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<SEC-DOCUMENT>0000950144-04-003222.txt : 20040330
<SEC-HEADER>0000950144-04-003222.hdr.sgml : 20040330
<ACCEPTANCE-DATETIME>20040330113105
ACCESSION NUMBER:		0000950144-04-003222
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		13
CONFORMED PERIOD OF REPORT:	20031231
FILED AS OF DATE:		20040330

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INTELLIGENT SYSTEMS CORP
		CENTRAL INDEX KEY:			0000320340
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-HOSPITALS [8060]
		IRS NUMBER:				581964787
		STATE OF INCORPORATION:			GA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-09330
		FILM NUMBER:		04698794

	BUSINESS ADDRESS:	
		STREET 1:		4355 SHACKLEFORD RD
		CITY:			NORCROSS
		STATE:			GA
		ZIP:			30093
		BUSINESS PHONE:		4043812900

	MAIL ADDRESS:	
		STREET 1:		4355 SHACKLEFORD ROAD
		CITY:			NORCROSS
		STATE:			GA
		ZIP:			30093
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>g88120e10vk.htm
<DESCRIPTION>INTELLIGENT SYSTEMS CORPORATION
<TEXT>
<HTML>
<HEAD>
<TITLE>INTELLIGENT SYSTEMS CORPORATION</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<HR size="4" noshade color="#000000" style="margin-top: -5px">
<HR size="1" noshade color="#000000" style="margin-top: -10px">





<P align="center" style="font-size: 14pt">UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION

<DIV align="center" style="font-size: 12pt">Washington, D.C. 20549
</DIV>

<P align="center" style="font-size: 18pt"><B>FORM 10-K</B>


<P align="center" style="font-size: 12pt">FOR ANNUAL AND TRANSITION REPORTS<BR>
PURSUANT TO SECTIONS 13 OR 15(d) OF THE<BR>
SECURITIES EXCHANGE ACT OF 1934






<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="left" style="font-size: 10pt" colspan="3">(Mark One)</TD>
</TR>

<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#120;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</TD>
</TR>
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">For the fiscal year ended December&nbsp;31, 2003



<P align="center" style="font-size: 10pt">OR


<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934</TD>
</TR>
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">For the transition period from_________ to ____________



<P align="center" style="font-size: 10pt">Commission file number 1-9330


<P align="center" style="font-size: 24pt"><B>INTELLIGENT SYSTEMS CORPORATION</B>


<DIV align="center" style="font-size: 10pt"><HR align="center" size="1" noshade width="100%">
</DIV>


<DIV align="center" style="font-size: 10pt">(Exact name of Registrant as specified in its charter)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Georgia</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>58-1964787</B></TD>
</TR>

<TR style="font-size: 1px">
    <TD align="center" valign="top" colspan="3"><HR size="1" noshade>&nbsp;
</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer Identification No.)</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><B>4355 Shackleford Road, Norcross, Georgia</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>30093</B></TD>
</TR>

<TR style="font-size: 1px">
    <TD align="center" valign="top" colspan="3"><HR size="1" noshade>&nbsp;
</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">Registrant&#146;s telephone number, including area code: <B>(770)&nbsp;381-2900</B>



<P align="center" style="font-size: 10pt"><B>Securities registered pursuant to Section&nbsp;12(b) of the Act:</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Title of each class</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Name of each exchange on which registered</B></TD>
</TR>

<TR style="font-size: 1px">
    <TD align="center" valign="top"><HR size="1" noshade>&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>Common Stock, $.01 par value</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>American Stock Exchange</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><B>Securities registered pursuant to Section&nbsp;12(g) of the Act: </B>None



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that the
registrant was required to file such reports), and (2)&nbsp;has been subject to such
filing requirements for the past 90&nbsp;days. Yes <FONT face="Wingdings">&#120;</FONT> No <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Indicate by check mark if disclosure of delinquent filers pursuant to Item&nbsp;405
of Regulation&nbsp;S-K is not contained herein, and will not be contained, to the
best of registrant&#146;s knowledge, in definitive proxy or information statements
incorporated by reference in Part&nbsp;III of this Form 10-K or any amendment to
this Form 10-K.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule&nbsp;12b-2) Yes
<FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#120;</FONT>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">As of March&nbsp;12, 2004, 4,478,971 shares of Common Stock were outstanding. The
aggregate market value of the Common Stock held by non-affiliates of the
registrant on June&nbsp;30, 2003 was $4,484,511 (computed using the closing price of
the Common Stock on June&nbsp;30, 2003 as reported by the American Stock Exchange).


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant&#146;s Proxy
Statement for the Annual Meeting of Shareholders to be held on May&nbsp;27, 2004,
are incorporated by reference in Part&nbsp;III hereof.


<P>
<HR size="1" noshade color="#000000" style="margin-top: -2px">
<HR size="4" noshade color="#000000" style="margin-top: -10px">






<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>

<DIV style="font-family: 'Times New Roman',Times,serif">








<P align="center" style="font-size: 10pt"><B>TABLE OF CONTENTS</B>


<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="81%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>PAGE</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#101"><B>Part I</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><A href="#102">Item</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#102">1.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#102">Business</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#103">2.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#103">Properties</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#104">3.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#104">Legal proceedings</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#105">4.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#105">Submission of matters to a vote of security holders</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#106"><B>Part II</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#107">5.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#107">Market for the registrant's common equity and related stockholder matters</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#108">6.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#108">Selected financial data</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#109">7.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#109">Management's discussion and analysis of financial condition and results of operations</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#110">7A.</A></TD>
    <TD>&nbsp;</TD>

    <TD align="left" valign="top"><A href="#110">Quantitative and qualitative disclosures about market risk</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#111">8.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#111">Financial statements and supplementary data</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#112">9.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#112">Changes in and disagreements with accountants on accounting and financial disclosure</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#113">9A.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#113">Controls and procedures</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#114"><B>Part III</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#115">10.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#115">Directors and executive officers of the registrant</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#116">11.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#116">Executive compensation </A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#117">12.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#117">Security ownership of certain beneficial owners and management and related stockholder matters</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#118">13.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#118">Certain relationships and related transactions</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#119">14.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#119">Principal accountant fees and services</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#120"><B>Part IV</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#121">15.</A></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><A href="#121">Exhibits, financial statement schedules and reports on Form 8-K</A></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><A href="#122">Signatures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv10w2.txt">EX-10.2 2003 STOCK INCENTIVE PLAN</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv10w3.txt">EX-10.3 LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv10w4.txt">EX-10.4 SECURITY AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv10w5.txt">EX-10.5 FORM OF SECURITY AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv10w6.txt">EX-10.6 NEGATIVE PLEDGE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv10w7.txt">EX-10.7 COMMERCIAL PROMISSORY NOTE</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv10w8.txt">EX-10.8 FORM OF GUARANTEE</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv21w1.txt">EX-21.1 LIST OF SUBSIDIARIES OF REGISTRANT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv23w1.txt">EX-23.1 CONSENT OF BDO SEIDMAN, LLP</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv31w1.txt">EX-31.1 SECTION 302 CERTIFICATION OF CEO</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv31w2.txt">EX-31.2 SECTION 302 CERTIFICATION OF THE CFO</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g88120exv32w1.txt">EX-32.1 SECTION 906 CERTIFICATION OF THE CEO/CFO</A></FONT></TD></TR>
</TABLE>
</DIV>


<DIV align="left">
<!-- /TOC -->
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="101"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART I</B>



<P align="left" style="font-size: 10pt"><B>Forward-Looking Statements</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>In addition to historical information, this </I><I>Form 10-K</I><I> may contain
forward-looking statements relating to Intelligent Systems
Corporation (&#147;ISC&#148;). All statements, trend analysis and other
information contained in the following discussion 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 &#147;anticipate&#148;, &#147;believe&#148;, &#147;plan&#148;, &#147;estimate&#148;,
&#147;expect&#148;, &#147;likely&#148; and &#147;intend&#148;, and other similar expressions
constitute forward-looking statements. Prospective investors are
cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from
those contemplated by such forward-looking statements. A number
of the factors that we believe could impact our future operations
are discussed in Management&#146;s Discussion and Analysis in section
Item&nbsp;7. of this </I><I>Form 10-K</I><I>. ISC undertakes no obligation to update
or revise its forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes in
future operating results.</I></TD>
</TR>

</TABLE>

<DIV align="left">
<A name="102"></A>
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<P align="left" style="font-size: 10pt"><B>ITEM 1. BUSINESS</B>



<P align="left" style="font-size: 10pt"><B>Overview</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Intelligent Systems Corporation, a Georgia corporation, has operated since 1973
and its securities have been publicly traded since 1981. In this report,
sometimes we use the terms &#147;company&#148;, &#147;we&#148;, &#147;ours&#148; and similar words to refer
to Intelligent Systems Corporation. Our executive offices are located at 4355
Shackleford Road, Norcross, Georgia 30093 and our telephone number is (770)
381-2900. Our Internet address is www.intelsys.com. We publish our SEC-filed
reports on our website as soon as reasonably practicable after we file them
with or furnish them to the SEC, and shareholders may access and download these
reports free of charge.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Since the early 1980&#146;s, we have conducted our operations principally through
majority owned subsidiaries or minority owned affiliates to which we devote
extensive management resources. Frequent acquisitions of or investment in
early stage companies in the technology industry have long been components of
our overall strategy. From time to time, we may sell one of our companies or
we may increase our investment in a less-than-wholly owned company. As a
result, our ownership position in a given company may change from time to time,
our results of operations vary considerably from quarter-to-quarter and
year-to-year and our past performance is not necessarily indicative of future
results.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Our strategy has been to help entrepreneurs build valuable companies by
providing operational and strategic management, practical business advice,
early stage equity capital, a network of business contacts and, in some cases,
an incubator program. Depending upon the needs of each company, we will
undertake a variety of roles which often include day-to-day management of
operations, board of director participation, financing, market planning,
strategic contract negotiations, personnel and administrative roles, and
similar functions. Our subsidiary and affiliate companies are in the
information technology industry (principally software for business
applications) although one of our subsidiary companies is in the industrial
products industry. Presently, our focus is on managing our subsidiary
companies and current minority investments and we do not anticipate significant
new investments or acquisitions in the foreseeable future.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Financial Reporting</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We consolidate the results of operations of companies in which we own a
majority interest or over which we exert control. We generally account for
investments by the equity method for minority owned companies (i)&nbsp;in which we
own 20 to 50&nbsp;percent and over which we do not exert control or (ii)&nbsp;entities
that are organized as partnerships or limited liability companies. In general,
under the equity method, we report our pro rata share of the income or loss
generated by each of these businesses as equity income/losses of affiliates on
a quarterly basis. These equity losses and income decrease or increase,
respectively, the cost basis of our investment. Privately owned corporations
in which we own less than 20&nbsp;percent of the equity are carried at the lower of
cost or market. We do not mark up the value of privately-owned businesses even
when they raise money at higher valuations. We are often actively engaged in
managing strategic and operational issues with our non-consolidated companies
and devote significant resources to the development of their businesses.

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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Industry Segment Overview</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Our consolidated companies operate in two industry segments: Information
Technology Products and Services and Industrial Products. The Information
Technology segment includes our VISaer, Inc., QS Technologies, Inc. and
CoreCard Software, Inc. subsidiaries and the Industrial Products segment
includes ChemFree Corporation. As of December&nbsp;31, 2003, we own 100&nbsp;percent of
the ChemFree and QS Technologies subsidiaries, 65&nbsp;percent of VISaer and 87
percent of CoreCard Software.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Operations in the Information Technology segment are involved in the design,
development and marketing of application software products that are used by
business customers and government agencies to manage aspects of their
operations. Our software products are typically sold in competitive bids with
relatively long sales and implementation cycles. We receive software license
fees that vary depending upon the number of licensed users and the number of
software modules licensed with total contract revenue typically ranging from
$100,000 to over $1&nbsp;million. We also derive service revenue from
implementation, customization, training and support services.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The Industrial Products segment includes the design, assembly and sale of
equipment and associated supplies that are used by commercial, industrial,
military and government agencies to maintain and service machinery or vehicles
used in their operations. Our assembled products are shipped to resellers or
direct to customer sites and do not require set-up or on-site support from us.
Unit pricing varies by model but typical end-user prices are less than $2,000
per unit. Customers purchase replacement supplies from us after the sale. In
some cases, we provide equipment to multi-site corporate users under leases
which typically have averaged 3 to 4&nbsp;years.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Our individual operations in both segments are relatively small in size and are
subject to greater fluctuation in revenue and profitability than larger, more
established businesses. Sales of ChemFree products have represented between 47
and 50&nbsp;percent of consolidated revenue in each of the last three years. QS
Technologies and VISaer have made up the balance of consolidated revenue, with
each contributing approximately one half of the remaining consolidated revenue.
In 2003, QS Technologies revenue exceeded VISaer&#146;s whereas in the prior two
years, VISaer&#146;s revenue was slightly greater than was QS Technologies.
CoreCard began to generate revenue in 2003 and contributed an immaterial amount
to consolidated revenues in 2003, although their contribution is expected to
increase in 2004. The business in our segments is not seasonal on a
consolidated basis although there is generally some slowdown in ChemFree&#146;s
European business in late summer. The business discussion which follows
contains information on products, markets, competitors, research and
development and manufacturing for our operating subsidiaries, organized by
industry segment and by company. For further detailed financial information
concerning our segments, see Note 16 in the accompanying Notes to Consolidated
Financial Statements. For further information about trends and risks likely to
impact our business, please refer to Management&#146;s Discussion and Analysis in
Item&nbsp;7. of this Form 10-K.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Industry Segment: Information Technology Products and Services</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>VISaer, Inc. </I></B>- VISaer develops, sells and supports software for the world-wide
aircraft maintenance and engineering industry. VISaer offers a fully
integrated, real time software solution that helps aviation customers
efficiently and cost-effectively manage the technical, commercial and
operational aspects of their maintenance, repair and overhaul (&#147;MRO&#148;)
operations while also meeting regulatory requirements, such as those of the
Federal Aviation Administration. Headquartered in Wilmington, Massachusetts,
VISaer also has operations in England to support product development and sales
activities in Europe. VISaer is the successor company of Visibility, Inc., a
software company whose operations were sold in July&nbsp;2000 to allow VISaer to
concentrate on the MRO software market. VISaer&#146;s product offering includes the
following major components: technical records planning and management, MRO
operations, materials management, production scheduling, commercial operations
and financial management. VISaer announced the first release of Version 3.1, a
fully Web-native version of its complete MRO solution, in late 2002 and the
first installation of this release was accomplished in 2003. VISaer has signed
contracts to purchase software licenses for its Version 3 software with four
customers and has $1.4&nbsp;million in short-term deferred revenue and $5.1&nbsp;million
in long-term deferred revenue at December&nbsp;31, 2003 that will be recognized when
various releases of the Version 3 software are delivered to customers in 2004
and thereafter. In addition, VISaer has a sales and marketing program that has
identified additional prospects for MRO license sales, professional services
and maintenance contracts. However, due to resource constraints, in 2004
VISaer expects to focus on completing and delivering its Version 3 software to
establish strong reference accounts and generate cash flow and revenue before
allocating significant resources to new sales and marketing programs.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">During 2002 and much of 2003, the general slow-down in the economy, the
terrorist attacks of September&nbsp;11, 2001, hostilities involving Iraq and the
outbreak of Sudden Acute Respiratory Syndrome had a significant negative impact
on the commercial aviation market, initially in the domestic market and then in
international markets. Some airlines delayed or canceled planned information
technology projects and others experienced a decline in financial strength
during the industry downturn. In recent months, there appears to be
momentum building, especially in international markets, to move forward on
delayed proposals to purchase MRO software which we believe will provide an


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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">opportunity to build a pipeline of additional business. Regulatory
requirements dictate that airlines manage their MRO processes carefully and
there is increased pressure to improve and automate MRO record-keeping.
VISaer&#146;s software products provide a comprehensive, cost-effective way to do
so. We believe significant sales opportunities exist in the Asian Pacific,
Latin American and Chinese markets, MRO service outsourcing companies, low-cost
airlines, defense related aviation, and small to mid-size domestic regional
airlines.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">VISaer markets and sells its software in both domestic and international
markets. International customers have represented a majority of VISaer sales
of products and services in each of the last two years and are expected to do
so in 2004 as well. The markets for VISaer products include both airline-owned
maintenance and engineering shops as well as third party MRO organizations.
Most of VISaer&#146;s sales are direct to the customer with VISaer providing a
turnkey solution that covers project management, software, system
implementation, training, consulting and support. Prior to 2003, as VISaer was
building its internal capacity, VISaer sold its products through certain
re-sellers on a non-exclusive basis in certain markets. In most cases, sales
are made in response to competitive bids and requests for proposals and have
sales cycles of six to eighteen months with implementation periods of an
additional six to eighteen months. VISaer provides full suite implementation
services and post-sales support and maintenance activities under annual
contracts, as well as customization and professional services on an as needed
basis. VISaer has a number of competitors, some of whom offer MRO software as
part of an Enterprise Resource Planning package and who have significantly more
financial resources, larger customer bases and greater market coverage than
VISaer. Other competitors are small players focused on MRO solutions with
resources similar to VISaer. VISaer competes on the basis that its software
provides extensive product functionality using Web-native technology; provides
low cost-of-ownership; includes integrated modules offering a complete software
and service solution; and runs on industry standard technology platforms.
VISaer believes that its new Version 3 Web-native software is a strong
competitive offering<B>.</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>QS Technologies, Inc. </I></B>- QS Technologies operates from its Greenville, South
Carolina location, providing health and human services software, maintenance
and support services to its installed customer base as well as to new
customers. QS Technologies&#146; products allow public health agencies to capture,
analyze and manage client information such as immunization, maternal health,
and birth and death records. The market includes local, state and federal
public health agencies nationwide as well as other government agencies,
hospitals and clinics. QS Technologies competes against a number of other
software companies, many of which are small vendors like itself and some of
which are larger with access to greater resources. QS Technologies competes on
the basis of product functionality and value, reputation for customer service,
and knowledge of market requirements acquired through more than twenty years in
the market. Sales are typically made in response to competitive bids and may
take six to twelve months before contracts are awarded. Demand for products
and the timing of contract awards is impacted by general economic conditions as
well as customer-specific factors such as state and local budgets and program
priorities, over which QS Technologies has little control. Typically, QS
Technologies provides its customers with post-sales service and support under
annual contracts that often renew for multiple years after the initial software
license fee is earned. QS Technologies has expanded its product line to
include vital records software and web-based capabilities. In 2003, QS
Technologies benefited from expanded sales and marketing activities in 2002 and
an industry-wide increase in the number of new projects contracted for after
several years of slowdown due to state and local budget constraints.
Consequently, QS Technologies had a record year for revenue from new license
sales and from annual maintenance contracts due to an expanded installed
customer base. Based on our current outlook and the generally months-long
process between submission of a proposal, contract award and delivery of the
software, it is unlikely that QS Technologies will experience the same level of
new license revenue in 2004 as it did in 2003, although the level of service
revenue should continue to provide a significant recurring contribution because
new and existing customers typically sign annual maintenance and support
contracts.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>CoreCard Software, Inc. </I></B>- CoreCard Software was spun off from our former
affiliate company, PaySys International, in April&nbsp;2001. CoreCard designs,
develops and markets software to accounts receivable businesses, banks, credit
unions and retailers to manage their credit card, merchant and loan accounts.
After more than seven years of extensive product development activity
(including prior to the spin-off), in 2003 CoreCard completed the first major
installation of its CoreISSUE<SUP>&#153;</SUP> and CoreCOLLECT<SUP>&#153;</SUP> application modules, based on
its proprietary CoreENGINE<SUP>&#153;</SUP> architecture, at a major catalog retailer customer
and will recognize revenue related to this contract in early 2004. CoreCard
products allow financial institutions and commercial customers to optimize
their account management systems, improve customer retention, lower operating
costs and create greater market differentiation. CoreCard&#146;s feature-rich,
browser-based financial software allows customers to automate, streamline and
optimize business processes associated with the set-up, administration and
management of credit card, merchant and loan accounts, to process transactions
and to generate reports and statements for these accounts. Because CoreCard&#146;s
products are designed to run on PC-based servers, rather than mini or mainframe
computers, customers benefit from a lower overall cost-of-ownership, faster
implementations and increased flexibility to respond to market conditions.
CoreCard&#146;s product functionality includes embedded multilingual, multi-currency
support, web-based interface, real-time processing, complex rules-based
authorizations, unlimited account hierarchies, and flexible, customer-defined
pricing and payment terms.


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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">CoreCard&#146;s initial target markets include accounts receivable businesses, small
and mid-size banks, and retail and private-label issuers, in the United States
and in certain emerging international markets, most likely focusing on the
Pacific Rim. CoreCard competes with third-party card processors, larger and
more established software suppliers, and a number of software solution
providers that offer more limited functional modules. CoreCard has relatively
limited sales and marketing experience compared to many of its competitors and
it is unclear whether potential customers will choose to outsource their
account transaction processing rather than acquire software to manage their
transactions in-house, which could impact negatively the total addressable
market for CoreCard, if such a trend gains momentum. Moreover, it is uncertain
whether potential customers will be reluctant to acquire software from a
relatively small emerging company with limited customer installations and
choose instead a lower risk strategy of acquiring older technology from more
established companies. Certain of CoreCard&#146;s competitors have significantly
more financial, marketing and development resources than does CoreCard and have
large, established customer bases often tied to long-term contracts. CoreCard
believes it can compete successfully in selected markets based on providing
customers with a next-generation technology platform, lower overall
cost-of-ownership, faster implementation cycles, greater system flexibility and
more customer-driven marketing options. Like most emerging software companies,
CoreCard&#146;s challenge is to establish a growing base of referenceable, satisfied
customers and to overcome customer reluctance to implement a business-critical
system based on a new software product with limited installations. CoreCard
has certain non-compete restrictions related to the spin-off from PaySys
International, which limit for varying time periods through 2006 the customers
and markets that CoreCard can solicit and serve. However, CoreCard believes
that the available worldwide market is substantial, even with these
time-limited restrictions.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">CoreCard licenses its software products for either a one-time license fee or a
per transaction fee, depending on specific customer requirements and
preferences. It provides maintenance and support services under annual
contracts, as well as professional services on an as needed basis for
customization, implementation and training activities. Generally, CoreCard
expects to sell its products directly to its initial customers in the domestic
U.S. and is developing relationships with a small number of resellers and
third parties in international markets to identify, sell and support targeted
opportunities. CoreCard completed its initial software modules, CoreISSUE<SUP>&#153;</SUP>,
CoreFRAUD<SUP>&#153;</SUP> and CoreCOLLECTIONS<SUP>&#153;</SUP> in 2003 and expects to complete CoreACQUIRE<SUP>&#153;</SUP> in
2004 as customer demand and CoreCard resources allow.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Industrial Products Segment</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>ChemFree Corporation </I></B>- Our only subsidiary in the Industrial Products segment
is ChemFree Corporation, one of our early incubator companies. ChemFree
designs, manufactures and markets a line of parts washers under the
SmartWasher<SUP>&#174;</SUP> trademark. SmartWashers<SUP>&#174;</SUP> use an advanced bio-remediation system
that cleans automotive and machine parts without using hazardous, solvent-based
chemicals. Typically, the SmartWasher<SUP>&#174;</SUP> system consists of a molded plastic tub
and sink, recirculating pump, heater, control panel, filter with
microorganisms, and water-based degreasing solutions. Unlike traditional
solvent-based systems, there are no regulated, hazardous products used or
produced in the process and the SmartWasher<SUP>&#174;</SUP> system is completely
self-cleaning. ChemFree sells replacement fluid and filters to its customers
on a regular basis after the initial parts washer sale.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">ChemFree&#146;s markets include the automotive, transportation, industrial and
military markets. The automotive market includes companies and governmental
agencies with fleets of vehicles to maintain, individual and chain automobile
service centers and auto parts suppliers, such as NAPA. The industrial market
includes customers with machinery that requires routine maintenance, such as
power plants and tool and equipment rental companies. Military applications
include vehicle, aircraft and weapons maintenance in all branches of the
military. ChemFree sells its products directly to high volume customers as well
as through several distribution channels, including international distributors
in Europe and the Pacific Rim. ChemFree also sells under a General Services
Administration schedule to government agencies. Because ChemFree sells in part
through large national distributors such as NAPA and Barnes Group in the United
States and exclusive distributors in certain international markets, its results
could be impacted negatively if one or more of such distributors stops carrying
ChemFree products. One of ChemFree&#146;s domestic distributors, NAPA, represented
13&nbsp;percent and 14&nbsp;percent of our consolidated revenue in 2003 and 2002,
respectively and 28&nbsp;percent of our Industrial Products Segment revenue in both
2003 and 2002. Part of ChemFree&#146;s revenue is derived from multi- year lease
contracts under which ChemFree provides SmartWashers<SUP>&#174;</SUP> and supplies to
nationwide chains of auto repair shops, such as Firestone and Pep Boys.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">ChemFree competes with larger, established companies that offer solvent-based
systems, other small companies using non-hazardous systems, and hazardous waste
hauling firms. Although smaller than the established solvent-based firms,
ChemFree believes it is
competitive based on product features, positive environmental impact, desirable
health and safety features, elimination of regulatory compliance, and price.
ChemFree believes that new regulations from governmental agencies such as the
Environmental Protection Agency that prohibit or restrict the use of
solvent-based products, with which ChemFree&#146;s products compete, will expand
overall market demand significantly if such regulations are enforced
effectively by state, local and federal governments.

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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Customer and warranty service, typically covering a one-year period, is
provided either by ChemFree personnel or through its distributors and dealers.
ChemFree subcontracts the manufacturing of major sub-assemblies built to its
specifications to various manufacturers and performs final assembly and testing
at its own facility. While there are multiple sources available for
subassemblies, ChemFree frequently contracts with a single source for certain
components in order to benefit from lower prices and consistent quality.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Incubator Program</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">For more than ten years, we have operated the Intelligent Systems Incubator at
our corporate facility in a suburb of Atlanta, Georgia. In exchange for a
monthly facility fee, incubator companies have access to resources such as
office space, conference facilities, telecommunication and network
infrastructure, business advice and planning, a network of professional
services, and, in some cases, financial capital from Intelligent Systems.
Depending upon the experience and needs of the founding entrepreneur, incubator
companies will choose to use some or all of the available resources. Income
from incubator companies reduces our total facility and personnel costs.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Because we have a large facility, we have been able to offer the benefits of
the incubator program to companies in which we have no ownership interest. In
attracting companies to our incubator program, we compete with other sources of
business assistance, facilities and financial capital that may be available to
the entrepreneur. These sources include other incubator programs as well as
angel and venture capital investors, corporate partner relationships and
merger/sale opportunities.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Minority-Owned Partner Companies</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Part of our business strategy has been to seek to own a minority interest in
companies that we believe are involved in promising technologies or markets
with good growth potential. From time to time, we have acquired an investment
in such companies and expect to continue to do so as a regular part of our
strategy. Typically, these companies are privately held, early stage companies
in technology-related fields. We are often actively involved in helping the
companies develop and implement their business plans. Some examples of our
involvement are as follows:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A 17&nbsp;percent interest in Horizon Software International, Inc., a
leading provider of software and systems to manage the food service
operations of primary and secondary education, college, medical and
military facilities.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A 25&nbsp;percent interest in NKD Enterprises, LLC (dba CoreXpand), a
software services company with an e-commerce application for
promotional and incentive product distributors and corporate
customers. CoreXpand is part of our incubator program.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A 22&nbsp;percent interest in Cirronet, Inc., a privately held and former
Intelligent Systems incubator company involved in wireless
telecommunications products for industrial, medical and commercial
markets as well as residential and small business wireless Internet
markets.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Research and Development</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We spent $8.3&nbsp;million, $9.8&nbsp;million and $3.4&nbsp;million in the years ended
December&nbsp;31, 2003, 2002 and 2001, respectively, on company sponsored research
and development. In 2003, the Information Technology segment spent $1.5
million less on software development than in 2002 when R&#038;D spending had
increased by $6.4&nbsp;million compared to 2001. In 2002, the significant increase
in spending was due to an intensive effort related to development of the VISaer
Version 3.0 product line and the initial software offering by CoreCard. In
2003, we spent less at both VISaer and CoreCard than in 2002 because fewer
personnel and third party resources were required than in the initial product
development phases. In both 2003 and 2002, of the consolidated research and
development expense, approximately 50&nbsp;percent relates to VISaer product
development and 33&nbsp;percent relates to CoreCard with the balance spent mainly
for development projects at QS Technologies and, to a small extent, at
ChemFree. We estimate that total R&#038;D expenses in 2004 will be lower than in
2003 mainly due to a reduced number of U.S. based personnel at CoreCard
compared to 2003 coupled with a greater use of lower cost off-shore personnel
for testing and certain development tasks; reduced need for third party
developers than were required during the early
product development stages; at VISaer, increased use of customer&#146;s personnel
for certain testing activities which contribute to lower overall costs; and the
ongoing benefit of a reduction in personnel in the third quarter of 2003 and
reassignment of some software developers to customer support and professional
services activities.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">VISaer released its first Version 3 software in 2003 and expects to complete
additional version releases and modules at various times in 2004. In 2004,
CoreCard Software plans to continue to complete additional software modules,
principally CoreACQUIRE<SUP>&#153;</SUP>, and to develop further enhancements to its initial
suite of products.

<P align="center" style="font-size: 10pt">Intelligent Systems Corporation

<P align="center" style="font-size: 10pt">- 7 -
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Patents, Trademarks and Trade Secrets</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Our ChemFree subsidiary has 11 U.S. patents issued and 15 patents in foreign
jurisdictions issued and pending covering various aspects of the design and
construction of the SmartWasher<SUP>&#174;</SUP> system and the process of bioremediation used
in the SmartWasher<SUP>&#174;</SUP> system. ChemFree considers these patents an important
component of their overall business strategy. (See Item&nbsp;3 below). CoreCard has
filed several patent applications covering aspects of its core software engine.
It may be possible for competitors to duplicate certain aspects of these
products and processes even though we regard such aspects as proprietary. We
have registered with the U.S. Patent and Trademark Office and various foreign
jurisdictions numerous trademarks and service marks for our products. We
believe that an active trade secret, trade name, trademark, and copyright
protection program is important in developing and maintaining brand recognition
and protecting our subsidiaries&#146; intellectual property. Our companies
presently market their products under trademarks and service marks such as
SmartWasher<SUP><SUP>&#174;</SUP></SUP>, OzzyJuice<SUP><SUP>&#153;</SUP></SUP>, VISaer<SUP>&#153;</SUP>, CoreENGINE<SUP>&#153;</SUP>, CoreISSUE<SUP>&#153;</SUP>, CoreCOLLECT<SUP>&#153;</SUP> and
others.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Personnel</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">As of February&nbsp;28, 2004, we had 168 full-time equivalent employees in our
company as well as in our majority-owned companies. Our employees are not
represented by a labor union, we have not had any work stoppages or strikes and
we believe our employee relations are good.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Financial Information About Geographic Areas</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Refer to Note 14 to the Consolidated Financial Statements for financial
information in response to this item. We do not believe there are any specific
risks attendant to our foreign operations that are significantly different than
the general business risks discussed elsewhere in this annual report.

<DIV align="left">
<A name="103"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 2. PROPERTIES</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">At February&nbsp;28, 2004, we have leases covering approximately 137,500 square feet
in Norcross, GA, 6,100 square feet in Greenville, SC, and 21,400 square feet in
Wilmington, MA, to house our product development, manufacturing, sales, service
and administration operations, as well as small sales and/or development
offices in England, Ireland, and Romania. A portion of the Norcross corporate
facility is subleased to businesses in our technology business incubator. Our
current lease on the Norcross facility expires May&nbsp;31, 2004 and we are
presently evaluating options to move or stay in the same facility, which in
either case is likely to result in a substantial increase in facility lease
costs because our expiring lease was at below current market rates. We
anticipate successfully negotiating a lease to stay in the current facility
but, if not, we expect that adequate facilities will be available at prevailing
market rates.

<DIV align="left">
<A name="104"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 3. LEGAL PROCEEDINGS</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In 1999, a former consultant of the ChemFree subsidiary brought suit against
ChemFree and other third parties in an action styled James C. McClure vs. Zymo
International, Inc., G. Robert Whiteman and ChemFree Corporation et al.
challenging the ownership of certain of ChemFree&#146;s patents. ChemFree and other
parties to the suit deny the allegations and are vigorously defending the suit,
which is pending in the Superior Court of Gwinnett County, Georgia. ChemFree
has filed a counter suit in the United States District Court for the Northern
District of Georgia in an action styled ChemFree Corporation vs. James C.
McClure. The case in Federal Court was scheduled to go to trial early in 2004
but was postponed due to changes in the court&#146;s calendar and no new date has
been set. The case in the Superior Court of Gwinnett County is on hold pending
resolution of the Federal case. While we believe ChemFree has sufficient
evidence to prevail in both cases, there can be no assurance that the cases
will be resolved in ChemFree&#146;s favor. At this time it is unclear what, if any,
impact a finding in either case which is adverse to ChemFree would have on its
business or financial condition. In addition, 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&#146;s opinion that none of these other matters will have a material
adverse impact on our consolidated financial position or results of operations.

<DIV align="left">
<A name="105"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We did not submit any matter to a vote of our shareholders during the fiscal
quarter ended December&nbsp;31, 2003.

<P align="center" style="font-size: 10pt">Intelligent Systems Corporation

<P align="center" style="font-size: 10pt">- 8 -
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="106"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART II</B>


<DIV align="left">
<A name="107"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 5. MARKET FOR THE REGISTRANT&#146;S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Our common stock is listed and traded on The American Stock Exchange (&#147;AMEX&#148;)
under the symbol &#147;INS&#148;. The following table sets forth, for the periods
indicated, the range of high and low sales prices for our common stock as
reported by AMEX.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="32%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2002</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" valign="top"><B>Year Ended December 31,</B></TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>High</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Low</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>High</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Low</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>1st Quarter</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.95</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2nd Quarter</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.85</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>3rd Quarter</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.60</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>4th Quarter</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.45</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We had 385 shareholders of record as of February&nbsp;28, 2004. This number does not
include beneficial owners of our common stock whose shares are held in the
names of various dealers, clearing agencies, banks, brokers and other
fiduciaries. The company has in the past paid cash dividends from time to time
on an irregular basis but has not in the past paid regular dividends and does
not expect to pay any dividends in the foreseeable future. Under our revolving
line of credit facility, we are precluded from paying dividends without
obtaining consent from the bank. See Note 6 to the Consolidated Financial
Statements.

<DIV align="left">
<A name="108"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 6. SELECTED FINANCIAL DATA</B>



<P align="left" style="font-size: 10pt"><B>Twelve Months Ended December&nbsp;31,</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="90%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(in thousands except share and per share amounts)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,027</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,479</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Income (Loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(4,798</TD>
    <TD>)a</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(12,257</TD>
    <TD>)b</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,113</TD>
    <TD>c</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,215</TD>
    <TD>d</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249</TD>
    <TD>e</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Income (Loss) Per Share (Basic)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Income (Loss) Per Share (Diluted)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,089</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,057</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,658</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Working Capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,898</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Long-term Debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">363</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stockholders&#146; Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,209</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash Dividends Paid Per Common Share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shares Outstanding at Year End</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,478,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,491,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,495,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,623,784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,114,467</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic Weighted Average Shares Outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,495,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,108,413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,606,715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,106,134</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted Weighted Average Shares Outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,495,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,145,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,632,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,336,776</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes net investment gains of $3.0&nbsp;million, $184,000 in net
income in equity of affiliates and $328,000 other income.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes net investment losses of $934,000, $235,000 in net losses
in equity of affiliates and $900,000 other income.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes investment gains of $19.9&nbsp;million, $2.2&nbsp;million in net
losses in equity of affiliates and charges totaling $6.4&nbsp;million
related to the write-off of in-process R&#038;D in connection with the
acquisition of VISaer and subsequent goodwill impairment charge.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes investment gains of $9.7&nbsp;million and $771,000 in net losses
in equity of affiliates.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">e.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes investment gains of $2.2&nbsp;million and $948,000 in net losses
in equity of affiliates.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Please refer to Item&nbsp;7. Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations and Notes to Consolidated Financial
Statements for a discussion of material acquisitions or dispositions that may
affect the comparability of this financial information.

