<PAGE>
 
================================================================================

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-QSB
________________________________________________________________________________

         QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES 
                             EXCHANGE ACT OF 1934

    For the transition period from June 1, 1998 through September 30, 1998

                        Commission file number: 0-22057


                         GK INTELLIGENT SYSTEMS, INC.
            (Exact name of registrant as specified in its charter)


          Delaware                                           76-0513297
(State or other jurisdiction of                            (IRS Employer
incorporation or organization)                           Identification No.)

                          5555 San Felipe, Suite 625
                              Houston, TX  77056
                        (Address of principal offices)


                                (713) 840-7722
                        (Registrant's telephone number)


Securities registered pursuant to Section 12(b) of the Exchange Act:  Common
  Stock

Securities registered pursuant to Section 12(g) of the Exchange Act: Common
  Stock

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days.

Yes   X       No
    ------       ------- 

Issuer had no revenues for the quarter and four months ended September 30, 1998.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 30,642,238 shares of common stock,
$.001 par value, issued and outstanding at November 20, 1998.

================================================================================

<PAGE>
 
                         GK INTELLIGENT SYSTEMS, INC.

                           FORM 10-QSB REPORT INDEX



10-QSB Part and Item No.                                          Page No.
------------------------                                          --------

PART I-FINANCIAL INFORMATION


   ITEM 1. FINANCIAL STATEMENTS (Unaudited)

           Balance sheet as of September 30, 1998.................   3
   
           Statements of loss for the three and four months ended
            September 30, 1998 and 1997...........................   4
 
           Statements of cash flows for the four months ended
            September 30, 1998 and 1997...........................   5
                 
                 
   ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........   8
 
 
PART II-OTHER INFORMATION
 
   ITEM 1. LEGAL PROCEEDINGS......................................  10

   ITEM 2. CHANGES IN SECURITIES..................................  11

   ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................  12

   ITEM 4. SUBMISSION OF MATTERS TO A VOTE
            OF SECURITY HOLDERS...................................  12

   ITEM 5. OTHER INFORMATION......................................  12

   ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................  12
 

                                       2
<PAGE>
 
                          GK INTELLIGENT SYSTEMS, INC.
                        (A Development Stage Enterprise)

                                 BALANCE SHEET
                                  (Unaudited)
 
                                                            September 30,
                                                                 1998
                                                            -------------
                          Assets
                          ------

Current:                                                
 Cash ...................................................  $  1,679,434
 Other...................................................       232,460
                                                           ------------
Total Current Assets.....................................     1,911,894
                                                           ------------
Computer software costs, net.............................     1,888,982
Property and equipment, net..............................     1,235,260
                                                           ------------
Total Assets.............................................  $  5,036,136
                                                           ============ 

           Liabilities and Stockholders' Equity
           ------------------------------------

Current Liabilities:

  Accounts payable and accrued liabilities...............  $    521,720
  Capital lease obligations, current maturities..........        25,667
                                                           ------------
                                                               
Total Current Liabilities................................       547,387
                                                           ------------
                                                              
Capital lease obligations, less current maturities.......        77,654
                                                               
Other long term liabilities..............................       249,497
                                                               
Commitments and Contingencies                                 
Stockholders' Equity:                                          
  Series A preferred stock; redeemable and convertible         
    with liquidation preference of $6.00 per share.......       187,315
  Common stock...........................................        30,246
  Additional paid-in capital.............................    27,582,851
  Deficit accumulated during the development stage.......   (23,638,814)
                                                           ------------
                                                               
Total Stockholders' Equity...............................     4,161,598
                                                           ------------   
Total Liabilities and Stockholders' Equity...............  $  5,036,136
                                                           ============

           See accompanying notes to unaudited financial statements.

