##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 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)
 Yes o No þ




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##### 



Intelligent Systems Corporation
 Index
 Form 10-Q
 PagePart I Financial InformationItem 1 Financial StatementsConsolidated Balance Sheets at March 31, 2011 and December 31, 2010
    
    
    3Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010
    
    
    4Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 4 Controls and Procedures
    
    
    13Part II Other InformationItem 1 Legal Proceedings
    
    
    13Item 5 Other Information
    
    
    14Item 6 Exhibits
    
    
    14Signatures
    
    
    14Exhibit 3.1EX.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 and per share amounts)
 March 31,
    
    
    December 31,2011
    
    
    2010(unaudited)
    
    
    (audited)ASSETSCurrent assets:Cash
    
    $
    2,901
    
    
    $
    2,942Accounts receivable, net
    
    
    2,325
    
    
    
    2,227Notes and interest receivable, current portion
    
    
    243
    
    
    
    600Inventories, net
    
    
    913
    
    
    
    833Other current assets
    
    
    643
    
    
    
    404Total current assets
    
    
    7,025
    
    
    
    7,006Investments
    
    
    1,295
    
    
    
    1,286Notes and interest receivable, net of current portion
    
    
    233
    
    
    
    473Property and equipment, at cost less accumulated depreciation
    
    
    1,290
    
    
    
    1,149Patents, net
    
    
    166
    
    
    
    177Total assets
    
    $
    10,009
    
    
    $
    10,091LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    500
    
    
    $
    322Deferred revenue, current portion
    
    
    1,765
    
    
    
    1,604Accrued payroll
    
    
    521
    
    
    
    550Accrued expenses
    
    
    656
    
    
    
    640Other current liabilities
    
    
    275
    
    
    
    307Total current liabilities
    
    
    3,717
    
    
    
    3,423Deferred revenue, net of current portion
    
    
    65
    
    
    
    70Other long-term liabilities
    
    
    114
    
    
    
    137Commitments and contingencies (Note 6)Intelligent Systems Corporation stockholders equity:Common stock, $0.01 par value, 20,000,000 shares authorized, 8,958,028 issued and
outstanding at March 31, 2011 and December 31, 2010
    
    
    90
    
    
    
    90Additional paid-in capital
    
    
    21,426
    
    
    
    21,418Accumulated other comprehensive loss
    
    
    1
    
    
    
    3Accumulated deficit
    
    
    (16,920
    )
    
    
    (16,566
    )Total Intelligent Systems Corporation stockholders equity
    
    
    4,597
    
    
    
    4,945Non-controlling interest
    
    
    1,516
    
    
    
    1,516Total stockholders equity
    
    
    6,113
    
    
    
    6,461Total liabilities and stockholders equity
    
    $
    10,009
    
    
    $
    10,091
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CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited; in thousands, except share and per share amounts)
 Three Months Ended March 31,2011
    
    
    2010RevenueProducts
    
    $
    3,032
    
    
    $
    3,347Services
    
    
    512
    
    
    
    350Total revenue
    
    
    3,544
    
    
    
    3,697Cost of revenueProducts
    
    
    1,548
    
    
    
    1,709Services
    
    
    278
    
    
    
    174Total cost of revenue
    
    
    1,826
    
    
    
    1,883ExpensesMarketing
    
    
    520
    
    
    
    566General & administrative
    
    
    918
    
    
    
    725Research & development
    
    
    639
    
    
    
    437Operating income (loss)
    
    
    (359
    )
    
    
    86Other income (expense)Interest income, net
    
    
    11
    
    
    
    27Equity in income (loss) of affiliate company
    
    
    9
    
    
    
    (12
    )Other income
    
    
    6
    
    
    
    6Income (loss) before income taxes
    
    
    (333
    )
    
    
    107Income taxes
    
    
    21
    
    
    
    23Net income (loss)
    
    $
    (354
    )
    
    $
    84Income (loss) per share:Basic
    
    $
    (0.04
    )
    
    $
    0.01Diluted
    
    $
    (0.04
    )
    
    $
    0.01Basic weighted average common shares outstanding
    
    
    8,958,028
    
    
    
    8,958,028Diluted weighted average common shares outstanding
    
    
    8,958,028
    
    
    
    8,962,767
 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):
    
    2011
    
    
    2010OPERATIONS:Net income (loss)
    