<P align="center" style="font-size: 10pt">Intelligent Systems Corporation

<P align="center" style="font-size: 10pt">- 9 -
</DIV>

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<DIV align="left">
<A name="109"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 7. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS</B>



<P align="left" style="font-size: 10pt"><B>Critical Accounting Policies and Estimates</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The discussion and analysis of our financial condition and results of
operations are based upon our Consolidated Financial Statements which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amount of assets,
liabilities, revenues and expenses. We consider certain accounting policies
related to revenue recognition, valuation of acquired intangibles and
impairment of long-lived assets, and valuation of investments to be critical
policies due to the estimation processes involved in each. For a detailed
description on the application of these and other accounting policies, see Note
1 to the Consolidated Financial Statements beginning on page F-8.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Revenue Recognition </I></B>&#150; Product revenue consists of fees from software licenses
and sales or leases of industrial products. Service revenue consists of fees
for implementation, consulting, training, reimbursable expenses, maintenance
and support for software products.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We recognize revenue for industrial products when products are shipped, at
which time title transfers to the customer. There are no remaining future
obligations and delivery occurs upon shipment. We provide for estimated sales
returns allowances and rebates in the period in which the sales are recorded.
As an alternative to selling the product, on occasion we may lease our
equipment. For leased equipment, we recognize revenue monthly at the
contracted monthly rate during the term of the lease.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We recognize software fees in accordance with Statement of Position (&#147;SOP&#148;) No.
97-2, &#147;Software Revenue Recognition&#148;, as amended by SOP No.&nbsp;98-9, &#147;Software
Revenue Recognition, With Respect to Certain Transactions&#148;. Under SOP 97-2, we
recognize software license fees when the following criteria are met: (1)&nbsp;a
signed contract is obtained; (2)&nbsp;delivery of the product has occurred; (3)&nbsp;the
license fee is fixed or determinable; and (4)&nbsp;collectibility is probable.
Additionally, license fee revenue is not recognized until there are no material
uncertainties regarding customer acceptance, cancellation provisions, if any,
have expired and there are no significant vendor obligations remaining. SOP
No.&nbsp;98-9 requires recognition of revenue using the &#147;residual method&#148; when (1)
there is vendor-specific objective evidence of the fair values of all
undelivered elements in a multiple-element arrangement that is not accounted
for using long-term contract accounting; (2)&nbsp;vendor-specific objective evidence
of fair value does not exist for one or more of the delivered elements in the
arrangement; and (3)&nbsp;all revenue recognition criteria in SOP No.&nbsp;97-2 other
than the requirement for vendor-specific objective evidence of the fair value
of each delivered element of the arrangement are satisfied. Under the residual
method, the fair value of the undelivered elements is deferred and the
remaining portion of the license fee is recognized as revenue. For those
contracts that contain significant production, modification and/or
customization, software license fees are recognized utilizing Accounting
Research Bulletin (&#147;ARB&#148;) No.&nbsp;45, &#147;Long-term Construction Type Contracts&#148;,
using the relevant guidance in SOP No.&nbsp;81-1, &#147;Accounting for Performance of
Construction Type and Certain Production Type Contracts&#148;.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">For percentage of completion contracts, we measure the progress toward
completion and recognize the software license fees based upon input measures
(i.e. in the same proportion that the amount of labor hours incurred to date
bears to the total estimated labor hours required for the contract). If
reliable estimates cannot be determined, we follow the completed contract
method. Under the completed contract method, all revenue is deferred until the
customer has accepted the software and any refund rights have expired.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">A number of internal and external factors could affect our estimates related to
software contracts, including labor rates, utilization of resources, changes in
specifications or testing requirements, and unforeseen technical problems. If
we do not accurately estimate the resources required or the scope of work to be
performed, or we do not manage the contract properly, in future periods we may
need to restate revenues, to defer revenue longer than originally anticipated
or to incur additional cost which would impact our margins and reported
results.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Valuation of Investments </I></B>- We hold minority interests in non-publicly traded
companies whose values are difficult to determine and are based on management&#146;s
estimate of realizability of the carrying value of the investment. Future
adverse changes in market conditions, poor operating results, lack of progress
of the underlying investee company or its inability to raise capital to support
the business plan could result in investment losses or an inability to recover
the current carrying value of the investment. Many of the companies in which
we hold non-control, minority positions are backed by venture capital, and the
value of our investment may be impacted by the amount, terms and valuation of
the investee&#146;s financial transactions with third party venture funds or the
terms of the sale of the investee company to a third party. Our policy with
respect to minority interests is to record an impairment charge when we believe
an investment has experienced a decline in value that is other than temporary.
For instance, this could occur if the investee company is sold for less than
our pro rata carrying value or if a new round of funding is at a lower
valuation than our investment was made or if the financing terms for the new

<P align="center" style="font-size: 10pt">Intelligent Systems Corporation

<P align="center" style="font-size: 10pt">- 10 -
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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">investors (such as preferences on liquidation) otherwise reduce the estimated
value of our investment. We do not write-up the carrying value of our
investments based on favorable changes or financial transactions. At least
quarterly, we review our investments to determine any impairment in their
carrying value and we write-down any impaired asset at quarter-end to our best
estimate of its current realizable value. Such charges could have a material
adverse impact on our financial condition or results of operations and are
generally not predictable or quantifiable in advance. For instance, in Note 3
to the Consolidated Financial Statements, we discuss aggregate charges totaling
$1.2&nbsp;million which we recorded in 2003 to reflect a reduction in the carrying
value of our investments in RF Solutions, Silverpop and MediZeus. Charges were
recorded in the first, second and fourth quarters of 2003, respectively, based
on the timing of the events giving rise to management&#146;s change in estimated
valuation.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Valuation of Intangibles </I></B>- From time to time in the past, we have acquired
companies and we may do so in the future. Occasionally, as in the case with
our VISaer and CoreCard Software subsidiaries (as described in detail in Note 2
to the Consolidated Financial Statements), we may increase our ownership or
control of an entity from a minority to a majority position, which generally is
treated as an acquisition for accounting purposes. Purchase accounting for an
acquisition requires use of accounting estimates and judgments to allocate the
purchase price to the fair market value of the assets and liabilities
purchased. Our business acquisitions may result in the allocation of a portion
of the purchase price to goodwill and other intangible assets. The
determination of the value of such intangible assets requires management to
make estimates and assumptions that affect the amount of future period
amortization expenses and possible impairment expense that we will incur.
Typically, we use the services of a third party appraiser to provide a
valuation of material intangible assets. However, often the acquired company
is a small entity with limited operating history on which to base future
projections and thus valuing the assets requires the use of estimates which are
very subjective. Furthermore, the period over which we amortize certain
intangibles may change based on future conditions and consequently we may need
to adjust the intangible value and/or amortization period, which could require
us to increase the amount of amortization expense we record each period or to
take a non-cash charge to reduce the value of the intangible. On at least an
annual basis, generally with the assistance of a third party appraiser, we
review the values assigned to long-lived assets using an estimate of the
undiscounted cash flows of the entity over the remaining life of the asset.
Any resulting impairment could require a write-down that would have a material
adverse impact on our financial condition or results of operations. We did not
acquire any companies in 2003 and no write-downs with respect to goodwill or
other intangibles occurred in 2003 or 2002. By comparison, in 2001, we
recorded charges totaling $6.4&nbsp;million related to the carrying value of VISaer
intangibles at the time of its acquisition and subsequent to the September&nbsp;11,
2001 terrorist attacks.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Overview</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Our consolidated subsidiaries operate in two industry segments: Information
Technology Products and Services and Industrial Products. Included in the
Information Technology sector are QS Technologies, Inc. (software for public
health and human services), VISaer, Inc. (software for maintenance, repair and
overhaul operations in the commercial aviation industry) and CoreCard Software,
Inc. (software for managing credit and debit cards). The Industrial Products
segment includes ChemFree Corporation (bio-remediating parts washers).


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We derive our product revenue from sales of software licenses in our
Information Technology sector and sales and leases of equipment and supplies in
our Industrial Products sector. Our service revenue consists of fees for
implementation, consulting, training, maintenance and support for software
products in our Information Technology sector. Our consolidated revenue is the
aggregate of the revenue generated at our four subsidiary companies. Our
revenue fluctuates from period to period and our results are not necessarily
indicative of the results to be expected in future periods. Period-to-period
comparisons may not be meaningful and it is difficult to predict the level of
consolidated revenue on a quarterly or annual basis for a number of reasons,
including the following:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A change in revenue level at one of our subsidiaries may impact
consolidated revenue or be offset by an opposing change at another
subsidiary.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Economic and marketplace trends may impact our subsidiaries
differently or not at all and two of our software subsidiaries have
very limited experience in their marketplaces which makes it difficult
to identify and evaluate trends that may impact their business.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Two of our software subsidiaries, CoreCard Software and VISaer, have
been involved in major new product development initiatives for the
past three years and have limited experience delivering and installing
their new products at customer sites, making it difficult to predict
with certainty when they will recognize revenue on individual software
contracts.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our subsidiaries are relatively small in revenue size and, in the
Information Technology sector, license revenue at a subsidiary in a
given period may consist of a relatively small number of contracts.
Consequently, even small delays in a subsidiary&#146;s delivery under
a software contract (which may be out of their control) could have a
significant and unpredictable impact on consolidated revenue that we can
recognize in a given quarterly or annual period.</TD>
</TR>


</TABLE>
<P align="center" style="font-size: 10pt">Intelligent Systems Corporation

<P align="center" style="font-size: 10pt">- 11 -
</DIV>

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<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Acquisitions may affect our revenue and expense
levels. For instance, in 2002, we acquired a
controlling interest in CoreCard Software and in mid
2001, we acquired a controlling interest in VISaer.
Consequently, we consolidated the results of
operations of those companies from the dates of
acquisition but not for prior periods.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Frequently we recognize consolidated operating losses on a quarterly and annual
basis and are likely to do so in the future from time to time. Our operating
expenses consist of the aggregate of our four subsidiaries&#146; expenses and the
corporate office expenses. Our ChemFree and QS Technologies subsidiaries
usually generate an operating profit on an annual basis but our early stage
subsidiaries, VISaer and CoreCard, presently do not, mainly due to significant
research and development expense that is invested to complete their new product
offerings and the deferral of revenue recognition until such products are
delivered to customers in future periods. Depending upon the size and number
of software licenses recognized in a particular period and the level of
expenses incurred to support development and sales activities, our subsidiaries
may report operating profits on an irregular basis as they build their customer
base. A significant portion of our subsidiaries&#146; expense is related to
personnel which is relatively fixed in the short-term and we continually
evaluate and strive to balance our financial resources with the resources
required to complete products under development and support our subsidiaries&#146;
customers. For these and other reasons, our operating profits or losses may
vary from quarter to quarter and at the present time are generally not
predictable with any degree of certainty.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We also frequently generate income or losses from non-operating sources and we
may do so from time to time in the future. Occasionally we derive income from
sales of holdings in affiliate and other minority-owned companies or we record
a charge if we believe the value of a non-consolidated company is impaired. We
also recognize on a quarterly basis our pro rata share of the income or losses
of affiliate companies accounted for by the equity method. The timing and
amount of gain or loss recognized as a result of a sale or the amount of equity
in the income or losses of affiliates generally are not under our control and
are not necessarily indicative of future results, either on a quarterly or
annual basis.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In recent years, most of our cash has been generated on an irregular basis from
sales of our investments in early stage technology companies. We have used a
significant amount of the cash received from these sales to support the
operations of our CoreCard Software and VISaer subsidiaries. We do not expect
and cannot support the same level of cash investment in the future in these two
entities and presently believe that customer payments on existing and pending
software contracts will be sufficient to fund VISaer&#146;s operations and a growing
portion of CoreCard&#146;s expenses. If the business or cash flow of either
subsidiary does not develop as anticipated, we would need to scale back or
restructure their operations.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Results of Operations</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements
presented in this annual report.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>2003 Compared to 2002</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Revenue </I></B>- Total revenue for the year ended December&nbsp;31, 2003 was $13.3&nbsp;million,
an increase of 24&nbsp;percent ($2.6&nbsp;million) compared to the same period in 2002.
Revenue from product sales increased 34&nbsp;percent year-to-year from $6.3&nbsp;million
to $8.5&nbsp;million whereas revenue from services billed by the Information
Technology segment increased 10&nbsp;percent year-to-year from $4.4&nbsp;million to $4.9
million. The increase in product revenue is due to several factors: software
license fees generated by our Information Technologies segment subsidiary, QS
Technologies, accounted for 57&nbsp;percent of the total year-to-year increase and
the Industrial Products segment accounted for the remaining 43&nbsp;percent of the
year-to-year increase due to increased revenue from ChemFree products in both
domestic and international markets.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In 2003, QS Technologies benefited from pent-up demand for its products by
local and state governments after several years of reduced spending by such
entities on software products. Almost 80&nbsp;percent of QS Technologies product
revenue was generated in the fourth quarter of 2003 upon delivery of its most
recent product release to new customers. Based on the current pipeline and
foreseeable demand, we may not achieve the same level of new license revenue in
2004 because we expect that state and local government budget constraints may
reduce overall spending, including for software products.

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">
Our Industrial Products segment achieved a 37&nbsp;percent increase in international
sales and a 14.5&nbsp;percent increase in domestic sales in 2003 compared to 2002.
The year-to-year increase was due to approximately 15&nbsp;percent higher unit
shipments of SmartWasher<SUP>&#174;</SUP> parts washers and fluid, a 14&nbsp;percent increase in
revenue from units leased to customers under multi-site corporate lease
contracts, and an increase of approximately four percent in the average selling
price of parts washers and fluid due to price increases on certain products.


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<P align="center" style="font-size: 10pt">- 12 -
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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Some of the factors contributing to the year-to-year increase include expanded
geographic coverage by domestic distributors, more installations at new and
existing multi-site corporate facilities and a larger installed base of
customers who purchase replenishment supplies of fluids and filters. We expect
demand for ChemFree products to continue to grow, although it is unlikely we
would sustain the same level of high growth in the international markets in
2004 as in 2003.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Our CoreCard Software subsidiary began generating limited revenue in 2003 while
license revenue booked by our VISaer subsidiary was approximately 27&nbsp;percent
lower than in 2002, mainly due to deferring revenue on new licenses sold until
delivery of the final Web-based version of their licensed software in 2004. At
December&nbsp;31, 2003, we have recorded $2.6&nbsp;million of unearned short-term
deferred revenue and $5.1&nbsp;million of long-term deferred revenue, of which 79
percent of the total is related to VISaer license fees and 15&nbsp;percent of the
total is related to annual maintenance, support and lease contracts at three
subsidiaries which will be recognized ratably over twelve months in 2004.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">With respect to our revenue from services, the increase from year-to-year from
$4.4&nbsp;million to $4.9&nbsp;million reflects mainly a 20&nbsp;percent or $252,000 increase
in maintenance and support revenue generated by our QS Technologies subsidiary
due to a larger installed base of customers paying annual maintenance fees as
well as approximately $165,000 more revenue from training and other services
provided (excluding billable travel) due to the record number of new customer
licenses sold during 2003. The level of service revenue generated by our
VISaer subsidiary was relatively constant year-to-year.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Cost of Sales </I></B>- Cost of product sales in 2003 was 39&nbsp;percent of product
revenue, or $3.3&nbsp;million compared to 48&nbsp;percent of product revenue, or $3.0
million in 2002. The difference between years is due to the significantly
greater contribution of license revenue generated in 2003 by the QS
Technologies subsidiary which has a lower cost of sales than do our Industrial
Products, which experienced a relatively consistent cost as a percentage of
revenue in both 2003 and 2002 (52&nbsp;percent and 55&nbsp;percent in 2003 and 2002,
respectively).


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Cost of service sales in 2003 represented 69&nbsp;percent of service revenue or $3.4
million compared to 64&nbsp;percent of service revenue, or $2.9&nbsp;million in 2002.
The increase is due to higher personnel costs. QS Technologies allocated more
resources to customer support functions in 2003 than in 2002 to support a high
volume of new customers in 2003 and VISaer utilized more expensive third party
contractors for certain specialized development services in the first half of
2003 and utilized more of its personnel in the customer support and
professional services departments in 2003 as compared to 2002.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Operating Expenses </I></B>- Consolidated operating expenses were 13&nbsp;percent lower in
2003 than in 2002, decreasing from $17.3&nbsp;million to $15.0&nbsp;million. Both
general and administrative and research and development expenses declined 15
percent in 2003 compared to 2002 while marketing expenses were five percent
lower than the prior year. General and administrative expenses decreased from
$4.6&nbsp;million in 2002 to $3.9&nbsp;million in 2003 mainly due to lower administrative
and management personnel costs at CoreCard than had been incurred in early 2002
prior to the consolidation of CoreCard operations, saving approximately
$667,000 in 2003. Other factors contributing to the reduced expenses in 2003
were lower personnel costs at VISaer offset in part by an increase of $147,000
in legal fees at ChemFree and higher personnel costs at QS Technologies.
Research and development expense declined by 15&nbsp;percent in 2003 compared to
2002 from $9.8&nbsp;million to $8.3&nbsp;million principally due to a net reduction in
the number of personnel employed in our domestic Information Technologies
subsidiaries and a reduction in contract programming expense that had been
incurred by VISaer in 2002 related to the initial conversion and development of
its Web-based software product.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Interest Income </I></B>- We recognized net interest income of $2,000 in 2003 compared
to $129,000 in 2002. In 2002, we earned interest on a higher level of notes
receivable balances because we had a $1.5&nbsp;million note receivable outstanding
for five months in 2002 and a $3.0&nbsp;million note receivable outstanding for four
months in 2002. Both notes were repaid or converted to equity in 2002.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Investment Income </I></B><B>- </B>We earned net investment income of $3.0&nbsp;million in 2003
compared to a net investment loss of $934,000 in 2002. In 2003, net investment
income includes a gain of $4.5&nbsp;million related to the PaySys escrow settlement
(refer to Note 3 for details), offset in part by charges of $600,000, $76,000
and $501,000 to reduce the carrying value of our investments in RF Solutions
Inc, Silverpop, Inc. and MediZeus, Inc., respectively. In addition, we
recorded charges of $92,000 and $131,000 against the carrying values of notes
receivable of RF Solutions, Inc. and Medizeus, Inc., respectively. By
comparison, in 2002, we recorded investment gains of $1.1&nbsp;million on the sale
of our holdings in Atherogenics stock and $474,000 on the sale of our remaining
interest in Risk Laboratories. Offset against
these gains were charges totaling $1.1&nbsp;million to reduce the carrying value of
our investments in NuTec Sciences, Inc., Lumenor, Inc., and Novient, Inc.,
three privately-held software companies, and a charge of $1.3&nbsp;million to
recognize the accumulated loss on our holdings in publicly traded Daw
Technologies, Inc. and Ixalt, Inc. Refer to Note 3 for more details regarding
these transactions. The timing and amounts of asset sales or writedowns, if
any, vary on an annual and quarterly basis and are generally not predictable by
us in advance.



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<P align="center" style="font-size: 10pt">- 13 -
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Equity Earnings (Losses) of Affiliate Companies </I></B><I>- </I>On a quarterly basis, we
recognize our pro rata share of the earnings or losses of affiliate companies
that we record on the equity method. The amount recorded is not generally
predictable or indicative of future results because it is the aggregate
earnings (losses)&nbsp;of a number of relatively small companies operating in
various industries and thus aggregate earnings (losses)&nbsp;are subject to
considerable fluctuation from quarter-to-quarter. In 2003, we recorded
$184,000 in equity earnings of five affiliate companies (including Horizon
Software International, CoreXpand, Riverside Software, MediZeus, and Cirronet,
for those periods in which we accounted for each by the equity method) compared
to equity losses in 2002 of $235,000 in three affiliate companies (CoreXpand,
MediZeus and Horizon Software for those periods in which we accounted for each
by the equity method).


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Other Income, Net </I></B><I>- </I>We recognized $328,000 in other income in 2003 compared to
other income of $900,000 in 2002. In 2003, the amount includes $137,000 in
recognition of deferred gain related to a VISaer product line sale in a prior
period, $124,000 in foreign currency exchange gains, and other miscellaneous
income. By comparison, in 2002 other income consists mainly of $813,000 of
deferred gain related to the VISaer product line sale and other miscellaneous
income.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Income Taxes </I></B><I>- </I>In 2003, we recorded an income tax credit of $40,000
representing the net of a $104,000 refund of alternative minimum taxes paid by
the VISaer subsidiary in a prior year and income tax of $64,000 related to our
QS Technologies&#146; state tax liability. We did not accrue for any other income
tax liability in 2003 and we believe that the deferred tax assets should be
fully reserved given their character and our recent losses. By comparison, in
2002, we recorded an income tax benefit of $343,000 reflective of a refund of
alternate minimum taxes paid in 2001.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>2002 Compared to 2001</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Revenue </I></B>- Total revenue for the year ended December&nbsp;31, 2002 was $10.7&nbsp;million
versus $8.7&nbsp;million in the same period in 2001, an increase of 23&nbsp;percent.
Revenue from product sales increased 18&nbsp;percent year-to-year whereas revenue
from services billed by the Information Technology segment increased 29&nbsp;percent
year-to-year. The increase in product revenue is mainly due to a greater
number of units sold by the ChemFree subsidiary due to an increase in domestic
demand for its products. The increase in service revenue year-to-year reflects
mainly the fact that we included the results of VISaer for the full 12&nbsp;months
in 2002 but only for six months in 2001. Approximately two-thirds of our
service revenue in 2002 was generated by VISaer for professional services with
the balance coming mainly from software maintenance contracts at the QS
Technologies subsidiary. At December&nbsp;31, 2002, long-term deferred revenue was
$4.8&nbsp;million, related to VISaer&#146;s software license contract with a major U.S.
air freight company, which it expects to realize beginning in 2004.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Cost of Sales </I></B>- In 2002, total cost of sales was 55&nbsp;percent of revenue compared
to 47&nbsp;percent of revenue in 2001. Cost of <I>product </I>sales as a percentage of
product revenue was 48&nbsp;percent in 2002 compared to 49&nbsp;percent in 2001,
reflecting mainly a reduction in the unit cost of producing ChemFree products
because fixed production overhead was spread across a higher volume of goods
produced. Cost of <I>service </I>sales almost doubled in 2002 as compared to 2001 and
represented 64&nbsp;percent of services revenue in 2002 as compared to 42&nbsp;percent in
2001. Approximately $1.0&nbsp;million of the year-to-year increase in costs of
service sales is attributed to including VISaer costs for the full 12&nbsp;months in
2002 as compared to only six months in 2001. Typically, costs associated with
VISaer service revenue involve higher labor costs than do costs associated with
QS Technologies services.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Operating Expenses </I></B>- In 2002, marketing expenses increased by $870,000 (42
percent) compared to 2001. Of the increase, approximately $330,000 is due to
the inclusion of VISaer expenses for 12&nbsp;months in 2002, $283,000 is due to
increased expenditures at the ChemFree subsidiary to support a direct sales
initiative in selected markets, and the balance of $257,000 reflects mainly the
inclusion of CoreCard expenses in 2002. General and administrative expenses
were 53&nbsp;percent lower in 2002 than in 2001, mainly reflecting the fact that
2001 expenses included non-cash charges totaling $6.0&nbsp;million related to the
write-down of goodwill associated with the VISaer acquisition in 2001.
This decrease was offset by an increase of approximately $950,000&nbsp;year-to-year mainly because we included the expenses of
VISaer for the full 12&nbsp;months in 2002 as compared to only six months in 2001.
An increase in legal expenses in 2002 at ChemFree of approximately $140,000
related to intellectual property protection was offset by a reduction in G&#038;A
personnel expenses at the QS Technologies subsidiary. Research and development
expense increased by $6.4&nbsp;million (191
percent) in 2002 as compared to 2001. Approximately one-half of the increase
is attributable to each of VISaer and CoreCard due to the inclusion for the
full year of their respective expenses to support significant new product
development initiatives.



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<P align="center" style="font-size: 10pt">- 14 -
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Interest Income </I></B>- In 2002, we earned $129,000 in interest income compared to
$1.0&nbsp;million in 2001. The reduced interest income is because we earned
significant interest on a high-interest loan to PaySys in 2001 before PaySys
was sold and the loan repaid. In 2002, we also had lower average cash balances
and notes receivable balances than in 2001 and we earned interest at a lower
rate than in 2001.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Investment Income/Loss </I></B>- In 2002, we had a net investment loss of $934,000
compared to net investment income of $19.9&nbsp;million in 2001, of which $17.8
million was derived from the sale of our PaySys affiliate in 2001. In 2002, we
recorded investment gains of $1.1&nbsp;million on the sale of our holdings in
Atherogenics stock and $474,000 on the sale of our remaining interest in Risk
Laboratories. Offset against these gains were charges totaling $1.1&nbsp;million to
reduce the carrying value of our investments in NuTec Sciences, Lumenor, and
Novient, three privately-held software companies, and a charge of $1.3&nbsp;million
to recognize the accumulated loss on our holdings in publicly traded Daw
Technologies, Inc. and Ixalt, Inc. Refer to Note 3 for more details regarding
these write-downs. The timing and amounts of asset sales or write-downs, if
any, vary on an annual and quarterly basis and are generally not predictable by
us in advance.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Equity Losses of Affiliates </I></B>- On a quarterly basis, we recognize our pro rata
share of the earnings or losses of affiliate companies that we record on the
equity method. In some cases, these companies are early stage companies that
incur losses during their development and early revenue period. In 2002, we
recorded equity losses of $235,000 related to four affiliate companies compared
to equity losses in 2001 of $2.2&nbsp;million related to seven affiliate companies.
The main difference between years is that we consolidated VISaer and CoreCard
for the full year in 2002 but in 2001, we consolidated VISaer only for the last
half of the year and we accounted for CoreCard under the equity method for the
entire year.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Other Income </I></B>- In 2002, other income consists mainly of $813,000 of deferred
gain related to a VISaer product line sale in July&nbsp;2000, compared to the
recognition of $961,000 of deferred gain related to the product line sale in
2001. Refer to Note 7 for detail on the deferred gain.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B><I>Income Taxes </I></B>- In 2002, we recorded an income tax benefit of $343,000
reflective of a refund of alternate minimum taxes paid in 2001. In 2001, we
incurred a net income tax expense of $173,000, representing a tax liability of
$343,000 for alternative minimum tax on the PaySys transaction and a tax
benefit of $211,000 recorded at the VISaer subsidiary. The difference between
our effective and statutory income tax rate is caused by our valuation
allowance on our deferred tax assets.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Liquidity and Capital Resources</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Our cash balance at December&nbsp;31, 2003 was $1.1&nbsp;million, which is $1.5&nbsp;million
lower than at the prior year-end. During the year ended December&nbsp;31, 2003, our
principal source of cash was $4.6&nbsp;million from settlement of the PaySys escrow
account as described in more detail in Note 3 to the Consolidated Financial
Statements. During the year, our principal use of cash was $5.5&nbsp;million for
operations, which was $3.6&nbsp;million less than in 2002. We used approximately
$328,000 cash, net of repayments and distributions, related to new and
follow-on investments or loans to investee companies in 2003 but plan to
concentrate our activities and resources in 2004 on our existing companies.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In recent years, most of our cash has been generated on an irregular basis from
sales of our investments in non-consolidated technology companies and we have
used a significant amount of the cash received from these sales to support the
operations of our CoreCard Software and VISaer subsidiaries. In 2003, we used
$6.7&nbsp;million to support these two subsidiaries which was $286,000 less than we
used in 2002. We do not expect and cannot support the same level of cash
investment in the future in these two subsidiaries. Based on recent trends and
current projections, we presently believe that scheduled customer payments on
existing and pending software contracts will be sufficient to fund
substantially all of VISaer&#146;s operations and a growing portion of CoreCard&#146;s
expenses in 2004. If the business or cash flow of either subsidiary does not
develop as anticipated either due to delays in customer payments, software
development or new contract acquisitions, we would need to scale back or
restructure the respective operations to a level that could be supported by
their internal cash flow with minimal cash, if any, provided by us, or to seek
alternative sources of funding for the subsidiaries. Most of our consolidated
expenses are related to personnel, none of whom are represented by a union or
have employment contracts. Thus, while there are no current plans to do so,
any action to reduce negative cash flow from operations would generally entail
a reduction in numbers of employees and the payment of accrued and severance
compensation which could increase cash requirements in a given quarter but
reduce cash needs in future quarters. Our established operating companies, QS
Technologies and ChemFree, generated
sufficient cash in 2003 to offset a majority of the corporate office expenses
and are expected to do so again in 2004. There are no restrictions on the
transfer of cash balances between the parent and subsidiary companies.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Accounts receivable at December&nbsp;31, 2003 were $1.5&nbsp;million, 49&nbsp;percent lower
than at December&nbsp;31, 2002, when they were $3.0&nbsp;million. At December&nbsp;31, 2002,
our receivables were higher than normal for several reasons. First, at
December&nbsp;31, 2002, $816,000 of the

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<P align="center" style="font-size: 10pt">- 15 -
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">accounts receivable was related to billings
to two VISaer customers upon the achievement of contract milestones and such
amounts were collected in early 2003. At year-end December&nbsp;2003, there were no
such scheduled milestone billings included. Second, $150,000 of the
year-to-year difference in accounts receivable is attributable to timing
differences on billings of annual maintenance contracts for two VISaer
customers. Third, in the Industrial Products segment, increased emphasis on
collections and stricter credit policies resulted in reduced collection cycles
and improved cash flow in 2003 by approximately $360,000. In the aggregate,
current and non-current deferred revenue increased by $1.0&nbsp;million in 2003
compared to 2002, representing cash payments in 2003 by customers for software
licenses and annual software maintenance contracts by our Information
Technology subsidiaries as well as leased Industrial Products equipment for
which the related revenue will be recognized in future periods. In 2003, we
used approximately $95,000 cash to increase inventory levels of ChemFree
products to support a growing volume of sales and leases of equipment to
domestic and international customers. Accounts payables declined by $369,000
at December&nbsp;31, 2003 compared to December&nbsp;31, 2002 for several reasons. Of the
decline, $83,000 is related to a planned reduction in the use of third-party
software contractors in 2003 and the balance is mostly related to improved cash
collections in the Industrial Products segment which allowed payment of
payables generally within current terms.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We have several potential near-term sources of cash to support negative cash
flow from consolidated operations, including periodic draws against our bank
line of credit, sale(s) of investments or other assets or third party strategic
investment in a subsidiary. The amount and timing of sales of investments or
assets cannot be predicted with reasonable certainty at this time and presently
we do not have any firm pending transactions. Our budgeted cash requirements
for 2004 are substantially lower than for 2003 based on new and pending
software license and professional services contracts at our Information
Technology subsidiaries, recently negotiated periodic payments by two key
customers at VISaer, and lower product development costs at VISaer and
CoreCard. We expect to use our bank line of credit as needed in 2004 to
accommodate short-term timing differences in consolidated cash flows. We
presently project that we will have sufficient accounts receivable and
inventory balances throughout the year to provide the required borrowing base
for such draws under our bank line of credit; however, if we fail to do so, we
could experience a short-term cash shortfall unless the bank provided an
exception. Furthermore, if the bank elects not to renew our line of credit at
the end of the current term (September&nbsp;1, 2004), we may not be able to find a
replacement line of credit on acceptable terms, if at all. Certain VISaer
customer contracts tie cash payments to delivery dates of various software
deliverables and in other cases, customers have agreed on periodic payments at
scheduled time periods to enable the company to dedicate resources to complete
contract deliverables. VISaer is working closely with key customers to meet
its project milestones but delays could cause customers to postpone payments
and increase VISaer&#146;s need for cash during 2004. Also our ability to recognize
deferred revenue reflected on the balance sheet will depend on VISaer
delivering and the customer accepting the final software deliverables in 2004
and thereafter. Presently, we do not believe there is a material risk to
successfully performing under these contracts but if customer payments are
delayed for any reason or we do not control costs or we encounter unforeseen
technical problems, then VISaer could experience a cash shortfall to fund its
operations and would need to scale back its operations or seek new financing,
which could affect its performance under the contracts, at least in the short
term. In addition, unanticipated delays in contract awards and implementations
at CoreCard would have a negative impact on results of operations and increase
our cash requirements.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Beyond 2004, we expect that liquidity will continue to improve and consolidated
operations will generate sufficient cash to fund their requirements with use of
our credit facility to accommodate short-term needs. Other long-term sources of
liquidity include potential sales of investments or other assets although the
timing and amount of any such transactions are uncertain and, to the extent
they involve non-consolidated companies, generally not within our control.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We do not currently have any off balance sheet arrangements that are reasonably
likely to have a current or future material effect on our financial condition,
liquidity or results of operations.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Long-Term Contractual Obligations</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Our only material long-term contractual obligations consist of operating leases
as indicated below:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="56%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Payment Due By Period</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Contractual Obligations</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Less than</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1-3</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>3-5</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>More than</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1 year</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>years</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>years</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>5 years</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating Lease Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">Intelligent Systems Corporation

<P align="center" style="font-size: 10pt">- 16 -
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>Factors That May Affect Future Operations</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Future operations in both the Information Technology and Industrial Products
segments are subject to risks and uncertainties that may negatively impact our
future results of operations or projected cash requirements. It is difficult
to predict future quarterly and annual results with any certainty mainly
because several of our subsidiaries are early stage companies with limited
revenue and experience in their respective markets, all are relatively small in
size and, particularly in the Information Technology sector, revenue tends to
be associated with fewer and larger sales than in the Industrial Products
segment. Thus any trend or delay that affects even one of our subsidiaries
could have a negative impact on the company&#146;s consolidated results of
operations or cash requirements on a quarterly or annual basis. In addition,
the carrying value of our investments is impacted by a number of factors which
are generally beyond our control since we are typically a non-control
shareholder in a private company with limited liquidity. Among the numerous
factors that may affect our consolidated results of operations or financial
condition are the following:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Delays in software development projects which could cause our customers to delay implementations, delay payments or cancel
contracts, which would increase our costs and reduce our revenue.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Undetected software errors which may delay product releases, increase our costs, result in non-acceptance of our software
by customers or delay revenue recognition.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Competitive pressures (including pricing, changes in customer requirements and preferences, and competitor product
offerings) which may cause prospective customers to choose an alternative product solution, resulting in lower revenue and
profits (or increased losses).</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The inability of our CoreCard or VISaer subsidiaries to establish a base of referenceable customers for their new product
offerings, resulting in lower revenue and profits (or increased losses), increased cash needs and possibly leading to
restructuring or cutting back of the subsidiary&#146;s operations.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Failure of our products&#146; specifications and features to achieve market acceptance.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Delays in anticipated customer payments for any reason which would increase our cash requirements and possibly our losses.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Declines in performance, financial condition or valuation of minority-owned companies which could cause us to write-down
the carrying value of our investment or postpone an anticipated liquidity event, which could negatively impact our earnings
and cash.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A reversal of the improving trend in the commercial aviation industry worldwide which could impact VISaer&#146;s short-term
customer purchases, thus increasing its losses and need for cash.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The relatively limited sales and marketing experience of our VISaer and CoreCard subsidiaries in their respective markets
could cause them to misinterpret or fail to interpret or adjust to a trend in the market or to underestimate the sales
cycle time frame.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In the Industrial Products market, failure by ChemFree to achieve anticipated growth in the European market or in the
domestic national accounts and non-automotive markets for their products could cause lower than anticipated sales and
profits.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An insufficient number of potential CoreCard customers decide to purchase and run an in-house software system and instead
choose to outsource their account transaction processing which could result in lower revenue, increased costs and greater
cash requirements.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Budget reductions by state and local governments for information technology products that delay award of contracts or
implementations for our QS Technologies subsidiary.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An insufficient level of qualifying accounts receivable and inventories to support a borrowing base sufficient to meet our
anticipated borrowing requirements under our bank line of credit.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The recurrence of some incidence such as the SARS epidemic in 2003 that has a negative impact on the aviation industry,
resulting in delays in contract awards and customer implementations similar to the unforeseen negative impact on cash and
profits experienced by VISaer during the SARS epidemic.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Other general economic and political conditions, particularly those which may cause international business and domestic
government customers to delay or cancel software purchase decisions.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We have certain lease commitments, legal matters and contingent liabilities
described in detail in Note 9 to the Consolidated Financial Statements. We are
not aware presently of any facts or circumstances related to these that are
likely to have a material negative impact on our results of operations or
financial condition.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>Recent Accounting Pronouncements</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In January&nbsp;2003, the FASB issued FIN No.&nbsp;46, &#147;Consolidation of Variable
Interest Entities&#148;. FIN No.&nbsp;46 clarifies the application of Accounting
Research Bulletin No.&nbsp;51, &#147;Consolidated Financial Statements,&#148; to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN No.&nbsp;46 is applicable immediately for variable
interest entities created after January&nbsp;31, 2003. For variable interest
entities created on or prior to January&nbsp;31, 2003, the provisions of FIN No.&nbsp;46
must be applied for the first


<P align="center" style="font-size: 10pt">Intelligent Systems Corporation

<P align="center" style="font-size: 10pt">- 17 -
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">interim or annual period beginning after December
15, 2003. We have identified no variable interest entities and do not expect
FIN No.&nbsp;46 to have an effect on our consolidated financial statements.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In May&nbsp;2003, the FASB issued SFAS No.&nbsp;150, &#147;Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity&#148;. SFAS No.&nbsp;150
establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. Many of such instruments were previously classified
as equity by issuers. SFAS No.&nbsp;150 is effective for financial instruments
entered into or modified after May&nbsp;31, 2003, and otherwise effective at the
beginning of the first interim period beginning after June&nbsp;15, 2003, except for
mandatory redeemable financial instruments of nonpublic entities. The
statement is to be implemented by reporting the cumulative effect of a change
in accounting principle for financial instruments created before the issuance
of the date of the statement and still existing at the beginning of the interim
period of adoption. Restatement is not permitted. On November&nbsp;7, 2003, the
FASB deferred the classification and measurement provisions of SFAS No.&nbsp;150 as
they apply to certain mandatory redeemable non-controlling interests. This
deferral is expected to remain in effect while these provisions are further
evaluated by the FASB. The adoption of this statement did not have a
significant impact on our financial position, results of operations or cash
flows.

<DIV align="left">
<A name="110"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We do not have any material market risk because we have no long-term borrowings
or sales transactions involving financial instruments.

<DIV align="left">
<A name="111"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The response to this item is submitted as a separate section of this report.
See the Consolidated Financial Statements and Note 17 to the Consolidated
Financial Statements.

<DIV align="left">
<A name="112"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">On May&nbsp;10, 2002, we dismissed Arthur Andersen LLP as our independent public
accountants. No report of Arthur Andersen LLP on the financial statements for
either of the two past years contained an adverse opinion or a disclaimer of
opinion, or was qualified or modified as to uncertainty, audit scope, or
accounting principles. There were no disagreements with Arthur Andersen LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement, if not resolved
to the satisfaction of Arthur Andersen LLP, would have caused it to make
reference to the subject matter of the disagreement in connection with its
report during the company&#146;s two most recent fiscal years or any subsequent
interim period preceding the dismissal of Arthur Andersen LLP. Effective July
3, 2002, our Board of Directors, upon the recommendation of the Audit
Committee, appointed BDO Seidman, LLP as our new independent accountants.

<DIV align="left">
<A name="113"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 9A. CONTROLS AND PROCEDURES</B>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">As of the end of the period covered by this report, the company carried out an
evaluation, under the supervision and with the participation of the company&#146;s
management, including the Company&#146;s Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the company&#146;s
disclosure controls and procedures pursuant to Rule&nbsp;13a-15(b) under the
Exchange Act. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the company&#146;s disclosure controls and
the procedures are effective. There were no significant changes in the
company&#146;s internal controls over financial reporting or in other factors
identified in connection with this evaluation that occurred during the period
covered by this report that has materially affected, or is reasonably likely to
materially affect, the company&#146;s internal control over financial reporting.

<DIV align="left">
<A name="114"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART III</B>


<DIV align="left">
<A name="115"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Please
refer to the subsection entitled &#147;Proposal 1 - The Election of One
Director - Nominee&#148; and &#147;Proposal 1 - The Election of One
Director - Executive
Officers&#148; in our Proxy Statement for the Annual Meeting of Shareholders to be
held on May&nbsp;27, 2004 for information about the individual nominated as director
and about the executive officers of the company. This information is
incorporated into this Item&nbsp;10 by reference. Information regarding compliance
by directors and executive officers of the company and owners of more than 10
percent of our common stock with the reporting requirements of Section 16(a) of
the Securities Exchange Act of 1934, as amended, is contained

<P align="center" style="font-size: 10pt">Intelligent Systems Corporation

<P align="center" style="font-size: 10pt">- 18 -
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">under the caption
&#147;Section&nbsp;16(a) Beneficial Ownership Reporting Compliance&#148; in this Proxy
Statement. This information is incorporated into this Item&nbsp;10 by reference.

<DIV align="left">
<A name="116"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 11. EXECUTIVE COMPENSATION</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Please refer to the subsection entitled &#147;Proposal 1 - The Election of One
Director - Executive Compensation&#148; in the Proxy Statement referred to in Item
10 for information about management compensation. This information is
incorporated into this Item&nbsp;11 by reference.

<DIV align="left">
<A name="117"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Please refer to the subsections entitled &#147;Voting - Principal Shareholders,
Directors and Certain Executive Officers&#148; and &#147;Voting - Securities Authorized
for Issuance Under Equity Compensation Plan&#148; in the Proxy Statement referred to
in Item&nbsp;10 for information about the ownership of our $0.01 par value common
stock by certain persons and securities authorized for issuance under our
equity compensation plans. This information is incorporated into this Item&nbsp;12
by reference.

<DIV align="left">
<A name="118"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">J. Leland Strange, a director, and President and Chief Executive Officer of the
company, participated as a common shareholder in the pro rata distribution of
the escrow fund related to the sale in April&nbsp;2001 of PaySys International, Inc.
as described more fully in Note 3 to the Consolidated Financial Statements.
Mr.&nbsp;Strange, who had owned his shares in PaySys since 1983 prior to the
company&#146;s investment in PaySys in 1994, received $149,106 in the aggregate in
two payments in March and June&nbsp;2003, which represented his pro rata share of
the escrow funds released.

<DIV align="left">
<A name="119"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Please refer to the subsections entitled &#147;Audit Committee Report&#148; and
&#147;Independent Public Accountants&#148; in the Proxy Statement referred to in Item&nbsp;10
for information about the fees paid to and services performed by our
independent accountants. This information is incorporated into this Item&nbsp;14 by
reference.

