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<SEC-DOCUMENT>0000950144-05-003264.txt : 20050330
<SEC-HEADER>0000950144-05-003264.hdr.sgml : 20050330
<ACCEPTANCE-DATETIME>20050330143427
ACCESSION NUMBER:		0000950144-05-003264
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		10
CONFORMED PERIOD OF REPORT:	20041231
FILED AS OF DATE:		20050330
DATE AS OF CHANGE:		20050330

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INTELLIGENT SYSTEMS CORP
		CENTRAL INDEX KEY:			0000320340
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-PREPACKAGED SOFTWARE [7372]
		IRS NUMBER:				581964787
		STATE OF INCORPORATION:			GA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-09330
		FILM NUMBER:		05713501

	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>10KSB
<SEQUENCE>1
<FILENAME>g94136e10ksb.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: Helvetica,Arial,sans-serif">



<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>






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

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

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


<P align="center" style="font-size: 12pt"><B>FOR ANNUAL AND TRANSITION REPORTS<BR>
PURSUANT TO SECTIONS 13 OR 15(d) OF THE<BR>
SECURITIES EXCHANGE ACT OF 1934</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="100%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD align="left">(Mark One)</TD>
</TR>

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

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%" style="font-size: 12pt">
<TR style="font-size: 1pt">
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="95%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">For the fiscal year ended December&nbsp;31, 2004



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


<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%" style="font-size: 12pt">
<TR>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="95%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934</B></TD>
</TR>
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">For the transition period from<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>



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

<P>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="100%"><P align="center" style="font-size: 24pt"><B>INTELLIGENT SYSTEMS CORPORATION</B></TD>
</TR>
<TR valign="bottom">

    <TD style="border-top: 1px solid #000000" align="center">(Exact name of Registrant as specified in its charter)</TD>
</TR>

</TABLE>
</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="49%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Georgia</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" colspan="3"><B>58-1964787</B></TD>

</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">(State or other jurisdiction of incorporation or organization)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="left" valign="top">(I.R.S. Employer Identification No.)
</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4355 Shackleford Road, Norcross, Georgia</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" colspan="3"><B>30093</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Address of principal executive offices)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="left" 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="left" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Title of each class</B>
</DIV></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" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" 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="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">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No <FONT face="Wingdings">&#111;</FONT>



<P align="left" style="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 III of this Form
10-KSB or any amendment to this Form&nbsp;10-KSB. <FONT face="Wingdings">&#254;</FONT>



<P align="left" style="font-size: 10pt">State registrant&#146;s revenue for its most recent fiscal year. $22,332,000



<P align="left" style="font-size: 10pt">As of February&nbsp;28, 2005, 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 February&nbsp;28,
2005 was $8,843,918 (computed using the closing price of the Common Stock on February&nbsp;28, 2005 as
reported by the American Stock Exchange).



<P align="left" style="font-size: 10pt">DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant&#146;s Proxy Statement for the Annual
Meeting of Shareholders are incorporated by reference in Part III hereof.



<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</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: Helvetica,Arial,sans-serif">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>TABLE OF CONTENTS</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="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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="2" style="border-bottom: 1px solid #000000"><B>PAGE</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px"><A href="#101"><B>Part I</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:2px; text-indent:-0px"><A href="#102">Item&nbsp;1. Business</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#103">2. Properties</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#104">3. Legal proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#105">4. Submission of matters to a vote of security holders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px"><A href="#106"><B>Part II</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></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:-0px"><A href="#107">5. Market for the registrant&#146;s common equity, related stockholder matters and
small business issuer repurchases of equity securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#108">6. Management&#146;s discussion and analysis or plan of operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#109">7. Financial statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#110">8. Changes in and disagreements with accountants in accounting and financial disclosure</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#111">8A. Controls and procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px"><A href="#112"><B>Part III</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></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:-0px"><A href="#113">9. Directors and executive officers of the registrant</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#114">10. Executive compensation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#115">11. Security ownership of certain beneficial owners and management and related stockholder matters</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#116">12. Certain relationships and related transactions</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#117">13. Exhibits and reports on Form&nbsp;8-K</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-0px"><A href="#118">14. Principal accountant fees and services</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px"><A href="#119">Signatures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g94136exv10w1.txt">EX-10.1 LEASE AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g94136exv10w9.txt">EX-10.9 FIRST MODIFICATION TO LOAN DOCUMENTS</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g94136exv10w10.txt">EX-10.10 CONSENT ORDER</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g94136exv21w1.txt">EX-21.1 LIST OF SUBSIDIARIES</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g94136exv23w1.txt">EX-23.1 CONSENT OF TAUBER & BALSER, P.C.</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g94136exv23w2.txt">EX-23.2 CONSENT OF BDO SEIDMAN, LLP.</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g94136exv31w1.htm">EX-31.1 SECTION 302 CERTIFICATION OF THE CEO</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g94136exv31w2.htm">EX-31.2 SECTION 302 CERTIFICATION OF THE CFO</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g94136exv32w1.htm">EX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO</A></FONT></TD></TR>
</TABLE>
</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: Helvetica,Arial,sans-serif">

<DIV align="left">
<!-- /TOC -->
</DIV>
<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 align="left" style="margin-left:5%; font-size: 10pt"><I>In addition to historical information, this </I><I>Form 10-KSB</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;6 of this </I><I>Form 10-KSB</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>

<DIV align="left">
<A name="102"></A>
</DIV>

<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="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 <U>www.intelsys.com</U>. 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="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="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="font-size: 10pt"><B>Financial Reporting</B>



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



<P align="left" style="font-size: 10pt">Our consolidated companies operate in two industry segments: Information Technology Products and
Services and Industrial Products. The Information Technology Products and Services 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, 2004, we own 100
percent of our ChemFree and QS Technologies subsidiaries, 79&nbsp;percent of VISaer and 87&nbsp;percent of
CoreCard Software.



<P align="left" style="font-size: 10pt">Operations in the Information Technology Products and Services 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.
Depending on the contract terms and customer implementation and testing schedule, which are
typically outside of our control, the timing of revenue recognition is not generally within our
control or determinable by us with any degree of certainty in advance.



<P align="left" style="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 average three to four years.



<P align="left" style="font-size: 10pt">Our individual operations in both segments are relatively small in size and are subject to
considerable fluctuation in revenue and profitability which in turn affects our consolidated
revenue and margins. For instance, sales of ChemFree products, which were slightly higher in 2004
than in 2003, represented 28&nbsp;percent of consolidated revenue in 2004, but had represented 47
percent of consolidated revenue in 2003. In 2004, VISaer&#146;s revenue represented almost 52&nbsp;percent of
consolidated revenue, compared to 24&nbsp;percent in 2003. QS Technologies&#146; revenue accounted for 12
percent and 29&nbsp;percent of consolidated revenue in 2004 and 2003, respectively. CoreCard
contributed an immaterial amount to consolidated revenues in 2003, but their contribution grew to
eight percent 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 15 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
6. of this Form&nbsp;10-KSB.



<P align="left" style="font-size: 10pt"><B>Industry Segment: Information Technology Products and Services</B>



<P align="left" style="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
Andover, Massachusetts, VISaer also has operations in England to support product development and
sales activities in Europe and a small technical and project management team in Australia. VISaer
is the successor company of Visibility, Inc., a software company whose operations were sold in July
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 installed its initial customers of its first Version 3 release, a fully Web-native version
of its complete MRO solution, in 2003. In 2004, VISaer focused on developing the next release of
its Version 3 software to establish strong reference accounts and did not allocate significant
resources to new sales and marketing programs. In addition to contracts to deliver professional
services and maintenance support in 2005, VISaer has additional signed contracts to purchase
software licenses for its Version 3 software and has $2.6&nbsp;million in short-term deferred revenue,
net of related costs, at December&nbsp;31, 2004 that is expected to be recognized in 2005. VISaer has
also identified a pipeline of additional prospects for license sales and professional services.