                                       3
<PAGE>
 
                         GK INTELLIGENT SYSTEMS, INC.
                       (A Development Stage Enterprise)
                                                               
                              STATEMENTS OF LOSS
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                    Three Months Ended             Four Months Ended
                                                       September 30,                 September 30,
                                                    -------------------           -------------------
                                                    1998           1997           1998           1997
                                                    ----           ----           ----           ----
<S>                                             <C>            <C>            <C>            <C>
 
Revenues.....................................   $        --    $        --    $        --    $        --
 
Costs and Expenses:
   Professional services.....................     2,890,539        373,985      3,106,836        420,014
   Compensation expense......................     1,211,891        368,531      1,391,344        550,436
   Depreciation and amortization.............       282,694        215,299        367,396        286,812
   Other general and administrative..........       422,535        133,812        502,746        168,386
                                                -----------    -----------    -----------    ----------- 
Net loss.....................................    (4,807,659)    (1,091,627)    (5,368,322)    (1,425,648)
 
Dividends on preferred stock.................       (28,315)            --        (54,815)            --
                                                -----------    -----------     -----------    -----------
Net loss applicable to common shareholders...   $(4,835,974)   $(1,091,627)   $(5,423,137)   $(1,425,648)
                                                ===========    ===========    ===========    =========== 
Basic net loss per share of common stock.....   $      (.16)   $      (.08)   $      (.19)   $      (.11)
                                                ===========    ===========    ===========    ===========  
Weighted Average Number of Shares of
   Common Stock Outstanding..................    29,367,324     13,893,702     29,082,381     13,567,040
                                                ===========    ===========    ===========    ===========  
</TABLE>
           See accompanying notes to unaudited financial statements.

                                       4
<PAGE>
 
                         GK INTELLIGENT SYSTEMS, INC.
                       (A Development Stage Enterprise)

                           STATEMENTS OF CASH FLOWS
                                  (Unaudited)

               Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
                                                                            Four Months Ended
                                                                               September 30,
                                                                       ---------------------------
                                                                            1998          1997
                                                                       ---------------------------
<S>                                                                     <C>            <C>
 
Operating activities:
  Net loss.....................................................         $(5,368,322)   $(1,425,648)
  Adjustments to reconcile net loss to
    net cash used in operating activities:
      Depreciation and amortization............................             367,396        286,812
      Issuance of common stock and warrants
        for various expenses...................................           1,820,608        525,707
      Changes in assets and liabilities:
        Other current assets...................................            (134,380)          (147)
        Accounts payable and accrued liabilities...............             538,441        (50,841)
                                                                        -----------    ----------- 
          Net cash used in operating activities................          (2,776,257)      (664,117)
                                                                        -----------    ----------- 
Investing activities:
  Purchased software...........................................                  --       (103,057)
  Purchased property and equipment.............................          (1,010,610)       (14,202)
                                                                        -----------    ----------- 
          Net cash used in investing activities................          (1,010,610)      (117,259)
                                                                        -----------    ----------- 
Financing activities:
  Proceeds from private placements and other share issuances...             232,411        529,464
  Repayment of borrowings......................................              (7,559)       (10,880)
                                                                        -----------    ----------- 
          Net cash provided by financing activities............             224,852        518,584
                                                                        -----------    ----------- 
Net decrease in cash and cash equivalents......................          (3,562,015)      (262,792)
 
Cash and cash equivalents at beginning of period...............           5,241,449        348,465
                                                                        -----------    ----------- 
Cash and cash equivalents at end of period.....................         $ 1,679,434    $    85,673
                                                                        ===========    =========== 
</TABLE>
           See accompanying notes to unaudited financial statements.

                                       5
<PAGE>
 
                         GK INTELLIGENT SYSTEMS, INC.
                       (A Development Stage Enterprise)

                         NOTES TO FINANCIAL STATEMENTS
                                  (Unaudited)


1.   ACCOUNTING POLICIES

The accompanying unaudited financial statements have been prepared in accordance
with the instructions to interim financial reporting as prescribed by the
Securities and Exchange Commission. All adjustments, which, in the opinion of
management, are necessary for a fair presentation of the results for the interim
periods have been reflected in the accompanying unaudited financial statements.
For further information regarding accounting policies, refer to the Company's
audited financial statements for the years ended May 31, 1998 and 1997 and for
the period from inception (October 4, 1993) through May 31, 1998 included in the
Company's 1998 Annual Report on Form 10-KSB.

Effective August 1998, the Company elected to change its year end to December
31. Accordingly, these interim financial statements present the (i)results of
operations for the quarter ended September 30, 1998 and the period from June 1
through September 30, 1998 (the "Transition Period") and (ii)cash flows for the
Transition Period. The results of operations and cash flows for the month of
June 1998, not previously reported, have been presented in Note 4.