<DIV align="left">
<A name="120"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART IV</B>


<DIV align="left">
<A name="121"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>(a)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Documents filed as part of this report.</B></TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;Financial Statements


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following consolidated financial statements and related reports of
independent public accountants are included in this report and are incorporated
by reference in Part&nbsp;II, Item&nbsp;8 hereof. See the Index to Financial Statements
and Supplemental Schedules on page F-1 hereof.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Report of Independent Certified Public Accountants</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Report of Previous Independent Public Accountants</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Balance Sheets at December&nbsp;31, 2003 and 2002</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Operations for the three years ended December
31, 2003</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Changes in Stockholders&#146;
Equity and Comprehensive Income (Loss) for the three years ended
December&nbsp;31, 2003</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consolidated Statements of Cash Flow for the three years ended December
31, 2003</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Notes to Consolidated Financial Statements</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;Financial Statement Schedule


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are including the financial statement schedule listed below in this
report. We omitted all other schedules required by certain applicable
accounting regulations of the Securities and Exchange Commission because the
omitted schedules are not required under the

<P align="center" style="font-size: 10pt">Intelligent Systems Corporation

<P align="center" style="font-size: 10pt">- 19 -
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">related instructions or do not
apply or because we have included the information required in the Consolidated
Financial Statements or notes thereto. See the Index to Financial Statements
and Supplemental Schedules on page F-1 hereof.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Schedule&nbsp;II
- - Valuation and Qualifying Accounts and Reserves


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;Exhibits


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are filing the following exhibits with this report or incorporating
them by reference to earlier filings. Shareholders may request a copy of any
exhibit by contacting Bonnie L. Herron, Secretary, Intelligent Systems
Corporation, 4355 Shackleford Road, Norcross, Georgia 30093; telephone (770)
381-2900. There is a charge of $.50 per page to cover expenses of copying and
mailing.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">3(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amended and Restated Articles of Incorporation of the Registrant dated
November&nbsp;14, 1991, as amended November&nbsp;25, 1997. (Incorporated by
reference to Exhibit&nbsp;3.1 to the Registrant&#146;s Annual Report on Form 10-K
for the year ended December&nbsp;31, 1991 and to Exhibit&nbsp;3.1 to the
Registrant&#146;s Report on Form 8-K dated November&nbsp;25, 1997.)</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">3(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Bylaws of the Registrant dated June&nbsp;6, 1997. (Incorporated by reference
to Exhibit&nbsp;3(ii) of the Registrant&#146;s Form 10-K/A for the year ended
December&nbsp;31, 1997.)</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">4.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Rights Agreement dated as of November&nbsp;25, 1997 between the Registrant and
American Stock Transfer &#038; Trust Company as Rights Agent. (Incorporated by
reference to Exhibit&nbsp;4.1 of the Registrant&#146;s Report on Form 8-K dated
November&nbsp;25, 1997 and filed on December&nbsp;16, 1997.)</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">4.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Form of Rights Certificate. (Incorporated by reference to Exhibit&nbsp;4.2 of
the Registrant&#146;s Report on Form 8-K dated November&nbsp;25, 1997 and filed on
December&nbsp;16, 1997.)</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">10.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Lease Agreement dated November&nbsp;26, 2002, between the Registrant and Duke
Realty Limited Partnership (incorporated by reference to Exhibit&nbsp;10.1 to
the Registrant&#146;s Form 10-K for the year ended December&nbsp;31, 2002).</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">10.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Management Compensation Plans and Arrangements:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Intelligent Systems Corporation 2003 Stock Incentive Plan</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Intelligent Systems Corporation 1991 Stock Incentive Plan,
amended June&nbsp;6, 1997</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Intelligent Systems Corporation Change in Control Plan for
Officers</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Intelligent Systems Corporation Outside Director&#146;s Retirement
Plan</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(e)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Non-Employee Directors Stock Option Plan</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;10.2(a) is filed herewith.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;10.2 (b)&nbsp;is incorporated by reference to Exhibit&nbsp;4.1 of the
Registrant&#146;s Form S-8 dated July&nbsp;25, 1997.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibits 10.2 (c)&nbsp;and (d)&nbsp;are incorporated by reference to Exhibit&nbsp;10.4 to
the Registrant&#146;s Form 10-K for the year ended December&nbsp;31, 1993.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exhibit&nbsp;10.2 (e)&nbsp;is incorporated by reference to
Exhibit&nbsp;10.3 to the Registrant&#146;s Form 10-K for the year ended December&nbsp;31, 2000.</TD>
</TR>


</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">10.3</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Loan Agreement by and among Intelligent Systems Corporation and Fidelity
Bank dated October&nbsp;1, 2003.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">10.4</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Security Agreement by and among Intelligent Systems Corporation and
Fidelity Bank dated as of October&nbsp;1, 2003.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">10.5</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Form of Security Agreement by and among majority owned subsidiary
companies of Intelligent Systems Corporation and Fidelity Bank as of
October&nbsp;1, 2003.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">10.6</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Negative Pledge Agreement by and among Intelligent Systems Corporation
and Fidelity Bank dated October&nbsp;1, 2003.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">10.7</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Commercial Promissory Note and Rider thereto of Intelligent Systems
Corporation in favor of Fidelity Bank dated October&nbsp;1, 2003.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">10.8</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Form of Guarantee of majority owned subsidiaries of Intelligent Systems
Corporation in favor of Fidelity Bank dated October&nbsp;1, 2003.</TD>
</TR>



</TABLE>
<P align="center" style="font-size: 10pt">Intelligent Systems Corporation

<P align="center" style="font-size: 10pt">- 20 -
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">21.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>List of subsidiaries of Registrant.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">23.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consent of BDO Seidman, LLP.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">31.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Chief Executive Officer Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">31.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Chief Financial Officer Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">32.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification Pursuant to 18 U.S.C. Section&nbsp;1350, as Adopted Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>(b)&nbsp;Reports on Form&nbsp;8-K.</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We filed a report on Form 8-K on November&nbsp;7, 2003 disclosing that we issued a
press release on November&nbsp;7, 2003 announcing our financial results for the
quarter ended September&nbsp;30, 2003.


<P align="left" style="font-size: 10pt"><B>(c)&nbsp;See Item&nbsp;15(a)(3) above.</B>



<P align="left" style="font-size: 10pt"><B>(d)&nbsp;See Item&nbsp;15(a)(2) above.</B>


<DIV align="left">
<A name="122"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>SIGNATURES</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Pursuant to the requirements of Section&nbsp;13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top">&nbsp;</TD>
    <TD colspan="3">INTELLIGENT SYSTEMS CORPORATION<BR>
Registrant<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD>Date: March 30, 2004&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000"><I>/s/ J. Leland Strange</I>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD colspan="2"><DIV style="margin-left: 10px; text-indent: -1px;">J.
Leland Strange&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2"><DIV style="margin-left: 10px; text-indent: -1px;">Chairman of the Board, President
and Chief Executive Officer&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="26%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Capacity</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>/s/ J. Leland Strange</I>
<HR size="1" noshade>
J. Leland Strange
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap>Chairman of the Board, President,<BR>
Chief Executive Officer and Director<BR>
(Principal Executive Officer)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;30, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>/s/ Bonnie L. Herron</I>
<HR size="1" noshade>
Bonnie L. Herron
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap>Chief Financial Officer<BR>
(Principal Accounting and Financial Officer)
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;30, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>/s/ James V. Napier</I>
<HR size="1" noshade>
James V. Napier
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;30, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>/s/ John B. Peatman</I>
<HR size="1" noshade>
John B. Peatman
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;30, 2004</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>/s/ Parker H. Petit</I>
<HR size="1" noshade>
Parker H. Petit
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;30, 2004</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">Intelligent Systems Corporation




<P align="center" style="font-size: 10pt">- 21 -
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>INTELLIGENT SYSTEMS CORPORATION<BR>
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The following consolidated financial statements and schedules of the Registrant
and its subsidiaries are submitted herewith in response to Item&nbsp;8:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="94%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Financial Statements:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Report of Independent Certified Public Accountants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Report of Previous Independent Public Accountants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Consolidated
Balance Sheets - December&nbsp;31, 2003 and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Consolidated Statements of Operations -</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">
Three Years Ended December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Consolidated
Statements of Changes in Stockholders&#146; Equity and Comprehensive
(Loss) Income -</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">
Three Years Ended December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-6</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Consolidated
Statements of Cash Flow -</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Three Years Ended December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Notes to Consolidated Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Financial Statement Schedule:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">The following supplemental schedule of the Registrant and its
subsidiaries is submitted herewith in response to Item&nbsp;15(a)(2):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom">

<TD><DIV style="margin-left:20px; text-indent:-10px">Schedule&nbsp;II
- -  Valuation and Qualifying Accounts and Reserves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-1</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-1
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="123"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">To the Board of Directors and Shareholders of Intelligent Systems Corporation:


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We have audited the accompanying consolidated balance sheets of Intelligent
Systems Corporation and subsidiaries (the &#147;Company&#148;) as of December&nbsp;31, 2003
and 2002 and the related consolidated statements of operations, shareholders
equity and comprehensive (loss)&nbsp;income and cash flows for the two years then
ended. We have also audited the financial statement schedule for the years
ended December&nbsp;31, 2003 and 2002 listed in the accompanying index. These
financial statements and schedule are the responsibility of the Company&#146;s
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. The Company&#146;s consolidated
financial statements and financial statement schedule as of December&nbsp;31, 2001,
and for the one year period ended December&nbsp;31, 2001, were audited by other
auditors who have ceased operations. Those auditors expressed an unqualified
opinion on those consolidated financial statements and schedule in their report
dated March&nbsp;1, 2002.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and schedule are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and schedule. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement and schedule
presentation. We believe that our audits provide a reasonable basis for our
opinion.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Intelligent Systems
Corporation and subsidiaries as of December&nbsp;31, 2003 and 2002 and the results
of their operations and their cash flows for the two years then ended in
conformity with accounting principles generally accepted in the United States
of America.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Also, in our opinion, the 2003 and 2002 schedule presents fairly, in all
material respects, the information set forth therein.


<P align="left" style="font-size: 10pt"><I>/s/ </I>BDO Seidman, LLP



<P align="left" style="font-size: 10pt">Atlanta, Georgia<BR>
March&nbsp;4, 2004



<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-2
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><B>THE FOLLOWING REPORT IS A COPY OF A PREVIOUSLY ISSUED REPORT BY
ARTHUR ANDERSEN LLP AND IT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN
LLP. ARTHUR ANDERSEN LLP HAS NOT CONSENTED TO ITS INCORPORATION BY
REFERENCE INTO INTELLIGENT SYSTEMS CORPORATION&#146;S PREVIOUSLY FILED
REGISTRATION STATEMENTS FILE NOS: 33-99432, 333-32157 AND 333-58134.
THEREFORE, AN INVESTOR&#146;S ABILITY TO RECOVER ANY POTENTIAL DAMAGE MAY
BE LIMITED.</B>

<DIV align="left">
<A name="124"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>REPORT OF PREVIOUS INDEPENDENT PUBLIC ACCOUNTANTS</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">TO INTELLIGENT SYSTEMS CORPORATION:


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We have audited the accompanying consolidated balance sheets of
Intelligent Systems Corporation (a Georgia corporation) and its
subsidiaries as of December&nbsp;31, 2001 and 2000, and the related
consolidated statements of operations, changes in stockholders&#146;
equity and comprehensive income, and cash flows for each of the three
years in the period ended December&nbsp;31, 2001. These financial
statements and the schedule referred to below are the responsibility
of the Company&#146;s management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits. The summarized financial data for PaySys International, Inc.
contained in Note 4 are based on the financial statements of PaySys
International, Inc., which were audited by other auditors. Their
report has been furnished to us and our opinion, insofar as it
relates to the data in Note 4, is based solely on the report of the
other auditors. We did not audit the December&nbsp;31, 2000 financial
statements of VISaer, Inc., an investment which is reflected in the
accompanying financial statements using the equity method of
accounting. The investment in VISaer, Inc. represents 16&nbsp;percent of
total assets in 2000, and the equity in 2000 net loss represents 9
percent of consolidated net income for 2000. The statements of
PaySys International, Inc. and VISaer, Inc. were audited by other
auditors whose reports have been furnished to us and our opinion,
insofar as it relates to the amounts included for PaySys
International, Inc. and VISaer, Inc., is based solely on the reports
of the other auditors.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
and the reports of other auditors provide a reasonable basis for our
opinion.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In our opinion, based on our audits and the reports of the other
auditors, the financial statements referred to above present fairly,
in all material respects, the financial position of Intelligent
Systems Corporation and its subsidiaries as of December&nbsp;31, 2001 and
2000, and the results of their operations and their cash flows for
each of the three years in the period ended December&nbsp;31, 2001 in
conformity with accounting principles generally accepted in the
United States.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental
Schedule&nbsp;II in Item&nbsp;14(a)(2) is presented for purposes of complying
with the Securities and Exchange Commission&#146;s rules and is not part
of the basic financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all
material respects in relation to the financial data required to be
set forth therein in relation to the basic financial statements taken
as a whole.


<P align="left" style="font-size: 10pt">ARTHUR ANDERSEN LLP



<P align="left" style="font-size: 10pt">Atlanta, Georgia<BR>
March&nbsp;1, 2002



<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="125"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Intelligent Systems Corporation<BR>
CONSOLIDATED BALANCE SHEETS</B><BR>
<I>(in thousands, except share amounts)</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="78%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>As of December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,644</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,025</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Notes and interest receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">766</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">213</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,758</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Long-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,275</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,145</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and equipment, at cost less accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">761</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Goodwill, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,039</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,380</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other intangibles, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">788</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17,860</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>LIABILITIES AND STOCKHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Short-term borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">932</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,301</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,784</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred gain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">291</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">428</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accrued expenses and other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,037</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,755</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,268</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred revenue, net of current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,813</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total long term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,840</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Commitments and contingencies (note 9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,516</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Redeemable preferred stock of subsidiary</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">342</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stockholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock, $0.01 par value, 20,000,000 shares authorized, 4,478,971 and
4,491,779 issued and outstanding at December&nbsp;31, 2003 and 2002, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,432</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accumulated other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(60</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(56</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17,325</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,527</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,894</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17,860</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>The accompanying notes are an integral part of these consolidated financial
statements.</I>


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="126"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Intelligent Systems Corporation<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS</B><BR>
<I>(in thousands, except share and per share amounts)</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year Ended December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,321</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,868</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,397</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,718</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,019</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,633</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,862</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,439</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,704</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,881</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,090</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">General &#038; administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,895</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,605</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Research &#038; development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,371</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,392</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,460</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,420</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Interest income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,017</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Investment income (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(934</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,902</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Equity in income (losses)&nbsp;of affiliate companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(235</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,173</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">960</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before income tax provision (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,838</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,600</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,286</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax provision (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(40</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(343</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(12,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,113</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic net income (loss)&nbsp;per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.78</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted net income (loss)&nbsp;per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.77</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,495,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,108,413</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,495,058</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,145,691</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>The accompanying notes are an integral part of these consolidated financial
statements.</I>


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
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<P align="center" style="font-size: 10pt"><B>Intelligent Systems Corporation<BR>
CONSOLIDATED STATEMENTS OF CHANGES IN<BR>
STOCKHOLDERS&#146; EQUITY AND COMPREHENSIVE INCOME (LOSS)</B><BR>
<I>(in thousands, except share amounts)</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Year Ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>STOCKHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Common stock, number of shares, </B>beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,491,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,495,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,623,784</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Exercise of options during year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,334</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Purchase and retirement of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,808</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,751</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,131,588</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">End of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,478,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,491,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,495,530</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Common stock, amount, </B>beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Purchase and retirement of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">End of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Paid-in capital, </B>beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,216</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Proceeds from options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Purchase and retirement of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,792</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">End of year</DIV></TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="right">18,410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,438</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Accumulated other comprehensive income (loss), </B>beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(56</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(355</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(215</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Foreign currency translation adjustment during year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(68</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net unrealized gain (loss)&nbsp;on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(144</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">End of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(60</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(56</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(355</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Accumulated deficit, </B>beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,527</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(270</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,383</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,113</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">End of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17,325</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,527</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(270</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Total stockholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17,858</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>COMPREHENSIVE INCOME (LOSS)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(12,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,113</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other comprehensive income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Foreign currency translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(68</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net unrealized gain (loss)&nbsp;on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(144</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,802</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,958</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,973</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>The accompanying notes are an integral part of these consolidated financial
statements.</I>


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="128"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Intelligent Systems Corporation<BR>
CONSOLIDATED STATEMENTS OF CASH FLOW</B><BR>
<I>(in thousands)</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Year Ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>OPERATIONS:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(12,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,113</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Adjustments to reconcile net income (loss)&nbsp;to net cash
used for operating activities, net of
effects of acquisitions and dispositions:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,595</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Deferred gain recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(137</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(813</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(961</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Investment (income)&nbsp;loss, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,033</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">934</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,902</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Equity in (income)&nbsp;loss of affiliate companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(184</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,173</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Changes in operating assets and liabilities, net of effects of acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(728</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(33</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(95</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(124</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(72</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(381</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(369</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(166</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Accrued expenses and other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,110</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash used for operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,448</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,081</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,017</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>INVESTING ACTIVITIES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Proceeds from sales of investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,659</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,540</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Acquisition of company, net of cash acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Acquisitions of long-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(160</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,880</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,806</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Repayments under notes receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,902</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,105</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Advances under notes receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(284</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,684</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,087</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchases of property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(434</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(335</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(95</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash provided by (used for) investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(299</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,738</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>FINANCING ACTIVITIES:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Borrowings under short-term borrowing arrangements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">889</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Repayments under short-term borrowings arrangements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,393</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchase and retirement of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,803</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash used for financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,293</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Effects of exchange rate changes on cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(69</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net increase (decrease)&nbsp;in cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,511</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,382</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,432</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,644</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">594</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,644</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,026</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash paid during the year for interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">52</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash paid (received)&nbsp;during the year for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(40</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(362</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">577</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>The accompanying notes are an integral part of these consolidated financial
statements.</I>


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-7
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt"><B>NOTE 1</B>



<P align="left" style="font-size: 10pt">ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Organization </I>- Intelligent Systems Corporation, a Georgia corporation, was
formed in November&nbsp;1991 to acquire through merger the business, net assets and
operations of Intelligent Systems Master, L.P. In this document, terms such as
the company, we, us, and ISC refer to Intelligent Systems Corporation.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Nature of Operations </I>- We create, operate and invest in businesses, principally
in the information technology sector. Consolidated companies (in which we have
majority ownership and control) are engaged in two industries: Information
Technology products and services and Industrial Products. Operations in
Information Technology products and services, which consist of our VISaer, QS
Technologies and CoreCard Software subsidiaries, include development and sales
of software licenses and related professional services and software maintenance
contracts. Operations in the Industrial Product segment include the manufacture
and sale of bio-remediating parts washer systems by our ChemFree subsidiary.
Our operations are explained in further detail in Note 16. Our affiliate
companies (in which we have a minority ownership) are mainly involved in the
information technology industry.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Use of Estimates </I>- In preparing the financial statements in conformity with
accounting principles generally accepted in the United States, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Some areas where we use estimates and make
assumptions are to determine our allowance for doubtful accounts, valuation
allowances on our investments, depreciation and amortization expense, and
accrued expenses. These estimates and assumptions also affect amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Consolidation </I>- The financial statements include the accounts of Intelligent
Systems Corporation and its majority owned and controlled U.S. and non-U.S.
subsidiary companies after elimination of material accounts and transactions
between our subsidiaries.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Translation of Foreign Currencies </I>- We consider that local currencies are the
functional currencies for foreign operations. We translate assets and
liabilities to U.S. dollars at period-end exchange rates. We translate income
and expense items at average rates of exchange prevailing during the period.
Translation adjustments are accumulated as a separate component of
stockholders&#146; equity. Gains and losses that result from foreign currency
transactions are recorded in the consolidated statement of operations.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Cash </I>- We consider all highly liquid instruments with maturities of less than
90&nbsp;days to be cash.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Accounts
Receivable and Allowance for Doubtful Accounts - </I>Accounts receivable
are customer obligations due under normal trade terms. We sell our products to
distributors and end users involved in a variety of industries including
automotive, aircraft operators and maintenance providers, and government
entities. We perform continuing credit evaluations of our customers&#146; financial
condition and we generally do not require collateral.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Senior management reviews accounts receivable on a monthly basis to determine
if any receivables will potentially be uncollectable. We include any accounts
receivable balances that are determined to be uncollectable, along with a
general reserve, in our overall allowance for doubtful accounts. After all
attempts to collect a receivable have failed, the receivable is written off
against the allowance. Based on the information available to us, we believe
our allowance for doubtful accounts as of December&nbsp;31, 2003 is adequate.
However, actual write-offs might exceed the recorded allowance.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Inventories </I>- We state the value of inventories at the lower of cost or market
determined on a first-in first-out basis. Market is defined as net realizable
value.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Property and Equipment </I>- Property and equipment are carried at cost less
accumulated depreciation. The cost of each major class of property and
equipment at December&nbsp;31, 2003 and 2002 is as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,616</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">216</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">448</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">For financial reporting purposes, we use a combination of the straight-line
method and the 150&nbsp;percent declining balance method over the estimated lives of
the assets, as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Classification</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Useful life in years</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">3 &#150; 5</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Furniture &#038; fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">5 &#150; 7</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">1 &#150; 3</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Accumulated depreciation was $3.0&nbsp;million and $2.5&nbsp;million at December&nbsp;31, 2003
and 2002, respectively. Depreciation expense was $467,000, $721,000 and
$307,000 in 2003, 2002 and 2001, respectively. These expenses are included in
general and administrative expenses, except with respect to our Industrial
Products Segment, where the depreciation expense


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-8
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">relates primarily to products leased to customers and is included in cost of
sales.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Leased Equipment </I>- In the Industrial Products segment, certain equipment is
leased to customers. The cost, carrying value and accumulated depreciation
associated with the leased equipment at December&nbsp;31, 2003 and 2002 is as
follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">657</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Carrying value of equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">283</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">537</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">481</TD>

    <TD>&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The minimum future lease revenue under non-cancelable contracts through October
2004 is $833,000 at December&nbsp;31, 2003. There is no contingent rental income
under the leases. These assets are included in Property and Equipment at
December&nbsp;31, 2003 and 2002.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Investments </I>- We account for investments by the equity method for (i)&nbsp;entities
in which we have a 20 to 50&nbsp;percent ownership interest and over which we do not
exert control or (ii)&nbsp;entities that are organized as partnerships or limited
liability companies. We account for investments in corporations of less than 20
percent in non-marketable equity securities of corporations at the lower of
cost or market. When calculating gain or loss on the sale of an investment, we
use the average cost basis of the securities. Marketable securities are
accounted for in accordance with Statement of Financial Accounting Standards
(&#147;SFAS&#148;) No.&nbsp;115, &#147;Accounting for Certain Investments in Debt and Equity
Securities&#148;. At December&nbsp;31, 2003 and 2002, the aggregate fair market value of
our available-for-sale securities consisted of equity securities totaling $0
and $36,000, respectively. These amounts include net unrealized holding losses
of $0 and $64,000 as of December&nbsp;31, 2003 and 2002, respectively. These amounts
are reflected as a separate component of stockholders&#146; equity.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Other Intangibles and Goodwill </I>- Other intangibles are carried at cost net of
related amortization. Effective July&nbsp;1, 2001, we account for acquisitions in
accordance with SFAS No.&nbsp;141, &#147;Accounting for Business Combinations&#148; and SFAS
No.&nbsp;142, &#147;Accounting for Intangible Assets&#148;. In accordance with SFAS No.&nbsp;142,
we periodically, but at least annually, assess goodwill for indicators of
impairment. Our annual assessment date has been at the end of the third
quarter. When circumstances indicate that an intangible other than goodwill
may be impaired, we utilize the guidance provided by SFAS No.&nbsp;144, &#147;Accounting
for the Impairment or Disposal of Long-Lived Assets&#148;. For the years ended
December&nbsp;31, 2003 and 2002, no impairment was identified.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Prior to the adoption of SFAS No.&nbsp;142, we periodically assessed the impairment
of enterprise level intangibles pursuant to the provisions of APB No.&nbsp;17,
&#147;Intangible Assets&#148; and SFAS No.&nbsp;121, &#147;Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of&#148;. At September
30, 2001, we determined the long-lived assets associated with our VISaer
subsidiary were impaired under SFAS No.&nbsp;121 (see Note 2). Accordingly, we
expensed $6.0&nbsp;million related to goodwill in general and administrative expense
which is reflected in the statements of operations for the year ended December
30, 2001. Also in the year ended December&nbsp;31, 2001, we expensed $425,000 of
purchased research and development related to the acquisition of VISaer (see
Note 2).


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The carrying value of intangibles at December&nbsp;31, 2003 is $2.5&nbsp;million, of
which $2.0&nbsp;million represents goodwill. The carrying value of intangibles at
December&nbsp;31, 2002 was $3.2&nbsp;million, of which $2.4&nbsp;million represented goodwill.
Intangibles other than goodwill primarily relate to acquired software.
Goodwill declined in 2003 as compared to December&nbsp;31, 2002 due to a permanent
waiver of redemption rights by the holders of preferred stock of our VISaer
subsidiary that was effective March&nbsp;28, 2003. We reclassed $342,000 accrued in
prior periods related to the redemption provision shown as &#147;redeemable
preferred stock of subsidiary&#148; at December&nbsp;31, 2002 against goodwill.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In fiscal years 2003, 2002 and 2001, we recorded amortization expense related
to intangible assets of approximately $312,000, $310,000 and $92,000,
respectively. Accumulated amortization of intangibles totaled $715,000 and
$403,000 at December&nbsp;31, 2003 and 2002, respectively. We had no goodwill
amortization expense in periods presented herein. Annual amortization expense
for the following five years is expected to be approximately $220,000,
$129,000, $128,000, $0 and $0 for the years ending December&nbsp;31, 2004 through
2008, respectively.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Accrued Expenses and Other Current Liabilities </I>- Accrued expenses and other
liabilities at December&nbsp;31, 2003 and 2002 consist of the following:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="69%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accrued payroll</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,361</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">869</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">879</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Deferred Revenue &#151; </I>Current deferred revenue consists of advance payments by
software customers for annual maintenance and support services as well as
advance payments from VISaer customers for software licenses expected to be
delivered in 2004. Deferred revenue, net of current portion, consists of
advance payments from one VISaer customer and is being accounted for on a
completed-contract basis. As of December&nbsp;31, 2003, we had an outstanding
balance of deferred long-term revenue of $5.1&nbsp;million. We do not anticipate
any loss under this contract.


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-9
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Fair Value of Financial Instruments </I>- The carrying value of cash, accounts
receivable, accounts payable and certain other financial instruments (such as
notes receivable and certain investments) included in the accompanying
consolidated balance sheets approximates their fair value principally due to
the short-term maturity of these instruments.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Financial instruments that potentially subject us to concentrations of
market/credit risk consist principally of cash and cash equivalents and trade
accounts receivable. We invest cash in high credit-quality financial
institutions. A concentration of credit risk may exist with respect to trade
receivables, as a substantial portion of our customers are affiliated in the
following industries (by subsidiary):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="27%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ChemFree:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Distributors in the automotive parts industry</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">QS Technologies:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">State and local governments</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">VISaer:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Aviation</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We perform ongoing credit evaluations of customers worldwide and generally do
not require collateral from our customers. Management reviews our accounts
receivable on a regular basis to determine if any such amounts may be
potentially uncollectible. We include any balances that are determined to be
uncollectible, along with a general reserve, in our overall allowance for
doubtful accounts. After all attempts to collect a receivable have failed,
the receivable is written off against the allowance. Based on management&#146;s
best estimate, we believe our allowance for doubtful accounts is adequate.
Historically, we have not experienced significant losses related to
receivables from individual customers or groups of customers in any particular
industry or geographic area.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Revenue Recognition </I>- Product revenue consists of fees from software licenses
and sales or leases of industrial products. Service revenue consists of fees
for implementation, consulting, training, reimbursable expenses, maintenance
and support for software products.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We recognize revenue for industrial products when products are shipped, at
which time title transfers to the customer. There are no remaining future
obligations and delivery occurs upon shipment. We provide for estimated sales
returns allowances and rebates in the period in which the sales are recorded.
As an alternative to selling the product, on occasion we may lease our
equipment. For leased equipment, we recognize revenue monthly at the
contracted monthly rate during the term of the lease.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We recognize software fees in accordance with Statement of Position (&#147;SOP&#148;) No.
97-2, &#147;Software Revenue Recognition&#148;, as amended by SOP No.&nbsp;98-9, &#147;Software
Revenue Recognition, With Respect to Certain Transactions&#148;. Under SOP 97-2, we
recognize software license fees when the following criteria are met: (1)&nbsp;a
signed contract is obtained; (2)&nbsp;delivery of the product has occurred; (3)&nbsp;the
license fee is fixed or determinable; and (4)&nbsp;collectibility is probable.
Additionally, license fee revenue is not recognized until there are no material
uncertainties regarding customer acceptance, cancellation provisions, if any,
have expired and there are no significant vendor obligations remaining. SOP
No.&nbsp;98-9 requires recognition of revenue using the &#147;residual method&#148; when (1)
there is vendor-specific objective evidence of the fair values of all
undelivered elements in a multiple-element arrangement that is not accounted
for using long-term contract accounting; (2)&nbsp;vendor-specific objective evidence
of fair value does not exist for one or more of the delivered elements in the
arrangement; and (3)&nbsp;all revenue recognition criteria in SOP No.&nbsp;97-2 other
than the requirement for vendor-specific objective evidence of the fair value
of each delivered element of the arrangement are satisfied. Under the residual
method, the fair value of the undelivered elements is deferred and the
remaining portion of the license fee is recognized as revenue. For those
contracts that contain significant production, modification and/or
customization, software license fees are recognized utilizing Accounting
Research Bulletin (&#147;ARB&#148;) No.&nbsp;45, &#147;Long-term Construction Type Contracts&#148;,
using the relevant guidance in SOP No.&nbsp;81-1, &#147;Accounting for Performance of
Construction Type and Certain Production Type Contracts&#148;.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">For percentage of completion contracts, we measure the progress toward
completion and recognize the software license fees based upon input measures
(i.e. in the same proportion that the amount of labor hours incurred to date
bears to the total estimated labor hours required for the contract). If
reliable estimates cannot be determined, we follow the completed contract
method. Under the completed contract method, all revenue is deferred until the
customer has accepted the software and any refund rights have expired.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Service revenue related to implementation, consulting, training and other
professional services is recognized when the services are performed. Service
revenue related to software maintenance and support contracts is recognized on
a straight-line basis over the life of the contract (typically one year).
Substantially all of our software customers purchase software maintenance and
support contracts and renew such contracts annually.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Reimbursable Expenses </I>- Prior to January&nbsp;1, 2002, we recorded reimbursement by
our customers for out-of-pocket expenses as a decrease to cost of services.
Our results of operations for the year ended December&nbsp;31, 2002 have been
reclassified in accordance with the Emerging Issues Task Force (&#147;EITF&#148;) release
01-14, &#147;Income Statement Characterization of Reimbursement Received for Out of
Pocket Expenses Incurred&#148;. The effect of this reclassification was to increase
both services revenues and cost of services by $75,000 for the year ended


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-10
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">December&nbsp;31, 2002. The effects of the aforementioned adjustment was immaterial
for the year ended December&nbsp;31, 2001.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Cost of Sales </I>- Cost of sales for product revenue includes direct material,
direct labor, production overhead and third party license fees. Cost of sales
for service revenue includes direct cost of services rendered, including
reimbursed expenses.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Software Development Expense </I>- We have evaluated the establishment of
technological feasibility of our products in accordance with SFAS No.&nbsp;86,
&#147;Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed<I>&#148;. </I>We sell products in markets that are subject to rapid technological
change, new product development and changing customer needs; accordingly, we
have concluded that technological feasibility has generally not been
established until the development stage of the product is nearly complete. We
define technological feasibility as the completion of a working model. The
time period during which cost could be capitalized, from the point of reaching
technological feasibility until the time of general product release, is very
short and, consequently, the amounts that could be capitalized are not material
to our financial position or results of operations. Therefore, we have charged
all such costs to research and development in the period incurred.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In circumstances in which we acquire software, the annual amortization is the
greater of (1)&nbsp;the ratio of current revenues to the expected revenues from the
related product sales or (2)&nbsp;the straight-line method over the remaining useful
life of the product. See Note 2 for situations in which we acquired software.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In accordance with SOP No.&nbsp;98-1, &#147;Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use&#148;, we have expensed all cost incurred in
the preliminary project stage for software developed for internal use. We
capitalize all direct costs of materials and services consumed in developing or
obtaining internal use software. All costs incurred for upgrades, maintenance
and enhancements that do not result in additional functionality are expensed.
During the three years ended December&nbsp;31, 2003, we did not capitalize any
internal use software costs.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Warranty Costs </I>- We accrue the estimated costs associated with product
warranties as an expense in the period the related sales are recognized. The
warranty accrual is included in accrued expenses and other current liabilities
at December&nbsp;31, 2003 and 2002.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Stock Based Compensation  -  </I>At December&nbsp;31, 2003 we had three stock-based
compensation plans which are more fully described in Note 13. We account for
the plans under the intrinsic value recognition and measurement principles of
Accounting Principles Board (&#147;APB&#148;) No.&nbsp;25, &#147;Accounting for Stock Issued to
Employees&#148;, and related interpretations. The intrinsic value recognition is
measured by the difference between the exercise price and the market value of
the underlying securities. Based on the additional disclosure requirements of
SFAS No.&nbsp;148, &#147;Accounting for Stock-Based Compensation  -  Transition and
Disclosure  -  an Amendment to SFAS No.&nbsp;123&#148;, the following table illustrates the
effect of net income and earnings (loss)&nbsp;per share if we had applied the fair
value recognition provisions of SFAS No.&nbsp;123, &#147;Accounting for Stock Based
Compensation&#148;.





<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="54%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="LEFT"><B>Year ended December&nbsp;31,</B><BR><b>(in thousands except per share data)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss), reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(12,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,113</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Add: stock-based employee
compensation included in
reported net income (loss),
net of related tax effect</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deduct: stock-based
compensation expense
determined under fair value
based method for all awards,
net of related tax effect</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(27</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Proforma net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,846</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(12,271</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,086</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Proforma net income (loss)&nbsp;per
common share basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.08</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.78</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Proforma net income (loss)&nbsp;per
common share diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.08</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The fair value of each option granted in each of the last three years has been
estimated as of the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="73%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year ended December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Risk free rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Expected life of option
in years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">6.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">7.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">7.9</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Expected dividend yield rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">49</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">47</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">51</TD>
    <TD nowrap>%</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Under these assumptions, the weighted average fair value of options granted in
2003, 2002 and 2001 was $0.83, $1.72 and $1.71 per share, respectively. The
fair value of the grants would be amortized over the vesting period for the
options.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Income Taxes &#151; </I>In accordance with SFAS No.&nbsp;109, &#147;Accounting for Income Taxes&#148;,
we utilize the asset and liability method of accounting for income taxes.
Under the asset and liability method of SFAS No.&nbsp;109, deferred tax assets and
liabilities are established to recognize the future tax consequences


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-11
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">attributable to differences between the financial statement carrying amounts of
the existing assets and liabilities and their respective tax bases.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Comprehensive Loss </I>- Comprehensive loss represents net loss plus the results of
certain stockholders&#146; equity changes not reflected in the consolidated
statements of operations. These items are accumulated over time as accumulated
other comprehensive loss on the consolidated balance sheet and are primarily
the result of cumulative translation adjustments at December&nbsp;31, 2003 and
unrealized losses on marketable securities at December&nbsp;31, 2002.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Reclassifications &#151; </I>It is our policy to reclassify prior year amounts to
conform with current year financial statements presentation when necessary.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>New Accounting Pronouncements &#151; </I>In January&nbsp;2003, the FASB issued FIN No.&nbsp;46,
&#147;Consolidation of Variable Interest Entities&#148;. FIN No.&nbsp;46 clarifies the
application of Accounting Research Bulletin No.&nbsp;51, &#147;Consolidated Financial
Statements&#148;, to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN No.&nbsp;46 is applicable
immediately for variable interest entities created after January&nbsp;31, 2003.
For variable interest entities created on or prior to January&nbsp;31, 2003, the
provisions of FIN No.&nbsp;46 must be applied for the first interim or annual
period beginning after December&nbsp;15, 2003. We believe that the adoption of
this standard will have no material impact on our financial position and
results of operations.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In May&nbsp;2003, the FASB issued SFAS No.&nbsp;150, &#147;Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity&#148;. SFAS No.&nbsp;150
establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. Many of such instruments were previously classified
as equity by issuers. SFAS No.&nbsp;150 is effective for financial instruments
entered into or modified after May&nbsp;31, 2003, and otherwise effective at the
beginning of the first interim period beginning after June&nbsp;15, 2003, except for
mandatory redeemable financial instruments of nonpublic entities. The
statement is to be implemented by reporting the cumulative effect of a change
in accounting principle for financial instruments created before the issuance
of the date of the statement and still existing at the beginning of the interim
period of adoption. Restatement is not permitted. On November&nbsp;7, 2003, the
FASB deferred the classification and measurement provisions of SFAS No.&nbsp;150 as
they apply to certain mandatory redeemable non-controlling interests. This
deferral is expected to remain in effect while these provisions are further
evaluated by the FASB. The adoption of this statement did not have a
significant impact on our financial position, results of operations or cash
flows.


<P align="left" style="font-size: 10pt"><B>NOTE 2</B>



<P align="left" style="font-size: 10pt">ACQUISITIONS



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>CoreCard Software, Inc. </I>- We acquired 360,639 shares of common stock of
CoreCard, representing a 30.7% interest in CoreCard Software, Inc. (formerly
Delos Payment Systems, Inc.) (&#147;CoreCard&#148;) as a result of the spin-off of
CoreCard to the shareholders of PaySys prior to its sale in April&nbsp;2001.
CoreCard develops software to handle account management and processing of card
systems (such as credit and debit cards) for financial and commercial
institutions. In 2001, we loaned $1.5&nbsp;million to CoreCard. As a result of a
default on the loan during 2002, we acquired the right to and elected a
majority of the CoreCard board of directors and obtained the right to and
converted our loans into what resulted in a controlling interest. Therefore,
we began to consolidate the CoreCard operations during 2002.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We recorded intangible assets upon consolidation in the first quarter of 2002
in accordance with SFAS No.&nbsp;141. Of the intangibles acquired, $642,000 was
allocated to our pro rata share of CoreCard&#146;s acquired software which is being
amortized at a rate of $128,400 annually over a five-year period, and $287,000
was recorded as goodwill. Of the goodwill amount, none is deductible for tax
purposes.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of the CoreCard acquisition.


