
    
    
    18,457Accumulated other comprehensive loss
    
    
    (105
    )
    
    
    (92
    )Accumulated deficit
    
    
    (15,828
    )
    
    
    (15,166
    )Total Intelligent Systems Corporation stockholders equity
    
    

    2,571
    
    
    
    3,244Noncontrolling interest 1
    
    
    1,516
    
    
    
    1,516Total stockholders equity
    
    
    4,087
    
    
    
    4,760Total liabilities and stockholders equity
    
    $
    7,948
    
    
    $
    8,706
 1.
    
    Prior years data have been reclassified to conform to the current years
presentation reflecting the adoption of Statement of Financial Accounting Standards No.160. 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 March 31,2009
    
    
    2008RevenueProducts
    
    $
    2,485
    
    
    $
    4,251Services
    
    
    303
    
    
    
    96Total revenue
    
    
    2,788
    
    
    
    4,347Cost of revenueProducts
    
    
    1,318
    
    
    
    2,386Services
    
    
    294
    
    
    
    201Total cost of revenue
    
    
    1,612
    
    
    
    2,587ExpensesMarketing
    
    
    444
    
    
    
    769General & administrative
    
    
    923
    
    
    
    1,317Research & development
    
    
    504
    
    
    
    808Loss from operations
    
    
    (695
    )
    
    
    (1,134
    )Other income (expense)Interest income (expense), net
    
    
    15
    
    
    
    (5
    )Equity in income of affiliate company
    
    
    7
    
    
    
    26Other income
    
    
    12
    
    
    
    Loss from continuing operations before income taxes
    
    
    (661
    )
    
    
    (1,113
    )Income taxes
    
    
    1
    
    
    
    12Loss from continuing operations
    
    
    (662
    )
    
    
    (1,125
    )Loss from discontinued operations
    
    
    
    
    
    
    (362
    )Net loss
    
    $
    (662
    )
    
    $
    (1,487
    )Loss per share from continuing operations:Basic
    
    $
    (0.15
    )
    
    $
    (0.25
    )Diluted
    
    $
    (0.15
    )
    
    $
    (0.25
    )Loss per share from discontinued operations:Basic
    
    $
    
    
    
    $
    (0.08
    )Diluted
    
    $
    
    
    
    $
    (0.08
    )Loss per share:Basic
    
    $
    (0.15
    )
    
    $
    (0.33
    )Diluted
    
    $
    (0.15
    )
    
    $
    (0.33
    )Basic weighted average common shares outstanding
    
    
    4,478,971
    
    
    
    4,478,971Diluted weighted average common shares outstanding
    
    
    4,478,971
    
    
    
    4,478,971
 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)
 Three Months Ended March 31,CASH PROVIDED BY (USED FOR):
    
    2009
    
    
    2008OPERATIONS:Net loss
    
    $
    (662
    )
    
    $
    (1,487
    )Adjustments to reconcile net loss to net cash used for operating activities:Depreciation and amortization
    
    
    124
    
    
    
    126Stock-based compensation expense
    
    
    3
    
    
    
    3Non-cash interest income, net
    
    
    (18
    )
    
    
    Equity in income of affiliate company
    
    
    (7
    )
    
    
    (26
    )Changes in operating assets and liabilitiesAccounts receivable
    
    
    (66
    )
    
    
    (418
    )Inventories
    
    
    85
    
    
    
    (46
    )Other current assets
    
    
    10
    
    
    
    (390
    )Accounts payable
    
    
    16
    
    
    
    164Deferred revenue
    
    
    (3
    )
    
    
    236Accrued payroll
    
    
    (72
    )
    
    
    (114
    )Accrued expenses and other current liabilities
    
    
    (20
    )
    
    
    666Other liabilities
    
    
    
    
    
    
    (22
    )Net cash used for operating activities
    
    
    (610
    )
    