    $
    (354
    )
    
    $
    84Adjustments to reconcile net income (loss) to net cash used for operating activities:Depreciation and amortization
    
    
    61
    
    
    
    129Stock-based compensation expense
    
    
    8
    
    
    
    3Non-cash interest income, net
    
    
    (3
    )
    
    
    (18
    )Equity in (income) loss of affiliate company
    
    
    (9
    )
    
    
    12Changes in operating assets and liabilitiesAccounts receivable
    
    
    (98
    )
    
    
    (243
    )Inventories
    
    
    (80
    )
    
    
    186Other current assets
    
    
    (239
    )
    
    
    (128
    )Accounts payable
    
    
    177
    
    
    
    (26
    )Deferred revenue
    
    
    156
    
    
    
    (233
    )Accrued payroll
    
    
    (29
    )
    
    
    74Accrued expenses
    
    
    (38
    )
    
    
    (39
    )Net cash used for operating activities
    
    
    (448
    )
    
    
    (199
    )INVESTING ACTIVITIES:Proceeds from notes and interest receivable
    
    
    600
    
    
    
    (2
    )Purchases of property and equipment
    
    
    (191
    )
    
    
    (130
    )Net cash provided by (used for) investing activities
    
    
    409
    
    
    
    (132
    )FINANCING ACTIVITIES:Payments on notes payable
    
    
    
    
    
    
    (26
    )Net cash used for financing activities
    
    
    
    
    
    
    (26
    )Effects of exchange rate changes on cash
    
    
    (2
    )
    
    
    25Net decrease in cash
    
    
    (41
    )
    
    
    (332
    )Cash at beginning of period
    
    
    2,942
    
    
    
    2,795Cash at end of period
    
    $
    2,901
    
    
    $
    2,463SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    
    
    
    $
    2Cash paid during the period for income taxes
    
    $
    19
    
    
    $
    20
 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.
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, 2011 and 2010. The interim
results for the three months ended March 31, 2011 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,
2010, as filed in our Annual Report on Form 10-K.
 2.
    
    Comprehensive Income (Loss)
  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 March 31,(unaudited, in thousands)
    
    2011
    
    
    2010Net income (loss)
    
    $
    (354
    )
    
    $
    84Other comprehensive lossForeign currency translation adjustment
    
    
    (2
    )
    
    
    24Comprehensive income (loss)
    
    $
    (356
    )
    
    $
    108
 3.
    
    Stock-based Compensation
  At March 31, 2011, we have one stock-based compensation plan in
effect. We record compensation cost related to unvested stock awards by recognizing the
unamortized grant date fair value on a straight line basis over the vesting periods of each
award. We have estimated forfeiture rates based on our historical experience. Stock option
compensation expense for the periods ended March 31, 2011 and 2010 has been recognized as a
component of general and administrative expenses in the accompanying Consolidated Financial
Statements. We recorded $8,000 and $3,000 of stock-based compensation expense in the quarters
ended March 31, 2011 and 2010, respectively.
 The estimated fair value of options granted is calculated using the Black-Scholes option pricing
model with assumptions as previously disclosed in our 2010 Form 10-K.
 As of March 31, 2011, there is $62,000 of unrecognized compensation cost related to stock
options. During the three months ended March 31, 2011, a total of 80,000 options were granted at
fair market value, with one third of the options vesting on each anniversary date in 2012, 2013
and 2014. The following table summarizes options as of March 31, 2011:
 Wgt AvgRemaining
    
    
    AggregateWgt Avg
    
    
    Contractual Life
    
    
    Intrinsic# of Shares
    
    
    Exercise Price
    
    
    in Years
    
    
    ValueOutstanding at March 31, 2011
    
    
    274,000
    
    
    $
    2.00
    
    
    
    5.3
    
    
    $
    43,000Vested and exercisable at
March 31, 2011
    
    
    176,000
    
    
    $
    2.23
    
    
    
    2.9
    
    
    $
    26,540
 The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value
(the difference between the companys closing stock price on the last trading day of the first
quarter of 2011 and the exercise price, multiplied by the number of in-the-money options) that
would have been received by the option holders had all option holders exercised their options on
March 31, 2011. The amount of aggregate intrinsic value will change based on the fair market
value of the companys stock.
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4.
    