<P align="left" style="font-size: 10pt"><B>At January&nbsp;1, 2002</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="82%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD align="center"><B>(in thousands)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD align="left"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">138</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property, plant, and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">472</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">642</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">287</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,539</TD>
    <TD>&nbsp;</TD>
</TR>

<tr>
    <TD>&nbsp;</TD>
</tr>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,415</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total liabilities assumed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,539</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">During 2002, we converted $3.2&nbsp;million of principal and interest outstanding
under the loans to CoreCard into 3,734 shares of Series&nbsp;B Convertible Preferred
Stock of CoreCard, at the same


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-12
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">time as two other minority investors converted their loans to Series&nbsp;B
Preferred Stock of CoreCard. As a result, our ownership interest increased to
65% of the outstanding shares of CoreCard on an as-if converted basis. We
provided additional funds in the amount of $2.6&nbsp;million to CoreCard under a
secured loan to fund working capital in the second half of 2002. The loan is
eliminated in consolidation. Effective January&nbsp;2003, we converted $2.5&nbsp;million
of CoreCard&#146;s indebtedness to us into 10,137 additional shares of Series&nbsp;B
Convertible Preferred Stock, increasing our ownership to 87% of the outstanding
shares of CoreCard.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>VISaer, Inc. </I>- As of June&nbsp;30, 2001, we owned 40% of VISaer, Inc. (&#147;VISaer&#148;) and
accounted for our investment under the equity method of accounting. At that
date, we had a carrying value for VISaer of $2.9&nbsp;million in long-term
investments and $1.7&nbsp;million in principal and interest outstanding under
affiliate notes receivable from VISaer. VISaer, a software company that
designs and sells software that automates the maintenance, repair and overhaul
(&#147;MRO&#148;) operations of airlines, is the successor company of Visibility, Inc.,
an enterprise resource planning (&#147;ERP&#148;) company whose operations were spun off
in June&nbsp;2000. Effective July&nbsp;1, 2001, in an unplanned restructuring
transaction involving all preferred shareholders of VISaer, we converted
$956,000 of our VISaer note receivable into a new series of preferred stock of
VISaer. In addition, VISaer repaid the balance of $725,000 owed to us shortly
after the restructuring was completed.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The debt to equity conversion in July&nbsp;2001 resulted in our taking control of
VISaer. Our ownership of VISaer increased from 40% to 65%, and we accounted
for the transaction as a &#147;step&#148; acquisition. For financial reporting periods
after July&nbsp;1, 2001, we account for VISaer under the consolidation method. The
accounting treatment for the &#147;step&#148; acquisition and related purchase accounting
of VISaer had the result of immediately creating $8.8&nbsp;million in intangible
assets for financial reporting purposes. In accordance with SFAS No.&nbsp;141,
based on third party valuations, we identified and valued the following
intangible assets: existing software technology ($2.0&nbsp;million), in-process
research and development ($1.7&nbsp;million) and a favorable lease contract
($200,000). At the time of the acquisition we recorded 25% of such amounts to
reflect the amount associated with our acquisition of an additional 25% &#147;step&#148;
of VISaer. The recorded amount for existing software technology ($500,000) is
being amortized over its estimated useful life of three years and the recorded
amount for the favorable lease contract ($50,000) is being amortized over the
remaining term of the lease (through July&nbsp;2004). We immediately expensed
$425,000 (representing 4.8% of the $8.8&nbsp;million of total intangibles) related
to purchased research and development projects that had not reached
technological feasibility and that did not have an alternative future use. This
amount is included in research and development expense in the accompanying
financial statements for the year ended December&nbsp;31, 2001. The remaining excess
intangible value in the amount of $7.8&nbsp;million was booked as goodwill at July
1, 2001.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Post-acquisition Write-down of Goodwill </I>- At September&nbsp;30, 2001, as a result of
the terrorist attacks on September&nbsp;11, 2001 which directly impacted the
aerospace industry into which VISaer sells its software products, we evaluated
the extent to which the VISaer reporting unit might be impaired. An analysis
by a third party based on an undiscounted cash flow model determined that under
SFAS No.&nbsp;121, the long-lived assets associated with VISaer were impaired.
Based upon this appraisal, we assessed the total fair value of VISaer at
September&nbsp;30, 2001 to be $3.7&nbsp;million. Based on our 65% ownership, the value of
our ownership was $2.4&nbsp;million. We expensed $6.0&nbsp;million related to goodwill.
The non-cash charge is included in general and administrative expense in the
consolidated financial statements for the year ended December&nbsp;31, 2001. We
loaned additional funds to VISaer for working capital needs in the amounts of
$4.4&nbsp;million and $3.8&nbsp;million during 2002 and 2003, respectively. These loans
eliminate in consolidation.


<P align="left" style="font-size: 10pt"><B>NOTE 3</B>



<P align="left" style="font-size: 10pt">SALES AND WRITE-DOWNS OF ASSETS



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Atherogenics, Inc. </I>- At various times in 2002, we sold all of our interest in
Atherogenics, Inc. &#091;NASDAQ:AGIX&#093;, a company in which we were a seed-stage
investor. The average price per share for the 306,859 shares sold in 2002 was
$7.22. We received a total of $2.1&nbsp;million cash from the sales and recorded a
gain of $1.1&nbsp;million in the year ended December&nbsp;31, 2002.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Daw Technologies, Inc. </I>- In the second quarter of 2002, we wrote off $1.2
million related to our holdings in Daw Technologies, Inc. (&#147;Daw&#148;). We had
acquired the Daw common stock in a prior sale of a subsidiary to Daw and had
accumulated $1.2&nbsp;million of unrealized loss as of June&nbsp;30, 2002 as a result of
a decline in the market price of Daw stock. We determined that the value of
our Daw stock was permanently impaired due to Daw&#146;s delisting from NASDAQ and
poor financial condition. Consequently we took a charge of $1.2&nbsp;million to
write off the unrealized loss and to reserve against the remaining carrying
value of the investment. We sold our interest in the fourth quarter of 2002 for
a minimal amount.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>HeadHunter.net </I>- In the third quarter ended September&nbsp;30, 2001, we sold 90,228
shares of common stock (representing all of our interest) of HeadHunter.net. We
originally acquired the shares in exchange for our holdings in privately held
MiracleWorker.com in August&nbsp;2000. We received $821,000 cash and recognized a
gain of $471,000 on an original cost basis of $350,000.


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-13
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Lumenor, Inc.  -  </I>In 2002, we took a write-down of $500,000 against the original
$500,000 cost of our minority investment in Lumenor, Inc. based on the failure
of the business to raise new financing.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>MediZeus, Inc.  -  </I>In the fourth quarter of 2003, we took a write-down of
$501,000 against the carrying cost of $501,000 and our original investment cost
of $843,000 in MediZeus, Inc. based on a decision by the board of directors and
investors of the early stage, artificial intelligence software company to wind
down operations. At the same time, we wrote off $131,000 relating to a note
receivable from MediZeus.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Novient, Inc. </I>- In 2002, we sold our remaining interest in Novient, Inc., a
privately held software company, for $10,000 cash in a merger transaction
between Novient and a foreign corporation, recognizing a loss of $187,000 on
the sale. Previously, in 1999, we had sold part of our holdings in Novient in a
private transaction, recognizing a gain of $233,000 and netting $286,000 in
cash.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>NuTec Sciences, Inc.  -  </I>In 2002, we recorded an investment loss of $444,000 on
the sale of our minority interest in NuTec Sciences, Inc., in a transaction in
which we received cash of $56,000 on an original cost basis of $500,000.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>PaySys International, Inc</I>.  -  On April&nbsp;27, 2001, we sold our 32% ownership
interest in PaySys, an affiliate company, to First Data Corporation (&#147;FDC&#148;).
In exchange for the sale of all of our shares of PaySys common stock, we
received cash proceeds of $17.8&nbsp;million and recorded a pretax gain of $17.8
million. In addition, PaySys repaid $4.3&nbsp;million in principal and interest
related to short-term bridge loans. Furthermore, an escrow fund totaling $20.0
million was set aside for potential liabilities that may arise after the
closing of the sale. On March&nbsp;21, 2003, a settlement was reached with FDC
related to the escrow fund. We received $4,464,000 cash in the first half of
2003, which represented our pro rata share of the amount released from the
escrow fund, after payment of legal and administrative expenses related to the
escrow. Since these escrow funds were contingent and not considered in the
previously reported gain on the sale of PaySys in April&nbsp;2001, these escrow
payments are recorded as investment income in the year ended December&nbsp;31, 2003.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Immediately prior to the sale to FDC in April&nbsp;2001, PaySys spun off two
subsidiaries to its shareholders. Accordingly, at that time we owned
approximately 31&nbsp;percent of Delos Payment Systems, Inc. (now CoreCard Software)
and 31&nbsp;percent of dbbAPPS, Inc. We did not record a gain on the distribution to
us of an interest in these two companies. Rather, due to uncertainty regarding
the two early stage companies, we booked a valuation reserve equal to the net
asset value and goodwill associated with our pro rata share of the value of our
interest in CoreCard and dbbAPPS. In the fourth quarter of 2001, in accordance
with Accounting Principles Board (&#147;APB&#148;) No.&nbsp;18, &#147;The Equity Method of
Accounting for Investments in Common Stock&#148;, we classified a secured loan in
the amount of $1.5&nbsp;million to CoreCard as additional investment. At the same
time, we recaptured $1.42&nbsp;million in losses related to our pro rata share of
cumulative unrecorded losses. This loss is recorded in equity loss in
affiliates in the consolidated statements of operations for the year ended
December&nbsp;31, 2001. As explained in Note 2, we acquired a controlling interest
in CoreCard effective January&nbsp;2002 and consolidate its results of operations
since that date. The carrying value of dbbAPPS at December&nbsp;31, 2003 and 2002 is
zero.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>RF Solutions, Inc.  -  </I>In the first quarter of 2003, we reserved $600,000 against
the $600,000 carrying value of our minority investment in RF Solutions, Inc.,
an early stage company that sold its principal assets to a publicly traded
company effective early in April&nbsp;2003. We received $106,000 cash in partial
repayment of our note in 2003. We took a net reserve of $92,000 against the
$198,000 carrying value of a note receivable from RF Solutions. Under the
terms of the RF Solutions sale, the note holders and preferred shareholders of
RF Solutions, including other minority investors like ISC, received a cash
payment to repay part of the principal and interest outstanding on the notes
and may receive an additional payment on the note balance and preferred stock
investment, payable in common stock of Anadigics, Inc., the acquiror company
&#091;NASDAQ: ANAD&#093;, based on achievement of certain performance targets in the
twelve month period following the acquisition. Since the amount of any future
payment, if any, was not determinable, in 2003, we fully reserved our remaining
note balance and investment in RF Solutions.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Risk Laboratories, LLC </I>- On March&nbsp;21, 2000, we sold part of our interest in
Risk Laboratories, LLC in a private transaction. We sold 2,310,000 units for
$8.8&nbsp;million in cash and a gain of $8.6&nbsp;million. On January&nbsp;18, 2001, we sold
214,273 units of Risk to the same buyer for a total of $900,000 cash and
recorded a gain of $893,000 based on a cost basis of $7,000. At the same time,
we acquired 107,137 common units from Risk for a total acquisition price of
$450,000. Concurrent with the purchase of these units, we recaptured $450,000
in losses related to our pro rata share of cumulative unrecorded losses. This
loss is recorded in equity loss in affiliates in the accompanying consolidated
statement of operations for 2001. On May&nbsp;3, 2001, we sold an additional
257,127 common units of Risk to the same buyer. We received $1.0&nbsp;million cash
and recorded a second quarter gain of $1.0&nbsp;million on a cost basis of zero. On
March&nbsp;14, 2002, we sold our remaining interest in Risk for a total of $474,000
cash, recording a gain of $474,000 on a cost basis of zero.


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-14
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Silverpop, Inc.  -  </I>During the quarter ended June&nbsp;30, 2003, we reserved $76,000
against our original investment of $100,000 in Silverpop, Inc., an early stage
technology company, to reflect the valuation at which Silverpop raised
additional capital, which we believe indicates a non-temporary impairment of
our original carrying value.


<P align="left" style="font-size: 10pt"><B>NOTE 4</B>



<P align="left" style="font-size: 10pt">INVESTMENTS



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The following summarizes our ownership interest in certain non-significant
companies included in our long-term investments.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">At December&nbsp;31, 2003, our ownership interest in each of the named companies was
as follows: NKD Enterprises, LLC (25%), Horizon Software, LLC (17%) and
Cirronet, Inc. (22%). We account for each of the named companies by the equity
method of accounting in 2003.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="56%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost Basis</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Distributions</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">NKD Enterprises</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,286</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Horizon Software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cirronet</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">525</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">At December&nbsp;31, 2002, our ownership interest in each of the named companies was
as follows: NKD Enterprises (25%), MediZeus (27%), Horizon Software (17%),
Cirronet (18%) and RF Solutions (3%). The material ownership interests are
classified below according to applicable accounting methods at December&nbsp;31,
2002.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="56%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost Basis</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Value</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Distributions</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Equity Method</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">NKD Enterprises</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">862</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,286</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Horizon Software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">MediZeus</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">843</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cost Method</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cirronet</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">525</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">RF Solutions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">600</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The following table presents summarized combined financial information for our
50% or less owned investments named above for the respective time periods:


<P align="left" style="font-size: 10pt"><B>As of and for the year ended</B>
<B>December&nbsp;31,</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,446</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,619</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,539</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,227</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,166</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Non-current Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,410</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,813</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Non-current Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,405</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stockholders Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,358</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Marketable
Securities - </I>The carrying and estimated fair values of
available-for-sale securities at December&nbsp;31, 2003 and 2002 are summarized as
follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="77%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross unrealized losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(64</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Estimated fair values</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Matria Healthcare &#091;NASDAQ:MATR&#093; represents $36,000 at December&nbsp;31, 2002. We
had no available-for-sale securities at December&nbsp;31, 2003.


<P align="left" style="font-size: 10pt"><B>NOTE 5</B>



<P align="left" style="font-size: 10pt">ACCOUNTS AND NOTES RECEIVABLE



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">At December&nbsp;31, 2003 and 2002, our allowance for doubtful accounts and sales
returns amounted to $124,000 and $63,000, respectively. Provisions for
doubtful accounts and sales returns were $63,000, $49,000 and $8,500 for the
years ended December&nbsp;31, 2003, 2002 and 2001, respectively.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">At December&nbsp;31, 2002, notes receivable included $163,000 from RF Solutions,
Inc., an early stage company in which we own a minority interest accounted for
on the cost basis. The convertible bridge loan bore interest at the rate of 8%
per annum and principal and accrued interest were due on March&nbsp;1, 2003. In
2003, RF Solutions sold its principal assets to a third party. As a result, we
received $106,000 in partial payment of our note receivable, which was $198,000
at the time, and wrote off $92,000 in 2003 to reduce the balance of the note to
zero. Refer to Note 3 for additional details.


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The following table indicates the percentage of consolidated revenue and
year-end accounts receivable represented by each customer for any period in
which such customer represented more than 10% of consolidated revenue or
year-end accounts receivable.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Revenue</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>A/R</B>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">VISaer-Customer A</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">VISaer-Customer B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">21</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">VISaer-Customer C</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">23</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">ChemFree-Customer D</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">13</TD>

    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">14</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">ChemFree-Customer E</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">16</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">ChemFree-Customer F</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>NOTE 6</B>



<P align="left" style="font-size: 10pt">BORROWINGS AND LONG-TERM DEBT



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Terms and borrowings under our credit facility are summarized as follows:


<P align="left" style="font-size: 10pt">


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="81%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year ended
December&nbsp;31,</B><BR><B>(in
thousands)</B><HR size="1" width="90%" align="left" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Maximum outstanding (month-end)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Outstanding at year end</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Average interest rate at year end</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Average interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We established a new working capital credit facility with a bank in October
2003. The $1.5&nbsp;million revolving line of credit bears interest at the prime
rate (4% at December&nbsp;31, 2003) plus one and one half percent, is secured by all
assets of the company and our principal subsidiaries, is guaranteed by our
subsidiaries, and expires September&nbsp;1, 2004. We may borrow an aggregate of
70-80% of qualified accounts receivable of our consolidated subsidiaries
(depending upon the type of account) plus 50% of inventory, up to a maximum of
$1.5&nbsp;million. At December&nbsp;31, 2003, our borrowing base calculation resulted in
availability of $1.1&nbsp;million of which we drew down $250,000 at year end. The
terms of the loan contain typical covenants not to sell or transfer material
assets, to create liens against assets, to merge with another entity, to change
corporate structure or the nature of our business, to declare or pay dividends,
or to redeem shares of common stock as well as covenants not to change the
chief executive and chief financial officers of the company or to make loans to
or invest in new minority-owned companies, without first obtaining the consent
of the financial institution in each case.


<P align="left" style="font-size: 10pt"><B>NOTE 7</B>



<P align="left" style="font-size: 10pt">DEFERRED GAIN



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">In connection with the sale of one of our VISaer subsidiary&#146;s product lines in
July&nbsp;2000, the buyer assumed the liabilities of the purchased line of business.
VISaer did not obtain releases from creditors for a portion of these
liabilities and contracts and, accordingly, remains contingently liable for
these obligations. VISaer recorded these liabilities as deferred gain. As of
December&nbsp;31, 2003, the balance of $291,000 in deferred gain consisted of
accounts payable and accrued expenses. In accordance with SFAS No.&nbsp;140,
&#147;Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities, a replacement of FASB Statement 125&#148;, VISaer recognizes the
deferred gain when the liability is paid and the company is relieved of its
obligation. We recognized $137,000, $813,000 and $961,000 of the deferred gain
in the years ended December&nbsp;31, 2003, 2002 and 2001, respectively, which is
recorded in the component of other income/expense in the consolidated
statements of operations.


<P align="left" style="font-size: 10pt"><B>NOTE 8</B>



<P align="left" style="font-size: 10pt">INCOME TAXES<BR><BR>
The income tax provision (benefit)&nbsp;consists of the following:





<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year ended December&nbsp;31,</B><BR><B>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(40</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(343</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Following is a reconciliation of estimated income taxes at the blended
statutory rate to estimated tax expense as reported:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year ended December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Statutory rate, blended</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">34</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Change in valuation
allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(32</TD>
    <TD nowrap>%)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Effective rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">At December&nbsp;31, 2003, our subsidiaries had net operating loss carryforwards
totaling $8,653,000. The net operating loss carryforwards, if unused as offsets
to future taxable income, will expire by 2023. Approximately $1.1&nbsp;million of
the net operating loss carryforward is subject to limitation by the Federal
Income Tax code section 382.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We account for income taxes using SFAS No.&nbsp;109, &#147;Accounting for Income Taxes&#148;.
We have a deferred tax asset of approximately $15.6&nbsp;million and $13.6&nbsp;million
at December&nbsp;31, 2003 and 2002, respectively. Since our ability to realize the
deferred tax asset is uncertain, the amount is offset in both 2003


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-16
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">and 2002 by a valuation allowance of an equal amount. The deferred tax asset at
December&nbsp;31, 2003 and 2002 relates primarily to net operating loss and
tax credit carryforwards and loss limitations on investments. No deferred taxes have been
provided on temporary differences related to investments in foreign subsidiaries
because these investments are considered to be permanent. We do not believe it is
practicable to determine the amount of these unrecognized deferred taxes at this time.


<P align="left" style="font-size: 10pt"><B>NOTE 9</B>



<P align="left" style="font-size: 10pt">COMMITMENTS AND CONTINGENCIES



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Leases </I>- We have noncancellable operating leases expiring at various dates
through July&nbsp;2005. Future minimum lease payments are as follows:


<P align="left" style="font-size: 10pt"><B></B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD align="center"><B>Year ended December&nbsp;31,<BR>(in thousands)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">345</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total minimum lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">404</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Rental expense for leased facilities and equipment related to operations
amounted to $759,000, $1.2&nbsp;million and $1.0&nbsp;million for the years ended
December&nbsp;31, 2003, 2002 and 2001, respectively. Companies in Intelligent
Systems Incubator sublease space from the company. For the years ended
December&nbsp;31, 2003, 2002 and 2001, the company received $255,000, $444,000 and
$484,000, respectively, in sublease rental income which reduced the company&#146;s
rental expense during these years.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Legal Matters </I>- In 1999, a suit was brought against our ChemFree subsidiary and
two other parties by a former consultant of ChemFree. The suit challenges the
ownership of various intellectual property assets of ChemFree. ChemFree and
the other parties to the litigation strongly deny the allegations, have filed
cross claims and intend to vigorously defend the suit. The case is pending in
the Superior Court of Gwinnett County, Georgia. ChemFree has filed suit in
Federal Court seeking a judgment against the consultant. The case was
scheduled to go to trial early in 2004 but was postponed due to a change in
the Court&#146;s calendar. A new trial date has not been set. While the company
believes ChemFree has sufficient evidence to refute the claims made, there can
be no assurance that the case will be resolved in favor of ChemFree. In
addition, from time to time we are party to a small number of legal matters
arising in the ordinary course of business. It is management&#146;s opinion that
none of these matters will have a material adverse impact on our consolidated
financial position or results of operations.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>ISC Guarantee &#151; </I>In conjunction with a Software License Agreement entered into
on June&nbsp;12, 2003 between our majority owned subsidiary, CoreCard Software, Inc.
and a CoreCard customer, ISC entered into a letter of guarantee with the
CoreCard customer. Under the guarantee, in the event that the Software License
is terminated for certain reasons, ISC has guaranteed that CoreCard will make
available at its expense up to four employees to provide technical assistance
to the customer during a transition period of up to one year. The guarantee is
limited to the amount paid by the customer to CoreCard under the Software
License Agreement at the time of termination. The guarantee phases out upon
the achievement of certain milestones or after five years, whichever occurs
sooner. As of December&nbsp;31, 2003, it does not appear probable that the
guarantee will be paid; thus no amounts have been accrued with respect to this
guarantee. No revenue in respect of this license agreement has been recognized
in 2003.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>Investment Company Act </I>- The Investment Company Act of 1940 broadly defines an
investment company generally as any issuer that is primarily engaged in, or
proposes to engage in, the business of investing, reinvesting, owning, holding
or trading in securities and owns or proposes to acquire investment securities
having a value exceeding 40% of the issuer&#146;s total assets. We do not intend to
be and do not consider that we are an investment company and have relied on
Rule&nbsp;3a-1 of the 1940 Act which provides that a company is not deemed to be an
investment company if not more than 45&nbsp;percent of the value of its assets and
no more that 45&nbsp;percent of its net income in the last four quarters is derived
from securities of companies it does not control. In the quarter ended March
31, 2001, we may technically have triggered the definition related to net
income because of gains generated from the sale of non-control securities in
the past four quarters. However, at that time and to the extent necessary to
do so, we elected to rely on safe harbor from the definition of an investment
company for transient investment companies contained in Rule&nbsp;3a-2 under the
Investment Company Act. Rule&nbsp;3a-2 provides a conditional one year exclusion
from the investment company definition for an issuer that, among other things,
has a bona fide intent not to be an investment company as soon as reasonably
practicable. No issuer may rely on Rule&nbsp;3a-2 more frequently than once in any
three-year period. We were in compliance with the requirements of Rule&nbsp;3a-1 of
the 1940 Act within the one-year exemption period and have been in compliance
since that time.


<P align="left" style="font-size: 10pt"><B>NOTE 10</B>



<P align="left" style="font-size: 10pt">POST-RETIREMENT BENEFITS



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Effective January&nbsp;1, 1992, we adopted the Outside Directors&#146; Retirement Plan
which provides that each nonemployee director, upon resignation from the Board
after reaching the age of 65, will receive a lump sum cash payment equal to
$5,000 for each full year of service as a director of the company (and its
predecessors and successors) up to $50,000. At December&nbsp;31, 2003 and 2002, we
have accrued $150,000 for future payments under the plan. In January&nbsp;2004, we
made a lump sum


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-17
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">payment of $50,000 to a director upon his retirement from the board.


<P align="left" style="font-size: 10pt"><B>NOTE 11</B>



<P align="left" style="font-size: 10pt">REDEEMABLE PREFERRED STOCK OF SUBSIDIARY



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">At December&nbsp;31, 2002, this amount related to our VISaer subsidiary&#146;s obligation
to a minority shareholder of VISaer pursuant to the redemption provision of the
preferred stock of VISaer. On March&nbsp;28, 2003, the holders of preferred stock
of VISaer consented to a permanent waiver of their redemption rights.
Accordingly, in 2003 we reclassed $342,000 accrued in prior periods against
goodwill. There was no income statement impact of this non-cash transaction.


<P align="left" style="font-size: 10pt"><B>NOTE 12</B>



<P align="left" style="font-size: 10pt">STOCKHOLDERS&#146; EQUITY



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We have authorized 20,000,000 shares of Common Stock, $0.01 par value per
share, and 2,000,000 shares of Series&nbsp;A Preferred Stock, $0.10 par value per
share. No shares of Preferred Stock have been issued; however, we adopted a
Rights Agreement on November&nbsp;25, 1997, which provides that, under certain
circumstances, shareholders may redeem the Rights to purchase shares of
Preferred Stock. The Rights have certain anti-takeover effects. The Board of
Directors has authorized stock repurchases from time to time. At various times
during the years ended December&nbsp;31, 2003 and 2002, we repurchased and retired
12,808 and 3,751 shares, respectively, of our common stock at prevailing market
prices. On July&nbsp;17, 2001, we repurchased and retired one million shares of our
common stock at $5.25 per share pursuant to a self-tender offer. We
repurchased and retired an additional 132,000 shares at fair market value
during the year ended December&nbsp;31, 2001.


<P align="left" style="font-size: 10pt"><B>NOTE 13</B>



<P align="left" style="font-size: 10pt">STOCK OPTION PLAN



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">We instituted the 2003 Incentive Stock Plan (the &#147;2003 Plan&#148;) in March&nbsp;2003.
The 2003 Plan authorizes the issuance of up to 450,000 options to purchase
shares of common stock to officers and key employees. During 2003, 100,000
options were granted to officers. We instituted the 1991 Incentive Stock Plan
(the &#147;1991 Plan&#148;) in December&nbsp;1991 and amended it in 1997 to increase the
number of shares authorized under the Plan to 925,000. The Plan expired in
December&nbsp;2001, with 148,000 shares ungranted. In August&nbsp;2000, we instituted a
Non-Employee Directors&#146; Stock Option Plan (the &#147;Directors&#146; Plan&#148;) that
authorizes the issuance of up to 200,000 shares of common stock to non-employee
directors. Upon adoption of the Directors&#146; Plan, each non-employee director
was granted an option to acquire 5,000 shares. At each annual meeting, each
director receives a grant of 4,000 shares. Stock options under all three plans
are granted at fair market value on the date of grant. As of December&nbsp;31, 2003,
a total of 945,000 options under all three Plans have been granted, 724,320
have been exercised and 96,680 options are fully vested and exercisable at a
weighted average price per share of $3.86. All options expire ten years from
their respective dates of grant. At December&nbsp;31, 2003, the weighted average
remaining contractual life of the outstanding options is 6.7&nbsp;years. Stock
option transactions during the three years ended December&nbsp;31, 2003 were as
follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="51%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options outstanding
at Jan. 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,014</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,334</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options outstanding
at Dec. 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">220,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options available for
grant at Dec. 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">482,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">148,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Options exercisable at Dec. 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,014</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Option price ranges
per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD nowrap align="right">1.51-1.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.26</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Weighted average
option price per
share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.26</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Outstanding at
Dec. 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.91</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Exercisable at Dec. 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.53</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-18
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt"><B>NOTE 14</B>



<P align="left" style="font-size: 10pt">FOREIGN REVENUES AND OPERATIONS



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Foreign revenues are based on the location of the customer. Revenues from
customers by geographic areas for three years ended December&nbsp;31, 2003 are as
follows:


<P align="left" style="font-size: 10pt"><B></B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="46%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year ended December&nbsp;31,<BR>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Foreign Countries:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">United Kingdom</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,727</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&nbsp;2,429</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Australia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Chile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">362</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">China</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">244</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">253</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Subtotal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,926</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,544</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,792</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,718</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">With the acquisition of VISaer on July&nbsp;1, 2001, we acquired foreign
subsidiaries in the United Kingdom and Ireland. In 2003, we established a
subsidiary of CoreCard Software in Romania for certain software development and
testing activities. For the years ended December&nbsp;31, 2003, 2002 and 2001,
income before provision for income taxes derived from foreign subsidiaries
approximated $0, $20,000 and $63,000, respectively. Substantially all
long-lived assets are in the United States.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">At December&nbsp;31, 2003 and 2002, foreign subsidiaries had assets of $443,000 and
$356,000, respectively, and total liabilities of $698,000 and $464,000,
respectively.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">There are no currency exchange restrictions related to our foreign subsidiaries
that would affect our financial position or results of operations.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Refer to Note 1 for a discussion regarding how we account for translation of
non-U.S. currency amounts.


<P align="left" style="font-size: 10pt"><B>NOTE 15</B>



<P align="left" style="font-size: 10pt">EARNINGS (LOSS)&nbsp;PER SHARE



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Basic and diluted earnings (loss)&nbsp;per share are computed in accordance with
SFAS No.&nbsp;128 &#147;Earnings per Share&#148;. Basic net earnings (loss)&nbsp;per share are
computed by dividing net earnings (loss) (numerator)&nbsp;by the weighted average
number of common shares outstanding (denominator)&nbsp;during the period and exclude
the dilutive effect of stock options. Diluted net earnings per share gives
effect to all dilutive potential common shares outstanding during a period. In
computing diluted net earnings per share, the average stock price for the
period is used in determining the number of shares assumed to be reacquired
under the treasury stock method for the hypothetical exercise of stock options.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The following tables represent required disclosure of the reconciliation of the
earnings (loss)&nbsp;and the shares used in the basic and diluted net earnings
(loss)&nbsp;per share computation:


<P align="left" style="font-size: 10pt"><B></B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year ended December&nbsp;31,<BR>(in thousands except per share data)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Basic</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net earnings (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(12,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,113</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Weighted average shares
outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,108</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net earnings (loss)
per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.78</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Diluted</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net earnings (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(12,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,113</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Weighted average shares
outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,108</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Effect of dilutive potential
common shares:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,146</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net earnings (loss)&nbsp;per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.77</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">At December&nbsp;31, 2003 and 2002, there were no potentially dilutive stock options
excluded from diluted weighted average shares outstanding.


<P align="left" style="font-size: 10pt"><B>NOTE 16</B>



<P align="left" style="font-size: 10pt">INDUSTRY SEGMENTS



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Our consolidated subsidiaries are involved in two industry segments:
Information Technology products and services and Industrial Products.
Operations in Information Technology products and services, which include our
VISaer, QS Technologies and CoreCard Software subsidiaries, involve development
and sales of software licenses and related professional services and software
maintenance contracts. Operations in the Industrial Product segment include the
manufacture and sale of bio-remediating parts washers by our ChemFree
subsidiary. Total revenue by industry segment includes sales to unaffiliated
customers. Sales between our industry segments are not material. Operating
profit (loss)&nbsp;is total revenue less operating expenses. None of the corporate
overhead expense is allocated to the individual industry segments. Identifiable
assets by industry segment are those assets that are used in our subsidiaries
in each industry segment. Corporate assets are principally cash, notes
receivable and investments. The table following contains segment information
for the three years ended December&nbsp;31, 2003.


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-19
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt"><B></B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year ended December&nbsp;31,<BR>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Information Technology</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,353</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,928</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11,096</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,754</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Depreciation and
amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">858</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,527</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">189</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,792</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,039</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,813</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Industrial Products</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,285</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,365</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(340</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(227</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Depreciation and
amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">157</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,024</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,730</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Consolidated Segments</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,718</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,652</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11,436</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,981</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Depreciation and
amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">721</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">994</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,684</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,522</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,039</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,813</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">A reconciliation of consolidated segment data above to consolidated income
(loss), depreciation and amortization, capital expenditures and assets follows:


<P align="left" style="font-size: 10pt"><B>&nbsp;</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year ended December&nbsp;31,<BR>(in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated segments
operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(7,652</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(11,436</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,981</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Corporate expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(740</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,024</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,439</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated operating
loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,392</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,460</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,420</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,017</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investment income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(934</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,902</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equity of affiliates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(235</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,173</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">960</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,838</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12,600</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,286</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(40</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(343</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(12,257</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,113</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Depreciation and
amortization</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated segments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">721</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">994</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,684</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,911</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,595</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Capital Expenditures</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated segments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">272</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">434</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">297</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><I>Assets</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated segments
identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,522</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,978</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,567</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,089</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>NOTE 17</B>



<P align="left" style="font-size: 10pt">QUARTERLY FINANCIAL DATA <I>(unaudited)</I>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The table following contains a summary of selected quarterly data for the
years ended December&nbsp;31, 2003 and 2002.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="36%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>For Quarters Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(in thousands except per share data)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Mar. 31</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 30</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sept. 30</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Dec. 31</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2003</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,595</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,574</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,609</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,535</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(675</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net (income)&nbsp;loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">949</TD>
    <TD nowrap><SUP>a</SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,183</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,396</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,168</TD>
    <TD nowrap>)<SUP>b</SUP></TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic (income)&nbsp;loss
per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.49</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.53</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.26</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted (income)&nbsp;loss
per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.49</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.53</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.26</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>2002</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,973</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,387</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,617</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,512</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,885</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,446</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,122</TD>
    <TD nowrap>)<SUP>c</SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,708</TD>
    <TD nowrap>)<SUP>d</SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,697</TD>
    <TD nowrap>)<SUP>e</SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,730</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic loss
per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.05</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.60</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.61</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted loss
per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.05</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.60</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.61</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes net investment gain of $3.5&nbsp;million.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes net investment losses of $604,000.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes investment gains of $797,000 and $751,000 deferred gain.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes $1.3&nbsp;million write-down of investment.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">e.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes net investment losses of $360,000.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION



<P align="center" style="font-size: 10pt">F-20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="129"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Schedule&nbsp;II</B>



<P align="center" style="font-size: 10pt"><B>INTELLIGENT SYSTEMS CORPORATION<BR>
Valuation and Qualifying Accounts and Reserves<BR>
For the Years Ended December&nbsp;31, 2001, 2002 and 2003</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Balance at Beginning</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Charged to Costs</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Balance at</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Description</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of Period</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and Expenses</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deductions<SUP>a</SUP></B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>End of Period</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Allowance for
Doubtful Accounts</B><SUP><B>b</B></SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Year Ended December&nbsp;31, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">45,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(9,511</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">44,984</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Year Ended December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,717</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(31,195</TD>
    <TD align="left">)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,506</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Year Ended December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,506</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,192</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124,093</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Write-offs of accounts receivable against allowance accounts.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>This includes the combination of the Allowance for Sales Returns with the
Allowance for Doubtful Accounts.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">INTELLIGENT SYSTEMS CORPORATION

<P align="center" style="font-size: 10pt">S-1
</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>g88120exv10w2.txt
<DESCRIPTION>EX-10.2 2003 STOCK INCENTIVE PLAN
<TEXT>
<PAGE>

                                                                EXHIBIT 10.2 (a)

                         INTELLIGENT SYSTEMS CORPORATION
                            2003 STOCK INCENTIVE PLAN
                          EFFECTIVE AS OF MARCH 4, 2003

                                   ARTICLE I

                              PURPOSE; DEFINITIONS

         The purpose of the Plan is to support the Company's ongoing efforts to
develop and retain leaders of exceptional talent and to provide the Company with
the ability to provide incentives more directly linked to the profitability of
the Company's businesses and to increases in shareholder value.

         For purposes of the Plan, the following terms are defined as set forth
below:

         (a) "Awards" mean grants under this Plan of Stock Options, Stock
Appreciation Rights, Restricted Stock or Other Stock-Based Awards.

         (b) "Board" means the Board of Directors of the Company.

         (c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.

         (d) "Commission" means the Securities and Exchange Commission or any
successor agency.

         (e) "Committee" means a committee of at least two directors of the
Company appointed from time to time by the Board, having the duties and
authority set forth herein in addition to any other authority granted by the
Board; provided, however, that with respect to any Awards granted to an
individual who is also a Section 16 Insider, the Committee shall consist of
either the entire Board or a committee of at least two directors who are
Non-Employee Directors, and all authority and discretion shall be exercised by
such Non-Employee Directors, and references herein to the "Committee" means such
Non-Employee Directors insofar as any actions or determinations of the Committee
shall relate to or affect Awards made to or held by any Section 16 Insider. In
selecting the Committee, the Board shall also consider the benefits under
Section 162(m) of the Code of having a Committee composed of "outside directors"
(as that term is defined in the Code) for certain grants of Awards to
highly-compensated executives. At any time that the Board shall not have
appointed a committee that meets the above requirements, any reference herein to
the Committee shall refer to the Board.

         (f) "Common Stock" or "Stock" means the Common Stock of the Company.

         (g) "Company" means Intelligent Systems Corporation, a corporation
organized under the laws of the State of Georgia, or any successor thereto.

         (h) "Exercise Period" means the 60-day period from and after a Change
in Control.

         (i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.

         (j) "Fair Market Value" means, as of any given date, the mean between
the highest and lowest reported sales prices of the Common Stock on the American
Stock Exchange--Composite Transactions or, if no such sale of Common Stock is
reported on such date, the fair market value of the Stock as determined by the
Committee in good faith.

         (k) "Incentive Stock Option" means any Stock Option that complies with
Section 422 of the Code.

         (l) "Nonqualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.

                                      A-1
<PAGE>

         (m) "Non-Employee Director" shall have the meaning set forth in Rule
16b-3 under the Exchange Act, as the same may be in effect from time to time, or
in any successor rule thereto, and shall be determined for all purposes under
the Plan according to interpretative or "no-action" positions with respect
thereto issued by the Commission.

         (n) "Other Stock-Based Award" means an Award made pursuant to paragraph
(a)(iv) of Article V.

         (o) "Plan" means this 2003 Intelligent Systems Corporation 2003 Stock
Incentive Plan, as amended from time to time.

         (p) "Restricted Period" means the period during which an Award may not
be sold, assigned, transferred, pledged or otherwise encumbered.

         (q) "Restricted Stock" means an Award of shares of Common Stock
pursuant to paragraph (a)(iii) of Article V.

         (r) "Section 16 Insider" means any person who is subject to the
provisions of Section 16 of the Exchange Act, as provided in Rule 16a-2
promulgated pursuant to the Exchange Act.

         (s) "Spread Value" means, with respect to a share of Common Stock
subject to an Award, an amount equal to the excess of the Fair Market Value, on
the date such value is determined, over the Award's exercise or grant price, if
any.

         (t) "Stock Appreciation Right" or "SAR" means a right granted pursuant
to paragraph (a)(ii) of Article V.

         (u) "Stock Option" means an option granted pursuant to paragraph (a)(i)
of Article V.

In addition, the terms "Business Combination," "Change in Control," "Change in
Control Price," "Incumbent Board," "Outstanding Company Common Stock,"
"Outstanding Company Voting Securities" and "Person" have the meanings set forth
in Article VI.

                                   ARTICLE II
                                 ADMINISTRATION

         The Plan shall be administered by the Committee, which shall have the
power to interpret the Plan and to adopt such rules and guidelines for carrying
out the Plan as it may deem appropriate. The Committee shall have the authority
to adopt such modifications to the Plan, procedures and subplans as may be
necessary or desirable to comply with the laws, regulations, compensation
practices and tax and accounting principles of the countries in which the
Company, a subsidiary or an affiliate may operate to assure the viability of the
benefits of Awards made to individuals employed in such countries and to meet
the objectives of the Plan. The Committee shall also have the authority to
determine the details and provisions of each Award agreement, and to make all
other determinations necessary or advisable for the administration of the Plan.

         Subject to the terms of the Plan, the Committee shall have the
authority to determine those individuals eligible to receive Awards and the
amount, type and terms of each Award, but, at the discretion of the Committee or
the Board, such determinations may be made subject to ratification by the Board.

         Any determination made by the Committee with respect to any Award shall
be made in the sole discretion of the Committee, and all decisions made by the
Committee shall be final and binding on all persons, including the Company and
Plan participants, but subject to ratification by the Board if the Committee or
the Board so provides.

                                      A-2
<PAGE>

                                   ARTICLE III
                                   ELIGIBILITY

         All employees of the Company, its parents, subsidiaries and affiliates,
as well as non-employee officers and non-employee members of the Board of
Directors and key consultants and advisors of the Company or its parents,
subsidiaries or affiliates, are eligible to be granted Awards under the Plan.
However, only persons who are employees of the Company or its parents or
subsidiaries may be eligible to receive an Incentive Stock Option.