    
    (1,308
    )INVESTING ACTIVITIES:Proceeds from notes and interest receivable
    
    
    129
    
    
    
    119Purchases of property and equipment
    
    
    17
    
    
    
    (131
    )Net cash provided by (used for) investing activities
    
    
    146
    
    
    
    (12
    )FINANCING ACTIVITIES:Borrowings under line of credit
    
    
    240
    
    
    
    1,400Repayments made under line of credit
    
    
    (223
    )
    
    
    Borrowings under notes payable
    
    
    
    
    
    
    124Payments on notes payable
    
    
    (24
    )
    
    
    (50
    )Net cash provided by (used for) financing activities
    
    
    (7
    )
    
    
    1,474Effects of exchange rate changes on cash
    
    
    (15
    )
    
    
    (5
    )Net increase (decrease) in cash
    
    
    (486
    )
    
    
    149Cash at beginning of period
    
    
    1,074
    
    
    
    554Cash at end of period
    
    $
    588
    
    
    $
    703SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    10
    
    
    $
    20Cash paid during the period for income taxes
    
    
    1
    
    
    
    12
 The accompanying notes are an integral part of these Consolidated Financial Statements.
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Intelligent Systems Corporation
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1.
    
    Throughout this report, the terms we, us, ours, ISC and company refer to
Intelligent Systems Corporation, including its wholly-owned and majority-owned subsidiaries.
 2.
    
    The unaudited Consolidated Financial Statements presented in this Form 10-Q have been
prepared in accordance with accounting principles generally accepted in the United States
applicable to interim financial statements. Accordingly, they do not include all of the
information and notes required for complete financial statements. In the opinion of ISC
management, these Consolidated Financial Statements contain all adjustments (which comprise
only normal and recurring accruals) necessary to present fairly the financial position and
results of operations as of and for the three month periods ended March 31, 2009 and 2008.
The interim results for the three months ended March 31, 2009 are not necessarily indicative
of the results to be expected for the full year. These statements should be read in
conjunction with our Consolidated Financial Statements and notes thereto for the fiscal year
ended December 31, 2008, as filed in our Annual Report on Form 10-K.
 3.
    
    Reclassification Certain prior period amounts have been reclassified to conform to the
current period presentation. On January 1, 2009, we adopted Statement of Financial Accounting
Standards No. 160 (SFAS No. 160) Noncontrolling Interests in Consolidated Financial
Statements  an amendment of ARB No. 51, the provisions of which, among others, require that
minority interests be renamed noncontrolling interests and be presented as a component of
equity for all periods presented. Accordingly, $1,516,000 of minority interest which had been
recorded in the liability section of the balance sheet at December 31, 2008 has been
reclassified to stockholders equity for all periods presented.
  4.
    
    Discontinued Operations As explained in more detail in Note 2 to the Consolidated Financial
Statements included in our Form 10-K for the year ended December 31, 2008, effective April 16,
2008, the company and two subsidiaries, VISaer, Inc. and VISaer (U.K.) Limited (collectively,
VISaer) completed the sale of substantially all the assets related to VISaers business
pursuant to the terms of an asset purchase agreement (the Asset Purchase Agreement) between
IBS Technics, Inc. (IBS Technics) and VISaer. IBS Technics is a subsidiary of IBS Software
Services, Inc., a software services company that had previously provided certain software
development services to VISaer as an independent third party contractor. The VISaer business
is presented as discontinued operations for all periods presented.
  Three Months Ended March 31,(unaudited, in thousands)
    
    2009
    
    
    2008Net sales
    
    $
    
    
    
    $
    628Operating loss
    
    
    
    
    
    
    (359
    )Loss from discontinued operations
    
    
    
    
    
    
    (361
    )
 5.
    