2.  GOING CONCERN UNCERTAINTY AND MANAGEMENT PLANS

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  The Company has suffered recurring
operating losses since its inception that raise substantial doubt about its
ability to meet future expected expenditures necessary to fully develop its
software products and applications and to continue as a going concern.  The
financial statements do not reflect any adjustments that might result from the
outcome of this uncertainty.  In this regard, the Company is currently seeking
short and long term debt or equity financing sufficient to fund projected
working capital and software product development needs during the remainder of
calendar 1998 and thereafter.  However, there can be no assurance that the
amount and terms of such debt or equity financing, or that the profits from the
sale of software products will be sufficient to fund the Company's future
software development and working capital expenditure requirements.  Accordingly,
the Company will continue to seek additional sources of financing as may be
necessary.

3.  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

During the four months ended September 30, 1998, the Company recorded non-cash
compensation expense as a result of the issuance of 1,000,000 shares of common
stock to a board member at $.05 per share valued at $1,575,000 and recognition
of $245,607 of compensation to key professionals associated with common stock
options granted.  Non-cash compensation expense recorded during the four months
ended September 30, 1998 and 1997 was determined using the estimated fair market
value of the Company's common stock or common stock options on the date such
instruments were granted.

On August 3, 1998, Microelectronics and Computer Technology Corporation ("MCC"),
holder of 883,333 shares of the Company's Series A convertible, redeemable
preferred stock, converted the preferred stock, exclusive of accrued dividends,
into 883,333 shares of the Company's common stock.

Subsequent to September 30, 1998, the Company issued 31,219 shares of common
stock in full payment of $187,315 of accrued dividends on the Series A preferred
stock.

                                       6
<PAGE>
 
4.  TRANSITION PERIOD

In August 1998, the Company adopted a calendar year end that will become
effective December 31, 1998.  Accordingly, results of operations and cash flows
for the month of June 1998, not previously reported, are presented below and are
included in the Transition Period figures in the accompanying financial
statements.
<TABLE>
<CAPTION>
                                                                        Month Ended June 30,
                                                                   -----------------------------
                                                                       1998           1997
                                                                   -----------------------------
<S>                                                                 <C>            <C>
     STATEMENT OF LOSS:
          Revenues...............................................   $        --    $        --
          Costs and Expenses:
             Professional services...............................       216,297         46,029
             Compensation expense................................       179,453        181,905
             Depreciation and amortization.......................        84,702         71,513
             Other general and administrative....................        80,211         34,574
                                                                    -----------    -----------
          Net loss...............................................      (560,663)      (334,021)
          Dividends on preferred stock...........................       (26,500)            --
                                                                    -----------    -----------
          Net loss applicable to common shareholders.............   $  (587,163)   $  (334,021)
                                                                    ===========    ===========
          Basic net loss per share of common stock...............   $      (.02)   $      (.03)
                                                                    ============   ===========
          Weighted Average Number of Shares of
           Common Stock Outstanding..............................    28,208,554     12,565,275
                                                                    ===========    =========== 
STATEMENT OF CASH FLOWS:
          Operating activities:
            Net loss.............................................   $  (560,663)   $  (334,021)
            Adjustments to reconcile net loss to
              net cash used in operating activities:
              Depreciation and amortization......................        84,702         71,697
              Issuance of common stock and warrants
                  for various expenses...........................        44,933        153,489
                Changes in assets and liabilities:
                  Other current assets...........................      (127,695)      (166,500)
                  Accounts payable and accrued liabilities.......       205,583        (50,107)
                                                                    -----------    -----------
              Net cash used in operating activities..............      (353,140)      (325,442)
                                                                    -----------    -----------
          Investing activities:
            Purchased software...................................            --        (20,163)
            Purchased property and equipment.....................      (440,847)        (3,570)
                                                                    -----------    -----------
                     Net cash used in investing activities.......      (440,847)       (23,733)
                                                                    -----------    -----------
          Financing activities:
            Proceeds from private placements and
                other share issuances............................       156,005        397,100
            Repayment of borrowings..............................        (1,847)        (3,524)
                                                                    -----------    -----------
                     Net cash provided by financing activities...       154,158        393,576
                                                                    -----------    -----------
          Net increase (decrease) in cash and cash equivalents...      (639,829)        44,401
          Cash and cash equivalents at beginning of period.......     5,241,449        348,465
                                                                    -----------    -----------
          Cash and cash equivalents at end of period.............   $ 4,601,620    $   392,866
                                                                    ===========    ===========
</TABLE>