<P align="left" style="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 the second half of 2004 and continuing in recent months, there appears to be momentum building to move forward on delayed proposals to purchase MRO
software which we believe will

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<P align="left" style="font-size: 10pt">provide an opportunity to build our pipeline of new business opportunities. 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, and small to mid-size domestic regional airlines.



<P align="left" style="font-size: 10pt">VISaer markets and sells its software in both domestic and international markets. International
customers represented 27&nbsp;percent of VISaer revenue in 2004 but had represented a majority of VISaer
sales of products and services in each of the prior two years. The percentage decline in 2004
relates to unusually high domestic sales in 2004 due to completion of a multi-year contract more
than to a decline in the dollar value of international sales. The markets for VISaer products
include both airline-owned maintenance and engineering shops as well as third party MRO
organizations. 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.
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 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, although any technical or quality problems
that arise could delay the product&#146;s implementation and negatively impact customer acceptance and
references<B>.</B>



<P align="left" style="font-size: 10pt"><B><I>QS Technologies, Inc. </I></B>- QS Technologies operates mainly from its Greenville, South Carolina
location, providing both health and human services and vital records software, along with
maintenance and support services to its installed customer base as well as to new customers. QS
Technologies&#146; products allow public health and government 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. Our vital records software is typically sold to a government
department that is implementing the software state-wide, compared with the market for health and
human services software which includes smaller, local city and county jurisdictions as well. 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 our products and the timing of contract awards is impacted by general
economic conditions as well as customer-specific factors such as preferred technology platform,
defined product specifications, 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 health and human services product
line, marketed under the Insight&#153; name, and added a vital records (birth and death) software
product and web-based capabilities. In 2003, QS Technologies benefited from 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, in 2003, QS Technologies had a record year for revenue
from new license sales and from annual maintenance contracts due to an expanded installed customer
base. As anticipated, in 2004, QS Technologies did not match the same level of new license revenue
as it did in 2003, although service revenue continues to provide a growing, recurring contribution
because new and existing customers typically sign annual maintenance and support contracts. The
level of new Requests For Proposal (&#147;RFP&#148;) activity in 2004 and into 2005 is creating a reasonable
pipeline of new business opportunities although RFP&#146;s contracts awards and timelines are always
subject to changes in state and federal budgets and funding.



<P align="left" style="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 product development (including prior to the
spin-off), in 2003 CoreCard completed the first major installation of its CoreISSUE&#153; and
CoreCOLLECT&#153; application modules, based on its proprietary CoreENGINE&#153; architecture, at a major
catalog retail customer and recognized its first significant revenue 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


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



<P align="left" style="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. 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 some of its competitors
and potential customers may 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. Moreover, some potential customers may be reluctant to acquire
software from a company with limited customer installations and choose instead a lower risk
strategy of acquiring different and perhaps older technology from more established companies.
Certain of CoreCard&#146;s competitors, including processors, 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 its 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 is focusing its
development, marketing and sales activities on establishing a growing base of referenceable,
satisfied customers. CoreCard has certain non-compete restrictions related to the spin-off from
PaySys International, the last of which expires in April&nbsp;2006. However, CoreCard believes that the
available worldwide market is substantial, even with this remaining restriction.



<P align="left" style="font-size: 10pt">CoreCard licenses its software products typically for a one-time license fee or, depending on
specific customer requirements and preferences, on a per transaction fee. 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. but may work with a small number of
resellers and third parties in international markets to identify, sell and support targeted
opportunities. CoreCard completed the initial functionality in its core software modules,
CoreISSUE&#153;, CoreFRAUD&#153; and CoreCOLLECT&#153; in 2003, developed further enhancements in 2004, and in
2005 expects to complete and deliver CoreACQUIRE&#153; and other product enhancements to its existing
products. Any delays or problems in completing, testing and delivering CoreCard&#146;s new products
could adversely affect customer acceptance and references.



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



<P align="left" style="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&#174; trademark. SmartWashers&#174; use an advanced
bio-remediation system that cleans automotive and machine parts without using hazardous,
solvent-based chemicals. Typically, the SmartWasher&#174; 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&#174; 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="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, 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. ChemFree sells its products directly to high volume customers as well as through
several distribution channels, including international distributors in Europe, Canada, Latin
America 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 represented six percent and 13
percent of our consolidated revenue in 2004 and 2003, respectively, and 22&nbsp;percent and 28&nbsp;percent
of our Industrial Products Segment revenue in 2004 and 2003, respectively. Part of ChemFree&#146;s
revenue is derived from multi-year lease contracts under which ChemFree provides SmartWashers&#174; and
supplies to nationwide chains of auto repair shops, such as Firestone and Pep Boys.



<P align="left" style="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


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



<P align="left" style="font-size: 10pt">Customer and warranty service, typically covering a one-year period, generally consists of shipping
a replacement part to the customer or returning a defective product to either ChemFree or 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 it is possible to acquire subassemblies from multiple sources, ChemFree frequently
contracts with a single source for certain components in order to benefit from lower prices and
consistent quality, especially with respect to molded plastic parts which are produced using
ChemFree owned molds.



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



<P align="left" style="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, and a network of professional services.
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="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,
corporate ventures, and shared offices such as executive suites.



<P align="left" style="font-size: 10pt"><B>Minority-Owned Partner Companies</B>



<P align="left" style="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. Our two largest current investments follow:



<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="left">&#149;&nbsp;&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>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&nbsp;</TD>
    <TD>A 25.5&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 align="left" style="font-size: 10pt"><B>Research and Development</B>



<P align="left" style="font-size: 10pt">We spent $7.6&nbsp;million and $8.3&nbsp;million in the years ended December&nbsp;31, 2004 and 2003, respectively,
on company sponsored research and development. In 2004, the Information Technology segment spent
$757,000 less on software development than in 2003. In each of the last two years, 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. Total R&#038;D expenses in 2004 were
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; and at VISaer, costs were lower due to reduced need for third party contractors
than were required during the early product development stages, and reassignment of some software
developers to customer support and professional services activities.



<P align="left" style="font-size: 10pt">VISaer released its first Version 3 software in 2003, delivered additional version releases and
modules in 2004, and expects to complete a release in early 2005 that will be used as the Go-Live
version for most existing and prospective customers. In 2005, CoreCard Software expects to
complete additional software modules, principally CoreACQUIRE&#153;, and to develop further enhancements
to its initial suite of products.

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<P align="left" style="font-size: 10pt"><B>Patents, Trademarks and Trade Secrets</B>



<P align="left" style="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&#174; system and
the process of bioremediation used in the SmartWasher&#174; 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&#174;, OzzyJuice&#174;, VISaer&#153;, CoreENGINE&#153;, CoreISSUE&#153;, CoreCOLLECT&#153;, Insight&#153; and others.



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



<P align="left" style="font-size: 10pt">As of February&nbsp;28, 2005, we had 162 full-time equivalent employees in our company, including 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="font-size: 10pt"><B>Financial Information About Geographic Areas</B>



<P align="left" style="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.


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



<P align="left" style="font-size: 10pt">At February&nbsp;28, 2005, we have leases covering approximately 61,000 square feet in Norcross, GA,
6,100 square feet in Greenville, SC, and 12,000 square feet in Andover, MA, to house our product
development, manufacturing, sales, service and administration operations, as well as a small
development office in Romania. Approximately 10&nbsp;percent of the space we lease in Norcross is
subleased to businesses in our technology business incubator. We believe our facilities are
adequate for the foreseeable future.