    Fair Value of Financial Instruments
  The carrying value of cash, accounts receivable, accounts
payable and certain other financial instruments (such as short-term borrowings, accrued
expenses, and other current liabilities) included in the accompanying consolidated balance
sheets approximates their fair value principally due to the short-term maturity of these
instruments. The carrying value of non-interest bearing note receivable beyond one year has
been discounted at a rate of 4% which approximates rates offered in the market for notes
receivable with similar terms and conditions. The fair value of equity method and cost method
investments has not been determined as it was impracticable to do so due to the fact that the
investee companies are relatively small, early stage private companies for which there is no
comparable valuation data available without unreasonable time and expense.
 Financial instruments that potentially subject us to concentrations of credit risk consist
principally of cash, trade accounts and note receivable. Our available cash is held in accounts
managed by third-party financial institutions. Cash may exceed the Federal Deposit Insurance
Corporation, or FDIC, insurance limits. While we monitor cash balances on a regular basis and
adjust the balances as appropriate, these balances could be impacted if the underlying financial
institutions fail. To date, we have experienced no loss or lack of access to our cash; however,
we can provide no assurances that access to our cash will not be impacted by adverse conditions
in the financial markets.
 5.
    
    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)
    
    2011
    
    
    2010ChemFree Customer A
    
    
    11
    %
    
    
    12
    %ChemFree Customer B
    
    
    33
    %
    
    
    35
    %ChemFree Customer C
    
    
    11
    %
    
    
    10
    %ChemFree Customer D
    
    
    11
    %
    
    
    
 6.
    
    Commitments and Contingencies
  Please refer to Note 7 to our Consolidated Financial
Statements included in our 2010 Form 10-K for a description of our commitments and
contingencies in addition to those disclosed here.
 Legal Matters  ChemFree Patent Matter  In December 2004, our ChemFree subsidiary filed a
patent infringement action against J. Walter Co. Ltd. and J. Walter, Inc. (J. Walter) in the
United States Court for the Northern District of Georgia. The complaint alleged that certain of
the defendants products infringed four U.S. patents held by ChemFree and sought a ruling to
compel the defendants to cease their infringing activities. The trial took place during the
week of July 13, 2009. On June 18, 2010, the judge issued his preliminary Findings of Fact and
Conclusions of Law which found (i) that certain of J. Walters products did infringe on
ChemFrees four patents-in-suit; (ii) in ChemFrees favor on the issue of the patents named
co-inventors and (iii) in J. Walters favor on the issue of invalidity of the four
patents-in-suit for obviousness. In his ruling on invalidity of four of ChemFrees patents due
to obviousness, the judge relied heavily on a 2007 U.S. Supreme Court ruling (issued more than
three years after ChemFrees lawsuit was filed) which modified the manner for determining
obviousness of a patent by replacing the long-standing rigid application of the teaching,
suggestion or motivation test for determining obviousness with an expansive and flexible
approach. On July 6, 2010, ChemFree filed a Motion for Reconsideration of the judges findings
and conclusions followed on July 23, 2010 by the filing of a Second Motion for Additional
Findings and Conclusions. In an unusual turn of events, in October 2010, the judge hearing the
case was arrested by the Federal Bureau of Investigation on criminal charges, subsequently
resigned and ChemFrees case was reassigned to a new judge. A hearing with the new judge was
held on February 11, 2011 and the parties have submitted various additional filings for the
judges consideration. We cannot be certain when the case will finally be disposed of or what
the ultimate resolution will be.
 From time to time we are or may become a party to a number of other legal matters arising in the
ordinary course of business. It is managements opinion that we are not currently involved in
any legal proceedings that will have a material adverse impact on our consolidated financial
position or results of operations.
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7.
    