                                   ARTICLE IV
                          COMMON STOCK SUBJECT TO PLAN

         (a) SHARES RESERVED. The total number of shares of Common Stock
reserved and available for distribution pursuant to the Plan shall be 450,000
shares, all of which may be issued pursuant to the exercise of Stock Options
awarded under the Plan. If any Award is exercised, cashed out or terminates or
expires without a payment being made to the participant in the form of Common
Stock, the shares subject to such Award, if any, shall again be available for
distribution in connection with Awards under the Plan. Any shares of Common
Stock that are issued or issuable under the Plan and used by a participant as
full or partial payment of withholding or other taxes or as payment for the
exercise or conversion price of an Award shall be available for distribution in
connection with Awards under the Plan.

         (b) ANTIDILUTION ADJUSTMENTS. In the event of any change in the
outstanding shares of Common Stock by reason of any stock dividend, stock split,
or similar corporate change involving the Common Stock, the aggregate number and
kind of shares subject to Awards outstanding or to be granted under the Plan
shall be appropriately adjusted or modified, and the terms of any outstanding
Award shall be adjusted or modified accordingly.

         (c) LIQUIDATION OR DISSOLUTION. If the Company is to be liquidated or
dissolved in connection with a transaction described in Article VI, the
provisions of such Article shall apply. In all other instances, the adoption of
a plan of dissolution or liquidation of the Company shall, except as may be
provided by the Committee, cause all then-remaining restrictions pertaining to
Awards under the Plan to lapse, and shall cause every Stock Option outstanding
under the Plan to terminate to the extent not exercised prior to the adoption of
the plan of dissolution or liquidation by the shareholders, provided that,
notwithstanding other provisions hereof, the Committee may declare all Stock
Options granted under the Plan to be exercisable at such time or times as the
Committee may determine, notwithstanding the provisions of the respective Stock
Option agreements regarding exercisability.

         (d) APPLICATION OF ADJUSTMENTS. The adjustments described in paragraphs
(b) through (d) of this Article IV, and the manner of their application, shall
be determined solely by the Committee, and any such adjustment may provide for
the elimination of fractional share interests; provided, however, that any
adjustment made by the Committee shall be made, to the greatest extent possible,
in a manner that will not cause an Incentive Stock Option to be other than an
Incentive Stock Option under applicable statutory and regulatory provisions. The
adjustments required under this Article IV shall apply to any successors of the
Company and shall be made regardless of the number or type of successive events
requiring such adjustments.

                                    ARTICLE V
                                     AWARDS

         (a) GENERAL. The types of Awards that may be granted under the Plan are
set forth below. Awards may be granted singly, in combination or in tandem with
other Awards.

                  (i) Stock Options. A Stock Option represents the right to
purchase a share of Stock at a predetermined exercise price. Stock Options
granted under this Plan may be in the form of Incentive Stock Options or
Nonqualified Stock Options, as specified in the Award agreement. The term of
each Stock Option shall be set forth in the Award agreement, but no Incentive
Stock Option shall be exercisable more than ten years after the grant date. The
exercise price per share of Common Stock purchasable under an Incentive Stock
Option shall not be less than 100% of the Fair Market Value on the date of
grant. Subject to the

                                      A-3
<PAGE>

applicable Award agreement, Stock Options may be exercised, in whole or in part,
by giving written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by payment in full of
the exercise price by certified or bank check or, if permitted by applicable
law, such other instrument as the Company may accept (including a copy of
instructions to a broker or bank acceptable to the Company requesting that such
broker deliver promptly to the Company an amount of sale or loan proceeds
sufficient to pay the aggregate exercise price). As determined by the Committee,
payment in full or in part may also be made in the form of Common Stock already
owned by the optionee valued at the Fair Market Value on the date the Stock
Option is exercised; provided, however, with respect to a Section 16 Insider,
that such Common Stock shall not have been acquired within the preceding six
months upon the exercise by such Section 16 Insider of a Stock Option or Award
granted under the Plan, or a similar award granted under any other plan
maintained at any time by the Company or any parent or subsidiary.
Notwithstanding any provision of the Plan or any Award agreement to the
contrary, in no event shall the Company be permitted to arrange for or extend
credit to (as such terms are defined in Section 13(k) of the Exchange Act) any
director or officer of the Company in connection with the exercise of any Award
if such arrangement or extension of credit would violate applicable law.

                  (ii) Stock Appreciation Rights. An SAR represents the right to
receive a payment, in cash, shares of Common Stock or both (as determined by the
Committee), equal to the Spread Value on the date the SAR is exercised. The
grant price of an SAR shall be set forth in the applicable Award agreement.
Subject to the terms of the applicable Award agreement, an SAR shall be
exercisable, in whole or in part, by giving written notice of exercise to the
Company.

                  (iii) Restricted Stock. Shares of Restricted Stock are shares
of Common Stock that are awarded to a participant and that during the Restricted
Period may be forfeitable to the Company upon such conditions as may be set
forth in the applicable Award agreement. Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered during the Restricted
Period. Except as provided in this subsection (iii) and in the applicable Award
agreement, a participant shall have all the rights of a holder of Common Stock,
including the rights to receive dividends and to vote during the Restricted
Period. Dividends with respect to Restricted Stock that are payable in Common
Stock shall be paid in the form of Restricted Stock and shall be subject to all
of the terms and conditions of the Restricted Stock agreement pursuant to which
the underlying shares of Restricted Stock were issued.

                  (iv) Other Stock-Based Awards. Other Stock-Based Awards are
Awards, other than Stock Options, SARs or Restricted Stock, that are denominated
in, valued in whole or in part by reference to, or otherwise based on or related
to, Common Stock. The purchase, exercise, exchange or conversion of Other
Stock-Based Awards granted under this subsection (iv) shall be on such terms and
conditions and by such methods as shall be specified by the Committee.

         (b) MAXIMUM AWARDS. The total number of shares of Restricted Stock and
other shares of Common Stock subject to or underlying Stock Options, SARs and
Other Stock-Based Awards awarded to any participant during the term of this Plan
shall not exceed 15 % of the shares of Common Stock originally reserved for
distribution pursuant to the Plan. An amount not in excess of 25 % of the shares
of Common Stock originally reserved for distribution pursuant to the Plan may be
issued pursuant to Restricted Stock Awards and Other Stock-Based Awards, except
that Other Stock-Based Awards with values based on Spread Values shall not be
included in this limitation.

                                   ARTICLE VI
                          CHANGE IN CONTROL PROVISIONS

         (a) Impact of Change in Control. Notwithstanding any other provision of
the Plan to the contrary, in the event of a Change in Control:

                  (i) Stock Options and Stock Appreciation Rights. All Stock
Options and Stock Appreciation Rights outstanding as of the date such Change in
Control occurs shall become immediately fully vested and exercisable.

                                      A-4
<PAGE>

                  (ii) Restricted Stock and Other Stock-Based Awards. The
restrictions and other conditions applicable to any Restricted Stock or Other
Stock-Based Awards, including vesting requirements, shall lapse, and such Awards
shall become immediately free of all restrictions and fully vested.

                  (iii) Cash-Out of Stock-Based Awards. Unless otherwise
determined by the Committee at or after grant, the value of all outstanding
Stock Options, Stock Appreciation Rights, Restricted Stock and Other Stock-Based
Awards shall be cashed out on the basis of the "Change in Control Price," as
defined in paragraph (c) of this Article VI, as of the date such Change in
Control occurs or such other date as the Committee may determine.

         (b) DEFINITION OF CHANGE IN CONTROL. A "Change in Control" means the
happening of any of the following:

                  (i) The acquisition, other than in a transaction approved by
the Incumbent Board, by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (A) the then outstanding shares of Common Stock (the
"Outstanding Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change in
Control: (1) any acquisition directly from the Company, (2) any acquisition by
the Company, (3) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (4) any acquisition by any corporation pursuant to a transaction
satisfying all of the requirements of clauses (A), (B) and (C) of subparagraph
(b) (iii) of this Article VI; or

                  (ii) Individuals who, as of the effective date of the Plan,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to such effective date whose election, or
nomination for election by the shareholders of the Company, was approved by a
vote of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or

                  (iii) Approval by the shareholders of the Company of a
reorganization, merger, share exchange or consolidation (a "Business
Combination"), unless, in each case following such Business Combination, (A) all
or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation that as a result of
such transaction owns the Company through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (B) no Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such Person owned 25% or more of the
Outstanding Company Common Stock or Outstanding Company Voting Securities prior
to the Business Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or

                  (iv) Approval by the shareholders of the Company of (A) a
complete liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the Company, other than
to a corporation with respect to which, following such sale or other
disposition, (1) more

                                      A-5
<PAGE>

than 50% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (2) less than 25% of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by any Person (excluding any
employee benefit plan (or related trust) of the Company or such corporation),
except to the extent that such Person owned 25% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities prior to the sale
or disposition and (3) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at the time of
the execution of the initial agreement, or of the action of the Board, providing
for such sale or other disposition of assets of the Company or were elected,
appointed or nominated by the Board.

         (c) CHANGE IN CONTROL PRICE. "Change in Control Price" means the
maximum price paid for any shares of Stock acquired as part of the Change in
Control except that, in the case of Incentive Stock Options, unless the
Committee otherwise provides, such price shall be based only on transactions
reported for the date on which such Incentive Stock Options are cashed out.

         (d) SURRENDER ELECTION. Notwithstanding any other provision of this
Plan, upon a Change in Control, unless the Committee shall determine otherwise
at grant, or after grant but before the Change in Control occurs, an Award
recipient shall have the right, by giving notice to the Company within the
Exercise Period, to elect to surrender all or part of the Stock Option, SAR or
Other Stock-Based Award to the Company and to receive in cash, within 30 days of
such notice, an amount equal to the amount by which the Change in Control Price
on the date of such notice shall exceed the exercise or grant price under such
Award, multiplied by the number of shares of Stock as to which the right granted
under this Article VI shall have been exercised.

         (e) ACCOUNTING TREATMENT. Notwithstanding the foregoing, if any right
granted pursuant to this Article VI would make a Change in Control transaction
ineligible for pooling of interests accounting under generally accepted
accounting principles that but for this Article VI would otherwise be eligible
for such accounting treatment, the Committee shall have the ability to
substitute the cash payable pursuant to this Article VI with Common Stock with a
Fair Market Value equal to the cash that would otherwise be payable hereunder.

                                  ARTICLE VII
                         PLAN AMENDMENT AND TERMINATION

         The Board or the Committee may amend the Plan at any time, and the
Board may terminate the Plan at any time, provided that no such amendment or
termination shall be made without shareholder approval if such approval (a)
would be required under applicable law or the applicable rules of any stock
exchange, market or inter-dealer quotation system, or if (b) such amendment
would (1) increase the total number of shares of Common Stock issuable pursuant
to Incentive Stock Options granted under the Plan or (2) change the class of
employees eligible to receive Incentive Stock Options under the Plan.

         Except as set forth in any Award agreement, no amendment or termination
of the Plan may materially and adversely affect any outstanding Award under the
Plan without the Award recipient's consent.

                                  ARTICLE VIII
                         PAYMENTS AND PAYMENT DEFERRALS

         Payment of Awards may be in the form of cash, Stock, other Awards or
combinations thereof as the Committee shall determine, and with such
restrictions as it may impose. Subject to the limitations set forth in paragraph
(a) of Article V and except as prohibited by applicable law, the Committee,
either at the time of grant or by subsequent amendment, may require or permit
deferral of the payment of Awards under such rules and

                                      A-6
<PAGE>

procedures as it may establish. It also may provide that deferred settlements
include the payment or crediting of interest or other earnings on the deferred
amounts, or the payment or crediting of dividend equivalents where the deferred
amounts are denominated in Common Stock equivalents.

                                   ARTICLE IX
                       DIVIDENDS AND DIVIDEND EQUIVALENTS

         The Committee may provide that any Awards under the Plan earn dividends
or dividend equivalents. Such dividends or dividend equivalents may be paid
currently or may be credited to a participant's Plan account. Any crediting of
dividends or dividend equivalents may be subject to such restrictions and
conditions as the Committee may establish, including reinvestment in additional
shares of Common Stock or Common Stock equivalents.

                                    ARTICLE X
                                 TRANSFERABILITY

         Except to the extent permitted by the Award agreement, either initially
or by subsequent amendment, Awards shall not be transferable or assignable other
than by will or the laws of descent and distribution, and shall be exercisable
during the lifetime of the recipient only by him.

                                   ARTICLE XI
                                AWARD AGREEMENTS

         Each Award under the Plan shall be evidenced by a written agreement
(which need not be signed by the recipient unless otherwise specified by the
Committee) that sets forth the terms, conditions and limitations for each Award.
Such terms may include, but are not limited to, the term of the Award, vesting
and forfeiture provisions, and the provisions applicable in the event the
recipient's employment terminates. Such agreement shall contain such additional
terms and conditions not inconsistent with the Plan as the Committee may, in its
discretion, prescribe. The Committee may amend an Award agreement, provided that
no such amendment may materially and adversely affect an Award without the Award
recipient's consent.

                                   ARTICLE XII
                             UNFUNDED STATUS OF PLAN

         It is presently intended that the Plan constitute an "unfunded" plan
for incentive compensation. The Committee may authorize the creation of trusts
or other arrangements to meet the obligations created under the Plan to deliver
Common Stock or make payments; provided, however, that, unless the Committee
otherwise determines, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.

                                  ARTICLE XIII
                               GENERAL PROVISIONS

         (a) Notwithstanding any other provision of the Plan, the Company shall
not be obligated to issue any Award or shares of Common Stock under the Plan
unless such issuance is in compliance with all applicable laws and any
applicable requirements of any securities exchange or market on which the Common
Stock is traded. Prior to the issuance of any Award or shares of Common Stock
under the Plan, the Company may require a written statement from the recipient
as evidence of such compliance, including, in some cases, an acknowledgment by
the recipient that the recipient is acquiring the securities for investment and
not for the purpose or with the intent of engaging in any distribution thereof.
All certificates for shares of Common Stock or other securities delivered under
the Plan shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange or market upon which the
Common Stock is then listed or traded and any applicable Federal, state or
foreign securities law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.

                                      A-7
<PAGE>

         (b) Nothing contained in this Plan shall prevent the Company, a parent,
a subsidiary or an affiliate from adopting other or additional compensation
arrangements for its employees, officers or directors.

         (c) The adoption of the Plan shall not confer upon any employee any
right to continued employment nor shall it interfere in any way with the right
of the Company, a subsidiary or an affiliate to terminate the employment of any
employee at any time. The grant of an Award under the Plan shall not confer upon
the holder thereof any right as a shareholder of the Company. In the case of
shares of Common Stock that may be issuable upon the exercise of an Award
granted under the Plan, no person entitled to exercise such Award shall have any
of the rights or privileges of a shareholder of record with respect to any such
shares of Common Stock until such Award is exercised and certificates
representing such shares have been issued and delivered to such person.

         (d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for Federal income tax
purposes with respect to any Award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Company regarding the
immediate payment of, any Federal, state, local or foreign taxes of any kind
required by law to be withheld with respect to such amount. If permitted by the
Award agreement, withholding obligations arising from an Award may be settled
with Common Stock, including Common Stock that is part of, or is received upon
exercise or conversion of, the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be conditional
on such payment or arrangements, and the Company, its subsidiaries and its
affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment otherwise due to the participant. The Committee may
establish such procedures as it deems appropriate, including the making of
irrevocable elections, for the settling of withholding obligations with Common
Stock.

         (e) On receipt of written notice of exercise, the Committee may elect
to cash out all or a portion of the shares of Common Stock for which a Stock
Option is being exercised by paying the optionee an amount, in cash or Common
Stock, equal to the Spread Value of such shares on the date such notice of
exercise is received.

         (f) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Georgia.

         (g) If any provision of the Plan is held invalid or unenforceable, the
invalidity or unenforceability shall not affect the remaining parts of the Plan,
and the Plan shall be enforced and construed as if such provision had not been
included.

         (h) The Plan shall be effective on March 4, 2003. Except as otherwise
provided by the Board, no Incentive Stock Option shall be granted after February
28, 2013, but any Awards granted theretofore may extend beyond that date.

                                      A-8

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>g88120exv10w3.txt
<DESCRIPTION>EX-10.3 LOAN AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.3

                           LOAN AGREEMENT BY AND AMONG

                         INTELLIGENT SYSTEMS CORPORATION

                                       AND

                                  FIDELITY BANK

                                OCTOBER 1 , 2003

<PAGE>

                                    EXHIBITS

EXHIBIT A         BORROWING BASE CERTIFICATE

EXHIBIT B         EXISTING UCC FILINGS

                                       1

<PAGE>

                                 LOAN AGREEMENT

         THIS AGREEMENT is made and entered into effective the 1st day of
October, 2003, by and among Intelligent Systems Corporation, a Georgia
corporation, with its chief executive offices located at 4355 Shackleford Road,
Norcross, Georgia 30093 ("DEBTOR"); and FIDELITY BANK, chartered under the laws
of the State of Georgia, having a mailing address of 3490 Piedmont Road, Suite
1450, Atlanta, Georgia 30305 (hereafter referred to as "SECURED PARTY").

SECTION 1. DEFINITIONS

         1.1.     In addition to the terms hereinafter defined, the following
terms shall have the meanings set forth in this Section:

         (a)      Accounts. All of Debtor's or Guarantors' (as the case may be)
present or future accounts, accounts receivable, other receivables, contract
rights, issues, profits, rents, chattel paper, instruments and documents,
together with all of the proceeds, cash or non-cash, thereof, however acquired,
or now or hereafter existing.

         (b)      Account Obligor. Any Person who is or may become obligated
under or on account of an Account.

         (c)      Borrowing Base. An amount equal to the sum of: (i) 80% of the
total face value of the Eligible Accounts of ChemFree; (ii) 80% of the total
face value of VISaer's Eligible Accounts; (iii) 80% of the total face value of
the Eligible Accounts of Corecard; (iv) 70% of the total face value of QS Tech's
Eligible Accounts; and (v) 50% of the Eligible Inventory of ChemFree.

         (d)      Borrowing Base Certificate. As defined in Section 3 hereof.

         (e)      Closing Date. The date of execution and delivery of this
Agreement.

         (f)      Collateral. The Collateral as defined in the Security
Agreement.

         (g)      Credit Line. The revolving line of credit described in Section
2 hereof.

         (h)      Eligible Account. An Account arising in the ordinary course of
Debtor's or Guarantors' (as the case may be) business from the sale of goods or
rendition of services which Secured Party, in its sole credit judgment, deems to
be an Eligible Account. Secured Party may, in its sole discretion, determine
that an Account is not an Eligible Account if: (i) it arises out of a sale made
by Debtor or Guarantor to a Subsidiary or an Affiliate of Debtor or Guarantor or
to a Person controlled by a Subsidiary or an Affiliate of Debtor or Guarantor;
or (ii) it is unpaid for more than ninety (90) days after the original invoice
date therefor; or (iii) any covenant, representation or warranty contained in
this Agreement or the applicable Security Agreement with respect to such Account
has been breached in any material respect and such breach is continuing; or (iv)
the Account Obligor is also Debtor's creditor or supplier or the Account Obligor
has disputed liability with respect to such Account, or has made any claim with
respect to any other Account due from such Account Obligor to Debtor, or the
Account otherwise is or may become subject to any right of set-off by the
Account Obligor, in each of the foregoing cases to the extent of any offset,
dispute or claim; or (v) the Account Obligor has commenced a voluntary case
under the federal bankruptcy laws, as now constituted or hereafter amended, or
made an assignment for the benefit of creditors, or a decree or

                                       1
<PAGE>

order for relief has been entered by a court having jurisdiction in the premises
in respect of the Account Obligor in an involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other petition
or other application for relief under the federal bankruptcy laws has been filed
against the Account Obligor, or if the Account Obligor has failed, suspended
business, ceased to be Solvent, or consented to or suffered a receiver, trustee,
liquidator or custodian to be appointed for it or for all or a significant
portion of its assets or affairs; or (vi) it arises from a sale to an Account
Obligor who is located outside the United States, unless the sale is on letter
of credit, guaranty or acceptance terms, in each case acceptable to Secured
Party in its sole discretion; or (vii) it arises from a sale to the Account
Obligor on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or any other repurchase or return basis; or (viii) Secured Party
believes, in its sole judgment, that collection of such Account is insecure or
that payment thereof is doubtful or will be delayed by reason of the Account
Obligor's financial condition; or (ix) the Account Obligor is the United States
of America or any department, agency or instrumentality thereof, unless Debtor
assigns its right to payment of such Account to Secured Party, in form and
substance satisfactory to Secured Party, so as to comply with the Assignment of
Claims Act of 1940, as amended (as codified at 31 U.S.C. Section 3727); or (x)
the Account is subject to a Lien; or (xi) the goods giving rise to such Account
have not been delivered to and accepted by the Account Obligor or the services
giving rise to such Account have not been performed by Debtor and accepted by
the Account Obligor or the Account otherwise does not represent a final sale; or
(xii) the Account is evidenced by chattel paper or an instrument of any kind, or
has been reduced to judgment; or (xiii) Debtor has made any agreement with the
Account Obligor for any deduction therefrom, except for discounts or allowances
which are made in the ordinary course of business for prompt payment and which
discounts or allowances are reflected in the calculation of the face value of
each invoice related to such Account; or (xiv) Debtor has made an agreement with
the Account Obligor to extend the time of payment thereof.

         (i)      Eligible Inventory. Any and all of the assets which from time
to time are in the possession of and form a part of the Inventory of Debtor or
any Guarantor (as the case may be) and which Secured Party, in its sole credit
judgment, deems to be Eligible Inventory. The value of Eligible Inventory shall
be determined by the actual purchase price thereof as determined by the
acquisition contract. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory if it arises out of a sale made by Debtor
to a subsidiary or an affiliate of Debtor or to a person controlled by an
affiliate of Debtor.

         (j)      Event of Default. As defined in Section 14 hereof.

         (k)      Guarantors. CHEMFREE CORPORATION ("ChemFree"), QS
TECHNOLOGIES, INC. ("QS Tech"), VISAER, INC. ("VISaer") and CORECARD SOFTWARE,
INC. ("Corecard") (individually and/or collectively referred to herein as the
"Guarantors."

         (l)      Guarantor Security Agreement. The Security Agreements executed
of even date herewith between Guarantors and Secured Party.

         (m)      Guaranty. The guaranties executed by Guarantors in favor of
Secured Party of even date herewith.

         (n)      Indebtedness. All items which, in accordance with generally
accepted accounting principles, would be included on the liability side of a
balance sheet of Debtor or Guarantor as of the date Indebtedness is to be
determined and, in any event, shall include any liability, whether or not such
liability shall have been assumed, guaranties, endorsements (other than for
collection in the ordinary course of business) and other contingent obligations
in respect of the obligations of others.

         (o)      Interest Period. The period from the 1st day of the month
through the 30th day of the

                                       2
<PAGE>

same month based upon a 360 day year.

         (p)      Inventory. The Inventory as defined in the Security Agreement
or the Guarantor Security Agreements, as the case may be.

         (q)      Line of Credit Note. The commercial promissory note of Debtor
issued pursuant to Section 2 hereof to evidence the Credit Line.

         (r)      Loan Documents. In addition to this Agreement, the Note, the
Guaranty and the Security Agreement, the Guarantor Security Agreements, all
financing statements, pledges, title certificates, documents of title,
documents, instruments, assignments, leases, guarantees or contracts (including
any amendments thereto) now or at any time or times hereafter executed and
delivered by Debtor, Guarantors or any affiliate of Debtor or Guarantor to
Secured Party and relating to the Obligations.

         (s)      Loan. The Credit Line as evidenced by the Commercial
Promissory Note.

         (t)      Note. The Commercial Promissory Note.

         (u)      Obligations. All indebtedness, obligations and liabilities of
any and every kind and nature now and hereafter owing to Secured Party by the
Debtor, however evidenced, created, incurred, acquired or owing, whether
primary, secondary, direct, contingent, fixed, joint or several or otherwise,
and whether arising out of this Agreement, the Note, the Loan Documents or under
any contracts, guarantees or agreements heretofore, now or hereafter executed
and delivered by the Debtor and Guarantors (as the case may be) to the Secured
Party, including without limitation, the Note.

         (v)      Security Agreement. The Security Agreement of even date
herewith between Debtor and Secured Party.

         (w)      Settlement Date. The 1st day of each month during the term of
this Agreement or the last business day immediately preceding such date, if such
date falls on a Saturday, Sunday or legal holiday.

SECTION 2. AGREEMENT TO LEND.

         2.1.     Subject to all the terms and conditions hereinafter contained,
Secured Party grants to Debtor a revolving line of credit in the maximum
principal amount of $1,500,000 or so much thereof as may be advanced or
re-advanced from time to time, which aggregate indebtedness is evidenced by the
Line of Credit Note.

         2.2.     Secured Party's obligation to make the initial advance under
the Loan, and Secured Party's performance of its other obligations hereunder,
are subject to the fulfillment of the following conditions precedent:

                  (a)      All of the Debtor's or Guarantors' (as the case may
be) representations and warranties in this Agreement and the Loan Documents
shall be true and correct on and as of the date of each advance, with the same
effect as if made on and as of such date;

                  (b)      At the time of each advance hereunder, the Debtor or
the Guarantor (as the case may be) shall have observed and performed all of the
terms, conditions and agreements set forth herein or in the other Loan Documents
on their respective parts to be observed and performed, and neither any Event of
Default, as defined herein, nor any event which, with notice or lapse of time or
both, would constitute an

                                       3
<PAGE>

Event of Default, shall have occurred and be continuing either at the time of
such advance or after giving effect thereto;

                  (c)      The financing statements required by the Security
Agreement shall have been filed for record with the appropriate governmental
authorities;

                  (d)      Debtor shall have performed all obligations and taken
all actions to be performed or taken by it hereunder on or prior to the Closing
Date;

                  (e)      On the Closing Date, Debtor shall deliver to Secured
Party certificates, dated as of the Closing Date and signed by its Vice
President or Chief Executive Officer, certifying compliance with the conditions
of clauses (a),(b) and (d) above;

                  (f)      Debtor shall have furnished to Secured Party a
certificate (or other evidence satisfactory to Secured Party) that the insurance
required herein is in full force and effect and that Secured Party is loss payee
under each such insurance policy, as specified herein;

                  (g)      On the Closing Date, Debtor shall deliver to Secured
Party the following:

                           (i) Certificate of Good Standing for Debtor from the
         Secretary of State of Georgia and from the Secretary of State of each
         additional state where Debtor is qualified to do business, such
         certified articles and good standing certificates to be dated as of a
         date as near to the Closing Date as practicable;

                           (ii) A Certificate from Debtor's Secretary dated as
         of the Closing Date, certifying that attached thereto is a true and
         complete copy of Debtor's Articles of Incorporation and By-laws;

                           (iii) A Certificate from Debtor's Secretary dated as
         of the Closing Date, certifying that attached thereto is a complete
         copy of resolutions adopted by Debtor's Board of Directors authorizing
         the execution, delivery and performance of the Loan Documents to which
         it is a party;

                           (iv) A Certificate from Debtor's Secretary dated as
         of the Closing Date, which shall certify the names of Debtor's officers
         authorized to sign the Loan Documents to be executed by Debtor together
         with the true signatures of such officers. Secured Party may rely
         conclusively on such certificate until Secured Party shall receive a
         further certificate of Debtor's Secretary, canceling or amending any
         prior certificate and submitting the signatures of the officers named
         in the future certificate;

                           (v) Such other documents as Secured Party may
         reasonably request in connection with the corporate proceedings taken
         by Debtor authorizing this Agreement, the other Loan Documents, and the
         transactions contemplated hereby and thereby.

                  (h)      Debtor shall have delivered to Secured Party a
fully-executed original of each Loan Document; and

                           (i)      Secured Party shall have received such other
certificates, opinions, agreements and documents, in form and substance
satisfactory to it, as Secured Party may reasonably request.

         2.3.     Secured Party's obligation to make advances under the Credit
Line after the Closing Date shall be subject to the fulfillment of the following
conditions precedent:

                                       4
<PAGE>

                  (a)      All of Debtor's representations and warranties in
this Agreement and the other Loan Documents shall be true on and as of the date
of such subsequent advance, with the same effect as if made on and as of such
date;

                  (b)      No Event of Default, nor any event or condition
which, upon notice or lapse of time, or both, would constitute an Event of
Default, shall have occurred and be continuing or would occur upon the making of
such advance;

                  (c)      Debtor shall have performed all obligations and taken
all actions to be performed or taken by it hereunder on or prior to the date of
such subsequent advance; and

                  (d)      Secured Party shall have received such other
certificates, opinions, agreements and documents, in form and substance
satisfactory to it, as Secured Party may reasonably request.

SECTION 3. ADVANCES.

         3.1.     Provided that all of the conditions precedent set forth in
Section 2 hereof have been satisfied, Secured Party will make advances to Debtor
under the Credit Line upon Debtor's request, the outstanding balance of which in
the aggregate at any one time, shall not exceed the lesser of: (i) $1,500,000 or
(ii) the Borrowing Base as shown on the Borrowing Base Certificate (which shall
be in the form attached hereto as EXHIBIT "A" and incorporated herein by
reference). Debtor may request advances in amounts of $10,000 or more each time
and such advances shall be made by transfer to Debtors' account held with
Secured Party; it is also contemplated that advances and repayments may be made
in accordance with operation of Secured Party's cash management system.

         3.2.     Debtor shall deliver to Secured Party monthly, on or before
the twentieth (20th) day of each month for the preceding calendar month, a
Borrowing Base Certificate and an aging of Accounts as of the prior month end.
Debtor may request advances on the basis of a given Borrowing Base Certificate
until the next month or the delivery of a new Borrowing Base Certificate,
whichever is earlier. If upon delivery of a new Borrowing Base Certificate, the
aggregate principal amount of all advances under the Credit Line then
outstanding exceed the Borrowing Base as shown on the new Borrowing Base
Certificate, then Debtor shall immediately pay to Secured Party, in addition to
any interest, the difference between the outstanding principal balance of all
advances and the current Borrowing Base as shown on the new Borrowing Base
Certificate. Debtor shall not request, and Secured Party shall be under no
obligation to make, any advances under the Credit Line which would cause the
aggregate principal amount outstanding of all advances under the Credit Line to
exceed the Borrowing Base.

         3.3.     Notwithstanding the foregoing, Debtor agrees that the
obligation to repay each advance under the Note and this Agreement and to repay
the Obligations, together with interest thereon, shall not be limited to any
specific fund, but shall be a direct and general liability of Debtor. Debtor
waives the right to direct the application of any payment at any time received
by Secured Party on account of the Obligations; and Debtor agrees that Secured
Party shall have the continuing exclusive right to apply and reapply such
payments in any way that Secured Party deems advisable, notwithstanding any
entry by Secured Party upon its books. Until checks and other instruments
delivered to Secured Party in payment or on account of Debtor's Obligations are
actually collected and credited to Secured Party's account, Debtor agrees that
such items shall not constitute payment.

SECTION 4. INTEREST RATE AND PAYMENTS.

                                       5
<PAGE>

         4.1.     Interest shall be due monthly on the outstanding and unpaid
balance of the sums advanced or re-advanced to Debtor pursuant to the Loan in
accordance with this Agreement and the Note. Overdue principal (and interest to
the extent permitted by law) shall bear interest on demand at the default rate
stated in the Note. Interest shall be the product obtained when multiplying the
rate of interest by the average daily principal balance outstanding, dividing by
360 and then multiplying by the actual number of days interest has accrued.

         4.2.     (a) Debtor hereby agrees that it shall immediately pay to
Secured Party, with respect to the Credit Line:

                           (i)      upon either oral or written demand, the
         amount necessary to reduce the balance of the Credit Line to the
         Borrowing Base;

                           (ii)     On each Settlement Date, interest on the
         average daily balance of the Credit Line for the preceding Interest
         Period.

                  (b) Upon the effective termination of this Agreement as set
forth herein, Debtor shall pay the total amount of the Obligations, including
all accrued and unpaid interest, principal and other charges and any and all
costs of collection, including reasonable attorneys' fees.

         4.3.     Payments under the Note also may be made through any blocked
account or collateral account in accordance with the Security Agreement
delivered herewith. Until checks and other instruments delivered to Secured
Party in payment or on account of the Obligations are actually paid to Secured
Party, Debtor agrees that such items constitute conditional payment only.

         4.4.     Secured Party will account to Debtor monthly with a statement
of the total outstanding balance of the Note and all interest and charges due
and payable. Each such statement shall be deemed final, binding and conclusive
unless Secured Party is notified by Debtor in writing to the contrary. Any such
notice shall only be deemed an objection to those items specifically objected to
therein.

SECTION 5. RIGHT OF SECURED PARTY TO AUDIT DEBTOR.

         5.1.     Debtor hereby authorizes all duly constituted federal, state
and municipal authorities to furnish to Secured Party copies of all tax returns
of Debtor and all reports of examinations or other information of Debtor which
have been made by them.

         5.2      In an Event of Default, Secured Party shall have the right, in
its sole and absolute discretion, to cause an independent audit to be performed
on all books and records of Debtor and Guarantors, and Debtor shall be
responsible for payment of all costs and expenses in connection with any such
audit; provided however, the cost of such audit shall not exceed Five Thousand
Dollars ($5,000).

SECTION 6. WARRANTIES.

         Debtor warrants, represents and covenants that, at the execution hereof
and at all times when any portion of the Obligations are or shall be
outstanding:

         6.1.     Debtor is a corporation duly organized, validly existing and
in good standing under the laws of the State of Georgia and is duly qualified
and licensed to do business and is in good standing in any other state where the
conduct of its business or ownership of its properties requires such
qualification.

                                       6
<PAGE>

         6.2.     Debtor is and shall remain duly authorized to execute, deliver
and perform all of its respective duties and obligations under the Loan
Documents. The execution, delivery and performance of this Agreement and the
Loan Documents by the Debtor do not and will not: (a) constitute a breach of or
default under any provision contained in the Debtor's organizational documents
or contained in any agreement in which Debtor is or may be a party or by which
Debtor's properties are or may be bound or affected; (b) require any consent,
approval, license or authorization of, or declaration to be filed with any,
court or governmental authority or regulatory body, domestic or foreign, except
as has been obtained or filed; (c) contravene any judgment, decree or order, or
any material law, rule or regulation, presently in effect and having an
applicability to Debtor; or (d) result in or require the creation or imposition
of any deed to secure debt, mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature upon or with respect to
any properties now owned or hereafter acquired by Debtor. There is no provision
in Debtor's Articles of Incorporation or By-Laws or in the laws of the state of
Debtor's incorporation requiring any consent of shareholders to authorize the
mortgage or pledge of or the creation of a security interest in any of the
Debtor's assets, such power being vested exclusively in the Debtor's boards of
directors.

         6.3.     This Agreement is, and the Loan Documents when duly executed
and delivered will be, legal, valid and binding obligations of Debtor
enforceable in accordance with their respective terms, except as such
enforcement may be limited by Bankruptcy, insolvency, reorganization, moratorium
and other laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether considered in a proceeding
in equity or in law).

         6.4.     Debtor is and shall be lawfully possessed and the sole owners
of the Collateral, free of any pledge, lien or encumbrance of any kind or
character, legal or equitable, except for the security interest created by this
Agreement. Debtor has authority to encumber the Collateral in the manner and
form herein provided. There are no restrictions on the Collateral or any
contracts or agreements regarding the Collateral which would prevent or restrict
the Debtor from freely assigning the Collateral to Secured Party as security for
the Loan, and the Collateral is freely assignable and Debtor has the exclusive
right and authority to assign the Collateral to Secured Party as set forth
herein.

         6.5.     There are no proceedings pending or, to the knowledge of the
officers of Debtor, threatened or before any court or administrative agency
which may materially and adversely affect the Debtor's financial conditions or
operations, or which seek to question or set aside any of the transactions
herein contemplated.

         6.6.     Debtor has and will continue to duly file all federal, state,
and other governmental tax returns which it is required by law to file; all
taxes and other sums which may be due by Debtor to the United States or any
state or other governmental authority have been fully paid; Debtor will maintain
reserves adequate in amount to fully pay all such tax liabilities as they
accrue, or have accrued such tax liabilities in accordance with generally
accepted accounting principles; and Debtor has paid and will continue to pay its
withholding and social security taxes relating to its employees.

         6.7.     All financial data and other information furnished by Debtor
or Guarantors to Secured Party, including but not limited to, schedules of
Eligible Inventory, Eligible Accounts, Collateral and accounts payable were and
will be taken from the books and records of Debtor and Guarantors which are kept
in accordance with generally accepted accounting principles consistently
applied, and as of the date thereof shall be true, accurate and correct in all
respects. Any balance sheet so furnished will accurately reflect the financial
condition of Debtor and Guarantors as of the date thereof.

                                       7
<PAGE>

         6.8.     Debtor is not a party to any contract or agreement or subject
to any charge, corporate restriction, judgment, decree or order that,
individually or collectively, materially adversely affects or may materially
adversely affect its businesses, properties, assets, operations or condition,
financial or otherwise, and Debtor is not a party to any labor dispute; there
are no strikes or walkouts relating to any labor contracts of Debtor; and no
such contract is scheduled to expire during the Term.

         6.9.     Debtor is not in violation of any applicable statute,
regulation, or ordinance of any governmental entity, or of any agency thereof,
in any respect that, individually or collectively, materially and adversely
affects, or may materially and adversely affect, the Collateral or any of the
Debtor's businesses, property, assets, operations, or condition, financial or
otherwise, including without limitation the Fair Labor Standards Act.

         6.10.    The offices or locations where Debtor or Guarantors (as the
case may be) keep the Collateral and books and records, including without
limitation, computer programs, printouts and other computer materials and
records concerning the Collateral, are as set forth on Schedule B hereto. Such
addresses includes and designates Debtor's chief executive offices, principal
places of business, and other offices and places of business and are Debtor's
sole offices and places of business. Debtor shall not establish any other such
office or location without Secured Party's prior written consent, which consent
shall not be unreasonably withheld; provided, however, that in no event shall
any such office or location be outside the United States of America or any
jurisdiction within the United States of America which has not adopted Article 9
of the Uniform Commercial Code.

         6.11.    Debtor has not, during the preceding five years, been known as
or used (directly or through any predecessor or affiliate) any other corporate
or fictitious name.

         6.12.    Debtor has, and is currently in good standing with respect to,
all governmental approvals, permits, certificates, inspections, patents,
copyrights, trademarks, trade names, consents, and franchises necessary to
continue to conduct business as heretofore conducted by it and to own or lease
and operate the properties now owned or leased by it.

         6.13.    Any guarantee, security, property or right received by Debtor
in connection with the Collateral shall be received by Debtor as agent of, and
on behalf of, Secured Party, will be kept separate from other property of
Debtors capable of identification, and will be delivered and paid immediately by
Debtor to Secured Party as additional security.

         6.14.    Debtor's execution and delivery of this Agreement and the Loan
Documents does not directly or indirectly violate or result in a violation of
Regulations G or X of the Board of Governors of the Federal Reserve System and
Debtor owns no, or do not intend to purchase or carry any, "margin security," as
defined in those Regulations.

         6.15.    The current fiscal year end for Debtor is December 31 and
Debtor will not change its fiscal year ends without providing written notice to
Secured Party.

         6.16.    Each request for an advance made by Debtor pursuant to this
Agreement shall constitute: (a) a warranty and representation by Debtor to
Secured Party that there does not then exist an Event of Default or any event or
condition which, with notice, lapse of time or the making of such advance, would
constitute an Event of Default, and (b) a reaffirmation as of the date of such
request of all the representations and warranties of Debtor in this Agreement.
All representations and warranties of Debtor contained in this Agreement and any
other Loan Document shall survive the execution, delivery

                                       8
<PAGE>

and acceptance thereof by the parties thereto.

SECTION 7. AFFIRMATIVE COVENANTS.