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



<P align="left" style="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 filed a suit in the United States District Court for the Northern District of Georgia in
an action styled ChemFree Corporation vs. James C. McClure. During the quarter ended September&nbsp;30,
2004, an agreement was reached to settle both litigation matters. ChemFree secured a full
assignment of interests in all of ChemFree&#146;s patents and patent applications worldwide from the
former consultant in return for periodic payments over a five year period. The payment schedule
provides for four monthly payments of $25,000, beginning August&nbsp;2, 2004, and 48&nbsp;monthly payments of
$8,333 beginning in August&nbsp;2, 2005 for an aggregate consideration of $500,000 ($451,000 discounted
at 6.5%). In accordance with Statement of Financial Accounting Standards No.&nbsp;142, &#147;Accounting for
Intangible Assets&#148;, we believe that the present value of the payment stream ($451,000) is fully
recoverable at this time. Based on our current estimations, we believe the average useful life of
these patents to be 10&nbsp;years, which does not exceed legal lives. 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.


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</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="font-size: 10pt">We did not submit any matter to a vote of our shareholders during the fiscal quarter ended
December&nbsp;31, 2004.

<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


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

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<DIV style="font-family: Helvetica,Arial,sans-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, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
ISSUER REPURCHASES OF EQUITY SECURITIES</B>



<P align="left" style="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="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Low</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><B>1st Quarter</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">2.80</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">1.62</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">1.70</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">1.25</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><B>2nd Quarter</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.53</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.78</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.04</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.40</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><B>3rd Quarter</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.09</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.60</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.20</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.59</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px"><B>4th Quarter</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.52</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.91</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2.01</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">1.55</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">We had 370 shareholders of record as of February&nbsp;28, 2005. 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 regular 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 5 to the Consolidated Financial Statements.


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

<P align="left" style="font-size: 10pt"><B>ITEM 6. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS</B>



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



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



<P align="left" style="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. 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="font-size: 10pt">We recognize software fees in accordance with Statement of Position (&#147;SOP&#148;) No.&nbsp;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)
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)&nbsp;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,

<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


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

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<DIV style="font-family: Helvetica,Arial,sans-serif">




<P align="left" style="font-size: 10pt">&#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="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="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 and delays. 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="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 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 2
to the Consolidated Financial Statements, we discuss aggregate charges totaling $639,000 in 2004 to
write-off the carrying value of our investment in Ardext Technologies and $1.2&nbsp;million in 2003 to
reflect reductions in the carrying value of our investments in RF Solutions, Silverpop and
MediZeus. Charges were recorded in the fiscal quarter corresponding to the events giving rise to
management&#146;s change in estimated valuation.



<P align="left" style="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 CoreCard Software subsidiary (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. Additionally, we may
acquire an intangible asset through other means, such as occurred in August&nbsp;2004, when our ChemFree
subsidiary acquired intellectual property assets in settlement of long-standing legal matters, as
explained in more detail in Note 8 to the Consolidated Financial Statements. We recorded the
addition of $458,000 in intangible assets in 2004 related to the ChemFree intellectual property
assets which are being amortized over a ten year period. We did not acquire any companies in 2004
and no write-downs with respect to goodwill or other intangibles occurred in 2004 or 2003.



<P align="left" style="font-size: 10pt">The determination of the value of 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. Sometimes 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, 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.


<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


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

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<DIV style="font-family: Helvetica,Arial,sans-serif">




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



<P align="left" style="font-size: 10pt">Our consolidated subsidiaries operate in two industry segments: Information Technology Products and
Services and Industrial Products. Included in the Information Technology Products and Services
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 financial transactions involving credit accounts).
The Industrial Products segment includes ChemFree Corporation (bio-remediating parts washers).



<P align="left" style="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, customization, 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="4%" nowrap align="left">&#149;&nbsp;&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>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&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>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&nbsp;</TD>
    <TD>Two of our software subsidiaries, CoreCard Software and VISaer,
have been involved in major new product development initiatives
for the past four years and have limited experience delivering and
installing their new products at customer sites, making it
difficult to predict with certainty when they will recognize
revenue on individual software contracts.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&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 minor 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 the
consolidated revenue that we can recognize in a given quarterly or
annual period.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&nbsp;</TD>
    <TD>Acquisitions may affect our revenue and expense levels. For
instance, in 2002, we acquired a controlling interest in CoreCard
Software. Consequently, we consolidated the results of operations
of CoreCard from the date of acquisition but not for prior
periods.</TD>
</TR>

</TABLE>


<P align="left" style="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, are not consistently profitable on a quarterly or annual
basis, 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. 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="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="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, although our funding in 2004 was lower than for 2003. We do not expect 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 on an annual basis 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="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


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

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<DIV style="font-family: Helvetica,Arial,sans-serif">




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



<P align="left" style="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="font-size: 10pt"><B>2004 Compared to 2003</B>



<P align="left" style="font-size: 10pt"><B><I>Revenue </I></B>- Total revenue for the year ended December&nbsp;31, 2004 was $22.3&nbsp;million, an increase of 67
percent compared to the same period in 2003. Revenue from product sales increased 34&nbsp;percent
year-to-year from $8.5&nbsp;million to $11.4&nbsp;million, whereas service revenue more than doubled, from
$4.9&nbsp;million in 2003 to $10.9&nbsp;million in 2004. Both product and service revenue were impacted
positively as a result of our Visaer subsidiary&#146;s recognition of revenue related to a multi-year
contract that had been deferred from prior years. This single contract with a major customer
contributed $7.5&nbsp;million in total revenue and $4.9&nbsp;million in gross margin in the year ended
December&nbsp;31, 2004. It is unlikely that VISaer or any of the company&#146;s software subsidiaries will
have another contract of the same size in the foreseeable future.



<P align="left" style="font-size: 10pt"><I>Product revenue </I>includes sales of industrial products by our Industrial Products segment as well as
software licenses by our Information Technology segment subsidiaries:



<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="left">&#149;&nbsp;&nbsp;</TD>
    <TD>Sales of industrial products by our ChemFree subsidiary were slightly higher in 2004 than
in 2003, and the mix of revenue by source and product changed from year-to-year as well.
ChemFree&#146;s sales of parts washers, fluid and filters to the international market increased 29
percent overall compared to the prior year reflecting increased volume of units sold in the
European and Latin American markets; revenue from leased equipment in the domestic market
increased 25&nbsp;percent compared to the 2003 level, mainly due to a new multi-location corporate
customer; and the volume of fluid and filters sold to the installed base of domestic customers
increased approximately four percent in 2004 as compared to 2003. Offset against these
increases was a decline in the number of machines sold through ChemFree&#146;s distribution network
in the domestic U.S. market. ChemFree expects one of its expiring leases to be renewed in
2005 but if it does not, the level of revenue from this source could decline.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&nbsp;</TD>
    <TD>License revenue generated by our Information Technology segment increased by $2.8&nbsp;million
(126&nbsp;percent) in 2004 mainly due to the VISaer major customer contract described above which
contributed $2.7&nbsp;million in license revenue. Additionally, our CoreCard Software subsidiary
generated its first significant license revenue in 2004, but this was offset by a year-to-year
decline in license revenue of approximately the same amount at our QS Technologies subsidiary
mainly due to a record high level of license sales in 2003 which, as expected, was not matched
in 2004.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><I>Service revenue </I>generated by our Information Technology subsidiaries increased by $6.1&nbsp;million (125
percent) in 2004 as compared to 2003. Of this amount, approximately $4.8&nbsp;million was for
professional services, maintenance and reimbursable travel related to the VISaer major customer
contract and the balance of the increase is due to more maintenance, support and professional
services revenue from a larger installed base of customers at each of our software subsidiaries.