                                       7
<PAGE>
 
5.   SUBSEQUENT EVENTS

On November 10, 1998, Marcus Wray agreed to join the Company's board of
directors.  In connection therewith, the Company issued Mr. Wray an option to
purchase 1,000,000 shares of its common stock at an exercise price of $.05 per
share.  The option vests ratably over a one-year period and expires in ten
years. Non-cash compensation expense of approximately $4.9 million associated
with this transaction will be recognized by the Company over the vesting period.

In November 1998, the Company commenced a best-efforts private placement to
issue approximately 2.7 million shares of its common stock for approximately $8
million solely to accredited investors. As of November 20, 1998, the Company had
received commitments for 701,000 shares totaling approximately $2.1 million
(which includes approximately $1 million of notes receivable due January 11,
1999) from the placement.

PART I.   FINANCIAL INFORMATION - ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion should be read in conjunction with the attached
condensed financial statements and notes thereto.  Discussions relating to the
Company's operations, liquidity and capital resources contain certain statements
that are "Forward Looking Statements" within the meaning of Section 27A of the
Securities Act of 1933 ("Act") and Section 21E of the Securities Exchange Act of
1934 ("Exchange Act").  Although the Company believes that the expectations
reflected in Forward Looking Statements are reasonable, there can be no
assurances that such expectations will prove to be accurate.  Generally, these
statements relate to business plans, strategies, anticipated strategies, levels
of capital expenditures in current and future operations, liquidity and
anticipated capital financing needed to effect the business plan.  All phases of
the Company's operations are subject to a number of uncertainties, risks and
other influences, many of which are outside the control of the Company and
cannot be predicted with any degree of accuracy.  In light of the significant
uncertainties inherent in the Forward Looking Statements made in the following
discussion, the inclusion of such statements should not be regarded as a
representation by the Company of any other person that the objectives and plans
of the Company will be achieved.

OVERVIEW

The Company is a development stage enterprise engaged in the development of
sophisticated intelligent software products.  From inception (October 4, 1993)
through September 30, 1998, the Company has utilized funds obtained primarily
through private placements to purchase and begin commercial development of
intelligent software technologies.  As of November 13, 1998, the Company is in
the final stages of releasing its first product, an internet training course.
Accordingly, the Company has recorded no revenues and has incurred net losses
totaling approximately $24 million, including non-cash stock-based compensation
of approximately $12.8 million, during the period from inception through
September 30, 1998.  The operating losses incurred by the Company since its
inception raise substantial doubt about its ability to meet future expected
expenditures necessary to fully develop its software products and to continue as
a going concern.  The Company's independent accountants have issued an
explanatory paragraph in their opinion with respect to the Company's financial
statements for the year ended May 31, 1998 regarding the uncertainty concerning
the Company's ability to continue as a going concern. As of November 20, 1998,
the Company had received commitments from a private placement for 701,000 shares
totaling approximately $2.1 million (which includes approximately $1 million of
notes receivable due January 11, 1999) in order to fund near-term operations.

Costs of purchased software having alternative future uses in developing other
software products are (i)capitalized when acquired, (ii)amortized on a straight
line basis over their expected useful life of five years and (iii)reported at
the lower of unamortized cost or net realizable value.  Costs of internally
created computer software products are charged to expense when incurred as
research and development until technological feasibility has been established
for the product.  Technological feasibility is considered established upon
completion of a detailed program design or, in its absence, completion of a
working model.  Thereafter, all software production costs are capitalized and
subsequently reported at the lower of unamortized cost or net realizable value.
Capitalized costs are amortized based on the ratio of current revenue to current
and future revenue for each product with an annual minimum equal to the
straight-line amortization over the remaining estimated economic life of the
product.

                                       8
<PAGE>
 
RESULTS OF OPERATIONS

Revenues.  There were no revenues for the four months ended September 30, 1998
and 1997.  The Company anticipates the initial release of its first product, an
internet training course, during November 1998.