         As long as any of the Obligations remain unpaid or this Agreement is in
effect, Debtor shall:

         7.1.     Keep books of account and prepare financial statements and
cause to be furnished to Secured Party the following (prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
the financial statements heretofore delivered to Secured Party), except to the
extent that Debtor's certified public accountants concur in any changes therein
and such changes are disclosed to Secured Party and are consistent with then
generally accepted accounting principles:

                  (a)      As soon as available, but not later than ninety (90)
days after the close of each fiscal year of Debtor, audited consolidated
financial statements of Debtor (which includes the financial information with
respect to all Guarantors), consisting of a balance sheet, income and expense
statements and statements of cash flow as at the end of such fiscal year and
related statements of income, paid in surplus and retained earnings for such
year, audited by a Certified Public Accountant and satisfactory to Secured
Party, and prepared in accordance with generally accepted accounting principles
and fairly presenting the financial position and results of operations of
Debtors for such fiscal year, and including a copy of Debtor's internal
"Consolidating Statement" prepared from such financial statements;

                  (b)      As soon as available, but not later than forty-five
(45) days after the end of each calendar quarter, a balance sheet, income and
expense statement and statement of cash flow as of the last day of the previous
month and related statements of paid in surplus and retained earnings for that
calendar quarter, certified by an executive officer of Debtor or Guarantor (as
the case may be) and satisfactory to Secured Party, and prepared in accordance
with generally accepted accounting principles and fairly presenting the
financial position and results of operations of Debtor and Guarantors for such
calendar quarter, together with statements regarding any significant change
within the business operation of Debtor and Guarantors;

                  (c)      As soon as available, but not later than twenty (20)
days after the end of each calendar month, a written report setting forth the
Accounts of Debtor and Guarantors which have been aged according to their due
date as of the last day of said month, certified by an executive officer
satisfactory to Secured Party;

                  (d)      Monthly, on or before the twentieth (20th) day of
each month, a Borrowing Base Certificate as required by Section 3 hereof; and

                  (e)      Prior to the commencement of Debtor's and Guarantors'
fiscal year, Debtor and Guarantors shall submit to Secured Party an annual
financial budget indicating a statement of budgeted income and expenses for the
upcoming fiscal year of Debtor and Guarantors which parallels the income and
expense statements required to be delivered by Debtor and Guarantors to Secured
Party under the terms of this Section 7.1;

                  (f)      With reasonable promptness, such other data and
information (financial and otherwise) as Secured Party from time to time, may
reasonably request, bearing upon or related to the Collateral or Debtor's or
Guarantors (as the case may be) financial condition or results of operations.

         7.2.     Concurrently with the delivery of any annual financial
statements described in paragraph 7.1(a) above, if Debtor otherwise secure(s)
the following although not required to by the terms

                                       9
<PAGE>

hereof, a certificate of Debtor's certified public accountants certifying to
Secured Party that, based upon their examination of the affairs of Debtor and
Guarantors performed in connection with preparation of such financial
statements, they are not aware of the existence of any condition or event which
constitutes or would, upon notice or lapse of time or both, constitute an Event
of Default or, if they are aware of such condition or event, the nature thereof;

         7.3.     Permit Secured Party from time to time during business hours,
to examine, inspect, audit and make extracts from their books and records,
including the corporate records, and Debtor and Guarantors hereby authorizes all
duly constituted federal, state and municipal authorities to furnish to Secured
Party copies of reports of examination of them which have been made by such
authorities;

         7.4.     On request of Secured Party, execute and deliver to Secured
Party any and all additional documents which Secured Party may from time to time
determine necessary or convenient to evidence the advances made hereunder or to
evidence and continue the security interest created hereby;

         7.5.     Comply with all applicable statutes and governmental
regulations and pay or otherwise have discharged, before any penalty attaches
thereto for nonpayment thereof, all taxes, assessments, fees and charges of any
kind levied upon or assessed against it, the Collateral or any income therefrom;
provided, however, that Debtor or Guarantors (as the case may be) shall not be
required to pay any such taxes, assessments, fees or charges so long as they
shall in good faith contest the validity thereof and shall further provide for
the payment of such items in a manner reasonably satisfactory to Secured Party;

         7.6.     Promptly upon, but in no event later than seven (7) business
days after Debtor's or any Guarantor's learning thereof, inform Secured Party,
in writing, of: (i) any facts relating to the Collateral which would render
untrue any representation or warranty made herein; and (ii) any litigation
affecting Debtor or Guarantors whether or not the claim is considered to be
covered by insurance, and the institution of any suit or administrative
proceeding which may materially and adversely affect its operations, financial
condition or business or Secured Party's security interest in the Collateral;

         7.7.     Perform in a timely manner the covenants, obligations and
agreements under each lease or agreement to which Debtor is a party and relating
to any of its assets;

         7.8.     Notify Secured Party immediately of any information which
Debtor or Guarantor (as the case may be) has or may have received with regard to
the Collateral which might in any way materially and adversely affect the value
of same or the rights or remedies of Secured Party in respect thereof;

         7.9.     Pay to Secured Party all reasonable attorneys' fees and all
proper expenses which may be expended or incurred by Secured Party in
perfecting, enforcing or attempting to enforce any of its rights under any Loan
Document, or with respect to any matter growing out of the Loan Documents;

         7.10.    Preserve and maintain its corporate existence in good
standing, and preserve and maintain all rights, franchises and privileges in the
jurisdictions of their incorporation which is material to the conduct of their
operations or financial condition, and qualify and remain qualified as a foreign
corporation in good standing in each jurisdiction in which the failure to
qualify or remain qualified would have a material adverse effect upon the
results of operation or financial condition.

SECTION 8. NEGATIVE COVENANTS

         As long as any portion of the Obligations remain unpaid or this
Agreement is in effect, Debtor shall not, without obtaining Secured Party's
prior written consent (which Secured Party may or may not give in

                                       10
<PAGE>

its sole discretion):

         8.1.     Make any material change in its Chief Executive Officer and/or
its Chief Financial Officer;

         8.2.     Create, incur, assume or suffer to exist any mortgage, deed of
trust, pledge, lien, security interest or other charge or encumbrance (including
the lien of an attachment, judgment or execution), securing a charge or
obligation, on or of any of its property, real or personal, tangible or
intangible, whether now owned or hereafter acquired, except for:

                  (a)      liens in favor of Secured Party;

                  (b)      liens set forth on Schedule I hereto; and

                  (c)      purchase money liens for equipment purchases.

         8.3.     Notwithstanding anything herein to the contrary, sell, lease
or have removed from Debtor's premises any Collateral or other material assets,
except in the ordinary course of business;

         8.4.     Make any material change in its capital structure or in the
type of business now conducted;

         8.5.     Except for loans or contributions to Guarantors or to
companies in which Debtor currently owns a minority equity interest, provided
however, such funding shall be subordinate to the rights of Secured Party under
this Loan Agreement, extend credit to or make any advance, loan, contribution or
payment of money or goods (other than normal compensation for personal services
and travel expenses in the ordinary course of business) to, any individual,
partnership, corporation, joint venture, association or organization, or become
liable, directly or indirectly, as a surety, guarantor, accommodation endorser
or otherwise for the payment or performance of any obligation of any
corporation, individual, partnership, joint venture, association or
organization; provided, however, that this Section shall not be deemed to
prohibit:

                  (a)      the endorsement of negotiable instruments received in
the ordinary course of its business; or

                  (b)      the guarantee of obligations in favor of Secured
Party.

         8.6.     Merge or consolidate with any other corporation, including the
merger of a parent and subsidiary corporation, or purchase or sell any stock or
assets of or from any other person, association, partnership or corporation,
other than purchasing or selling assets in the ordinary course of business;

         8.7.     Declare or pay any dividend upon any class of stock, make any
distribution in respect thereto, or purchase, redeem or otherwise acquire any of
its shares of stock (except distributions for subchapter S tax liability of the
Debtor's shareholders which relate to the income of Debtor); or

         8.8.     Enter into, or be a party to, any transaction with any
affiliates or stockholders, except in the ordinary course of and pursuant to the
reasonable requirements of its business and upon fair and reasonable terms which
are fully disclosed to Secured Party and are no less favorable than would be
obtained in a comparable arm's-length transaction with a person not an affiliate
or stockholder; or

         8.9.     Sell, transfer, lease or otherwise dispose of all or any
substantial part of its assets or the Collateral without the prior written
consent of Secured Party.

                                       11
<PAGE>

         8.10     Debtor or Guarantor(s) (as the case may be) shall not change
its state of incorporation.

SECTION 9. COLLECTION RIGHTS.

         9.1.     Upon an Event of Default, Secured Party may at any time notify
the account debtor on any Account of its security interest therein, and may
demand that monies due or to become due be paid directly to Secured Party.
Debtor hereby irrevocably appoints Secured Party, or any person designated by
Secured Party, its true and lawful attorney-in-fact, to endorse for Debtor and
in its name any check, draft or other order for payment of money payable to
Debtor in payment of any account owing to Debtor assigned pursuant to this
Agreement, and to collect all Accounts.

         9.2.     Upon an Event of Default, Secured Party's costs of collection
and enforcement, including attorneys' fees as set forth herein and out-of-pocket
expenses, shall be borne solely by Debtor. Secured Party shall not be liable for
any negligent act or omission on the part of Secured Party, or its officers,
agents or employees.

         9.3.     After exercising its rights under this Section, Secured Party
may, without notice to Debtor, renew, modify or extend any Account, grant
waivers or indulgences with respect thereto, accept partial payments thereon,
surrender or release any debtors or other party liable thereon in such manner as
Secured Party may, in its sole discretion, deem advisable, without affecting or
diminishing Debtor's continuing obligations upon such Accounts.

SECTION 10. PAYMENTS BY SECURED PARTY.

         10.1.    If Debtor fails to pay when due any insurance premium, tax or
other obligation required to be paid under this Agreement or the Security
Agreement, which relates to the preservation of the Collateral, Secured Party in
its sole discretion may (without waiving or releasing any obligation or
liability of Debtor hereunder or any event of Default), but shall not be
obligated to, make such payment or any part thereof on behalf of Debtor and add
any and all amounts so paid to the principal indebtedness under the Loan.

SECTION 11. EXTENSION; TERMINATION; LINE OF CREDIT CHARGE; ASSUMPTION

         11.1.    The agreement of Secured Party to make advances to Debtors
under the Credit Line and of Debtor to borrow money from Secured Party under the
Credit Line shall continue from the date hereof until September 1, 2004, unless
earlier terminated as provided in this Agreement. The Credit Line or any part
thereof may be extended thereafter, upon the agreement of Debtor, at Secured
Party's sole discretion for any term selected by Secured Party. If either
Secured Party or Debtor does not extend the Credit Line or any part thereof
(Debtor to so notify Secured Party in accordance with Section 13 hereof within
five business days after being advised of renewal by Secured Party), then Debtor
shall, on or before the expiration date of the term, pay to Secured Party in
full the outstanding principal balance under the Credit Line, together with all
accrued but unpaid interest thereon and other charges.

         11.2.    Debtor may terminate the Credit Line at any time during the
term of the Credit Line in accordance with Section 12 hereof and upon payment in
full of the outstanding principal balance, accrued interest and other charges
due under the Line of Credit Note. Termination of the Credit Line shall void
Secured Party's commitment for future advances hereunder.

         11.3.    Except as otherwise expressly provided for in this Agreement
and in the other Loan Documents, no termination by Debtor or Secured Party of
the Credit Line or failure by Secured Party to

                                       12
<PAGE>

renew the Credit Line, shall in any way affect the continuing obligations of
Debtor under the remaining Note, or affect or impair the powers, obligations,
duties and rights of Debtor or Secured Party relating to: (i) any transaction or
event occurring prior to such termination; (ii) the Collateral; or (iii) so long
as any of the Obligations are outstanding, any of the undertakings, agreements,
covenants, warranties and representations of Debtor and Guarantor contained in
this Agreement or any other Loan Document. All such undertakings, agreements,
covenants, warranties and representations shall survive such termination until
fully performed or remedied.

SECTION 12. NOTICE.

         12.1.    All notices to be given hereunder shall be in writing and
shall be effective three business days after being mailed by certified mail,
return receipt requested, to the following addresses or such other addresses as
the parties may from time to time designate in writing (and if not so mailed,
shall be effective upon receipt at such address):

         If to the Debtor:

         Intelligent Systems Corporation
         Attention: Chief Financial Officer
         4355 Shackleford Road
         Norcross, Georgia 30093

         If to Secured Party:

         Fidelity Bank
         3490 Piedmont Road
         Suite 1450
         Atlanta, Georgia  30348
         Attn: Vice President, Commercial Lending

SECTION 13. EVENTS OF DEFAULT; ACCELERATION.

         13.1.    The occurrence of any one or more of the following conditions
or events shall constitute an "Event of Default":

                  (a)      Debtor fails to pay any principal, interest, or
premium on either of the Note or any other obligation to Secured Party under
this Agreement or any Loan Document when due and payable or declared due and
payable;

                  (b)      Debtor or Guarantor fails to perform, keep, or
observe any term, provision, condition, or covenant contained in this Agreement
or any Loan Document which is required to be performed, kept, or observed by
them, and such default shall not be cured within thirty (30) days of written
notice from Secured Party to Debtor;

                  (c)      There is an event of default pursuant to either of
the Note, the Guaranty, any Security Agreement, Guarantor Security Agreements,
or any other Loan Document, after the applicable grace period, if any;

                                       13
<PAGE>

                  (d)      Any representation or warranty of Debtor in this
Agreement or in any other Loan Document proves to have been untrue or misleading
in any material respect when made;

                  (e)      A default shall occur under any agreement, guarantee,
document or instrument, other than the Loan Documents, to which Debtor or
Guarantor is a party or by which the Debtor is bound creating or relating to any
indebtedness of Debtor, the consequences of which could have a materially
adverse effect on Debtor's business or financial condition, the Collateral or
Secured Party's interest therein;

                  (f)      Any statement, report, financial statement or
certification made or delivered by Debtor or any officer, director, shareholder,
employee, or agent of Debtor to Secured Party is not true and correct in any
material respect;

                  (g)      There shall occur any material uninsured damage to or
loss, theft, or destruction of, any of the Collateral;

                  (h)      The Collateral or any other of Debtor's assets are
attached, seized, levied upon, or subjected to a writ or distress warrant, or
come within the possession of any receiver, trustee, custodian, or assignee for
the benefit of creditors; and the same is not cured within thirty (30) days
thereafter; or an application is made by any person other than Debtor for the
appointment of a receiver, trustee, or custodian for any of their respective
assets and the same is not dismissed within sixty (60) days after the
application therefor;

                  (i)      Debtor or Guarantor applies for the appointment of a
receiver, trustee, or custodian for any of their respective assets; Debtor or
Guarantor file a petition under any section or chapter of the Bankruptcy Code or
any similar law or regulation; Debtor or Guarantor make an assignment for the
benefit of their creditors; or Debtor file any case or proceeding for its
dissolution, liquidation or termination;

                  (j)      Debtor ceases to conduct its business as now
conducted, or is enjoined, restrained, or in any way prevented by court order
from conducting all or any material part of its business affairs, or a petition
under any section or chapter of the Bankruptcy Code, or under any similar law or
regulation, is filed against Debtor or any case or proceeding is filed against
Debtor for its dissolution or liquidation and such injunction, restraint, or
petition is not dismissed within sixty (60) days after the entry or filing
thereof;

                  (k)      A notice of lien, levy, or assessment is filed of
record with respect to all or any of Debtor's assets by the United States, or
any department, agency, or instrumentality thereof, including without
limitation, the Pension Benefit Guaranty Corporation (in the case of Debtor), or
any taxes or debts owing at the time or times hereafter to any one of the
foregoing becomes a lien or encumbrance upon the assets of Debtor and the same
is not released within sixty (60) days after the same becomes a lien or
encumbrance;

                  (l)      Guarantor files a petition under any section or
chapter of the Bankruptcy Code or under any similar law or regulation, or the
same is filed against Guarantor and is not dismissed within sixty (60) days
after the filing thereof;

                  (m)      There is an event of default under the terms of any
other loan from Secured Party to Debtor, or an event of default or other breach
under the terms of any other agreement, other than a Loan Document, between
Secured Party and Debtor; or

                  (n)      Debtor or the Guarantor shall have filed against it a
lawsuit, proceeding, or administrative action which Secured Party deems, in its
sole discretion, to materially and adversely affect

                                       14
<PAGE>

the condition, financial or otherwise, of Debtors or the Guarantor.

         13.2.    Upon the occurrence of an Event of Default, at Secured Party's
option, the Credit Line shall be terminated and all Debtor's Obligations to
Secured Party may, without demand, notice, or legal process of any kind, be
declared, and immediately shall become, due and payable, and Secured Party shall
be entitled to exercise all of its remedies contained in the Note, the Security
Agreement or any of the Loan Documents.

         13.3     Upon the occurrence of an Event of Default, Secured Party will
provide ten (10) days written notice to any Guarantor of said Event of Default
before Secured Party shall pursue collection against the Guarantor(s) (or any of
them) or under the Guarantor Security Agreement(s) for payment of any of the
Indebtedness, whether or not the Secured Party shall have pursued collection
against any property securing any of the Indebtedness or any obligation, or
shall have proceeded against any other of the Guarantor(s) or any other party
primarily or secondarily liable on any of the Indebtedness.

SECTION 14. WAIVER OF BREACH.

         14.1.    No delay or failure on the part of Secured Party to exercise
any right or remedy accruing to Secured Party hereunder or under any Loan
Document, upon any default or breach by Debtor, of any covenant, condition or
provision hereof, shall be held to be a waiver thereof. No delay on the part of
Secured Party in exercising any of its rights or remedies shall preclude Secured
Party from the exercise thereof at any time during the continuance of any
default or breach. No waiver of a single default or breach shall be deemed a
waiver of any subsequent default or breach. All waivers under this Agreement
must be in writing. Secured Party may enforce any one or more remedies hereunder
successively or concurrently, at its option.

SECTION 15. APPLICABLE LAW; JURISDICTION.

         15.1.    This Agreement has been delivered at and shall be deemed to
have been made at Atlanta, Georgia, and shall be interpreted, and the rights and
liabilities of the parties hereto determined, in accordance with the laws of
Georgia, applicable to agreements executed, delivered, and performed entirely
within Georgia. As part of the consideration for new value received, and
regardless of any present or future domicile of Debtor or Secured Party, Debtor
hereby consents to the jurisdiction of the state courts of Georgia, and waive
personal service of any and all process upon debtor and consents that all such
service of process be made by registered mail directed to Debtor at the address
described in Section 13 and service so made shall be deemed to be completed upon
actual receipt thereof. Debtor waives trial by jury and waives any objection to
venue of any action instituted hereunder and consents to the granting of such
legal or equitable relief as is deemed appropriate by the appropriate court.

         15.2.    Nothing contained herein shall prevent Secured Party from
bringing any action or exercising any rights against any security and against
Debtors and against any property of Debtor within any other state. Initiating
such proceeding or taking such action in any other state shall in no event
constitute a waiver of the agreement contained herein that the laws of the State
of Georgia shall govern the rights and obligations of Debtor and Secured Party
hereunder or of the submission herein made by Debtor to personal jurisdiction
within the State of Georgia.

SECTION 16. EXPENSES.

         16.1.    Debtor shall reimburse Secured Party on demand for all its
expenses (including, but not limited to, reasonable attorneys' fees), of or
incidental to:

                                       15
<PAGE>

                  (a)      The structuring and preparation of this Agreement and
the transactions it contemplates, all other Loan Documents and the transactions
contemplated thereby, or any amendment to or modification of this Agreement or
any other Loan Documents or any sale or attempted sale of any interest herein to
a participant, including any taxes on any of the foregoing;

                  (b)      Any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Secured Party, Debtor or any other person) in any
way relating to the Collateral, this Agreement, any other Loan Document, or
Debtor's affairs;

                  (c)      Any attempt to enforce any right of Secured Party or
any participant against Debtor or any other person which may be obligated to
Secured Party by virtue of this Agreement or the other Loan Documents;

                  (d)      All costs or expenses required to be paid by Debtor
under this Agreement which are paid or advanced by Secured Party;

                  (e)      Taxes and insurance premiums of every nature and kind
of Debtor paid by Secured Party;

                  (f)      Filing, recording, publication and search fees paid
or incurred by Secured Party in connection with Secured Party's transactions
with Debtor;

                  (g)      Upon an Event of Default hereunder, costs and
expenses incurred by Secured Party in collecting the Accounts and any other
Collateral (with or without suit), in correcting any default or enforcing any
provision of this Agreement, or in gaining possession of, maintaining, handling,
preserving, storing, shipping, appraising, selling, preparing for sale and
advertising to sell the Collateral, whether or not a sale is consummated;

                  (h)      Any other attempt to inspect, verify, protect,
collect, sell, liquidate or otherwise dispose of the Collateral;

                  (i)      The deposit, collection or processing of any check or
other item of payment received by or for Secured Party on account of the
Obligations.

         16.2.    Such expenses shall be additional Obligations hereunder
secured by the Collateral. Without limiting the generality of the foregoing,
such expenses, costs, charges and fees may include those of an outside
liquidator, paralegals, accountants, duplicating, court reporters, long distance
telephone, air express, telegrams, secretarial over-time, and travel, lodging
and food paid or incurred in connection with the performance of legal services
or with the administration or enforcement of this Agreement or any other Loan
Document.

SECTION 17. SEVERABILITY.

         17.1.    Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law.
If, however, any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
Agreement, unless the ineffectiveness of such provision materially adversely
alters the benefits accruing to either party hereunder in which case Secured
Party may, at its option and sole discretion, treat such severance as though it
were a stated Event of Default under Section 13 and proceed in accordance with
the

                                       16
<PAGE>

rights and remedies set forth herein upon and after an Event of Default.

SECTION 18. GENERAL.

         18.1.    This Agreement, the Note, the Security Agreement and the Loan
Documents comprise the entire agreement relating to this financing and supersede
any and all prior written or oral agreements relating thereto between Secured
Party and the parties hereto. No amendment hereto shall be valid unless
contained in a writing duly executed by Secured Party, Debtor and any subsequent
assignee hereof. This Agreement shall benefit and bind the successors and
assigns of the parties, but Debtor may not assign or otherwise transfer this
Agreement. Secured Party may freely sell, assign, or participate out this
Agreement, the Note, and all other instruments and documents executed and
delivered to Secured Party pursuant to this Agreement in whole or in part at any
time. The section titles herein are for convenience only and do not define,
limit or construe the contents of such sections. The pronouns used herein shall
include, when appropriate, either gender or neuter and both singular and plural.
If this Agreement is signed by more than one Debtor, this Agreement is the joint
and several obligation of each Debtor.

         IN WITNESS WHEREOF, the parties hereto have set their hands and seals
the day and year first above written.

                                   DEBTOR:

                                   Intelligent Systems Corporation, a Georgia
                                   corporation

Attest:________________________    By:__________________________________________
                                          Its:__________________________________

                                                       [CORPORATE SEAL]

                                   SECURED PARTY:

                                   FIDELITY BANK

                                   By:__________________________________________
                                          Its:__________________________________

                                                        (BANK SEAL)

                                       17

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>5
<FILENAME>g88120exv10w4.txt
<DESCRIPTION>EX-10.4 SECURITY AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.4

                               SECURITY AGREEMENT
                                   (Borrower)

         THIS SECURITY AGREEMENT (this "AGREEMENT" or "SECURITY AGREEMENT") is
made effective the 1st day of October, 2003, by INTELLIGENT SYSTEMS CORPORATION,
a Georgia corporation, (the "PLEDGOR"), in favor of FIDELITY BANK, chartered
under the laws of the state of Georgia (the "LENDER").

                                   WITNESSETH:

         WHEREAS, the Lender has agreed to make a line of credit loan of up to
$1,500,000 (herein "LOAN") to the Pledgor pursuant to the terms and conditions
of a Loan Agreement of even date herewith (the "LOAN AGREEMENT") between the
Lender and the Pledgor; and

         WHEREAS, the Loan is evidenced by that certain Commercial Promissory
Note of even date herewith from the Pledgor and payable to the order of the
Lender in the face amount of $1,500,000 (the "NOTE"); and

         WHEREAS, the proceeds of the Loan are to be used by the Pledgor for
business purposes;

         WHEREAS, the Lender has required, as a condition to extending such
financial accommodations, the execution and delivery of this Agreement by the
Pledgor;

         NOW, THEREFORE, in order to secure the prompt payment of all past,
present, and future indebtedness, liabilities, and obligations of the Pledgor to
the Lender of any nature whatsoever in connection with the Loan, together with
all obligations of the Pledgor to the Lender hereunder and under any note, any
loan agreement, all contracts of suretyship, guaranty, or accommodation, and all
other obligations of the Pledgor to the Lender, however and wherever created,
arising, or evidenced, whether direct or indirect, absolute, contingent, or
otherwise, now or hereafter existing or due or to become due (collectively, the
"PLEDGOR'S LIABILITIES"), and the performance by the Pledgor of all the terms,
conditions, and provisions of this Agreement, the Loan Agreement and of any
other loan document previously, simultaneously, or hereafter executed and
delivered by the Pledgor and/or any other person, singly or jointly with another
person or persons, evidencing, securing, guarantying, or in connection with any
of the Pledgor's Liabilities (the "LOAN DOCUMENTS"), the Pledgor agrees with the
Lender as follows:

         1.       Collateral. To secure the payment and performance of the
Pledgor's Liabilities and the Pledgor's performance of its obligations under the
Loan Documents, the Pledgor hereby grants to the Lender a security interest in,
and security title to, the following property of the Pledgor:

<PAGE>

                  A.       Inventory. All of the Pledgor's inventory of every
description which is held by the Pledgor for sale of lease or is furnished by
the Pledgor under any contract of service or is held by the Pledgor as raw
materials, work in process, or materials used or consumed in a business, whether
now owned or hereafter acquired, wherever located, and a the same may now and
hereafter from time to time be constituted, together with all cash and non-cash
proceeds and products thereof (the "INVENTORY").

                  B.       Accounts. All of the Pledgor's accounts (including,
without limitation, all notes, notes receivable, drafts, acceptances, and
similar instruments and documents) whether now owned or hereafter acquired,
together with: (i) all cash and non-cash proceeds thereof, and (ii) all
returned, rejected, or repossessed goods, the sale or lease of which shall have
given or shall give rise to an account, and all cash and non-cash proceeds and
products of all such goods (the "ACCOUNTS").

                  C.       General Intangibles. All of the Pledgor's general
intangibles (including, without limitation, any proceeds from insurance policies
after payment of prior interests), patents, unpatented inventions, trade
secrets, copyrights, contract rights, goodwill, literary rights, rights to
performance, rights under licenses, choices-in-action, claims, information
contained in computer media (such as data bases, source and object codes, and
information therein) things in action, trademarks and trademarks applied for
(together with the goodwill associated therewith) and derivatives thereof, trade
names, including the right to make, use, and vend goods utilizing any of the
foregoing, and permits, licenses, certifications, authorizations and approvals,
and the rights of the Debtor thereunder, issued by any governmental, regulatory,
or private authority, agency, or entity whether now owned or hereafter acquired,
together with all cash and non-cash products thereof.

                  D.       Chattel Paper. All of the Pledgor's chattel paper,
whether now owned or hereafter existing, acquired, or created, together with:
(i) all moneys due and to become due thereafter, (ii) all cash and non-cash
proceeds thereof, and (iii) all returned, rejected, or repossessed goods, the
sale or lease of which shall have given or shall give rise to chattel paper, and
all cash and non-cash proceeds and products of all such goods. Additionally, the
Pledgor assigns and grants to the Lender a security interest in all property and
goods both now owned and hereafter acquired by the Pledgor which are sold,
leased, secured, are the subject of, or otherwise covered by, the Pledgor's
chattel paper, together with all rights incident to such property and goods and
all cash and non-cash proceeds thereof (the "CHATTEL PAPER").

                  E.       All Equipment and Fixtures. All of the Pledgor's
equipment, furniture and fixtures, whether now owned or hereafter acquired,
together with: (i) all additions, parts, fittings, accessories, special tools,
attachments, and accessions now and hereafter affixed thereto and/or used in
connection therewith, (ii) all replacements thereof and substitutions therefor,
and (iii) all cash and non-cash proceeds and products thereof (the "EQUIPMENT").

                  F.       Leasehold Improvements. All present and future
improvements made by Pledgor to any real estate leased or owned by Pledgor.

                                       2
<PAGE>

         The term "Collateral" as used herein means each and all of the items of
Collateral described above, and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.

         2.       Title to Collateral. The Pledgor warrants and represents that
(i) it is the lawful owner of the Collateral, and has the full right, power, and
authority to convey, transfer, and grant the security title and security
interest in the Collateral granted herein to the Lender; (ii) all licenses
relating to the Collateral are fully paid, and, upon the occurrence of an Event
of Default and foreclosure by the Lender, the Lender shall have all rights of
the Pledgor to any Collateral licensed to the Pledgor or licensed by the
Pledgor; (iii) the Collateral is not, and so long as this Agreement is in effect
will not be, subject to any liens, claims, security interests, encumbrances,
taxes, or assessments, however described or denominated; (iv) no financing
statement, mortgage, notice of lien, deed of trust, deed to secure debt,
security agreement, or any other agreement or instrument creating an
encumbrance, lien, charge against any of the Collateral is in existence or on
file in any public office, other than financing statements (or other appropriate
security documentation) filed on behalf of the Lender; and (v) all information
with respect to the Collateral and the Pledgor's Liabilities, of any of them,
set forth in any written schedule, certificate, or other document at any time
heretofore or hereafter furnished by the Pledgor to the Lender, and all other
written information heretofore or hereafter furnished by the Pledgor to the
Lender, is and will be true and correct in all material respects as of the date
furnished.

         3.       Further Assurances. The Pledgor will defend its title to the
Collateral against all persons and will, upon request of the Lender: (i) furnish
such further assurances of title as may be required by the Lender; (ii) deliver
and execute or cause to be delivered and executed, in form and content
satisfactory to the Lender, any financing statements, notices, certificates of
title, and other documents and pay the cost of filing or recording the same in
all public offices deemed necessary by the Lender, as well as any recordation,
documentary, or transfer tax required by law to be paid in connection with such
filing or recording; and (iii) do such other acts as the Lender may request in
order to perfect, preserve, maintain, or continue the perfection of the Lender's
security interest in the Collateral and/or its priority.

         4.       Accounts, etc. Until such time as the Lender shall notify the
Pledgor in writing of the revocation of such power and authority, the Pledgor,
as agent for the Lender, will, at its own expense, diligently collect, as and
when due, all amounts owing under the Accounts, including the taking of such
action with respect to such collection as the Lender may requests from time to
time, and to hold in trust and segregate for the Lender all funds received from
the Accounts; provided, however, that until an Event of Default shall occur or
would occur but for the passage of time, or giving of notice, or both, the
Pledgor may use or consume in the ordinary course of its business any such
collections on the Accounts in any lawful manner not inconsistent with this
Agreement and the other Loan Documents. Upon an Event of Default hereunder which
has not been cured within any applicable cure period and during the continuance
of such uncured default, the Lender, however, may revoke such power and
authority and notify any parties obligated on any of the Accounts to make
payment to the Lender of any amounts due or to become due thereunder, and
enforce collection of performance under any of the Accounts by suit or
otherwise, and surrender, release, or exchange all or any part thereof, or
compromise or extend or renew for any period

                                       3
<PAGE>

(whether or not longer than the original period) any indebtedness thereunder or
evidenced thereby. After an Event of Default or upon request of the Lender, the
Pledgor will, at its own expense, notify any parties obligated on any of the
Accounts to make payments to the Lender and will hold in trust and immediately
forward to the Lender all payments received by the Pledgor in the form received,
with all necessary endorsements thereon for collection by the Lender.

         5.       Transfer and Other Liens. The Pledgor will not sell, lease,
transfer, exchange, or otherwise dispose of the Collateral, or any part hereof,
without the prior written consent of the Lender and will not permit any lien,
security interest, or other encumbrance to attach to the Collateral, or any part
thereof, other than those in favor of the Lender or those permitted by the
Lender in writing, except that the Pledgor may, in the ordinary course of its
business and in the absence of an Event of Default hereunder or notice by the
Lender to the Pledgor under Section 6 hereof, collect its Accounts and Chattel
Paper and sell its Inventory.

         6.       Financial Statements, Books, and Records. The Pledgor will:
(i) at all times maintain, in accordance with generally accepted accounting
principles consistently applied, accurate and complete books and records
pertaining to the operation, business affairs, and financial condition of the
Pledgor and pertaining to the Collateral and any contracts and collections
relating to the Collateral; (ii) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content and at the
intervals specified by the Lender, such financial statements, reports,
schedules, and other information with respect to the operation, business
affairs, and financial condition of the Pledgor as required pursuant to the Loan
Agreement; (iii) at all reasonable times, and without hindrance or delay, permit
the Lender or any person designated by the Lender to enter any place of business
of the Pledgor or any other premises where any books, records, and other data
concerning the Pledgor and/or the Collateral may be kept and to examine, audit,
inspect, and make extracts from and photocopies of any such books, records, and
other data; (iv) furnish to the Lender promptly upon request, certified by an
officer of the Pledgor and in the form and content specified by the Lender,
lists of purchasers of inventory, aging of accounts, aggregate cost or wholesale
market value of inventory, schedules of equipment, and other data concerning the
Collateral as the Lender may from time to time specify; and (v) mark its books
and records in a manner satisfactory to the Lender so that the Lender's rights
in and to the Collateral will be shown.

         7.       Name of Pledgors, Places of Business, and Location of
Collateral. The Pledgor represents and warrants that its correct legal name is
as specified on the signature lines of this Agreement, and each legal or trade
name of the Pledgor for the previous five (5) years (if different from the
Pledgor's current legal name) is as specified below the signature lines of this
Agreement. Without the prior written consent of the Lender, the Pledgor will not
change its name, dissolve, merge, or consolidate with any other person. The
Pledgor warrants that the address of the Pledgor's chief executive office and
the address of each other place of business of the Pledgor are as specified
below the signature lines of this Agreement. Except for mobile equipment and
motor vehicles, the Collateral and all books and records pertaining to the
Collateral have been, are, and will be located at the Pledgor's chief executive
office specified below or at any other place of business which may be specified
below. The Pledgor will immediately advise the Lender in writing of the opening
of

                                       4
<PAGE>

any new place of business and of any change in the location of the places where
the Collateral or any part thereof, or the books and records concerning the
Collateral or any part thereof, are kept.

         8.       Care of Collateral. The Pledgor will maintain the Collateral
in first-class condition excepting any loss, damage, or destruction which is
fully covered by proceeds of insurance and will not do or permit anything to be
done to the collateral that may impair its value or that may violate the terms
of any insurance covering the Collateral or any part thereof, normal wear and
tear excepted. The Lender shall have no duty to, and the Pledgor hereby releases
the Lender from all claims for loss or damage caused by the failure to, collect
or enforce any Account of Chattel Paper or to preserve rights against prior
parties to the Collateral. The Pledgor will use the Collateral for lawful
purposes only, with all reasonable care and caution and in conformity with all
applicable laws, ordinances, and regulations.

         9.       Insurance. The Pledgor will insure such of the Collateral as
specified by the Lender against such casualties and risks in such form and
amount and with such companies as may from time to time be required by the
Lender. All insurance proceeds shall be payable to the Lender, and such policies
or certificates thereon or duplicates thereof shall immediately be deposited
with the Lender. The Pledgor will pay all premiums due or to become due for such
insurance and hereby assigns to the Lender any returned or unearned premiums
which may be due upon cancellation of insurance coverage. The Lender is hereby
irrevocably: (i) appointed the Pledgor's attorney-in-fact (which appointment is
coupled with an interest and is irrevocable) to endorse any draft or check which
may be payable to the Pledgor in order to collect such returned or unearned
premiums or the proceeds of insurance and (ii) authorized to apply such
insurance premiums for payment of the Pledgor's Liabilities, when due, in such
order of application as the Lender may determine.

         10.      Taxes. The Pledgor will pay as and when due and payable all
taxes, levies, license fees, assessments, and other impositions levied on the
Collateral or any part thereof or for its use and operation.

         11.      Equipment Not Fixtures. The Pledgor warrants that all
Equipment which constitutes a part of the Collateral is personalty and is not
and will not be affixed to real estate in such manner as to become a fixture or
part of such real estate, except with respect to such items of Equipment which
may become fixtures in the normal course of Pledgor's business in constructing
leasehold improvements. The Pledgor will use its best efforts to furnish to the
Lender a written waiver by the record owner of such real estate of all interest
in such equipment and a written subordination to the Lender's security interest
and lien by any person who has a lien on or security interest in such real
estate which is or may be superior to the Lender's security interest hereunder.

         12.      Specific Assignments. Promptly upon request by the Lender, the
Pledgors will execute and deliver to the Lender written assignments,
endorsements, and/or schedules, in form and content satisfactory to the Lender,
of specific Chattel Paper and Accounts or groups of Accounts or Chattel Paper,
but the security interest of the Lender hereunder shall not be limited in any
way by such assignments.

                                       5
<PAGE>

         13.      Delivery of Chattel Paper. The Pledgors will promptly upon
request by the Lender deliver, assign, and endorse to the Lender all Chattel
Paper and all other documents held by the Pledgors in connection herewith.

         14.      Government Contracts. If any Account or Chattel Paper arises
out of a contract or contracts with the United States of America or any
department, agency, or instrumentality thereof, the Pledgor shall immediately
notify the Lender thereof in writing and execute any instruments or take any
steps required by the Lender in order that all moneys due or to become due under
such contract or contracts shall be assigned to the Lender and notice thereof
given under the Federal Assignment of Claims Act or other applicable law.

         15.      Collateral Account. If all or any part of the collateral at
any time consists of Inventory, Accounts, or Chattel Paper, the Pledgor will,
upon the request of the Lender at any time after the occurrence of an Event of
Default hereunder, deposit or cause to be deposited to a bank account designated
by the Lender and from which the Lender alone has power of access and withdrawal
(the "COLLATERAL ACCOUNt") all checks, drafts, cash, and other remittances in
payment or on account of payment of such Inventory, Accounts, or Chattel Paper
and the cash proceeds of any returned goods, the sale or lease of which gave
rise to an Account or Chattel Paper (all of the foregoing herein collectively
referred to as "ITEMS OF PAYMENT"). The Pledgor shall deposit the Items of
Payment for credit to the Collateral Account within two (2) business days of the
receipt thereof, and in precisely the form received, except for the endorsement
of the Pledgor where necessary to permit the collection of the Items of Payment,
which endorsement the Pledgor hereby agrees to make. Pending such deposit, the
Pledgor will not commingle any of the Items of Payment with any of its other
funds or property but will hold them separate and apart. The Lender may at any
from time to time apply the whole or any part of the collected funds credited to
the Collateral Account against the Pledgor's Liabilities or credit such
collected funds to a banking account of the Pledgor with the Lender, the order
and method of such application to be in the discretion of the Lender.