<P align="left" style="font-size: 10pt"><B><I>Cost of Sales </I></B>- Total cost of sales was $8.9&nbsp;million in 2004, a 32&nbsp;percent increase compared to
2003, on a 67&nbsp;percent increase in revenue year-to-year. Cost of <I>product </I>sales in 2004 was $3.7
million, or 32&nbsp;percent of total product revenue, compared to $3.3&nbsp;million or 39&nbsp;percent of total
product revenue in 2003. The difference between years is due to the significantly greater amount
of software license revenue generated in 2004, which has a lower cost of sales than do our
industrial products. Software license revenue represented 45&nbsp;percent and 27&nbsp;percent of total
product revenue in 2004 and 2003, respectively, whereas industrial products revenue represented 55
percent and 73&nbsp;percent of total product revenue in 2004 and 2003, respectively. Cost of sales for
industrial products remained unchanged in 2004 and 2003 at 52&nbsp;percent of industrial product
revenue.



<P align="left" style="font-size: 10pt">Cost of <I>service </I>sales (which relates to the Information Technology subsidiaries only) represented
47&nbsp;percent of service revenue or $5.2&nbsp;million in 2004 compared to 69&nbsp;percent of service revenue, or
$3.4&nbsp;million, in 2003. The decrease in cost of sales as a percentage of service revenue in 2004 is
mainly due to lower costs as a percentage of sales associated with the professional services
revenue recognized by VISaer, as well as more efficient utilization of professional services
employees at VISaer. Partially offsetting this cost reduction was a 21&nbsp;percent increase in cost of
service sales at the QS Technologies&#146; subsidiary due to higher personnel expenses to support a larger installed base of customers under annual maintenance contracts and to deliver more
professional services projects for new and existing customers.


<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


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

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<P align="left" style="font-size: 10pt"><B><I>Operating Expenses </I></B>- Consolidated operating expenses were nine percent lower in 2004 than in 2003,
decreasing from $15.0&nbsp;million in 2003 to $13.7&nbsp;million in 2004. Both general and administrative
expense and marketing expense declined by nine percent year-to-year, while research and development
expenses declined by eight percent year-to-year. The reduction in marketing expenses is mainly due
to fewer direct sales employees and their associated travel costs. The decrease in general and
administrative expense reflects lower costs at each of our subsidiaries mainly due to a reduction
in total number of U.S. based employees performing administrative functions, lower facility costs
at VISaer, and reduced depreciation expense. Offset against these declines is an increase of
$64,000 at the corporate group mainly for higher rent and audit fees. Research and development
expense was $686,000 less in 2004 than in 2003 mainly due to a combination of factors, including
reduction in the use of third party contractors at VISaer, the allocation of more developers&#146;
expense to cost of professional services at QS Technologies, and greater use of lower cost
employees at CoreCard Romania for certain testing and quality assurance functions.



<P align="left" style="font-size: 10pt"><B><I>Interest Expense </I></B><I>- </I>We did not incur a net interest expense for 2004 despite a higher average bank
line of credit balance in 2004 as compared to 2003, because our interest expense of $11,000 was
offset by interest income of the same amount at a subsidiary.



<P align="left" style="font-size: 10pt"><B><I>Investment Income </I></B>- We recognized $2.5&nbsp;million in net investment income in 2004 compared to net
investment income of $3.0&nbsp;million in 2003. Included in the investment income in 2004 is a gain of
$2.7&nbsp;million on distributions related to our holdings in ISC Guernsey, aggregate investment gains
totaling $513,000 related to transactions involving our holdings in Cirronet, Riverside Software
and RF Solutions, and a write-down of $639,000 on our holdings in Ardext Technologies. Refer to
Note 2 to the Consolidated Financial Statements for more details on each of these transactions. By
comparison, net investment income in 2003 is comprised mainly of a gain on the PaySys escrow stock
offset by write-downs on several minority owned investments, as explained in Note 2 to the
Consolidated Financial Statements.



<P align="left" style="font-size: 10pt"><B><I>Equity Earnings (Losses) of Affiliate Companies </I></B><I>- </I>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)
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 and year-to-year.
In 2004, we recorded $76,000 in equity losses of five affiliate companies (Horizon Software
International, Riverside Software, CoreXpand, Alliance Technology Ventures and Cirronet) for those
periods in 2004 in which we accounted for each by the equity method. By comparison, in 2003, we
recorded $184,000 in equity earnings of six affiliate companies (including Horizon Software
International, CoreXpand, Riverside Software, MediZeus, Alliance Technology Ventures and Cirronet)
for those periods in which we accounted for each by the equity method.



<P align="left" style="font-size: 10pt"><B><I>Other Income, net </I></B>- In 2004, other income includes $382,000 in recognition of the remaining balance
of deferred gain related to a VISaer product line sale in a prior period, $8,000 in currency
exchange gains, and other miscellaneous expense items. In 2003, the amount includes $137,000 in
recognition of deferred gain related to the VISaer product line sale, $124,000 in foreign currency
exchange gains, and other miscellaneous income.



<P align="left" style="font-size: 10pt"><B><I>Taxes </I></B>- The income tax liability of $3,000 recorded in 2004 reflects state tax liability at our QS
Technologies subsidiary. We did not accrue for any other income tax liability in 2004 and we
believe our deferred tax assets should be fully reserved given their character and our historical
losses. 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.



<P align="left" style="font-size: 10pt"><B>Liquidity and Capital Resources</B>



<P align="left" style="font-size: 10pt">Our cash balance at December&nbsp;31, 2004 was $670,000, which is $463,000 lower than at the prior
year-end. During the year ended December&nbsp;31, 2004, our principal sources of cash were $2.7&nbsp;million
from distributions related to the ISC Guernsey sale of assets, $1.1&nbsp;million from the sale of our
Cirronet stock, a net increase of $2.3&nbsp;million in current deferred revenue related to payments by
customers for software and annual maintenance contracts for which the related revenue will be
recognized within twelve months and $113,000 from a lower level of inventory of industrial
products. During the year, our principal use of cash was $4.0&nbsp;million for operations, which was
$1.4&nbsp;million less than in 2003. We used $433,000 cash in 2004 to reduce accrued payroll, the
majority of which was for employee bonuses earned in 2003 but paid in 2004. Further, accounts
receivable increased by $1.4&nbsp;million compared to December&nbsp;31, 2003 reflecting the timing of
ChemFree invoices for quarterly lease payments that were dated December&nbsp;31, 2004 compared to a
January 1 dating for the comparable invoices for the prior period and an annual maintenance billing
at the QS Technologies subsidiary that was delayed from the third to the fourth quarter of 2004 due
to a contract amendment.


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<P align="left" style="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 2004, we used $3.9&nbsp;million to support these two subsidiaries, which was $2.8
million less than the $6.7&nbsp;million we used in 2003. We do not expect 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 on an annual basis
and a growing portion of CoreCard&#146;s expenses in 2005. 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 expect 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 QS Technologies subsidiary generated
sufficient cash in 2004 to offset a majority of the corporate office expenses and is expected to do
so again in 2005. There are no restrictions on the transfer of cash balances between the parent
and subsidiary companies.