Expenses.  Expenses for the four months ended September 30, 1998 increased by
$3,943,000, or 277% from 1997 levels due to significant increases in
professional fees, compensation expense, depreciation and amortization and other
general and administrative expenses as described below.  Such increases are
primarily due to the (i)continued development of the Company's first product, an
internet training course, (ii)development of the Company's infrastructure and
operating systems and (iii)securing of key individuals for board of director and
other positions whose talents are consistent with the long-term goals of the
Company.

Professional services for the four months ended September 30, 1998 increased by
$2,687,000, or 640% from 1997 levels due primarily to (i)an increase in the
number of marketing, legal and other professionals used to develop and staff the
Company's infrastructure efforts in anticipation of the release of its first
product and (ii)the issuance of 1,000,000 shares of common stock to a board
member at $.05 per share valued at $1,575,000.

Compensation expense for the four months ended September 30, 1998 increased by
$841,000, or 153% from 1997 levels due primarily to the hiring of product
management, research and development, and administrative employees during 1998
to carry out the continued development and marketing of the Company's planned
software products.  In addition, $376,000 of compensation expense was accrued in
September 1998 as a result of the termination of an employment contract with a
former officer of the Company.

Depreciation and amortization for the four months ended September 30, 1998
increased by $81,000, or 28% from 1997 levels primarily due to increased
depreciation on furniture and equipment purchases made in conjunction with the
development of the Company's infrastructure and operating systems during the
four months ended September 30, 1998.

Other general and administrative expenses for the four months ended September
30, 1998 increased by $334,000, or 199% from 1997 levels due primarily to
increases in the number of employees, professionals and office space needed to
support the general increase in the Company's business activities described
above.


LIQUIDITY AND CAPITAL RESOURCES

Cash Used in Operating Activities.  The Company's net cash flow from operating
activities resulted in deficits of $2,776,000 and $664,000 for the four month
periods ended September 30, 1998 and 1997, respectively.  The $2,112,000
increase is due primarily to the increase in business activity undertaken by the
Company as described above.

Cash Used in Investing Activities.  The Company's net cash used in investing
activities during the four months ended September 30, 1998 increased by $894,000
to $1,011,000 from $117,000 in the same period in 1997 due primarily to
purchases of furniture, equipment and leasehold improvements associated with
development of the infrastructure and operating systems.

Cash Flow from Financing Activities. The Company's net cash flows from financing
activities during the four months ended September 30, 1998 decreased by $294,000
to $225,000 from $519,000 in the same period in 1997 due primarily to a
reduction in private placement proceeds received during the four months ended
September 30, 1998.

Future Capital Requirements. The Company requires substantial capital to pursue
its operating strategy and at September 30, 1998 had a cash balance of
$1,679,434.  Until the Company can obtain sales levels sufficient to fund
working capital needs, the Company will be dependent upon external sources of
financing.  To date the Company has no significant internal sources of liquidity
and it should be assumed that there will be no significant internal sources 

                                       9
<PAGE>
 
of liquidity for the foreseeable future. The current cash forecast indicates
that there will be negative cash flow from operations for at least the first
three quarters of the 1999 calendar year. In connection therewith, the Company
is currently engaged in a best-efforts private placement to issue approximately
2.7 million shares of its common stock for approximately $8 million solely to
accredited investors. As of November 20, 1998, the Company had received
commitments for 701,000 shares totaling approximately $2.1 million (which
includes approximately $1 million of notes receivable due January 11, 1999) from
the placement. Based on the Company's current plan of operations, it is
anticipated that its current cash balance, plus between $3 and $6 million
(depending upon the rate of expansion and other corporate expenditures) from the
private placement, will provide sufficient working capital through December
1998, and possibly thereafter. However, even if the above private placement
financing is obtained in full, the timing of the Company's immediate cash flow
needs may be extended or reduced depending upon actual revenues received from
sales of the Company's initial product, market interest in the Company's current
and future products, expenses incurred in the development, marketing and
advertising of its products and other working capital expenditures. In order to
fund operations for the balance of calendar year 1999 and thereafter, the
Company will require additional debt or equity financing. The Company has no
commitments for any additional financing and there can be no assurance that the
Company will be successful in raising funds, that the amount and terms of any
financing will be acceptable to the Company, or that the profits, if any, from
the sale of the Company's software product or products will be sufficient to
fund the Company's working capital, software development and marketing
expenditure requirements. Failure to obtain sufficient funding, either from the
current best-efforts private placement or from additional financing, will
adversely impact the Company's financial position, and could cause the Company
to curtail operations, sell assets, or take other actions as necessary in order
to meet cash flow requirements.