    Comprehensive Loss In accordance with Financial Accounting Standards Board Statement No.
130, Reporting Comprehensive Income, comprehensive loss is the total of net loss and all
other non-owner changes in equity in a period. A summary follows:
 Consolidated Statements of Comprehensive Loss
    
    Three Months Ended March 31,(unaudited, in thousands)
    
    2009
    
    
    2008Net loss
    
    $
    (662
    )
    
    $
    (1,487
    )Other comprehensive lossForeign currency translation adjustment
    
    
    (13
    )
    
    
    (5
    )Comprehensive loss
    
    $
    (675
    )
    
    $
    (1,492
    )
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6.
    
    Stock-based Compensation At March 31, 2009, we have two stock-based compensation plans in
effect. In December 2004, the FASB issued FASB Statement No. 123R, Share-Based Payment (SFAS
No. 123R) which replaced APB No. 25 and SFAS No. 123. We adopted SFAS No.123R effective
January 1, 2006 using the modified prospective application method of adoption which requires
us to record compensation cost related to unvested stock awards by recognizing the unamortized
grant date fair value in accordance with provisions of SFAS 123R on a straight line basis over
the service periods of each award. We have estimated forfeiture rates based on our historical
experience. Stock option compensation expense is recognized as a component of general and
administrative expenses in the accompanying Consolidated Financial Statements. As a result of
adopting SFAS No. 123R, we recorded $3,000 of stock-based compensation expense in each of the
three months ended March 31, 2009 and 2008.
   Wgt AvgRemaining
    
    
    AggregateWgt Avg
    
    
    Contractual Life
    
    
    Intrinsic# of Shares
    
    
    Exercise Price
    
    
    in Years
    
    
    ValueOutstanding at March 31, 2009
    
    
    221,000
    
    
    $
    2.46
    
    
    
    4.2
    
    
    
    Vested and exercisable at
March 31, 2009
    
    
    203,000
    
    
    $
    2.37
    
    
    
    3.7
    
    
    
    
  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 March 31,(unaudited)
    
    2009
    
    
    2008ChemFree Customer A
    
    
    14
    %
    
    
    14
    %ChemFree Customer B
    
    
    
    
    
    
    14
    %ChemFree Customer C
    
    
    35
    %
    
    
    42
    %ChemFree
Customer D
    
    
    13
    %
    
    
    
 8.
    
    Commitments and Contingencies Please refer to Note 9 to our Consolidated Financial
Statements included in our 2008 Form 10-K for a description of our commitments and
contingencies.
 Legal Matters
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9.
    
    Industry Segments Segment information is presented consistently with the basis described in
the 2008 Form 10-K. The following table contains segment information for continuing operations
for the three months ended March 31, 2009 and 2008.
 Three Months Ended March 31,(unaudited, in thousands)
    
    2009
    
    
    2008Information TechnologyRevenue
    
    $
    343
    
    
    $
    110Operating loss
    
    
    (579
    )
    
    
    (1,077
    )Industrial ProductsRevenue
    
    
    2,445
    
    
    
    4,237Operating income
    
    
    255
    
    
    
    318Consolidated SegmentsRevenue
    
    
    2,788
    
    
    
    4,347Operating loss
    
    
    (324
    )
    
    
    (759
    )Corporate expenses
    
    
    (371
    )
    
    
    (375
    )Consolidated operating loss from continuing operations
    
    $
    (695
    )
    
    $
    (1,134
    )Depreciation and AmortizationInformation Technology
    
    $
    1
    
    
    $
    34Industrial Products
    
    
    119
    
    
    
    81Consolidated segments
    
    
    120
    
    
    
    115Corporate
    
    
    4
    
    
    
    6Consolidated depreciation and amortization
    
    $
    124
    
    
    $
    121Capital ExpendituresInformation Technology
    
    $
    (22
    )
    
    $
    1Industrial Products
    
    
    3
    
    
    
    123Consolidated segments
    
    
    (19
    )
    
    
    124Corporate
    
    
    2
    
    
    
    6Consolidated capital expenditures
    
    $
    (17
    )
    
    $
    130
 (unaudited, in thousands)
    
    March 31, 2009
    
    
    December 31, 2008Identifiable AssetsInformation Technology
    
    $
    2,362
    
    
    $
    2,600Industrial Products
    
    
    4,079
    
    
    
    4,415Consolidated segments
    
    
    6,441
    
    
    
    7,015Corporate
    
    
    1,507
    
    
    
    1,691Consolidated assets
    
    $
    7,948
    
    
    $
    8,706
 10.
    