         16.      Rights of Lender and Duties of Pledgors. If all or any part of
the Collateral at any time consists of Inventory, Accounts, or Chattel Paper,
the Lender may at any time and from time to time after the occurrence of an
Event of Default hereunder (a) notify the account debtors obligated on any of
the Collateral to make payments thereon directly to the Lender, and to take
control of the cash and non-cash proceeds of any such Collateral; (b) charge to
any banking account of the Pledgors with the Lender any Item of Payment credited
to the Collateral Account which is dishonored by the drawee or maker thereof;
(c) compromise, extend, or renew any of the Collateral or deal with the same as
it may deem advisable; (d) release, make exchanges or substitutions for, or
surrender all or any part of the Collateral; (e) remove from the Pledgors'
places of business all books, records, ledger sheets, correspondence, invoices,
and documents relating to or evidencing any of the Collateral or, without cost
or expense to the Lender, make such use of the Pledgor's place(s) of business as
may be reasonably necessary to administer, control, and collect the Collateral;
(f) repair, alter, or supply goods, if any, necessary to fulfill in whole or in
part the purchase order of any account debtor; (g) demand, collect, receipt for,
and give renewals, extensions, discharges, and releases of any of the
Collateral; (h) institute and prosecute legal and equitable proceedings to
enforce collection of, or realize upon, any of the Collateral; (i) settle,

                                       6
<PAGE>

renew, extend, compromise, compound, exchange, or adjust claims with respect to
any of the Collateral or any legal proceedings brought with respect thereto; (j)
endorse the name of the Pledgor upon any Items of Payment relating to the
collateral or upon any proof of claim in bankruptcy against an account debtor;
and (k) receive and open all mail addressed to the Pledgor and, if an Event of
Default exists hereunder, notify postal authorities to change the address for
the delivery of mail to the Pledgor to such address as the Lender may designate;
and for purposes of taking the actions described in Subsections (a) through (k)
the Pledgor hereby irrevocably appoints the Lender as its attorney-in-fact
(which appointment being coupled with an interest is irrevocable while any of
Pledgor's Liabilities remain unpaid), with power of substitution, in the name of
the Lender or in the name of the Pledgor or otherwise, for the use and benefit
of the Lender, but at the cost and expense of the Pledgor and without notice to
the Pledgor. The Pledgor will: (i) make no material change to the terms of any
sale or lease of Inventory or of any Account or Chattel Paper without the prior
written permission of the Lender; (ii) on demand, make available in form
acceptable to the Lender shipping documents and delivery receipts evidencing the
shipment of goods which gave rise to the sale or lease of Inventory or of an
Account of Chattel Paper, completion certificate, or other proof of the
satisfactory performance of services which gave rise to the sale or lease of
Inventory or of an Account or Chattel Paper, copies of the invoices arising out
of the sale or lease of Inventory or for an Account, and the Pledgor's copy of
any written contract or order from which the sale or lease of Inventory, an
Account, or Chattel Paper arose; and (iii) when requested, advise the Lender
whenever an account debtor returns or refuses to retain any goods, the sale or
lease of which gave rise to an Account or Chattel Paper, and will comply with
any instructions which the Lender may give regarding the sale or other
disposition of such returns.

         17.      Performance by Lender. After an Event of Default hereunder
which has not been cured within any applicable cure period and during the
continuance of such uncured default, if the Pledgor fails to perform, observe,
or comply with any of the conditions, terms, or covenants contained in this
Agreement, the Lender, without notice to or demand upon the Pledgor and without
waiving or releasing any of the Pledgor's Liabilities or any Event of Default,
may (but shall be under no obligation to) at any time thereafter perform such
conditions, terms, or covenants for the account and at the expense of the
Pledgor, and may enter upon any place of business or other premises of the
Pledgor for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose. All sums paid or advanced by
the Lender in connection with the foregoing and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
incurred in connection therewith (collectively, the "EXPENSE PAYMENTS") together
with interest thereon at a simple per annum rate of interest which is equal to
the then highest rate of interest charged on the principal of any of the
Pledgor's Liabilities, plus one percent (1%) per annum (but in no event higher
than the maximum interest rate permitted by applicable law), from the date of
payment until repaid in full, shall be paid by the Pledgor to the Lender on
demand and shall constitute and become a part of the Pledgor's Liabilities
secured hereby.

         18.      Default. The occurrence of any one or more of the following
events shall constitute an event of default (an "EVENT OF DEFAULT") under this
Agreement: (i) failure of the Pledgor to pay any of the Pledgor's Liabilities as
and when due and payable; (ii) failure of the Pledgor to perform, observe, or
comply with any of the provisions of this Agreement or of any of the other Loan

                                       7
<PAGE>

Documents; (iii) the occurrence of an Event of Default (as defined therein)
under any of the other Loan Documents; (iv) any information contained in any
financial statement, application, schedule, report, or any other document given
by the Pledgor or by any other person in connection with the Pledgor's
Liabilities, with the Collateral, or with any of the Loan Documents is not in
all material respects true and accurate or the Pledgor or such other person
omitted to state any material fact or any fact necessary to make such
information not misleading; (v) the Pledgor is generally not paying debts as
such debts become due; (vi) the filing of any petition for relief under any
provision of the Federal Bankruptcy Code or any similar state law is brought by
or against the Pledgor; (vii) an application for the appointment of a receiver
for, the making of a general assignment for the benefit of creditors by or the
insolvency of, the Pledgor and not dismissed within forty-five (45) days; (viii)
the dissolution, merger, consolidation, or reorganization of the Pledgor; (i)
suspension of the operation of the Pledgor's present business; (j) transfer of a
substantial part (determined by market value) of the Pledgor's property; (k)
sale, transfer, or exchange, either directly or indirectly, of a controlling
stock interest of the Pledgor; (l) termination or withdrawal of any guaranty for
the Pledgor's Liabilities; (m) the Pension Benefit Guaranty Corporation
commences proceedings under Section 4042 of the Employee Retirement Income
Security Act of 1974 (ERISA), as amended, to terminate any employee pension
benefit plan of the Pledgor; (n) the determination in good faith by the Lender
in its reasonable judgement that a material adverse change has occurred in the
financial condition of the Pledgor from the condition set forth in the most
recent financial statement of the Pledgor heretofore furnished to the Lender, or
from the financial condition of the Pledgor as heretofore most recently
disclosed to the Lender in any other manner; or (o) a default occurs or in the
event a default exists under any document or instrument executed by any
Guarantor of the Pledgor's Liabilities, including, without limitation, any
Guaranty Agreement, any Security Agreement or any other similar document or
instrument.

         19.      Rights and Remedies upon Default. Upon the occurrence of an
Event of Default hereunder (and in addition to all of its other rights, powers,
and remedies under this Agreement), the Lender may, at its option, and upon
written notice to the Pledgor, declare the unpaid balance of the Pledgor's
Liabilities to be immediately due and payable. The occurrence or non-occurrence
of an Event of Default shall in no manner impair the ability of the Lender to
demand payment of any portion of the Pledgor's Liabilities which are payable on
demand. The Lender shall have all the rights and remedies of a secured party
under the Uniform Commercial Code and other applicable law in the State of
Georgia. Upon the occurrence of an Event of Default hereunder, the Pledgor, upon
demand by the Lender, shall assemble the Collateral and make it available to the
Lender at a place designated by the Lender which is mutually convenient to both
parties. Upon the occurrence of an Event of Default hereunder, the Lender or its
agents may enter upon the Pledgor's premises to take possession of the
Collateral, to remove it, to render it unusable, or to sell of otherwise dispose
of it, all without judicial process or proceedings.

         Any written notice of the sale, disposition, or other intended action
by the Lender with respect to the Collateral which is required by applicable
laws and is sent by certified mail, postage prepaid, to the Pledgor at the
address of the Pledgor's chief executive office specified below, or such other
address of the Pledgor which may from time to time be shown on the Lender's
records, at least five (5) days prior to such sale, disposition, or other
action, shall constitute reasonable notice to the Pledgor. The Pledgor shall pay
on demand all costs and expenses, including, without

                                       8
<PAGE>

limitation, reasonable attorneys' fees and expenses, incurred by or on behalf of
the Lender: (i) in enforcing the Pledgor's Liabilities; and (ii) in connection
with the taking, holding, preparing for sale or other disposition, selling,
managing, collecting, or otherwise disposing of the Collateral. All of such
costs and expenses (collectively, the "LIQUIDATION COSTS") together with
interest thereon at a simple per annum rate of interest which is equal to the
then highest rate of interest charged on the principal of any of the Pledgor's
Liabilities, plus one percent (1%) per annum (but in no event higher than the
maximum interest rate permitted by law), from the date of payment until repaid
in full, shall be paid by the Pledgor to the Lender on demand and shall
constitute and become a part of the Pledgor's Liabilities secured hereby. Any
proceeds of sale or other disposition of the Collateral will be applied by the
Lender to the payment of Liquidation Costs and Expense Payments, and any balance
of such proceeds will be applied by the Lender to the payment of the remaining
Pledgor's Liabilities in such order and manner of application as the Lender may
from time to time in its sole discretion determine.

         20.      Remedies Cumulative. Each right, power, and remedy of the
Lender as provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power,
or remedy provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Lender or any one or more of such
rights, powers, or remedies shall not preclude the simultaneous or later
exercise by the Lender of any or all such other rights, powers, or remedies.

         21.      Waiver. No failure or delay by the Lender to insist upon the
strict performance of any term, condition, covenant, or agreement or of the
other Loan Documents, or to exercise any right, power, or remedy consequent upon
a breach thereof, shall constitute a waiver of any such term, condition,
covenant, or agreement or of any such breach, or such term, condition, covenant,
or agreement or of any such breach, or preclude the Lender from exercising any
such right, power, or remedy at any later time or times. By accepting payment
which does not fully repay any indebtedness then due and payable with respect to
any of the Pledgor's Liabilities, the Lender shall not be deemed to have waived
the right either to require payment when due of all other Pledgor's Liabilities
or to declare an Event of Default for failure to effect such payment of any such
other Pledgor's Liabilities. The Pledgor waives presentment, notice of dishonor,
and notice of non-payment with respect to Accounts and Chattel Paper.

         THE PLEDGORS HEREBY ACKNOWLEDGE THAT THE LIABILITIES AROSE OUT OF A
"COMMERCIAL TRANSACTION" AS THIS TERM IS DEFINED IN O.C.G.A. SECTION
44-14-260(1) CONCERNING FORECLOSURE OF MORTGAGES ON PERSONALTY, AND AGREES THAT
IN THE EVENT OF ANY DEFAULT, THE LENDER SHALL HAVE THE RIGHT TO AN IMMEDIATE
WRIT OF POSSESSION WITHOUT NOTICE OF HEARING AND KNOWINGLY AND INTELLIGENTLY
WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO ANY NOTICE AND POSTING OF A BOND BY THE
LENDER PRIOR TO SEIZURE BY THE LENDER, ITS TRANSFEREES, ASSIGNS, OR SUCCESSORS
IN INTEREST, OF THE COLLATERAL OR ANY PORTION THEREOF. THIS IS INTENDED BY THE
PLEDGOR AS A "WAIVER" AS THIS TERM IS DEFINED IN O.C.G.A. SECTION 44-14-260(3)
RELATING TO FORECLOSURE OF MORTGAGES ON PERSONALTY.

                                       9
<PAGE>

         22.      Miscellaneous. Time is of the essence of this Agreement. The
section headings of this Agreement are for convenience only and shall not limit
or otherwise affect any of the terms hereof. Neither this Agreement nor any
term, condition, covenant, or agreement hereof may be changed, waived,
discharged, or terminated orally but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge, or
termination is sought. This Agreement shall be governed by the laws of the State
of Georgia and shall be binding upon the Pledgor and its heirs, executors,
administrators, legal representatives, successors, and assigns, and shall inure
to the benefit of the Lender and its successors and assigns. As used herein, the
singular number shall include the plural, the plural the singular, and the use
of the masculine, feminine, or neuter gender shall include all genders, as the
context may require, and the term "person" shall include an individual, a
corporation, an association, a partnership, a trust, and an organization.
Invalidation of any one or more of the provisions of their Agreement shall in no
way affect any of the other provisions hereof, which shall remain in full force
and effect. All references herein to any document, instrument, or agreement
shall be deemed to refer to such document, instrument, or agreement as the same
may be amended, modified, restated, supplemented, or replaced from time to time.
Unless varied by this Agreement, all terms used herein which are defined by the
Georgia Uniform Commercial Code shall have the same meanings hereunder as
assigned to them by the Georgia Uniform Commercial Code.

         IN WITNESS WHEREOF, the Pledgor has caused its duly authorized officers
to execute this Agreement and to affix its corporate seal hereto, as of the day
and year first written above.

                                   PLEDGOR:

                                   Intelligent Systems Corporation, a Georgia
                                   corporation

                                   By:__________________________________________
                                       Bonnie L. Herron, Chief Financial Officer

                                   Attested:____________________________________
                                            Its Secretary

                                           [CORPORATE SEAL]

                                       10
<PAGE>

                                   LENDER:

                                   FIDELITY BANK

                                   By:__________________________________________
                                          Its:__________________________________

                                                         (BANK SEAL)

Address(es) where Collateral is
is to be located:

4355 Shackleford Road
Norcross, Georgia  30093

Previous legal and/or trade
name(s) of the Pledgor:

None.

                                       11

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>6
<FILENAME>g88120exv10w5.txt
<DESCRIPTION>EX-10.5 FORM OF SECURITY AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.5

                           FORM OF SECURITY AGREEMENT
                                   (Guarantor)

         THIS SECURITY AGREEMENT (this "AGREEMENT" or "GUARANTOR SECURITY
AGREEMENT") is made effective the 1st day of October, 2003, by and between
CHEMFREE CORPORATION, a Georgia corporation (the "PLEDGOR"), in favor of
FIDELITY BANK, chartered under the laws of the state of Georgia (the "LENDER"):

                                   WITNESSETH:

         WHEREAS, Pledgor is justly indebted to Lender pursuant to that certain
Guaranty (with Security Agreement) (herein the "GUARANTY") guaranteeing a loan
evidenced by a Commercial Promissory Note of even date herewith in the principal
amount of $1,500,000 (herein the "NOTE") executed by Intelligent Systems
Corporation in favor of Lender; and

         WHEREAS, the Lender has required, as a condition to extending such
financial accommodations, the execution and delivery of this Agreement by the
Pledgor.

         NOW, THEREFORE, in order to secure the prompt payment of all past,
present, and future indebtedness, liabilities, and obligations of the Pledgor to
the Lender of any nature whatsoever in connection with the Guaranty and all
other obligations of Pledgor to the Lender, however and wherever created,
arising, or evidenced, whether direct or indirect, absolute, contingent, or
otherwise, now or hereafter existing, due or to become due (collectively, the
"PLEDGOR'S LIABILITIES"), and the performance by the Pledgor of all the terms,
conditions, and provisions of this Agreement, the Guaranty and of any other loan
document previously, simultaneously, or hereafter executed and delivered by the
Pledgor and/or any other person, singly or jointly with another person or
persons, evidencing, securing, guarantying, or in connection with any of the
Pledgor's Liabilities (the "LOAN DOCUMENTS"), the Pledgor agrees with the Lender
as follows:

         1.       Collateral. To secure the payment and performance of the
Pledgor's Liabilities and the Pledgor's performance of its obligations under the
Loan Documents, the Pledgor hereby grants to the Lender a security interest in,
and security title to, the following property of the Pledgor:

                  A.       Inventory. All of the Pledgor's inventory of every
description which is held by the Pledgor for sale of lease or is furnished by
the Pledgor under any contract of service or is held by the Pledgor as raw
materials, work in process, or materials used or consumed in a business, whether
now owned or hereafter acquired, wherever located, and a the same may now and
hereafter from time to time be constituted, together with all cash and non-cash
proceeds and products thereof (the "INVENTORY").

<PAGE>

                  B.       Accounts. All of the Pledgor's accounts (including,
without limitation, all notes, notes receivable, drafts, acceptances, and
similar instruments and documents) whether now owned or hereafter acquired,
together with (i) all cash and non-cash proceeds thereof and (ii) all returned,
rejected, or repossessed goods, the sale or lease of which shall have given or
shall give rise to an account, and all cash and non-cash proceeds and products
of all such goods (the "ACCOUNTS").

                  C.       General Intangibles. All of the Pledgor's general
intangibles (including, without limitation, any proceeds from insurance policies
after payment of prior interests), patents, unpatented inventions, trade
secrets, copyrights, contract rights, goodwill, literary rights, rights to
performance, rights under licenses, choices-in-action, claims, information
contained in computer media (such as data bases, source and object codes, and
information therein) things in action, trademarks and trademarks applied for
(together with the goodwill associated therewith) and derivatives thereof, trade
names, including the right to make, use, and vend goods utilizing any of the
foregoing, and permits, licenses, certifications, authorizations and approvals,
and the rights of the Debtor thereunder, issued by any governmental, regulatory,
or private authority, agency, or entity whether now owned or hereafter acquired,
together with all cash and non-cash products thereof.

                  D.       Chattel Paper. All of the Pledgor's chattel paper,
whether now owned or hereafter existing, acquired, or created, together with (i)
all moneys due and to become due thereafter, (ii) all cash and non-cash proceeds
thereof, and (iii) all returned, rejected, or repossessed goods, the sale or
lease of which shall have given or shall give rise to chattel paper, and all
cash and non-cash proceeds and products of all such goods. Additionally, the
Pledgor assigns and grants to the Lender a security interest in all property and
goods both now owned and hereafter acquired by the Pledgor which are sold,
leased, secured, are the subject of, or otherwise covered by, the Pledgor's
chattel paper, together with all rights incident to such property and goods and
all cash and non-cash proceeds thereof (the "CHATTEL PAPER").

                  E.       All Equipment and Fixtures. All of the Pledgor's
equipment and fixtures, whether now owned or hereafter acquired, together with
(i) all additions, parts, fittings, accessories, special tools, attachments, and
accessions now and hereafter affixed thereto and/or used in connection
therewith; (ii) all replacements thereof and substitutions therefore; and (iii)
all cash and non-cash proceeds and products thereof (the "EQUIPMENT").

                  F.       Leasehold Improvements. All present and future
improvements made by Pledgor to any real estate leased or owned by Pledgor.

         The term "Collateral" as used herein means each and all of the items of
Collateral described above, and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.

         2.       Title to Collateral. The Pledgor warrants and represents that:
(i) it is the lawful owner of the Collateral, and has the full right, power, and
authority to convey, transfer, and grant the security title and security
interest in the Collateral granted herein to the Lender; (ii) all licenses
relating to the Collateral are fully paid, and, upon the occurrence of an Event
of Default and

                                       2
<PAGE>

foreclosure by the Lender, the Lender shall have all rights of the Pledgor to
any Collateral licensed to the Pledgor or licensed by the Pledgor; (iii) the
Collateral is not, and so long as this Agreement is in effect will not be,
subject to any liens, claims, security interests, encumbrances, taxes, or
assessments, however described or denominated; (iv) no financing statement,
mortgage, notice of lien, deed of trust, deed to secure debt, security
agreement, or any other agreement or instrument creating an encumbrance, lien,
charge against any of the Collateral is in existence or on file in any public
office, other than financing statements (or other appropriate security
documentation) filed on behalf of the Lender; and (v) all information with
respect to the Collateral and the Pledgor's Liabilities, of any of them, set
forth in any written schedule, certificate, or other document at any time
heretofore or hereafter furnished by the Pledgor to the Lender, and all other
written information heretofore or hereafter furnished by the Pledgor to the
Lender, is and will be true and correct in all material respects as of the date
furnished.

         3.       Further Assurances. The Pledgor will defend its title to the
Collateral against all persons and will, upon request of the Lender: (i) furnish
such further assurances of title as may be required by the Lender; (ii) deliver
and execute or cause to be delivered and executed, in form and content
satisfactory to the Lender, any financing statements, notices, certificates of
title, and other documents and pay the cost of filing or recording the same in
all public offices deemed necessary by the Lender, as well as any recordation,
documentary, or transfer tax required by law to be paid in connection with such
filing or recording; and (iii) do such other acts as the Lender may request in
order to perfect, preserve, maintain, or continue the perfection of the Lender's
security interest in the Collateral and/or its priority.

         4.       Accounts, etc. Until such time as the Lender shall notify the
Pledgor in writing of the revocation of such power and authority, the Pledgor,
as agent for the Lender, will, at its own expense, diligently collect, as and
when due, all amounts owing under the Accounts, including the taking of such
action with respect to such collection as the Lender may requests from time to
time, and to hold in trust and segregate for the Lender all funds received from
the Accounts; provided, however, that until an Event of Default shall occur or
would occur but for the passage of time, or giving of notice, or both, the
Pledgor may use or consume in the ordinary course of its business any such
collections on the Accounts in any lawful manner not inconsistent with this
Agreement and the other Loan Documents. Upon an Event of Default hereunder which
has not been cured within any applicable cure period and during the continuance
of such uncured default, the Lender, however, may revoke such power and
authority and notify any parties obligated on any of the Accounts to make
payment to the Lender of any amounts due or to become due thereunder, and
enforce collection of performance under any of the Accounts by suit or
otherwise, and surrender, release, or exchange all or any part thereof, or
compromise or extend or renew for any period (whether or not longer than the
original period) any indebtedness thereunder or evidenced thereby. After an
Event of Default or upon request of the Lender, the Pledgor will, at its own
expense, notify any parties obligated on any of the Accounts to make payments to
the Lender and will hold in trust and immediately forward to the Lender all
payments received by the Pledgor in the form received, with all necessary
endorsements thereon for collection by the Lender.

         5.       Transfer and Other Liens. The Pledgor will not sell, lease,
transfer, exchange, or otherwise dispose of the Collateral, or any part hereof,
without the prior written consent of the

                                       3
<PAGE>

Lender and will not permit any lien, security interest, or other encumbrance to
attach to the Collateral, or any part thereof, other than those in favor of the
Lender or those permitted by the Lender in writing, except that the Pledgor may,
in the ordinary course of its business and in the absence of an Event of Default
hereunder or notice by the Lender to the Pledgor under Section 6 hereof, collect
its Accounts and Chattel Paper and sell its Inventory.

         6.       Financial Statements, Books, and Records. The Pledgor will:
(i) at all times maintain, in accordance with generally accepted accounting
principles consistently applied, accurate and complete books and records
pertaining to the operation, business affairs, and financial condition of the
Pledgor and pertaining to the Collateral and any contracts and collections
relating to the Collateral; (ii) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content and at the
intervals specified by the Lender, such financial statements, reports,
schedules, and other information with respect to the operation, business
affairs, and financial condition of the Pledgor as required pursuant to the Loan
Agreement; (iii) at all reasonable times, and without hindrance or delay, permit
the Lender or any person designated by the Lender to enter any place of business
of the Pledgor or any other premises where any books, records, and other data
concerning the Pledgor and/or the Collateral may be kept and to examine, audit,
inspect, and make extracts from and photocopies of any such books, records, and
other data; (iv) furnish to the Lender promptly upon request, certified by an
officer of the Pledgor and in the form and content specified by the Lender,
lists of purchasers of inventory, aging of accounts, aggregate cost or wholesale
market value of inventory, schedules of equipment, and other data concerning the
Collateral as the Lender may from time to time specify; and (v) mark its books
and records in a manner satisfactory to the Lender so that the Lender's rights
in and to the Collateral will be shown.

         7.       Name of Pledgor, Places of Business, and Location of
Collateral. The Pledgor represents and warrants that its correct legal name is
as specified on the signature lines of this Agreement, and each legal or trade
name of the Pledgor for the previous five (5) years (if different from the
Pledgor's current legal name) is as specified below the signature lines of this
Agreement. Without the prior written consent of the Lender, the Pledgor will not
change its name, dissolve, merge, or consolidate with any other person. The
Pledgor warrants that the address of the Pledgor's chief executive office and
the address of each other place of business of the Pledgor are as specified
below the signature lines of this Agreement. Except for mobile equipment and
motor vehicles, the Collateral and all books and records pertaining to the
Collateral have been, are, and will be located at the Pledgor's chief executive
office specified below or at any other place of business which may be specified
below. The Pledgor will immediately advise the Lender in writing of the opening
of any new place of business and of any change in the location of the places
where the Collateral or any part thereof, or the books and records concerning
the Collateral or any part thereof, are kept.

         8.       Care of Collateral. The Pledgor will maintain the Collateral
in first-class condition excepting any loss, damage, or destruction which is
fully covered by proceeds of insurance and will not do or permit anything to be
done to the collateral that may impair its value or that may violate the terms
of any insurance covering the Collateral or any part thereof, normal wear and
tear excepted. The Lender shall have no duty to, and the Pledgor hereby releases
the Lender from all claims for loss or damage caused by the failure to, collect
or enforce any Account of Chattel Paper or to preserve rights against prior
parties to the Collateral. The Pledgor will use the Collateral for

                                       4
<PAGE>

lawful purposes only, with all reasonable care and caution and in conformity
with all applicable laws, ordinances, and regulations.

         9.       Insurance. The Pledgor will insure such of the Collateral as
specified by the Lender against such casualties and risks in such form and
amount and with such companies as may from time to time be required by the
Lender. All insurance proceeds shall be payable to the Lender, and such policies
or certificates thereon or duplicates thereof shall immediately be deposited
with the Lender. The Pledgor will pay all premiums due or to become due for such
insurance and hereby assigns to the Lender any returned or unearned premiums
which may be due upon cancellation of insurance coverage. The Lender is hereby
irrevocably: (i) appointed the Pledgor's attorney-in-fact (which appointment is
coupled with an interest and is irrevocable) to endorse any draft or check which
may be payable to the Pledgor in order to collect such returned or unearned
premiums or the proceeds of insurance; and (ii) authorized to apply such
insurance premiums for payment of the Pledgor's Liabilities, when due, in such
order of application as the Lender may determine.

         10.      Taxes. The Pledgor will pay as and when due and payable all
taxes, levies, license fees, assessments, and other impositions levied on the
Collateral or any part thereof or for its use and operation.

         11.      Equipment Not Fixtures. The Pledgor warrants that all
Equipment which constitutes a part of the Collateral is personalty and is not
and will not be affixed to real estate in such manner as to become a fixture or
part of such real estate, except with respect to such items of Equipment which
may become fixtures in the normal course of Pledgor's business in constructing
leasehold improvements. The Pledgor will use its best efforts to furnish to the
Lender a written waiver by the record owner of such real estate of all interest
in such equipment and a written subordination to the Lender's security interest
and lien by any person who has a lien on or security interest in such real
estate which is or may be superior to the Lender's security interest hereunder.

         12.      Specific Assignments. Promptly upon request by the Lender, the
Pledgor will execute and deliver to the Lender written assignments,
endorsements, and/or schedules, in form and content satisfactory to the Lender,
of specific Chattel Paper and Accounts or groups of Accounts or Chattel Paper,
but the security interest of the Lender hereunder shall not be limited in any
way by such assignments.

         13.      Delivery of Chattel Paper. The Pledgor will promptly upon
request by the Lender deliver, assign, and endorse to the Lender all Chattel
Paper and all other documents held by the Pledgor in connection herewith.

         14.      Government Contracts. If any Account or Chattel Paper arises
out of a contract or contracts with the United States of America or any
department, agency, or instrumentality thereof, the Pledgor shall immediately
notify the Lender thereof in writing and execute any instruments or take any
steps required by the Lender in order that all moneys due or to become due under
such contract or contracts shall be assigned to the Lender and notice thereof
given under the Federal Assignment of Claims Act or other applicable law.

                                       5
<PAGE>

         15.      Collateral Account. If all or any part of the collateral at
any time consists of Inventory, Accounts, or Chattel Paper, the Pledgor will,
upon the request of the Lender at any time after the occurrence of an Event of
Default hereunder, deposit or cause to be deposited to a bank account designated
by the Lender and from which the Lender alone has power of access and withdrawal
(the "COLLATERAL ACCOUNt") all checks, drafts, cash, and other remittances in
payment or on account of payment of such Inventory, Accounts, or Chattel Paper
and the cash proceeds of any returned goods, the sale or lease of which gave
rise to an Account or Chattel Paper (all of the foregoing herein collectively
referred to as "ITEMS OF PAYMENT"). The Pledgor shall deposit the Items of
Payment for credit to the Collateral Account within two (2) business days of the
receipt thereof, and in precisely the form received, except for the endorsement
of the Pledgor where necessary to permit the collection of the Items of Payment,
which endorsement the Pledgor hereby agrees to make. Pending such deposit, the
Pledgor will not commingle any of the Items of Payment with any of its other
funds or property but will hold them separate and apart. The Lender may at any
from time to time apply the whole or any part of the collected funds credited to
the Collateral Account against the Pledgor's Liabilities or credit such
collected funds to a banking account of the Pledgor with the Lender, the order
and method of such application to be in the discretion of the Lender.

         16.      Rights of Lender and Duties of Pledgor. If all or any part of
the Collateral at any time consists of Inventory, Accounts, or Chattel Paper,
the Lender may at any time and from time to time after the occurrence of an
Event of Default hereunder: (i) notify the account debtors obligated on any of
the Collateral to make payments thereon directly to the Lender, and to take
control of the cash and non-cash proceeds of any such Collateral; (ii) charge to
any banking account of the Pledgor with the Lender any Item of Payment credited
to the Collateral Account which is dishonored by the drawee or maker thereof;
(iii) compromise, extend, or renew any of the Collateral or deal with the same
as it may deem advisable; (iv) release, make exchanges or substitutions for, or
surrender all or any part of the Collateral; (v) remove from the Pledgor's place
of business all books, records, ledger sheets, correspondence, invoices, and
documents relating to or evidencing any of the Collateral or, without cost or
expense to the Lender, make such use of the Pledgor's place(s) of business as
may be reasonably necessary to administer, control, and collect the Collateral;
(vi) repair, alter, or supply goods, if any, necessary to fulfill in whole or in
part the purchase order of any account debtor; (vii) demand, collect, receipt
for, and give renewals, extensions, discharges, and releases of any of the
Collateral; (viii) institute and prosecute legal and equitable proceedings to
enforce collection of, or realize upon, any of the Collateral; (ix) settle,
renew, extend, compromise, compound, exchange, or adjust claims with respect to
any of the Collateral or any legal proceedings brought with respect thereto; (x)
endorse the name of the Pledgor upon any Items of Payment relating to the
collateral or upon any proof of claim in bankruptcy against an account debtor;
and (xi) receive and open all mail addressed to the Pledgor and, if an Event of
Default exists hereunder, notify postal authorities to change the address for
the delivery of mail to the Pledgor to such address as the Lender may designate;
and for purposes of taking the actions described in Subsections (i) through (xi)
the Pledgor hereby irrevocably appoints the Lender as its attorney-in-fact
(which appointment being coupled with an interest is irrevocable while any of
Pledgor's Liabilities remain unpaid), with power of substitution, in the name of
the Lender or in the name of the Pledgor or otherwise, for the use and benefit
of the Lender, but at the cost and expense of the Pledgor and without notice to
the Pledgor. The Pledgor will (a) make no material change to the terms of any

                                       6
<PAGE>

sale or lease of Inventory or of any Account or Chattel Paper without the prior
written permission of the Lender; (b) on demand, make available in form
acceptable to the Lender shipping documents and delivery receipts evidencing the
shipment of goods which gave rise to the sale or lease of Inventory or of an
Account of Chattel Paper, completion certificate, or other proof of the
satisfactory performance of services which gave rise to the sale or lease of
Inventory or of an Account or Chattel Paper, copies of the invoices arising out
of the sale or lease of Inventory or for an Account, and the Pledgor's copy of
any written contract or order from which the sale or lease of Inventory, an
Account, or Chattel Paper arose; and (c) when requested, advise the Lender
whenever an account debtor returns or refuses to retain any goods, the sale or
lease of which gave rise to an Account or Chattel Paper, and will comply with
any instructions which the Lender may give regarding the sale or other
disposition of such returns.

         17.      Performance by Lender. After an Event of Default hereunder
which has not been cured within any applicable cure period and during the
continuance of such uncured default, if the Pledgor fails to perform, observe,
or comply with any of the conditions, terms, or covenants contained in this
Agreement, the Lender, without notice to or demand upon the Pledgor and without
waiving or releasing any of the Pledgor's Liabilities or any Event of Default,
may (but shall be under no obligation to) at any time thereafter perform such
conditions, terms, or covenants for the account and at the expense of the
Pledgor, and may enter upon any place of business or other premises of the
Pledgor for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose. All sums paid or advanced by
the Lender in connection with the foregoing and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
incurred in connection therewith (collectively, the "EXPENSE PAYMENTS") together
with interest thereon at a simple per annum rate of interest which is equal to
the then highest rate of interest charged on the principal of any of the
Pledgor's Liabilities, plus one percent (1%) per annum (but in no event higher
than the maximum interest rate permitted by applicable law), from the date of
payment until repaid in full, shall be paid by the Pledgor to the Lender on
demand and shall constitute and become a part of the Pledgor's Liabilities
secured hereby.

         18.      Default. The occurrence of any one or more of the following
events shall constitute an event of default (an "EVENT OF DEFAULT") under this
Agreement: (a) failure of the Pledgor to pay any of the Pledgor's Liabilities as
and when due and payable; (b) failure of the Pledgor to perform, observe, or
comply with any of the provisions of this Agreement or of any of the other Loan
Documents; (c) the occurrence of an Event of Default (as defined therein) under
any of the other Loan Documents; (d) any information contained in any financial
statement, application, schedule, report, or any other document given by the
Pledgor or by any other person in connection with the Pledgor's Liabilities,
with the Collateral, or with any of the Loan Documents is not in all material
respects true and accurate or the Pledgor or such other person omitted to state
any material fact or any fact necessary to make such information not misleading;
(e) the Pledgor is generally not paying debts as such debts become due; (f) the
filing of any petition for relief under any provision of the Federal Bankruptcy
Code or any similar state law is brought by or against the Pledgor; (g) an
application for the appointment of a receiver for, the making of a general
assignment for the benefit of creditors by or the insolvency of, the Pledgor and
not dismissed within forty-five (45) days; (h) the dissolution, merger,
consolidation, or reorganization of the Pledgor; (i) suspension of the operation
of the Pledgor's present business; (j) transfer of a substantial part
(determined by market

                                       7
<PAGE>

value) of the Pledgor's property; (k) sale, transfer, or exchange, either
directly or indirectly, of a controlling stock interest of the Pledgor; (l)
termination or withdrawal of any guaranty for the Pledgor's Liabilities; (m) the
Pension Benefit Guaranty Corporation commences proceedings under Section 4042 of
the Employee Retirement Income Security Act of 1974 (ERISA), as amended, to
terminate any employee pension benefit plan of the Pledgor; (n) the
determination in good faith by the Lender in its reasonable judgement that a
material adverse change has occurred in the financial condition of the Pledgor
from the condition set forth in the most recent financial statement of the
Pledgor heretofore furnished to the Lender, or from the financial condition of
the Pledgor as heretofore most recently disclosed to the Lender in any other
manner; or (o) a default occurs or in the event a default exists under any
document or instrument executed by any Guarantor of the Pledgor's Liabilities,
including, without limitation, any Guaranty Agreement, any Security Agreement or
any other similar document or instrument.

         19.      Rights and Remedies upon Default. Upon the occurrence of an
Event of Default hereunder (and in addition to all of its other rights, powers,
and remedies under this Agreement), the Lender may, at its option, and upon
written notice to the Pledgor, declare the unpaid balance of the Pledgor's
Liabilities to be immediately due and payable. The occurrence or non-occurrence
of an Event of Default shall in no manner impair the ability of the Lender to
demand payment of any portion of the Pledgor's Liabilities which are payable on
demand. The Lender shall have all the rights and remedies of a secured party
under the Uniform Commercial Code and other applicable law in the State of
Georgia. Upon the occurrence of an Event of Default hereunder, the Pledgor, upon
demand by the Lender, shall assemble the Collateral and make it available to the
Lender at a place designated by the Lender which is mutually convenient to both
parties. Upon the occurrence of an Event of Default hereunder, the Lender or its
agents may enter upon the Pledgor's premises to take possession of the
Collateral, to remove it, to render it unusable, or to sell of otherwise dispose
of it, all without judicial process or proceedings.

         Any written notice of the sale, disposition, or other intended action
by the Lender with respect to the Collateral which is required by applicable
laws and is sent by certified mail, postage prepaid, to the Pledgor at the
address of the Pledgor's chief executive office specified below, or such other
address of the Pledgor which may from time to time be shown on the Lender's
records, at least five (5) days prior to such sale, disposition, or other
action, shall constitute reasonable notice to the Pledgor. The Pledgor shall pay
on demand all costs and expenses, including, without limitation, reasonable
attorneys' fees and expenses, incurred by or on behalf of the Lender: (i) in
enforcing the Pledgor's Liabilities; and (ii) in connection with the taking,
holding, preparing for sale or other disposition, selling, managing, collecting,
or otherwise disposing of the Collateral. All of such costs and expenses
(collectively, the "LIQUIDATION COSTS") together with interest thereon at a
simple per annum rate of interest which is equal to the then highest rate of
interest charged on the principal of any of the Pledgor's Liabilities, plus one
percent (1%) per annum (but in no event higher than the maximum interest rate
permitted by law), from the date of payment until repaid in full, shall be paid
by the Pledgor to the Lender on demand and shall constitute and become a part of
the Pledgor's Liabilities secured hereby. Any proceeds of sale or other
disposition of the Collateral will be applied by the Lender to the payment of
Liquidation Costs and Expense Payments, and any balance of such proceeds will be
applied by the Lender to the payment of the remaining Pledgor's Liabilities

                                       8
<PAGE>

in such order and manner of application as the Lender may from time to time in
its sole discretion determine.

         20.      Remedies Cumulative. Each right, power, and remedy of the
Lender as provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power,
or remedy provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Lender or any one or more of such
rights, powers, or remedies shall not preclude the simultaneous or later
exercise by the Lender of any or all such other rights, powers, or remedies.

         21.      Waiver. No failure or delay by the Lender to insist upon the
strict performance of any term, condition, covenant, or agreement or of the
other Loan Documents, or to exercise any right, power, or remedy consequent upon
a breach thereof, shall constitute a waiver of any such term, condition,
covenant, or agreement or of any such breach, or such term, condition, covenant,
or agreement or of any such breach, or preclude the Lender from exercising any
such right, power, or remedy at any later time or times. By accepting payment
which does not fully repay any indebtedness then due and payable with respect to
any of the Pledgor's Liabilities, the Lender shall not be deemed to have waived
the right either to require payment when due of all other Pledgor's Liabilities
or to declare an Event of Default for failure to effect such payment of any such
other Pledgor's Liabilities. The Pledgor waives presentment, notice of dishonor,
and notice of non-payment with respect to Accounts and Chattel Paper.

         THE PLEDGOR HEREBY ACKNOWLEDGES THAT THE LIABILITIES AROSE OUT OF A
"COMMERCIAL TRANSACTION" AS THIS TERM IS DEFINED IN O.C.G.A. SECTION
44-14-260(1) CONCERNING FORECLOSURE OF MORTGAGES ON PERSONALTY, AND AGREES THAT
IN THE EVENT OF ANY DEFAULT, THE LENDER SHALL HAVE THE RIGHT TO AN IMMEDIATE
WRIT OF POSSESSION WITHOUT NOTICE OF HEARING AND KNOWINGLY AND INTELLIGENTLY
WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO ANY NOTICE AND POSTING OF A BOND BY THE
LENDER PRIOR TO SEIZURE BY THE LENDER, ITS TRANSFEREES, ASSIGNS, OR SUCCESSORS
IN INTEREST, OF THE COLLATERAL OR ANY PORTION THEREOF. THIS IS INTENDED BY THE
PLEDGOR AS A "WAIVER" AS THIS TERM IS DEFINED IN O.C.G.A. SECTION 44-14-260(3)
RELATING TO FORECLOSURE OF MORTGAGES ON PERSONALTY.