    Industry Segments
  Segment information is presented consistently with the basis described in
the 2010 Form 10-K. The following table contains segment information for the three months ended
March 31, 2011 and 2010.
 Three Months Ended March 31,(unaudited, in thousands)
    
    2011
    
    
    2010Information TechnologyRevenue
    
    $
    550
    
    
    $
    562Operating loss
    
    
    (554
    )
    
    
    (277
    )Industrial ProductsRevenue
    
    
    2,994
    
    
    
    3,135Operating income
    
    
    582
    
    
    
    670Consolidated SegmentsRevenue
    
    
    3,544
    
    
    
    3,697Operating income (loss)
    
    
    29
    
    
    
    393Corporate expenses
    
    
    (388
    )
    
    
    (307
    )Consolidated operating income (loss)
    
    $
    (359
    )
    
    $
    86Depreciation and AmortizationInformation Technology
    
    $
    40
    
    
    $
    23Industrial Products
    
    
    18
    
    
    
    102Consolidated segments
    
    
    58
    
    
    
    125Corporate
    
    
    3
    
    
    
    4Consolidated depreciation and amortization
    
    $
    61
    
    
    $
    129Capital ExpendituresInformation Technology
    
    $
    127
    
    
    $
    99Industrial Products
    
    
    63
    
    
    
    31Consolidated segments
    
    
    190
    
    
    
    130Corporate
    
    
    1
    
    
    
    Consolidated capital expenditures
    
    $
    191
    
    
    $
    130
 (unaudited, in thousands)
    
    March 31, 2011
    
    
    December 31, 2010Identifiable AssetsInformation Technology
    
    $
    2,186
    
    
    $
    2,618Industrial Products
    
    
    6,289
    
    
    
    6,016Consolidated segments
    
    
    8,475
    
    
    
    8,634Corporate
    
    
    1,534
    
    
    
    1,457Consolidated assets
    
    $
    10,009
    
    
    $
    10,091
 8.
    
    Income Taxes
  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) in the past two years. As of March 31, 2011 and December 31, 2010, the
company has recorded a liability of $90,000, in connection with unrecognized tax benefits
related to uncertain tax positions. The liability includes $15,000 of interest and penalties.
As of March 31, 2011, management expects some incremental, but not significant, changes in
the balance of unrecognized tax benefits over the next twelve months.
 Our policy is to recognize accrued interest related to uncertain tax positions in interest
expense and related penalties, if applicable, in general and administrative expense. During the
three months ended March 31, 2011 and 2010, no interest or penalties were recognized.
 We file a consolidated U.S. federal income tax return for all subsidiaries in which our
ownership equals or exceeds 80%, as well as individual subsidiary returns in various states and
foreign jurisdictions. Our VISaer subsidiary filed a separate U.S. federal income tax return
prior to April 1, 2008. With few exceptions we are no longer subject to U.S. federal, state and
local or foreign income tax examinations by taxing authorities for years before 2006.
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9.
    
    Recent Accounting Pronouncements 
We have considered all recently issued accounting
pronouncements and do not believe the adoption of such pronouncements will have a material
impact on our Consolidated Financial Statements.
 10.
    
    Subsequent Event
  We evaluated subsequent events through the date when these financial
statements were issued. We are not aware of any significant events that occurred subsequent
to the balance sheet date but prior to the filing of this report that would have a material
impact on our Consolidated Financial Statements.
 
 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 6. Managements Discussion and Analysis of
Financial Condition and Results of Operations, in the Form 10-K for the year ended December 31,
2010 as filed with the Securities and Exchange Commission.
 Overview
   
    
    A change in revenue level at one of our subsidiaries may be offset by an opposing change
at another subsidiary.
 
    
    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.
 
    
    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 an unpredictable impact on
consolidated revenue that is recognized 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 $3.0 million in the three month period ended March 31, 2011,
compared to $3.3 million in the three months ended March 31, 2010. The slight decline in
product revenue in the first quarter of 2011 compared to the prior year is the net effect
of an increase in international revenue and total consumable supplies offset by a decline
in domestic sales of ChemFrees SmartWasher® parts washer machines. Software license
revenue associated with the Information Technology segment declined in the three month
period ended March 31, 2011 compared to the three month period ended March 31, 2010 due to
a change in a customers go-live date which postponed license revenue recognition until the
second quarter of 2011. By comparison, in the first quarter of 2010, CoreCard recognized
revenue on the successful installation of its first international customer. As we have
frequently cautioned, a number of factors, some of which may be outside of our control, can
cause delays in delivery of our software and implementation by the customer, thus delaying
license revenue recognition.
 