    Income Taxes Effective January 1, 2007, we adopted the provisions of Financial Accounting
Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109 (FIN No. 48). FIN No. 48 prescribes a recognition
threshold that a tax position is required to meet before being recognized in the financial
statements and provides guidance on derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and transition issues. We have
recognized tax benefits from all tax positions we have taken, and there has been no adjustment
to any carry forwards (net operating loss or research and development credits) as a result of
the implementation of FIN No. 48. The adoption of FIN No. 48 did not have a material effect on
our consolidated financial position or results of operations. As of March 31, 2009, we do not
have any unrecognized tax benefits and we do not anticipate any significant changes in the
balance of unrecognized tax benefits during the next twelve months.
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11.
    
    New Accounting Pronouncements In December 2007, the FASB issued Statement No. 160 (SFAS No.
160) Noncontrolling Interests in Consolidated Financial Statements  an amendment of ARB No.
51. SFAS No. 160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest (minority interest) in a subsidiary and the deconsolidation of a
subsidiary. It clarifies that the noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the consolidated
financial statements. It also changes the way the consolidated income statement is presented,
requiring disclosure on the face of the income statement of the amount of consolidated net
income attributable to the parent and to the noncontrolling interest. SFAS No. 160 also
establishes appropriate accounting for changes in a parents ownership interest that do not
result in deconsolidation and when a subsidiary is deconsolidated. SFAS No. 160 requires
expanded disclosure to identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008.
Accordingly, we adopted SFAS No. 160 on January 1, 2009. The adoption of SFAS No. 160
resulted in the renaming of a minority interest totaling $1,516,000 which had previously been
recorded in the liability section of the balance sheet to a noncontrolling interest presented
as a component of stockholders equity for all periods presented.
 " .
   12.
    
    Subsequent Event On April 17, 2009, we announced that we are planning to make a rights
offering of common stock to our shareholders. Under the terms of the rights offering, we will
distribute at no charge to the holders of our common stock non-transferable rights to purchase
 shares of our common stock. We will distribute one right for each share of common stock owned
by such holder on the record date which is May 22, 2009. Each right will entitle the holder to purchase one share
of our common stock at a subscription price of $.70 per share. Stockholders on the record date will also be entitled to subscribe,
subject to allotment among all subscribing stockholders, for additional shares not subscribed
for by other stockholders. A registration statement relating to the rights offering was filed
with the Securities and Exchange Commission on April 17, 2009
but is not yet effective. Subject to the registration statement being
declared effective, the rights offering is expected to commence of
May 22, 2009 and expire on June 22, 2009. We expect to use proceeds from
the rights offering primarily to support plans for our CoreCard subsidiary as well as other
general working capital purposes.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 In addition to historical information, this Form 10-Q may contain forward-looking statements
relating to ISC. All statements, trend analyses 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 including those factors described below under
Factors That May Affect Future Operations, and that actual results may differ materially from
those contemplated by such forward-looking statements. 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 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations, in the Form 10-K for the year ended December 31,
2008 as filed with the Securities and Exchange Commission.
 Overview
   
    
    A change in revenue level at one of our subsidiaries may impact consolidated revenue or
be offset by an opposing change at another subsidiary.
 
    
    CoreCard has been involved in major new product development initiatives for a number of
years and does not have extensive experience delivering and implementing our software
products at customer sites, making it difficult to predict with certainty when it may
recognize revenue on individual software contracts.
 