<P align="left" style="font-size: 10pt">At December&nbsp;31, 2004, we have several potential near-term sources of cash to support any negative
cash flow from consolidated operations, including periodic draws against our bank line of credit
and additional cash distributions of between $1.8&nbsp;million and $2.1&nbsp;million related to the ISC
Guernsey sale, as explained in more detail in Note 2 to the Consolidated Financial Statements.
Sales of investments, subsidiaries or assets have generated cash on an irregular basis in the past
but the amount and timing of sales of such transactions cannot be predicted with reasonable
certainty at this time and presently we do not have any firm pending transactions. Our budgeted
cash requirements for operations in 2005 are lower than for 2004 based on new and pending software
licenses and professional services contracts at our Information Technology subsidiaries. We expect
to use our bank line of credit as needed in 2005 to accommodate short-term timing differences in
consolidated cash flows, as we did in 2004. 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, 2005), we
may not be able to find a replacement line of credit on acceptable terms, if at all. Certain of
our software customer contracts tie cash payments to delivery dates of various software
deliverables. Delays in meeting project milestones or software delivery commitments could cause
customers to postpone payments and increase our need for cash during 2005. 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, if we do not control costs or if we encounter unforeseen
technical or quality problems, then we could require more cash than planned and we would need to
increase our use of our bank line of credit, scale back operations at the subsidiary or seek new
financing, which could affect performance under the contracts, at least in the short term.



<P align="left" style="font-size: 10pt">Beyond 2005, 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,
subsidiaries 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="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="font-size: 10pt"><B>Factors That May Affect Future Operations</B>



<P align="left" style="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.



<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


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

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<DIV style="font-family: Helvetica,Arial,sans-serif">




<P align="left" style="font-size: 10pt">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="4%" nowrap align="left">&#149;&nbsp;&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>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&nbsp;</TD>
    <TD>Undetected software errors or poor quality control which may delay product releases, increase our costs, result in
non-acceptance of our software by customers or delay revenue recognition.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&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>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&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>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&nbsp;</TD>
    <TD>Failure of our products&#146; specifications and features to achieve market acceptance.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&nbsp;</TD>
    <TD>Delays in anticipated customer payments for any reason which would increase our cash requirements and possibly our losses.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&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>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&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>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&nbsp;</TD>
    <TD>The relatively limited sales and marketing experience of our VISaer and CoreCard subsidiaries in their respective markets
which could cause them to misinterpret or fail to adjust to a trend in the market or to underestimate the sales cycle
time frame.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&nbsp;</TD>
    <TD>In the Industrial Products market, failure by ChemFree to achieve anticipated growth in the European market or to renew
expiring lease contracts for domestic customers could cause lower than anticipated sales and profits and impact projected
cash flow.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&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 and greater cash
requirements.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&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>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&nbsp;</TD>
    <TD>An insufficient level of qualifying accounts receivable and inventories to support a borrowing base sufficient to meet
any borrowing requirements under our bank line of credit.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&nbsp;</TD>
    <TD>The recurrence of some incidence such as the SARS epidemic in 2003 or the terrorist attacks of 2001 that has a negative
impact on the aviation industry, resulting in delays in contract awards and customer implementations similar to the
unforeseen negative affect on cash and profits experienced by VISaer during the SARS epidemic and the aftermath of the
2001 attacks.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">&#149;&nbsp;&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="font-size: 10pt">We have certain lease commitments, legal matters and contingent liabilities described in detail in
Note 8 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="font-size: 10pt"><B>Recent Accounting Pronouncements</B>



<P align="left" style="font-size: 10pt">In December&nbsp;2004, the FASB eliminated the application of the Accounting Principles Board (&#147;APB&#148;)
No.&nbsp;25, &#147;Accounting for Stock Issued to Employees&#148; which permitted companies to use the alternative
intrinsic value method of accounting for stock based compensation. The change is effective for
small business issuers for the first interim or annual reporting period that begins after December
15, 2005. SFAS No.&nbsp;123, &#147;Accounting for Stock Based Compensation&#148; requires companies to recognize
the cost of employee services received in exchange for awards of equity instruments based on the
grant-date fair value of those awards, with limited exceptions. We have not yet determined whether
the adoption of this statement after December&nbsp;15, 2005 will have a material impact on our results
of operations or financial condition. In the discussion of Stock Based Compensation in Note 1 to
the Consolidated Financial Statements, we disclose the effect of the use of the fair-value
provisions of SFAS No.&nbsp;123 on historical results of operations.



<P align="left" style="font-size: 10pt">In March&nbsp;2004, the Emerging Issues Task Force reached a consensus on Issue No.&nbsp;03-16, &#147;Accounting
for Investments in Limited Liability Companies&#148;. The consensus requires an investment in a Limited
Liability Company (&#147;LLC&#148;) that maintains a specific ownership account for each investor be viewed
as similar to an investment in a limited partnership for the purposes of determining whether a
noncontrolling investment in an LLC should be accounted for using the cost method or equity method
of accounting. The consensus was effective in the


<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


<DIV align="center" style="font-size: 10pt"> - 15 - </DIV>
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<P align="left" style="font-size: 10pt">quarter beginning after June&nbsp;15, 2004. The implementation of this consensus did not have a material
impact on our financial position or results of operations.


<DIV align="left">
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<P align="left" style="font-size: 10pt"><B>ITEM 7. FINANCIAL STATEMENTS</B>



<P align="left" style="font-size: 10pt">The following consolidated financial statements and related reports of independent public
accountants are included in this report and are incorporated by reference in Part II, Item&nbsp;7
hereof. See Index to Financial Statements and Supplemental Schedules on page F-1 hereof.


<P align="left" style="font-size: 10pt; margin-left: 6%">Report of Independent Registered Public Accounting Firm<BR>
Report of Previous Independent Registered Public Accounting Firm<BR>
Consolidated Balance Sheets at December&nbsp;31, 2004 and 2003<BR>
Consolidated Statements of Operations for the two years ended December&nbsp;31, 2004<BR>
Consolidated Statements of Changes in Stockholders&#146; Equity and Comprehensive Income (Loss)<BR>
&nbsp;&nbsp;for the two years ended December&nbsp;31, 2004<BR>
Consolidated Statements of Cash Flow for the two years ended December&nbsp;31, 2004<BR>
Notes to Consolidated Financial Statements


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



<P align="left" style="font-size: 10pt">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 related instruction 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; margin-left: 6%">Schedule&nbsp;II &#150; Valuation and Qualifying Accounts and Reserves

<DIV align="left">
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<P align="left" style="font-size: 10pt"><B>ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</B>



<P align="left" style="font-size: 10pt">On November&nbsp;22, 2004, we dismissed BDO Seidman, LLP as our independent public accountants. No
report of BDO Seidman, LLP on our consolidated financial statements as of and for the fiscal years
ended December&nbsp;31, 2003 and December&nbsp;31, 2002 contained an adverse opinion or a disclaimer of
opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles.
During the period of BDO&#146;s appointment on July&nbsp;3, 2002 through November&nbsp;22, 2004, there were no
disagreements with BDO Seidman, 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 BDO Seidman, LLP, would have caused it to make reference to the subject matter of
the disagreement in connection with its reports for such periods. Effective November&nbsp;22, 2004,
our Audit Committee appointed Tauber &#038; Balser, P.C. as our new independent accountants.


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

<P align="left" style="font-size: 10pt"><B>ITEM 8A. CONTROLS AND PROCEDURES</B>



<P align="left" style="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="112"></A>
</DIV>

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


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

<P align="left" style="font-size: 10pt"><B>ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT</B>



<P align="left" style="font-size: 10pt">Please refer to the subsection entitled &#147;Proposal 1 &#151; The Election of One Director &#151; Nominee&#148; and
&#147;Proposal 1 &#151; The Election of One Director &#151; Executive Officers&#148; in our Proxy Statement for the
2005 Annual Meeting of Shareholders for information about the individual nominated as director and about the executive officers of the company. This information is
incorporated into this Item&nbsp;9 by reference.

<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


<DIV align="center" style="font-size: 10pt"> - 16 - </DIV>
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<P align="left" style="font-size: 10pt">Information regarding compliance by directors and executive officers of the company and owners of more than 10&nbsp;percent of our common stock with the
reporting requirements of Section&nbsp;16(a) of the Securities Exchange Act of 1934, as amended, is
contained 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;9 by reference.