    
    Service revenue associated with the Information Technology segment was $512,000 in the
first quarter of 2011, a 46 percent increase compared to $350,000 in the first quarter of
2010. The change is attributed mainly to an increase in the installed base of CoreCard
customers that pay for maintenance and technical support as well as more professional
services projects that were completed for customers in 2011. We expect that professional
services revenue will continue to grow as CoreCards customer base increases; however, it
is not possible to predict with any accuracy the number and value of professional services
contracts that CoreCards customers will require in a given period. Customers typically
require our professional services to modify or enhance their CoreCard software
implementation based on their specific business strategy and operational requirements,
which vary from customer to customer and period to period.
 Cost of Revenue
 Operating Expenses
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Interest Income, net
 Equity in Income (Loss) of Affiliate Company
 Income Taxes
 Net Income (Loss) 
 Liquidity and Capital Resources
  
    
    an increase in accounts receivable of $98,000
 
    
    an increase of $80,000 in inventory due mainly to receipt of a shipment of backlogged
parts at the end of the quarter
 
    
    a net increase in deferred revenue of $156,000 reflecting milestone billings to
CoreCard customers in advance of revenue recognition
 
    
    an increase in accounts payable reflecting the timing of receipt of inventory parts at
quarter end
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Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  Factors That May Affect Future Operations
   
    
    Further weakness in the global financial markets could have a negative impact on CoreCard
due to potential customers (most of whom are financial institutions or services firms)
delaying purchase or implementation decisions.
 
    
    Stricter regulations and 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.
 
    
    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.
 
    
    As an alternative to licensing its software, CoreCard is now offering outsourced processing
services running on the CoreCard software system. There are numerous risks associated with
entering any new line of business and if CoreCard fails to manage the risks associated with
its processing operations, it could have a negative impact on our business.
 
    
    One of ChemFrees customers represented 31 percent of our consolidated revenue in the first
quarter of 2011 and any unplanned changes in the volume of orders or timeliness of payments
from such customer could potentially have a negative impact on inventory levels and cash, at
least in the near-term.
 
    
    It is unclear whether the activity in the ChemFree legal action described in Note 2 to the
Consolidated Financial Statements will have any impact on our ChemFree subsidiary in the
foreseeable future but if the finding of invalidity of certain of ChemFrees patents is
sustained in the judges final ruling, it could result in increased competition in the
marketplace and greater price pressure and lower margins, thus potentially impacting revenue,
profits and projected cash flows. In addition, it is possible that a negative ruling could
affect managements estimate of future cash flows related to the patents. This could result
in a write down of some or all of the unamortized carrying value of the patents, which was
$166,000 as of March 31, 2011.
 
    
    Delays in production or shortages of certain sole-sourced parts for our ChemFree products
could impact revenue and orders.
 
    
    Anticipated increases in prices of raw materials and sub-assemblies could reduce ChemFrees
gross profit if it is not able to offset such increased costs with higher selling prices for
its products or other reductions in production costs.
 
    
    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.
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
    
    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).
 
    
    Increasing and changing government regulations in the United States and foreign countries
related to such issues as data privacy, financial and credit transactions could require
changes to our products and services which could increase our costs and could affect our
existing customer relationships or prevent us from getting new customers.
 
    
    CoreCard could fail to expand its base of customers as quickly as anticipated, resulting in
lower revenue and profits (or increased losses) and increased cash needs.
 
    
    In certain situations, ChemFrees 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.
 
    
    Failure to meet the continued listing standards of NYSE Amex could result in delisting of
our common stock, with a potentially negative impact on the market price and liquidity of our
common stock.
 
    
    Our future capital needs are uncertain and depend on a number of factors; additional
capital may not be available on acceptable terms, if at all.
 
    
    Other general economic and political conditions could cause customers to delay or cancel
software purchases.
 
 Item 4.
    
    Controls and Procedures
  
 Part II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
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Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
  3.1
    
    
    Amended and Restated Articles of Incorporation of the Registrant dated May 4, 2011, filed
herewith.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.
 
 SIGNATURES
  INTELLIGENT SYSTEMS CORPORATION
RegistrantDate: May 9, 2011
    By:
    /s/ J. Leland StrangeJ. Leland StrangeChief Executive Officer, PresidentDate: May 9, 2011
    By:
    /s/ Bonnie L. HerronBonnie L. HerronChief Financial Officer  Page 14




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EXHIBIT INDEX
 ExhibitNo.

    
    Descriptions3.1
    
    
    Amended and Restated Articles of Incorporation of the Registrant dated May 4, 2011, filed herewith.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 15