    
    Customers may decide to postpone or cancel a planned implementation of our software for
any number of reasons, which may be unrelated to our software features or contract
performance, but which may affect the amount, timing and characterization of our deferred
and/or recognized revenue.
 
    
    Our subsidiaries are relatively small in revenue size and, in the Information Technology
sector, revenue in a given period may consist of a relatively small number of contracts.
Consequently, even small delays in a delivery under a software contract (which may be out of
our 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
 
    
    Revenue from products, which includes sales and leases of equipment and supplies in our
Industrial Products segment as well as software license fees related to the Information
Technology segment, was $2.5 million in the three month period ended March 31, 2009, a 42
percent decline compared to $4.3 million in the three months ended March 31, 2008. The
decline in product revenue in the first quarter of 2009 compared to the prior year is
primarily associated with a decline in domestic sales of ChemFree equipment (our Industrial
Products segment) due to the fact that in the first quarter of last year, a new customer was
in the middle of a national program to sell ChemFree products to its installed customer base,
resulting in a high initial volume of sales. With the initial rollout complete, the number of
new machines sold to this customer in the first quarter of 2009 was lower than during the
rollout period last year. Sales of ChemFrees fluid and filter consumables in the domestic
market increased significantly in the three month period of 2009 compared to 2008, reflecting
an increasing base of domestic users of its SmartWasher® part washers. There was a
period-to-period decline in international sales of equipment and fluid, reflecting the general
economic slowdown in certain European markets as well as changes in distributor requirements
from period to period. Software license revenue associated with the Information Technology
segment increased in the three month period ended March 31, 2009 compared to the three month
period ended March 31, 2008 but was not a significant contributor to product revenue in either
period. The company recognizes software license revenue generally upon completion of each
contract and acceptance by customers.
 
    
    Service revenue associated with the Information Technology segment was $303,000 in the
first quarter of 2009, more than double the level reported in the same period in 2008. The
change is attributed mainly to increased professional services projects that were completed
for CoreCard customers as well as an increase in our installed base of customers that pay for
maintenance and technical support.
 
    
    Due to general economic conditions and uncertainty about the impact of a slowing economy on
the automotive repair and supplies industry, ChemFree is planning for a relatively flat volume
of machine sales for the foreseeable future and is carefully managing its costs and inventory
levels accordingly. We expect that sales of replenishment fluid and filter the installed base
of customers and lease revenue will be relatively unaffected by fluctuations in general
economic conditions. Turmoil in the global financial markets could impact CoreCards revenue
and prospects in the foreseeable future if customers or prospects postpone software purchases
or implementations. We are carefully monitoring the evolving dynamics in the marketplace and
proactively lowered expenses going into 2009. We expect to support existing customers and
contracts and to continue to add new prospects and customers as opportunities arise in these
uncertain times.
 Cost of Revenue
 
    
    Cost of product revenue was 53 percent and 56 percent of product revenue in the three
months ended March 31, 2009 and 2008, respectively. Higher margin fluid and filters
represented a larger percentage of product revenue in the first quarter of 2009 than in the
comparable period in 2008, resulting in an improved gross margin.
 
    
    Cost of service revenue (which relates to our software business only) was significantly
lower as a percent of service revenue in the three month period ended March 31, 2009
compared to the same period last year. The mix of service revenue in a given period, as
well as the number of customers and new products being supported, impacts the gross margin
on service revenue. CoreCard is providing a high level of support to its initial customers
to ensure it builds a solid base of reference customers and puts in place an infrastructure
for future growth. Cost of providing routine maintenance and support services as a
percentage of service revenue is expected to decrease as
CoreCards installed base of customers increases, whereas the cost of professional services
as a percent of revenue is expected to have a relatively stable gross margin percentage from
period to period.
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Operating Expenses
 Interest
Income (Expense), net
 Equity in Income of Affiliate Company
 Other Income
 Income Taxes
 Discontinued Operations
 Loss from Discontinued Operations
 Liquidity and Capital Resources
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Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  Factors That May Affect Future Operations
   
    
    Turmoil in the global financial markets could have a serious negative impact on CoreCard
due to potential customers (most of whom are financial institutions or services firms)
delaying purchase or implementation decisions.
 