<P align="left" style="font-size: 10pt">The company adopted a Code of Ethics that applies to all directors, officers, and employees. The
Code of Ethics is posted on our website at <U>www.intelsys.com</U>. The company will disclose on its
website, within the time required by the rules of the SEC, any waivers of, or amendments to, the
Code of Ethics for the benefit of an executive officer.


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

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



<P align="left" style="font-size: 10pt">Please refer to the subsection entitled &#147;Proposal 1 &#151; The Election of One Director &#151; Executive
Compensation&#148; in the Proxy Statement referred to in Item&nbsp;9 for information about management
compensation. This information is incorporated into this Item&nbsp;10 by reference.


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

<P align="left" style="font-size: 10pt"><B>ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS</B>



<P align="left" style="font-size: 10pt">Please refer to the subsections entitled &#147;Voting &#151; Principal Shareholders, Directors and Certain
Executive Officers&#148; and &#147;Voting &#151; Securities Authorized for Issuance Under Equity Compensation
Plan&#148; in the Proxy Statement referred to in Item&nbsp;9 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;11 by reference.


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

<P align="left" style="font-size: 10pt"><B>ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</B>



<P align="left" style="font-size: 10pt">The lease on our headquarters and primary facility at 4355 Shackleford Road, Norcross, Georgia
expired May&nbsp;31, 2004. The former landlord was unwilling to renew this lease and had instead
expressed a desire to sell the facility. On June&nbsp;1, 2004, ISC Properties, LLC, an entity
controlled by J. Leland Strange, a director and President and Chief Executive Officer, purchased
the facility from the former landlord and leased approximately 45&nbsp;percent of the facility to the
company in order to allow us to stay in the present facility and to avoid the disruption and
expense of a move. After careful consideration, the company&#146;s Board of Directors concluded that
the lease transaction was fair to the company and in the best interests of the company and its
shareholders, and approved the lease transaction between the company and ISC Properties, LLC
effective June&nbsp;1, 2004. Mr.&nbsp;Strange recused himself from deliberations concerning, and voting to
approve, the lease transaction. In connection with this approval, the Board of Directors waived
the conflict of interest provisions of our Code of Ethics as they apply to Mr.&nbsp;Strange in
connection with the lease transaction. In 2004, we paid ISC Properties, LLC $229,000 in rent. We
also evaluated the arrangement to determine if ISC Properties, LLC should be considered a Variable
Interest Entity (&#147;VIE&#148;) within the guidance of Financial Accounting Standards Board FIN No.&nbsp;46.
After carefully considering the characteristics of the relationship between the company and ISC
Properties, LLC, it was determined that ISC Properties, LLC did not meet the criteria of a VIE and,
as a result, ISC Properties, LLC is not consolidated with the company.



<P align="left" style="font-size: 10pt">In 2003, Mr.&nbsp;Strange participated as a common shareholder in the pro rata distribution of the
escrow fund related to the sale 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 $149,000 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="117"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K</B>



<P align="left" style="font-size: 10pt"><B>(a)&nbsp;Exhibits</B>



<P align="left" style="font-size: 10pt">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="4%" nowrap align="left">3(i) &nbsp;&nbsp;&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>


</TABLE>

<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

<DIV align="center" style="font-size: 10pt"> - 17 - </DIV>
</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: Helvetica,Arial,sans-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="4%" nowrap align="left">3(ii)&nbsp;&nbsp;&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="4%" nowrap align="left">4.1&nbsp;&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="4%" nowrap align="left">4.2&nbsp;&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="4%" nowrap align="left">10.1&nbsp;&nbsp;</TD>
    <TD>Lease Agreement dated June&nbsp;1, 2004, between the Registrant and ISC Properties, LLC.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">10.2&nbsp;&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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">(a)&nbsp;&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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">(b)&nbsp;&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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">(c)&nbsp;&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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">(d)&nbsp;&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="4%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">(e)&nbsp;&nbsp;</TD>
    <TD>Non-Employee Directors Stock Option Plan</TD>
</TR>

</TABLE>



<P align="left" style="margin-left:4%; font-size: 10pt">Exhibit&nbsp;10.2(a) is incorporated by reference to Exhibit&nbsp;10.2(a) to the Registrants Form 10-K
for the year ended December&nbsp;31, 2003.



<P align="left" style="margin-left:4%; font-size: 10pt">Exhibit&nbsp;10.2(b) is incorporated by reference to Exhibit&nbsp;4.1 of the Registrant&#146;s Form S-8 dated
July&nbsp;25, 1997.



<P align="left" style="margin-left:4%; font-size: 10pt">Exhibits 10.2(c) 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.



<P align="left" style="margin-left:4%; font-size: 10pt">Exhibit&nbsp;10.2(e) 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.


<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="left">10.3&nbsp;&nbsp;</TD>
    <TD>Loan Agreement by and among Intelligent Systems Corporation and Fidelity Bank dated October
1, 2003. (Incorporated by reference to Exhibit&nbsp;10.3 to the Registrant&#146;s Form 10-K for the
year 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="4%" nowrap align="left">10.4&nbsp;&nbsp;</TD>
    <TD>Security Agreement by and among Intelligent Systems Corporation and Fidelity Bank dated as of
October&nbsp;1, 2003. (Incorporated by reference to Exhibit&nbsp;10.4 to the Registrant&#146;s Form 10-K for
the year 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="4%" nowrap align="left">10.5&nbsp;&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. (Incorporated by reference to
Exhibit&nbsp;10.5 to the Registrant&#146;s Form 10-K for the year 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="4%" nowrap align="left">10.6&nbsp;&nbsp;</TD>
    <TD>Negative Pledge Agreement by and among Intelligent Systems Corporation and Fidelity Bank
dated October&nbsp;1, 2003. (Incorporated by reference to Exhibit&nbsp;10.6 to the Registrant&#146;s Form
10-K for the year 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="4%" nowrap align="left">10.7&nbsp;&nbsp;</TD>
    <TD>Commercial Promissory Note and Rider thereto of Intelligent Systems Corporation in favor of
Fidelity Bank dated October&nbsp;1, 2004. (Incorporated by reference to Exhibit&nbsp;10.7 to the
Registrant&#146;s Form 10-K for the year 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="4%" nowrap align="left">10.8&nbsp;&nbsp;</TD>
    <TD>Form of Guarantee of majority owned subsidiaries of Intelligent Systems Corporation in favor
of Fidelity Bank dated October&nbsp;1, 2003. (Incorporated by reference to Exhibit&nbsp;10.3 to the
Registrant&#146;s Form 10-K for the year 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="4%" nowrap align="left">10.9&nbsp;&nbsp;</TD>
    <TD>First Modification to Loan Documents by and among Intelligent Systems Corporation and
Fidelity Bank dated September&nbsp;1, 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">10.10&nbsp;&nbsp;</TD>
    <TD>Consent Order entered in United States District Court for the Northern District of Georgia,
Atlanta Division dated September&nbsp;10, 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">21.1&nbsp;&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="4%" nowrap align="left">23.1&nbsp;&nbsp;</TD>
    <TD>Consent of Tauber &#038; Balser, P.C.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">23.2&nbsp;&nbsp;</TD>
    <TD>Consent of BDO Seidman, LLP.</TD>
</TR>

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


<DIV align="center" style="font-size: 10pt"> - 18 - </DIV>
</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: Helvetica,Arial,sans-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="4%" nowrap align="left">31.1&nbsp;&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="4%" nowrap align="left">31.2&nbsp;&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="4%" nowrap align="left">32.1&nbsp;&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="font-size: 10pt">We filed a report on Form&nbsp;8-K on November&nbsp;1, 2004 disclosing that we issued a press release on
November&nbsp;1, 2004 announcing our financial results for the quarter ended September&nbsp;30, 2004.