PART II.  OTHER INFORMATION

     ITEM 1.   LEGAL PROCEEDINGS -

          In October 1998, the Company, its president and a former officer were
          named as defendants in a class-action lawsuit; Griffin v. GK
          Intelligent Systems, Inc., et al.; filed in the Texas District Court
          of Harris County, Texas, Houston Division, Cause H-98-3847. The
          plaintiff has alleged violations of the securities laws, common law
          fraud, conspiracy, negligence, and negligent misrepresentation and is
          seeking unspecified damages. In November 1998, the Company filed a
          Notice of Removal in the United States District Court for the Southern
          District of Texas. The Company's answer is due to be filed on December
          4, 1998. To date, no discovery has been conducted. The Company is in
          the process of evaluating the plaintiff's claims and intends to
          vigorously defend the lawsuit.

          The Company is a defendant in Cause No. H-98-004; U.S. Quest, Ltd. and
          Jacody Financial, Inc. v. Gary Kimmons and GK Intelligent Systems,
          Inc.; in the Southern District Court of Texas, Houston Division. The
          lawsuit was filed in January 1998 and alleges, among other things,
          that the Company is liable to the plaintiffs for violation of state
          and federal securities laws, breach of contract and quantum meruit.
          The case arises out of services allegedly furnished by the plaintiffs
          to the Company, for which plaintiffs claim they did not receive
          compensation. The case was mediated without settlement in June 1998.
          Although the parties have engaged in informal discovery pursuant to
          the Court's order and an officer of the plaintiffs has given his
          deposition, the amount of the plaintiffs' demand is currently unknown
          except for its initial claim to 590,000 shares of the Company's Common
          Stock or $590,000. Plaintiffs have filed a motion for leave to amend
          their complaint that is still pending. If the motion is granted, the
          plaintiffs intend to add a defamation claim to their suit and add
          Rodney L. Norville as a party defendant. The Company denies any
          liability to the plaintiffs, and intends to vigorously defend the
          lawsuit.

          The Company is a defendant in Cause No. 98-35985; David Michael Sims
          v. GK Intelligent Systems, Inc. in the 189th Judicial District Court
          of Harris County, Texas.  The lawsuit was filed in July 1998, and
          alleges the Company is liable to the plaintiff for breach of contract
          and fraudulent misrepresentation.  The case arises out services
          allegedly performed by the plaintiff for which he did not receive
          compensation.  Although preliminary discovery has commenced, the
          precise amount of plaintiff's demand is currently unknown other than
          its initial claim for a commission of 

                                       10
<PAGE>
 
          approximately $500,000. The Company denies any liability to the
          plaintiff, and intends to vigorously defend the lawsuit.

          In September 1997, the Company entered into a consulting agreement
          with Union Atlantic, LC ("Union Atlantic") for performance of
          services.  The Company issued Union Atlantic a five year warrant to
          purchase 200,000 shares of Company Common Stock at an exercise price
          of $.9375 per share, and a five year warrant to purchase 112,500
          shares of Company Common Stock at an exercise price of $1.25 per share
          as compensation for services to be rendered.  Each of the warrants
          contained demand registration rights.  Union Atlantic resigned as a
          consultant to the Company in November 1997.  As no capital was raised
          by Union Atlantic, the Company sent a notice to Union Atlantic in July
          1998 canceling the warrants.  In August 1998, the Company received
          notice from Union Atlantic demanding registration of the warrants. The
          Company has contacted Union Atlantic and is in the process of
          determining Union Atlantic's legal rights, if any.

          The Company and Capella Computers, Ltd. ("Capella") are in the process
          of discussing their dispute about the termination of the Memorandum of
          Understanding As To A Joint Venture between the parties, which is
          discussed in the Company's Form 10-KSB for the fiscal year ending May
          31, 1998.  At the present time, there has been no resolution.