    
    Reluctance by financial institutions to act as sponsor banks for prospective customers
(such as issuers and processors of credit and prepaid cards) could increase CoreCards losses
and cash requirements.
 
    
    It is unclear to what extent the downturn in the domestic US economy could impact the
automotive parts and repair industry and reduce demand for ChemFrees SmartWasher® products.
 
    
    Delays in software development projects could cause our customers to delay implementations
or delay payments, which would increase our costs and reduce our revenue.
 
    
    Our CoreCard subsidiary could fail to deliver software products which meet the business and
technology requirements of its target markets within a reasonable time frame and at a price
point that supports a profitable, sustainable business model.
 
    
    One of ChemFrees
customers represented approximately 35 percent of our consolidated
revenue in the first quarter of 2009 and any unplanned changes in the volume of orders or
timeliness of payments from such customer could have a negative impact on inventory levels and
cash, at least in the near-term.
 
    
    Failure by ChemFree to protect its intellectual property assets could increase competition
in the marketplace and result in greater price pressure and lower margins, thus potentially
impacting sales, profits and projected cash flows.
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
    
    Software errors or poor quality control may delay product releases, increase our costs,
result in non-acceptance of our software by customers or delay revenue recognition.
 
    
    Compliance with the internal control over financial reporting requirements of Section 404
of the Sarbanes-Oxley Act of 2002 could increase operating expenses and divert management and
staff resources.
 
    
    Competitive pressures (including pricing, changes in customer requirements and preferences,
and competitor product offerings) may cause prospective customers to choose an alternative
product solution, resulting in lower revenue and profits (or increased losses).
 
    
    CoreCard could fail to establish a base of reference customers for its 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.
 
    
    In certain limited situations, ChemFree lease customers are permitted to terminate the
lease covering a SmartWasher® machine, requiring the unamortized balance of the original
machine cost to be written off which could reduce profits in that reporting period and result
in lower revenue in future periods.
 
    
    CoreCard could fail to retain key software developers and managers who have accumulated
years of know-how in our target markets and company products, or fail to attract and train a
sufficient number of new software developers and testers to support our product development
plans and customer requirements at projected cost levels.
 
    
    Delays in anticipated customer payments for any reason would increase our cash requirements
and possibly our losses.
 
    
    Declines in performance, financial condition or valuation of minority-owned companies 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 flow.
 
    
    Failure to meet the continued listing standards of NYSE Alternext U.S. could result in
delisting of our common stock, with a potentially negative impact on market price and
liquidity of our common stock.
 
    
    Other general economic and political conditions could cause customers to delay or cancel
software purchases.
 
 Item 4. Controls and Procedures
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Part II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 6. Exhibits
  3.1
    
    
    Amended and 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.)3.2
    
    
    Bylaws of the Registrant dated December 7, 2007. (Incorporated by reference to Exhibit 3.2 of
the Registrants Form 8-K dated December 7, 2007.)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
RegistrantDate:  May 15, 2009
    By:
    /s/ J. Leland StrangeJ. Leland StrangeChief Executive Officer, PresidentDate:  May 15, 2009
    By:
    /s/ Bonnie L. HerronBonnie L. HerronChief Financial Officer  Page 16




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EXHIBIT INDEX
 ExhibitNo.
    
    Descriptions3 .1
    
    
    Amended and 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.)3.2
    
    
    Bylaws of the Registrant dated December 7, 2007. (Incorporated by reference to Exhibit 3.2 of the
Registrants Form 8-K dated December 7, 2007.)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.
  Page 17