<P align="left" style="font-size: 10pt">We filed a report on Form&nbsp;8-K on November&nbsp;24, 2004 disclosing that we had changed our Registered
Public Accounting firm.


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

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



<P align="left" style="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;9 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="119"></A>
</DIV>

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



<P align="left" style="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.


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="49%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">INTELLIGENT SYSTEMS CORPORATION</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">Registrant</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">&nbsp;</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 align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: March&nbsp;30, 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><I>/s/ J. Leland Strange</I></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&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">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">J. Leland Strange</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">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board, President</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">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">and Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="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="20%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Capacity</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><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">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board, President,
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;30, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" style="border-bottom: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px"><I>/s/ J. Leland Strange</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer and Director</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">J. Leland Strange</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(Principal Executive Officer)</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</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">&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" style="border-bottom: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px"><I>/s/ Bonnie L. Herron</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;30, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Bonnie L. Herron
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(Principal Accounting and Financial Officer)</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">&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" style="border-bottom: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px"><I>/s/ James V. Napier</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;30, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">James V. Napier</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">&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" style="border-bottom: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px"><I>/s/ John B. Peatman</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;30, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">John B. Peatman</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">&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" style="border-bottom: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px"><I>/s/ Parker H. Petit</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;30, 2005</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Parker H. Petit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

 <P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

<DIV align="center" style="font-size: 10pt"> - 19 - </DIV>
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">


<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>

</TABLE>

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



<P align="left" style="font-size: 10pt">The following consolidated financial statements and schedules of the Registrant and its
subsidiaries are submitted herewith in response to Item&nbsp;7:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px"><B>Financial Statements:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-0px"><A href="#300">Report
of Independent Registered Public Accounting Firm</A> </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:15px; text-indent:-0px"><A href="#301">Report
of Previous Independent Registered Public Accounting Firm</A> </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:15px; text-indent:-0px"><A href="#302">Consolidated
Balance Sheets &#151; December&nbsp;31, 2004 and 2003</A> </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-0px"><A href="#303">Consolidated Statements
of Operations &#151; Two Years Ended December&nbsp;31, 2004</A> </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:15px; text-indent:-0px"><A href="#304">Consolidated Statements of Changes in Stockholders&#146; Equity and Comprehensive Income (Loss) -
Two Years Ended December&nbsp;31, 2004</A> </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-0px"><A href="#305">Consolidated Statements of Cash
Flow &#151; Two Years Ended December&nbsp;31, 2004 </A></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:15px; text-indent:-0px"><A href="#306">Notes
to Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px"><B>Financial Statement Schedule:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">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 valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-0px">Schedule&nbsp;II &#151; 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"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


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

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<DIV style="font-family: Helvetica,Arial,sans-serif">

<DIV align="left">
<A name="300"></A>
</DIV>


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



<P align="left" style="font-size: 10pt">To the Board of Directors and Shareholders of<BR>
Intelligent Systems Corporation:


<P align="left" style="font-size: 10pt">We have audited the accompanying consolidated balance sheet of Intelligent Systems Corporation and
subsidiaries (the &#147;Company&#148;) as of December&nbsp;31, 2004, and the related consolidated statement of
operations, changes in stockholders&#146; equity and comprehensive income, and cash flow for the year
then ended. Our audit also included the financial statement schedule for the year ended December
31, 2004 listed in the accompanying index. These financial statements and financial statement
schedule are the responsibility of the Company&#146;s management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on our audit.



<P align="left" style="font-size: 10pt">We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (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 audit provides a reasonable basis for our opinion.



<P align="left" style="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, 2004, and the results of their operations and their cash flow for the year then ended
in conformity with accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule for the year ended December&nbsp;31, 2004, when
considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.



<P align="left" style="font-size: 10pt">/s/ Tauber &#038; Balser, P.C.



<P align="left" style="font-size: 10pt">Atlanta, Georgia<BR>
March&nbsp;3, 2005

<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


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

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<DIV style="font-family: Helvetica,Arial,sans-serif">
<DIV align="left">
<A name="301"></A>
</DIV>


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



<P align="left" style="font-size: 10pt">To the Board of Directors and Shareholders of Intelligent Systems Corporation:



<P align="left" style="font-size: 10pt">We have audited the accompanying consolidated balance sheet of Intelligent Systems Corporation and
subsidiaries (the &#147;Company&#148;) as of December&nbsp;31, 2003 and the related consolidated statements of
operations, changes in stockholders&#146; equity and comprehensive income (loss)&nbsp;and cash flow for the
year then ended. We have also audited the financial statement schedule for the year ended December
31, 2003 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 audit.



<P align="left" style="font-size: 10pt">We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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 audit provides a
reasonable basis for our opinion.



<P align="left" style="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 the results of their operations and their cash flows for the year then ended
in conformity with accounting principles generally accepted in the United States of America.



<P align="left" style="font-size: 10pt">Also, in our opinion, the 2003 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"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


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

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<DIV style="font-family: Helvetica,Arial,sans-serif">

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

<DIV align="left">
<A name="302"></A>
</DIV>


<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED BALANCE SHEETS</B><BR>
<I>(in thousands, except share amounts)</I></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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>As of December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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 style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,543</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Notes and interest receivable</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">142</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">766</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current assets</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">614</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,198</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,879</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,275</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, at cost less accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">746</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,039</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other intangibles, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">476</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,742</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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 style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">932</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,895</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,586</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred gain</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">291</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses and other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,037</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,096</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred revenue, net of current portion</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">5,060</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310</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 colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total long term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,060</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments
and contingencies (note 8)</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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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 style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock, $0.01 par value, 20,000,000 shares authorized, 4,478,971
issued and outstanding at December&nbsp;31, 2004 and 2003</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">
    <TD><DIV style="margin-left:30px; text-indent:-15px">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">18,410</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(124</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,762</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17,325</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,070</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,742</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt"><I>The accompanying notes are an integral part of these consolidated balance sheets.</I>


 <P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

<DIV align="center" style="font-size: 10pt">F-4 </DIV>
</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: Helvetica,Arial,sans-serif">




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

<DIV align="left">
<A name="303"></A>
</DIV>


<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED STATEMENTS OF OPERATIONS</B><BR>
<I>(in thousands, except share and per share amounts)</I></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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11,386</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,466</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,868</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,334</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,324</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,380</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,876</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,704</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,558</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,811</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">General &#038; administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,895</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Research &#038; development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,316</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(274</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,392</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest income, net</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">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Investment income (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,040</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity in income (losses)&nbsp;of affiliate companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(76</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">392</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before income tax provision (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,838</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic net income (loss)&nbsp;per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.07</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted net income (loss)&nbsp;per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.07</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic weighted average shares outstanding</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">4,483,458</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,607,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483,458</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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


<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


<DIV align="center" style="font-size: 10pt">F-5 </DIV>
</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: Helvetica,Arial,sans-serif">




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

<DIV align="left">
<A name="304"></A>
</DIV>


<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED STATEMENTS OF CHANGES IN<BR>
STOCKHOLDERS&#146; EQUITY AND COMPREHENSIVE INCOME (LOSS)</B><BR>
<I>(in thousands, except share amounts)</I></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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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="6" style="border-bottom: 0px solid #000000"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>STOCKHOLDERS&#146; EQUITY</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Common stock, number of shares, </B>beginning 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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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 nowrap align="left">&nbsp;</TD>
    <TD align="right">(12,808</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">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">4,478,971</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Common stock, amount, </B>beginning and end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Paid-in capital, </B>beginning 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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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 nowrap align="left">&nbsp;</TD>
    <TD align="right">(22</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">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">18,410</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Accumulated other comprehensive loss, </B>beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(56</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment during year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(67</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(68</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized gain on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">End of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(124</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Accumulated deficit, </B>beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17,325</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(12,527</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">End of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,762</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17,325</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total stockholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,070</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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:15px; text-indent:-15px"><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>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign currency translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(67</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(68</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net unrealized gain on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,802</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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