          In May 1997, the Company entered into a sales purchase/asset recovery
          agreement with SGD International Corp. ("SGD") pursuant to which the
          Company was to sell SGD certain of the Company's products for
          marketing purposes. In exchange for the products, SGD agreed to
          furnish the Company with merchandise, service and media credits. The
          period of exclusivity of the Agreement expired in May 1998. As the
          Company had not released any products, none were forwarded to SGD and
          the Company did not utilize any of the SGD credits. In July 1998, the
          Company sent SGD a notice of termination canceling the agreement. In
          August 1998, SGD sent a letter threatening a lawsuit for the Company's
          alleged breach of contract. The Company contacted SGD and is in the
          process of determining SGD's legal rights, if any.

          In August 1998, the Company received a letter from J. David Cabello,
          the former general counsel and secretary of the Company, in connection
          with Mr. Cabello's separation from employment with the Company. The
          Company's contractual obligations to Mr. Cabello turns on whether he
          resigned from his employment or whether he was terminated. Mr. Cabello
          has demanded $190,000 in total compensation and immediate vesting of
          600,000 shares of Company Common Stock. The Company contends Mr.
          Cabello resigned from his positions with the Company, and as such, Mr.
          Cabello is entitled to earned but unpaid salary and vested options to
          purchase 25,000 shares of Company Common Stock. In the event the
          parties are unable to settle this matter, it is likely Mr. Cabello
          will file suit for wrongful termination.

     ITEM 2.   CHANGES IN SECURITIES

          The following securities issuances occurred between June 1 and
          November 20, 1998.  Each transaction was exempt from registration
          pursuant to Section 4(2) and/or Regulation D promulgated under the Act
          as a transaction by an issuer not involving any public offering.  No
          underwriter was utilized in such issuances and no commissions were
          paid.

               The Company issued 183,504 shares of common stock to 15
          accredited investors upon the exercise of outstanding warrants in
          exchange for proceeds of $182,411.

               The Company issued 1,000,000 shares of common stock to a director
          at $.05 per share and recorded associated non-cash compensation
          expense of $1,575,000.

               The Company issued 883,333 shares of common stock to
          Microelectronics and Computer Technology Corporation ("MCC") upon the
          conversion by MCC of its 883,333 shares of the Company's Series A
          convertible, redeemable preferred stock.

                                       11
<PAGE>
 
               The Company issued 31,219 shares of common stock to MCC in
          payment of $187,315 of accrued dividends on the Series A preferred
          stock.

               The Company issued 191,863 shares of common stock to a former
          director upon the cash-less exercise of outstanding warrants.

               The Company issued 100,000 shares of common stock to a
          professional pursuant to a settlement agreement.

               The Company issued 73,000 shares of common stock to an employee
          upon the exercise of outstanding options in exchange for proceeds of
          $22,630.

               The Company issued an option to purchase 1,000,000 shares of
          common stock to a director at an exercise price of $.05 per share
          which vests ratably over a one-year period. Non-cash compensation
          expense of approximately $4.9 million will be recognized over the
          vesting period.

               The Company issued options to purchase 226,000 shares of common
          stock to 3 professionals with exercise prices ranging from $2.50 to
          $4.00 per share and expiration dates ranging from September 2003
          through September 2008.

     ITEM 3.   DEFAULTS UPON SENIOR SECURITIES - None

     ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None

     ITEM 5.   OTHER INFORMATION - None

     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
 
               (a)   EXHIBITS -

                     Exhibit No.      Identification of Exhibit
                     -----------      -------------------------
                        10.1          Marcus Wray Consulting Agreement
                        27.1          Financial Data Schedule

               (b)   REPORTS ON FORM 8-K -

                     Form 8-K/A filed September 15, 1998
                     Form 8-K/A filed September 3, 1998
                     Form 8-K filed August 31, 1998
                     Form 8-K/A filed August 19, 1998
                     Form 8-K filed on August 18, 1998

                                       12
<PAGE>
 
                                  SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                     GK Intelligent Systems, Inc.

Date:  November 20, 1998             By /S/  Gary F. Kimmons
                                        ------------------------------------
                                        Gary F. Kimmons, President, Chief
                                         Executive Officer, Chief Financial
                                         Officer and Director

                                       13