         22.      Miscellaneous. Time is of the essence of this Agreement. The
section headings of this Agreement are for convenience only and shall not limit
or otherwise affect any of the terms hereof. Neither this Agreement nor any
term, condition, covenant, or agreement hereof may be changed, waived,
discharged, or terminated orally but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge, or
termination is sought. This Agreement shall be governed by the laws of the State
of Georgia and shall be binding upon the Pledgor and its heirs, executors,
administrators, legal representatives, successors, and assigns, and shall inure
to the benefit of the Lender and its successors and assigns. As used herein, the
singular number shall include the plural, the plural the singular, and the use
of the masculine, feminine, or neuter gender shall include all genders, as the
context may require, and the term "person" shall

                                       9
<PAGE>

include an individual, a corporation, an association, a partnership, a trust,
and an organization. Invalidation of any one or more of the provisions of their
Agreement shall in no way affect any of the other provisions hereof, which shall
remain in full force and effect. All references herein to any document,
instrument, or agreement shall be deemed to refer to such document, instrument,
or agreement as the same may be amended, modified, restated, supplemented, or
replaced from time to time. Unless varied by this Agreement, all terms used
herein which are defined by the Georgia Uniform Commercial Code shall have the
same meanings hereunder as assigned to them by the Georgia Uniform Commercial
Code.

         IN WITNESS WHEREOF, the Pledgor has caused its duly authorized officers
to execute this Agreement and to affix its corporate seal hereto, as of the day
and year first written above.

                                   PLEDGOR:

                                   CHEMFREE CORPORATION, a Georgia
                                   corporation

                                   By:__________________________________________
                                          Francis A. Marks, President

                                   Attest:______________________________________
                                          Its Secretary

                                             [CORPORATE SEAL]

                                   LENDER:

                                   FIDELITY BANK

                                   By:__________________________________________
                                          Its:__________________________________

                                               (BANK SEAL)

Address(es) where Collateral is           Address(es) of other place(s) of
is to be located:                         business of the Pledgor:
___________________________________       ______________________________________
___________________________________       ______________________________________

                                       10
<PAGE>

Previous legal and/or trade
name(s) of the Pledgor:

___________________________________

                                       11

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>7
<FILENAME>g88120exv10w6.txt
<DESCRIPTION>EX-10.6 NEGATIVE PLEDGE AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.6

                            NEGATIVE PLEDGE AGREEMENT

         THIS NEGATIVE PLEDGE AGREEMENT ("AGREEMENT") is made effective the 1st
day of October, 2003 by Intelligent Systems, Corporation, a Georgia corporation
(hereinafter referred to as "PLEDGOR") in favor of Fidelity Bank, chartered
under the laws of the state of Georgia (hereinafter referred to as "LENDER" or
"BANK").

                              BACKGROUND STATEMENT

         WHEREAS, Pledgor is justly indebted to Lender pursuant to that certain
Commercial Promissory Note and Loan Agreement of even date herewith evidencing a
loan ("LOAN") in the principal amount of $1,500,000.00 (herein the "NOTE")
executed by Pledgor in favor of Lender; and

         WHEREAS, the Lender has required, as a condition to extending such
financial accommodations, the execution and delivery of this Agreement by the
Pledgor.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the foregoing recitals, the
agreement of Lender to extend the Loan, Ten Dollars ($10.00) in hand paid and
for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Pledgor hereby agrees as follows:

         1.       The following terms shall have the following meanings:

                  "DEBT" or "DEBT INSTRUMENT" shall mean (a) indebtedness or
         liability for borrowed money; (b) obligations evidenced by bonds,
         debentures, notes or other similar instruments; (c) obligations for the
         deferred purchase price of property or services (including trade
         obligations); (d) obligations as lessee under capital leases; (e)
         current liabilities in respect of unfunded vested benefits under plans
         covered by ERISA; (f) all guaranties, endorsements (other than for
         collection or deposit in the ordinary course of business), and other
         contingent obligations to purchase, to provide funds for payment, to
         supply funds to invest in any Person or entity, or otherwise to assure
         a creditor against loss; (g) obligations secured by any Liens whether
         or not the obligations have been assumed; and (h) any further negative
         pledge, encumbrance or like or similar agreement pursuant to which
         Pledgor agrees to the matters or restrictions described in Section 2
         hereof (other than in favor of Lender).

                  "LIEN" shall mean any mortgage, deed to secure debt, deed of
         trust, pledge, security interest, hypothecation, assignment, deposit
         arrangement, encumbrance, lien (statutory or other), or preference,
         priority, or other security agreement or preferential arrangement,
         charge, or encumbrance of any kind or nature whatsoever (including,
         without limitation, any conditional sale or other title retention
         agreement, any financing lease having substantially the same economic
         effect as any of the foregoing, and the

<PAGE>

         filing of any financing statement under the Uniform Commercial Code or
         comparable law of any jurisdiction to evidence any of the foregoing).

                  "PROPERTY" shall mean all of Pledgor's right, title and
         interest whether fee or leasehold, in and to the property described on
         EXHIBIT "A" attached hereto and by reference incorporated herein.

         2.       Without the prior written consent of Lender, which consent may
be withheld in Lender's sole discretion for any reason, Pledgor shall not:

                  (A)      LIENS. Create, assume, or allow to exist any Lien
upon the Property, except:

                           (i) Liens in favor of the Lender given to secure any
                  Debt, whether now owing or hereafter coming into existence,
                  owed from the Pledgor to the Bank;

                           (ii) Liens for taxes or assessments or other
                  governmental charges or levies not yet due or which are being
                  actively contested in good faith by appropriate proceedings if
                  adequate reserves with respect thereto are maintained on the
                  books of the Pledgor or any subsidiary in accordance with
                  generally accepted accounting principles;

                           (iii) Statutory Liens of landlords and Liens of
                  carriers, warehousemen, mechanics, materialmen and other Liens
                  imposed by law created in the ordinary course of business for
                  amounts not yet due or which are being contested in good faith
                  by appropriate proceedings and with respect to which adequate
                  reserves are being maintained;

                           (iv) Liens (other than any Lien imposed by ERISA)
                  incurred or deposits made in the ordinary course of business
                  in connection with workmen's compensation, unemployment
                  insurance and other types of social security, or to secure the
                  performance of tenders, statutory obligations, surety and
                  appeal bonds, bids, leases, government contracts, performance
                  and return-of-money bonds and other similar obligations (other
                  than obligation for the payment of borrowed money);

                  (B)      DEBT. Create, incur, assume, or suffer to exist any
         Debt or enter into any Debt Instrument of any description whatsoever
         secured by the Property not existing AND disclosed to Lender in writing
         as of the date of this Agreement, except (i) Debt incurred under the
         Note; and (ii) Debt Instruments executed in favor of Lender.

                  (C)      MERGER, ETC. Wind up, liquidate or dissolve itself,
         reorganize, merge or consolidate with or into, or convey, sell, assign,
         transfer, lease, or otherwise dispose of (whether in one transaction or
         in a series of transactions) all or substantially all of its assets
         (whether now owned or hereafter acquired) to any person or entity, or
         acquire all or substantially all of the assets of the business of any
         person or entity.

                                       2
<PAGE>

                  (D)      SALES. No sale, gift, transfer, assignment or
         conveyance of any property or interests as set forth on Exhibit A
         hereto without the written consent of Lender, which shall not be
         unreasonably withheld, and provided that Lender received the gross
         proceeds of any such sale, less any normal and customary closing costs.

         3.       Any attempted sale, transfer, gift, pledge, assignment,
encumbrance, mortgage, hypothecation, lien or security interest in or to, or
other disposition of, or any interest or right in or to, or option to purchase
the Property, not in accordance with the terms and conditions of this Agreement
shall be NULL AND VOID and the same shall constitute an Event of Default under
the Note.

         4.       In the event that any of the covenants, agreements, terms or
provisions contained herein shall be invalid, illegal or unenforceable, in any
respect, the validity of the remaining provisions contained herein shall be in
no way affected, prejudiced or disturbed thereby.

         5.       Neither this Agreement nor any term hereof may be changed,
waived, discharged or terminated orally, or by any action or inaction, but only
by an instrument in writing, signed by both parties hereto.

         6.       This Agreement shall be binding upon and inure to the benefit
of the respective successors and assigns of the parties hereto.

         7.       This Agreement may be executed in two or more original
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement. This Agreement shall be governed by
the laws of the State of Georgia.

         IN WITNESS WHEREOF, the parties have executed this Negative Pledge
Agreement under seal the date and year set forth above.

Signed, sealed and delivered              PLEDGOR:
in the presence of:
                                          Intelligent Systems Corporation,
                                          a Georgia corporation
___________________________________
Witness

                                          By:___________________________________

___________________________________          Its:_______________________________
Notary Public
                                          Attest:_______________________________
My commission expires:_____________              Name:__________________________
                                                 Title:_________________________
         (NOTARIAL SEAL)

                                       3
<PAGE>

Signed, sealed and delivered              LENDER:
in the presence of:
                                          Fidelity Bank

___________________________________
Witness

                                          By:___________________________________
                                             Name:______________________________
___________________________________          Title:_____________________________
Notary Public

My commission expires:_____________

        (NOTARIAL SEAL)

                                       4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>8
<FILENAME>g88120exv10w7.txt
<DESCRIPTION>EX-10.7 COMMERCIAL PROMISSORY NOTE
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.7

                           COMMERCIAL PROMISSORY NOTE

[FIDELITY BANK LOGO]                                      Loan No.______________

                                                          Borrower(s):__________

                                                          Location:_____________

                                                          Officer:______________

U.S. $1,500,000.00                                              OCTOBER 1, 2003

         FOR VALUE RECEIVED, the undersigned INTELLIGENT SYSTEMS CORPORATION, A
GEORGIA CORPORATION (hereinafter, whether one or more, referred to as "Maker")
promises to pay to the order of Fidelity Bank, chartered under the laws of the
state of Georgia (hereinafter, together with any subsequent holder hereof,
referred to as "Holder"), at its office at 3 Corporate Square, Atlanta, Georgia
30329 or at such other place as Holder hereof may from time to time designate in
writing, in lawful money of the United States of America, the principal sum of
ONE MILLION FIVE HUNDRED DOLLARS ($ 1,500,000.00 ) or so much as may be
disbursed hereunder, together with simple interest (computed on the basis of
actual days elapsed in a 360-day year) on the principal balance from time to
time outstanding prior to default hereunder at the rate of PRIME PLUS 1.5% PER
ANNUM percent per annum. The initial interest rate on this loan is 5.50 %.

         (If the interest rate is stated in terms of, or with reference to,
"Prime", "Prime Rate", or "P" (the "Prime Rate"), then (i) such terms shall mean
the rate established by Holder from time to time as being its "Prime Rate" for
the purpose of a reference from which it sets rates for specific loans, which
reference rate is not necessarily the rate actually provided to the most
creditworthy, or any other class of, borrowers, and (ii) the interest rate
charged hereunder will change as of the opening business on each day the Prime
Rate changes.)

         Installments of principal and interest shall be due under this Note as
follows:

SEE RIDER ATTACHED HERETO AND INCORPORATED HEREIN BY THIS REFERENCE.

         This Note shall mature and the principal balance hereof, together with
all unpaid interest and other charges, costs and expenses provided for hereunder
or under any other document or instrument evidencing or securing the
indebtedness of this Note shall be due and payable on SEPTEMBER 1, 2004 .

         If (i) any payment of principal or interest on this Note is not
received by Holder as and when same is due or (ii) a default occurs n the
performance of any other covenant or agreement of Maker in this Note or by Maker
(or by any guarantor, endorser, accommodation party or any other party liable
for payment of this Note or providing security for payment of the same,
collectively with Maker, an "Obligor") under any other Loan Document or (iii)
any Obligor shall cease to exist or become insolvent or (iv) debtor
reorganization, relief or liquidation proceedings shall be initiated by or
against any Obligor, or (v) Holder shall otherwise deem itself insecure, then
all obligations of Maker to Holder, including this Note, although otherwise
unmatured or contingent, shall, at the option of Holder, forthwith mature, and
the entire principal balance and all accrued interest and other charges due
Holder shall become immediately due and payable without any notice or demand
whatsoever.

         If the principal balance of this Note is accelerated, or any
installment due hereunder is not paid as and when the same is due, or if the
principal balance of this Note is not paid at maturity, then Holder shall have
the option to increase the rate of interest to a default rate equal to two
percentage points (2%) per annum plus the rate specified above, but in no event
to exceed the maximum rate permitted by applicable law. If any monthly
installment is not received within ten (10) days after its due date, Maker
shall, at Holder's option, pay a late charge equal to five percent (5%) of the
past due installment, such payment to be due with the succeeding monthly
installment. Payment of any late charge or default interest does not entitle
Maker to extension of any due date.

         To secure this indebtedness, along with any extensions or renewals
thereof, in whole or in part, as well as all other indebtedness of Maker to
Holder, now existing or hereafter incurred or arising however incurred
(hereinafter sometimes referred to collectively as the "Liabilities"), Maker
does hereby grant to Holder a security interest in and security title to the
following:

SEE RIDER ATTACHED HERETO AND INCORPORATED HEREIN BY THIS REFERENCE.

together with any and all additions and accessions thereto or replacements
thereof, returned or unearned premiums from any insurance on any of the same
against fire, theft, collision or other catastrophe and any products and/or
proceeds of any of the foregoing (al referred to herein as the "Collateral").

         Holder shall have the right to accelerate the maturity of the
Liabilities in the event that the Collateral or any portion thereof is
transferred, assigned, or sold, or any security interest granted therein without
the prio r written consent of Holder. If at any time Holder deem itself
insecure, Maker will immediately furnish such further Collateral to be held by
Holder, or make such payment on account, as will be satisfactory to holder.

         In addition to and independent of the rights and remedies of Holder as
a secured party under the Uniform Commercial Code of Georgia, Holder shall, as
security for the Liabilities, have the right to take possession of the
Collateral, or the proceeds thereof and to sell or otherwise dispose thereof,
and for this purpose, to sign in the name of Maker any transfer, conveyance or
instrument necessary therefor, and Holder may enter upon the premises on which
the Collateral or any part thereof may be situated and remove the same
therefrom, without being liable in any way to Maker on account of entering any
premises. Holder may require Maker to assemble the Collateral and make the same
reasonably convenient to both parties. The right is expressly granted to Holder
to transfer at any time to itself or its nominee any Collateral held hereunder
and to receive the income therefrom and hold the same as security herefor, or to
apply it to any of the Liabilities. If any notification of intended disposition
of any of the Collateral is required by law, such notification shall be deemed
reasonable and properly given if mailed at least five days before such
disposition.

         Whenever Holder in good faith reasonably believes that the prospect of
payment of this Note is impaired, Holder, without notice or demand of any kind,
may if the Maker is in bankruptcy place an administrative freeze upon, and if
the Maker is not in bankruptcy, hold and set off against any or all outstanding
principal or interest as Holder may elect, any balance or amount to the credit
of Maker in any deposit, agency, reserve, holdback or other account of any
nature whatsoever maintained by or on behalf of Maker with Holder at any of its
offices, regardless of whether such accounts are general or special and
regardless of whether such accounts are individual or joint, excepting only
accounts which are actually known to Holder to be trust accounts.

         Time is of the essence with respect to all of Maker's obligations and
agreements under this Note and the Loan Documents. In the event that Holder
institutes legal proceedings to enforce this Note or refers the same to an
attorney-at-law for enforcement or collection, Maker agrees to pay to Holder, in
addition to an y indebtedness due and unpaid, all costs and expenses of such
proceedings, including attorney's fees in the amount of fifteen percent (15%) of
the outstanding principal and interest.

         Holder shall not by any act of omission or commission be deemed to
waive any of its rights or remedies hereunder unless such waiver be in writing
and signed by an authorized officer of Holder and then only to the extent
specifically set forth therein; a waiver on one occasion shall not be construed
as continuing or as a bar to or waiver of such right or remedy on any other
occasion. All remedies conferred upon Holder by this Note or any other
instrument or agreement connected herewith or related hereto shall be cumulative
and none is exclusive, and such remedies may be exercised concurrently or
consecutively at Holder's option.

         This Note is hereby expressly limited so that in no contingency or
event whatsoever, whether by acceleration of maturity of the debt evidenced
hereby or otherwise, shall the amount paid or agreed to be paid to Holder for
the use, forbearance or retention of the money advanced or to be advanced
hereunder exceed the highest lawful rate permissible under applicable laws. If,
from any circumstances whatsoever, fulfillment of any provision hereof or of any
other agreement evidencing or securing the debt, at the time performance of such
provisions shall be due, shall involve the payment of interest in excess of that
authorized by law, the obligation to be fulfilled shall be reduced to the limit
so authorized by law, and if from any circumstances, Holder shall ever receive
as interest an amount which would exceed the highest lawful rate applicable to
Maker, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance of the debt evidenced hereby and not
to the payment of interest, regardless of any books or records of Holder which
may indicate the contrary.

         As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective heirs, successors, legal representatives and assigns,
whether by voluntary action of the parties or by operation of law; provided,
nothing herein shall be deemed consent by Holder to any assignment or conveyance
which is restricted or prohibited by the terms of any Loan Document. In the
event that more than one person, firm or entity is a Maker hereunder, then all
references to "Maker" shall be deemed to refer equally to each of said persons,
firms, or entities, all of whom shall be jointly and severally liable for all of
the obligations of Maker hereunder.

         Each Obligor hereby waives presentment for payment, demand, notice of
non-payment of this Note, protest and notice of protest, and consents that
Holder may extend the time of payment of any part or the whole of the debt at
any time at the request of any other person or entity liable.

         Each Obligor hereby waives and renounces for itself, its heirs,
successors and assigns, all rights to the benefits of any appraisement,
exemption or homestead now provided, or which may hereafter be provided by the
Constitution and laws of the United States of America and of any state thereof
in and to all of its property, real and personal, against the enforcement and
collection of the Liabilities. Each Obligor hereby transfers, conveys and
assigns to Holder a sufficient amount of such homestead or exemption as may be
set apart in bankruptcy, to pay this Note in full, with all costs of collection,
and does hereby direct any trustee in bankruptcy having possession of such
homestead or exemption to deliver to Holder a sufficient amount of property or
money set apart as exempt to pay the indebtedness evidenced hereby, or any
renewal thereof, and does hereby appoint Holder the attorney-in-fact for such
Obligor to claim any and all homestead exemptions allowed by law.

         In the event any suit or legal action is commenced by Holder, Maker
hereby expressly agrees, consents and submits to the personal jurisdiction of
any state or federal court sitting in DeKalb or Fulton County, Georgia with
respect to such suit or legal action, and the Maker also expressly consents and
submits to and agrees that venue in any such suit or legal action is proper in
said courts and county and Maker hereby expressly waives any and all personal
rights under applicable law or in equity to object to the jurisdiction and venue
in said courts and county. The jurisdiction and venue of the courts consented
and submitted to and agreed upon in this paragraph are not exclusive but are
cumulative and in addition to the jurisdiction and venue of any court under any
applicable laws or in equity.

         This Note shall be governed and construed under the laws of the State
of Georgia except to the extent applicable Georgia law is preempted by the laws
of the United States of America.

         Maker warrants that the proceeds of the loan evidenced hereby shall be
used solely for business or commercial purposes.

IN WITNESS WHEREOF, Maker has signed, sealed and delivered this Note as of the
date first hereinbove written and acknowledges receipt of a complete copy
hereof.

MAKER:                                       MAKER:
INTELLIGENT SYSTEMS CORPORATION, A GEORGIA
CORPORATION

By:_______________________________________   By:________________________________
Title:
            [CORPORATE SEAL]
__________________________________________   ___________________________________
Address  4355 Shackleford Road               Address
         Norcross, Georgia 30093

                                             Social Security No.:_______________
                                             Phone No.:_________________________
Social Security No.:______________________
Phone No.:____________

<PAGE>

                    RIDER TO COMMERCIAL PROMISSORY NOTE FROM
        INTELLIGENT SYSTEMS CORPORATION, A GEORGIA CORPORATION ("MAKER")
                      IN FAVOR OF FIDELITY BANK ("HOLDER")
       IN THE FACE PRINCIPAL AMOUNT OF $1,500,000.00 DATED OCTOBER 1, 2003

         This Rider to the above referenced Promissory Note (the "NOTE") is
hereby made a part of the Note and incorporated therein by this reference.

1.       From and after the date hereof, interest shall accrue at the "prime
rate" of Holder (as defined on the face of the Note) plus one and one-half
percent (1 1/2 %) per annum, and shall be adjusted daily with changes in the
prime rate during the term of the Note. The Note is calculated on a 360 day
basis.

2.       Commencing on November 1, 2003 and continuing on the same day of each
month thereafter through and including August 1, 2004, payments of interest
only, in arrears, shall be due and payable.

3.       On September 1, 2004, the entire outstanding principal balance of the
indebtedness hereby evidenced, together with all accrued and unpaid interest
thereon, and all sums due to Holder hereunder shall be due and payable in full.

4.       The Liabilities (as defined in the Note) are secured by certain assets
of Maker as more particularly described in the following documents dated of even
date herewith:

         a.       Security Agreement from Maker, as pledgor, to Holder, as
                  lender;

         b.       Loan Agreement by and between Maker and Holder; and

                  c.       Those certain Georgia form UCC-1 financing statements
                           executed by Maker, as debtor to Holder, as secured
                           party.

                  d.       Guaranties from VISaer, Inc., Corecard Software,
                           Inc., ChemFree Corporation, and QS Technologies,
                           Inc., all secured by Security Agreements executed by
                           each Guarantor in favor of the Secured Party as
                           evidenced by certain form UCC-1 financing statements
                           executed by Guarantor, as guarantor to Holder, as
                           secured party.

                  e.       Assignment of Life Insurance Policy in the amount of
                           no less than $1,000,000.00 on the life of J. Leland
                           Strange.

                  5.       Disbursements under the loan evidenced by this Note
(the "LOAN") shall be made in accordance with the terms of that certain Loan
Agreement of even date herewith by and between Maker, as debtor, and Holder, as
secured party (the "LOAN AGREEMENT").

         The undersigned Maker has executed this Rider under seal on this ______
day of October, 2003.

                        MAKER:

                        INTELLIGENT SYSTEMS CORPORATION., a Georgia corporation

Attest:__________________________         By: __________________________________
                                          Its:__________________________________

                                          [CORPORATE SEAL]

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>9
<FILENAME>g88120exv10w8.txt
<DESCRIPTION>EX-10.8 FORM OF GUARANTEE
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.8

                                                                 OCTOBER 1, 2003

                                FORM OF GUARANTY
                            (WITH SECURITY AGREEMENT)
                         FIDELITY BANK, ATLANTA, GEORGIA

         FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged,
and in consideration of any loan or other financial accommodation heretofore or
hereafter at any time made or granted to Intelligent Systems Corporation.
(hereinafter called the "Debtor") by FIDELITY BANK, chartered under the laws of
the state of Georgia (hereinafter together with its successors and assigns,
called the "Bank"), the undersigned Guarantor(s) do hereby unconditionally
guaranty the full and prompt payment when due, whether by declaration or
otherwise, and at all times hereafter, of all obligations of the Debtor to the
Bank, however and whenever incurred or evidenced, whether direct or indirect,
absolute or contingent, or due or to become due (collectively called
"Liabilities"), and the undersigned Guarantor(s) further agree(s) to pay the
following (herein called "Expenses"): (a) all expenses paid or incurred by the
Bank in endeavoring to collect the Liabilities or any part thereof from the
Debtor, including attorney's fees of 15% of the total amount sought to be
collected if the Bank endeavors to collect from the Debtor by law or through an
attorney at law; and (b) all expenses paid or incurred by the Bank in collecting
this Guaranty, including attorney's fees of 15% of the total amount sought to be
collected if this Guaranty is collected by law or through an attorney at law.

         Undersigned Guarantor(s) hereby warrants that loans or other financial
accommodations by the Bank to the Debtor will be to the direct interest and
advantage of the undersigned Guarantor(s). This Guaranty is a guaranty of
payment and not merely a guaranty of collection.

         This Guaranty shall be continuing, absolute and unconditional and shall
remain in full force and effect as to the undersigned Guarantor(s), even though
from time to time the Liabilities of the Debtor may from time to time be
completely paid, subject to discontinuance of this Guaranty as to any of the
undersigned Guarantor(s) (including, without limitation, any undersigned
Guarantor(s) who shall become deceased, incompetent or dissolved) only as
follows: Any of the undersigned Guarantor(s), and an person duly authorized and
acting on behalf of any of the undersigned Guarantor(s), may give written notice
to the Bank of the discontinuance of this Guaranty as to the undersigned
Guarantor(s) by whom or on whose behalf such notice is given, but no such notice
shall be effective in any respect until it is actually received by the Bank and
no such notice shall affect or impair the obligations hereunder of the
undersigned Guarantor(s) by whom or on whose behalf such notice is given with
respect to the Liabilities existing at the date of receipt of such notice by the
Bank, any interest thereon or any expenses paid or incurred by the Bank in
endeavoring to collect such Liabilities, or any part thereof, and in enforcing
this Guaranty against such undersigned Guarantor(s). Any such notice of
discontinuance by or on behalf of any of the undersigned Guarantor(s) shall not
affect or impair the obligations hereunder of any other of the undersigned
Guarantor(s).

         To secure the obligations herein, along with any extensions or renewals
thereof, in whole or in part, as well as all other indebtedness of undersigned
Guarantor(s) to Bank, now existing or hereafter incurred or arising however
incurred, undersigned Guarantor(s) does hereby grant to Bank a security interest
in and security title to the following: all assets of the Guarantor, including
all Inventory, Accounts, General Intangibles, Chattel Paper, Equipment and
Fixtures, and Leasehold Improvements owned by the Guarantor now or in the future
together with any and all additions and accessions thereto or replacements
thereof, returned or unearned premiums from any insurance on any of the same
against fire, theft, collision or other catastrophe and any products and/or
proceeds of any of the foregoing (all referred to herein as the "Collateral").
Neither the Collateral nor any portion thereof may be transferred, assigned, or
sold, or any security interest granted therein without prior written consent of
Bank. If at any time Bank shall deem itself insecure, undersigned Guarantor(s)
will immediately furnish such further Collateral to be held by Bank or make such
payment on account, as will be satisfactory to Bank.

         In addition to and independent of the rights and remedies of Bank as a
secured party under the Uniform Commercial Code of Georgia, Bank shall, as
security for the obligations of the undersigned herein, have the right to take
possession of the Collateral, or the proceeds thereof and to sell or otherwise
dispose thereof, and for this purpose, to sign in the name of undersigned
Guarantor(s) any transfer, conveyance or instrument necessary therefor, and Bank
may enter upon the premises on which the Collateral or any part thereof may be
situated and remove the same therefrom without being liable in any way to
undersigned Guarantor(s) to assemble the Collateral and make the same reasonably
convenient to both parties. The right is expressly granted to Bank to transfer
at any time to itself or its nominee any Collateral held hereunder and to
receive the income therefrom and hold the same as security herefor, or to apply
it to any of the obligations of the undersigned herein. If any notification of
intended disposition of any of the Collateral is required by law, such
notification shall be deemed reasonable and properly given if mailed at least
five days before such disposition.

         Whenever Bank in good faith reasonably believes that the prospect of
payment of the obligations of the undersigned Guarantor(s) herein is impaired,
Bank, without notice or demand of any kind, may if the undersigned Guarantor(s)
is in bankruptcy place an administrative freeze upon, and if the undersigned
Guarantor(s) is not in bankruptcy, hold and set off against any or all
outstanding principal or interest as reserve, a holdback or other account of any
nature whatsoever maintained by or on behalf of undersigned and regardless of
whether such accounts are individual or joint, excepting only accounts which are
actually known to Bank to be trust accounts. Bank may, without demand or notice
of any kind, at any time when any amount shall be due and payable hereunder by
any of the undersigned guarantor(s), appropriate and apply toward the payment of
such amount, and in such order of application as the Bank may from time to time
elect, any property, balances, credits, deposits, accounts, items or monies of
such undersigned Guarantor(s) in the possession or control of the Bank for any
purpose.

         The Bank may, from time to time, without notice to the undersigned
Guarantor(s) (or any of them) (a) retain or obtain a security interest in any
property to secure any of the Liabilities or any obligation hereunder, (b)
retain or obtain the primary or secondary liability of any party or parties, in
addition to the undersigned Guarantor(s), with respect to any of the
Liabilities, (c) extend or renew for any period (whether or not longer than the
original period), alter or exchange any of the Liabilities, (d) release or
compromise any liability of any of the undersigned Guarantor(s) hereunder or any
liability of any other party or parties primarily or secondarily liable on any
of the Liabilities, (e) release its security interest, if any, in all or any
property securing any of the Liabilities or any obligation hereunder and permit
any substitution or exchange for any such property, and (f) resort to the
undersigned Guarantor(s) (or any of them) for payment of any of the Liabilities,
whether or not the Bank shall have resorted to any property securing any of the
Liabilities or any obligation hereunder or shall have proceeded against any
other of the undersigned Guarantor(s) or any other party primarily or
secondarily liable on any of the Liabilities.

         In the event of death, incompetency, dissolution or insolvency of the
Debtor, or if a petition in bankruptcy be filed by or against the Debtor, or if
a receiver be appointed for any part of the property or assets of the Debtor, or
if any judgment be entered against the Debtor, or if the Bank shall deem itself
insecure with respect to Liabilities, and if any such event should occur at a
time when any of the Liabilities may not then be due and payable, the
undersigned Guarantor(s) agrees to pay to the Bank upon demand the full amount
which would be payable hereunder by the undersigned Guarantor(s) if all
Liabilities were then due and payable.

         Any amount received by the Bank from whatever source and applied by it
toward the payment of the Liabilities shall be applied in such order of
application as the Bank may from time to time elect.

         The undersigned Guarantor(s) hereby expressly waive(s): (a) notice of
the acceptance of this Guaranty, (b) notice of the existence or creation of all
or any of the Liabilities, (c)presentment, demand, notice of dishonor, protest,
and all other notices whatsoever, and (d) all diligence in collection or
protection of or realization upon the Liabilities or any thereof, any obligation
hereunder, or any security for any of the foregoing. The creation or existence
from time to time of Liabilities in excess of the amount to which the right of
recovery under this Guaranty is limited is hereby authorized, without notice to
the undersigned Guarantor(s) (or any of them), and shall in no way affect or
impair this Guaranty. The Bank may, without notice of any kind, sell, assign or
transfer all or any of the Liabilities, and in such event each and every
immediate and successive assignee, transferee, or holder of all or any of the
liabilities, shall have the right to enforce this Guaranty, by suit or
otherwise, for the benefit of such assignee, transferee or holder, as fully as
if such assignee, transferee or holder of all or any of the Liabilities, shall
have the right to enforce this Guaranty, by suit or otherwise, for the benefit
of such assignee, transferee or holder, as fully as if such assignee, transferee
or holder were herein by name specifically given such rights, powers and
benefits, but the Bank shall have an unimpaired right, prior and superior to
that of any such assignee, transferee or holder, to enforce this Guaranty for
the benefit of the Bank as to so much of the Liabilities as it has not sold,
assigned or transferred.

         No delay or failure on the part of the Bank in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Bank of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy. No action of the
Bank permitted hereunder shall in any way impair or affect this Guaranty. For
the purpose of this Guaranty, the Liabilities shall include all obligations of
the Debtor to the Bank, notwithstanding any right or power of the Debtor or
anyone else to assert any claim or defense, as to the invalidity or
unenforceability of any such obligation, and no such claim or defense shall
impair or affect the obligations of the undersigned Guarantor(s) hereunder.

         In the event any payment of Debtor to Bank is held to constitute a
preference under the bankruptcy laws, or if for any other reason, Bank is
required to refund such payment or pay the amount thereof to any other party,
such payment by Debtor to Bank shall not constitute a release of the undersigned
Guarantor(s) from any liability hereunder, but the undersigned Guarantor(s)
agree to pay such amount to Bank upon demand and this Guaranty shall continue to
be effective or shall be reinstated, as the case may be, to the extent of any
such payment or payments.

         Undersigned Guarantor(s) shall have no right of subrogation to Bank
against Debtor, and undersigned Guarantor(s) hereby waives any rights to enforce
any remedy which Bank may have against Debtor, claims which the undersigned
Guarantor(s) may have against Debtor with respect to sums due hereunder, and any
rights to participate in any security for the Liabilities.

         The undersigned hereby expressly waive(s) the right to require Bank to
take action against the Debtor as provided for in O.C.G.A. Section 10-7-24 or
any successor statute.

         This Guaranty has been made and delivered in the State of Georgia and
shall be governed by the laws of the State. Wherever possible each provision of
this Guaranty shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Guaranty shall be prohibited
by or invalid under such law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provision of this Guaranty. In the event any suit or
legal action is commenced by Bank, the undersigned Guarantor(s) do hereby
expressly agree, consent and submit to the personal jurisdiction of any state or
federal court sitting in Dekalb or Fulton County, Georgia with respect to such
suit or legal action, and the undersigned Guarantor(s) do also expressly consent
and submit to and agree that venue in any such suit or legal action is proper in
said courts and county and the undersigned Guarantor(s) do hereby expressly
waive any and all personal rights under applicable law or in equity to object to
the jurisdiction and venue in said courts and county. The jurisdiction and venue
of the courts consented and submitted to and agreed upon in this paragraph are
not exclusive but are cumulative and in addition to the jurisdiction and venue
of any other court under any applicable laws or in equity.

NOTICE TO GUARANTOR: You are being asked to guarantee this debt. Think carefully
before you do. If the borrower doesn't pay the debt, you will have to. Be sure
you can afford to pay if you have to, and that you want to accept this
responsibility. You may have to pay up to the full amount of the debt if the
borrower does not pay. You may also have to pay late fees or collection costs,
which increase this amount. The bank can collect this debt from you without
first trying to collect from the borrower, such as suing you, garnishing your
wages, etc. If this debt is ever in default, that fact may become a part of your
credit record. This notice is not the contract that makes you liable for the
debt.

         IN WITNESS WHEREOF the undersigned have hereunto set their hands and
affixed their seals the day and year above written.

GUARANTORS:
CHEMFREE CORPORATION, A GEORGIA CORPORATION
__________________________________________   ___________________________________

__________________________________________   ___________________________________
Address:                                     Address:
Tax Identification No.:___________________   Tax Identification No.:____________
Telephone No._____________________________   Telephone No.:_____________________

<PAGE>

__________________________________________   ___________________________________
Address:                                     Address:
Tax Identification No.:___________________   Tax Identification No.:____________
Telephone No._____________________________   Telephone No.:_____________________

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>10
<FILENAME>g88120exv21w1.txt
<DESCRIPTION>EX-21.1 LIST OF SUBSIDIARIES OF REGISTRANT
<TEXT>
<PAGE>

                                                                    EXHIBIT 21.1

                         INTELLIGENT SYSTEMS CORPORATION

           LIST OF PRINCIPAL SUBSIDIARY COMPANIES AS OF MARCH 1, 2004

SUBSIDIARY NAME                              STATE OF ORGANIZATION

ChemFree Corporation                         Georgia
CoreCard Software, Inc.                      Delaware
QS Technologies, Inc.                        Georgia
VISaer, Inc.                                 Delaware

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>11
<FILENAME>g88120exv23w1.txt
<DESCRIPTION>EX-23.1 CONSENT OF BDO SEIDMAN, LLP
<TEXT>
<PAGE>
                                                                    EXHIBIT 23.1

               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Intelligent Systems Corporation
Norcross, GA

We hereby consent to the incorporation by reference in the registration
statements (Form S-8 No. 333-58134, No. 333-32157 and No. 33-99432) of our
report dated March 4, 2004, relating to the consolidated financial statements
and schedule of Intelligent Systems Corporation and Subsidiaries appearing in
the company's annual report on Form 10-K for the year ended December 31, 2003.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

Atlanta, Georgia
March 26, 2004

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>12
<FILENAME>g88120exv31w1.txt
<DESCRIPTION>EX-31.1 SECTION 302 CERTIFICATION OF CEO
<TEXT>
<PAGE>

                                                                    EXHIBIT 31.1

              CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, J. Leland Strange, the Chief Executive Officer of Intelligent Systems
Corporation, certify that:

1.   I have reviewed this annual report on Form 10-K of Intelligent Systems
     Corporation;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we
     have:

          a)   designed such disclosure controls and procedures, or caused such
               disclosure controls and procedures to be designed under our
               supervision, to ensure that material information relating to the
               registrant, including its consolidated subsidiaries, is made
               known to us by others within those entities, particularly during
               the period in which this annual report is being prepared; and

          b)   evaluated the effectiveness of the registrant's disclosure
               controls and procedures and presented in this report our
               conclusions about the effectiveness of the disclosure controls
               and procedures, as of the end of the period covered by this
               report based on such evaluation; and

          c)   disclosed in this report any change in the registrant's internal
               control over financial reporting that occurred during the
               registrant's most recent fiscal quarter (the registrant's fourth
               fiscal quarter in the case of an annual report) that has
               materially affected, or is reasonably likely to materially
               affect, the registrant's internal control over financial
               reporting.

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of registrant's board of
     directors (or persons performing the equivalent functions):

          a)   all significant deficiencies and material weaknesses in the
               design or operation of internal control over financial reporting
               which are reasonably likely to adversely affect the registrant's
               ability to record, process, summarize and report financial
               information; and

          b)   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal control over financial reporting.

Date: March 30, 2004

                                       /s/ J. Leland Strange
                                       -----------------------------------------
                                           J. Leland Strange
                                           Chief Executive Officer and President

                         INTELLIGENT SYSTEMS CORPORATION


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>13
<FILENAME>g88120exv31w2.txt
<DESCRIPTION>EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
<TEXT>
<PAGE>

                                                                    EXHIBIT 31.2

              CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bonnie L. Herron, the Chief Financial Officer of Intelligent Systems
Corporation, certify that:

1.   I have reviewed this annual report on Form 10-K of Intelligent Systems
     Corporation;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we
     have:

          a)   designed such disclosure controls and procedures, or caused such
               disclosure controls and procedures to be designed under our
               supervision, to ensure that material information relating to the
               registrant, including its consolidated subsidiaries, is made
               known to us by others within those entities, particularly during
               the period in which this annual report is being prepared; and

          b)   evaluated the effectiveness of the registrant's disclosure
               controls and procedures and presented in this report our
               conclusions about the effectiveness of the disclosure controls
               and procedures, as of the end of the period covered by this
               report based on such evaluation; and

          c)   disclosed in this report any change in the registrant's internal
               control over financial reporting that occurred during the
               registrant's most recent fiscal quarter (the registrant's fourth
               fiscal quarter in the case of an annual report) that has
               materially affected, or is reasonably likely to materially
               affect, the registrant's internal control over financial
               reporting.

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of registrant's board of
     directors (or persons performing the equivalent functions):

          a)   all significant deficiencies and material weaknesses in the
               design or operation of internal control over financial reporting
               which are reasonably likely to adversely affect the registrant's
               ability to record, process, summarize and report financial
               information; and

          b)   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal control over financial reporting.

Date: March 30, 2004

                                                /s/ Bonnie L. Herron
                                                --------------------------------
                                                    Bonnie L. Herron
                                                    Chief Financial Officer

                         INTELLIGENT SYSTEMS CORPORATION

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>14
<FILENAME>g88120exv32w1.txt
<DESCRIPTION>EX-32.1 SECTION 906 CERTIFICATION OF THE CEO/CFO
<TEXT>
<PAGE>

                                                                    EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned officers of Intelligent Systems Corporation (the
"Company") hereby certifies to his or her knowledge that the Company's annual
report on Form 10-K for the period ended December 31, 2003 (the "Report"), as
filed with the Securities and Exchange Commission on the date hereof, fully
complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended, and that the information contained
in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.

Date: March 30, 2004                         /s/ J. Leland Strange
                                             -----------------------------------
                                                  J. Leland Strange
                                                  Chief Executive Officer

                                             /s/ Bonnie L. Herron
                                             -----------------------------------
                                                  Bonnie L. Herron
                                                  Chief Financial Officer

                         INTELLIGENT SYSTEMS CORPORATION

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