<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


<DIV align="center" style="font-size: 10pt">F-6 </DIV>
</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: Helvetica,Arial,sans-serif">





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

<DIV align="left">
<A name="305"></A>
</DIV>


<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED STATEMENTS OF CASH FLOW</B><BR>
<I>(in thousands)</I></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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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="6" style="border-bottom: 0px solid #000000"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred gain recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(382</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(137</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Investment (income)&nbsp;loss, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,524</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,033</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity in (income)&nbsp;loss of affiliate companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(184</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Changes in operating assets and liabilities, net of effects of acquisition
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">
Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,388</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,482</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(95</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(381</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,750</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,049</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(65</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(369</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accrued expenses and other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(924</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash used for operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,982</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,448</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds related to sales of investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,540</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition of company, net of cash acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distributions from long-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">268</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisitions of long-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(200</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repayments under notes receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Advances under notes receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(284</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchases of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(399</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(434</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,778</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Borrowings under short-term borrowing arrangements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repayments under short-term borrowing arrangements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,184</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:30px; text-indent:-15px">Exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">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 nowrap align="left">&nbsp;</TD>
    <TD align="right">(22</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">228</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effects of exchange rate changes on cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(67</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(69</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net decrease in cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(463</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,511</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,644</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,133</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash paid during the year for interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash paid (received)&nbsp;during the year for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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


<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


<DIV align="center" style="font-size: 10pt">F-7 </DIV>
</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: Helvetica,Arial,sans-serif">




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

<DIV align="left">
<A name="306"></A>
</DIV>


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


<P align="left" style="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="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 15. Our affiliate
companies (in which we have a minority ownership) are mainly involved in the information technology
industry.



<P align="left" style="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, accrued expenses and deferred income taxes. 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="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.



<P align="left" style="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="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="font-size: 10pt"><I>Accounts Receivable and Allowance for Doubtful Accounts </I>- Accounts receivable are customer
obligations due under normal trade terms. They are stated at the amount management expects to
collect. 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="font-size: 10pt">Senior management reviews accounts receivable on a monthly basis to determine if any receivables
will potentially be uncollectible. We include any accounts receivable 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 the information available to us, we believe our allowance for doubtful
accounts as of December&nbsp;31, 2004 is adequate. However, actual write-offs might exceed the recorded
allowance.



<P align="left" style="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. The value of inventories at
December&nbsp;31, 2004 and 2003 is 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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">525</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finished goods</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">241</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="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, 2004 and 2003 is 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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,041</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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">217</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">456</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


<DIV align="center" style="font-size: 10pt">F-8 </DIV>
</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: Helvetica,Arial,sans-serif">


<P align="left" style="font-size: 10pt">For financial reporting purposes, we use a combination of the straight-line method and the 150
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="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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="2"><B>Useful life in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Classification</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>years</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">3 - 5</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:15px; text-indent:-15px">Furniture &#038; fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">5 - 7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">1 - 5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="font-size: 10pt">Accumulated depreciation was $2.9&nbsp;million and $3.0&nbsp;million at December&nbsp;31, 2004 and 2003,
respectively. Depreciation expense was $363,000 and $467,000 in 2004 and 2003, respectively.
These expenses are included in general and administrative expenses, except with respect to our
Industrial Products Segment, where the depreciation expense relates primarily to products leased to
customers and is included in cost of sales.



<P align="left" style="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, 2004 and 2003 is 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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">820</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Carrying value of equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">283</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">640</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">537</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="font-size: 10pt">The minimum future lease revenue under non-cancelable contracts through March&nbsp;31, 2005 is $206,000
at December&nbsp;31, 2004. There is no contingent rental income under the leases. These assets are
included in Property and Equipment at December&nbsp;31, 2004 and 2003.



<P align="left" style="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 of less
than 20&nbsp;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. At December&nbsp;31, 2004 and 2003, the aggregate value of investments accounted for by
the equity method was $4&nbsp;million and $5.2&nbsp;million respectively. At December&nbsp;31, 2004 and 2003, the
aggregate value of investments accounted for by the cost method was $689,000 and $1.1&nbsp;million,
respectively. 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, 2004 and 2003, the aggregate fair market value of our
available-for-sale securities consisted of equity securities totaling $176,000 and $0,
respectively. These amounts include net unrealized holding gains of $3,000 and $0 as of December
31, 2004 and 2003, respectively. These amounts are reflected as a separate component of
stockholders&#146; equity.



<P align="left" style="font-size: 10pt"><I>Other Intangibles and Goodwill </I>- Other intangibles are carried at cost net of related amortization.
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 for the largest component of our intangible assets 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, 2004 and 2003, no impairment was identified.



<P align="left" style="font-size: 10pt">The carrying value of intangibles at December&nbsp;31, 2004 is $2.7&nbsp;million, of which $2.0&nbsp;million
represents goodwill whereas the carrying value of intangibles at December&nbsp;31, 2003 was $2.5
million, of which $2.0&nbsp;million represented goodwill. Intangibles other than goodwill at December
31, 2004 increased by $223,000, compared to the prior year end, representing the net effect of the
addition of $458,000 related to the ChemFree patents (including $451,000 resulting from assignment
of patents to ChemFree in settlement of litigation as explained in Note 8), less $235,000 in
consolidated annual amortization expense. At December&nbsp;31, 2004, intangibles other than goodwill are
primarily related to acquired software and the ChemFree patents, as more fully explained in Note 8.
At December&nbsp;31, 2003, intangibles other than goodwill primarily relate to acquired software.



<P align="left" style="font-size: 10pt">In fiscal years 2004 and 2003, we recorded amortization expense related to intangible assets of
approximately $235,000 and $312,000, respectively. Accumulated amortization of intangibles totaled
$950,000 and $715,000 at December&nbsp;31, 2004 and 2003, respectively. We had no goodwill amortization
expense in periods presented herein. Annual amortization expense for the following five years is
expected to be approximately $174,000, $174,000, $46,000, $46,000 and $46,000 for the years ending
December&nbsp;31, 2005 through 2009, respectively.



<P align="left" style="font-size: 10pt"><I>Accrued Expenses and Other Current Liabilities </I>- Accrued expenses and other liabilities at December
31, 2004 and 2003 consist 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">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued payroll</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,361</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">676</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

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

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<DIV style="font-family: Helvetica,Arial,sans-serif">


<P align="left" style="font-size: 10pt"><I>Deferred Revenue &#151; </I>Current deferred revenue consists of advance payments by software customers for
annual maintenance and support services, advance payments from customers for software licenses
expected to be delivered in 2005, and payments by ChemFree lease customers that are billed
quarterly for leased equipment and supplies. We do not anticipate any loss under these contracts.
Deferred revenue is classified as long-term until such time that it becomes likely that the
services or products will be provided within 12&nbsp;months of the balance sheet date.



<P align="left" style="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, certain investments,
short-term borrowings, accrued expenses, and other current liabilities) included in the
accompanying consolidated balance sheets approximates their fair value principally due to the
short-term maturity of these instruments.



<P align="left" style="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 concentrated 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="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="83%">&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="font-size: 10pt">We perform ongoing credit evaluations of customers worldwide and generally do not require
collateral from our customers. 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="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="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 do not provide for estimated sales returns allowances and rebates because ChemFree&#146;s
well-established policy rarely authorizes such transactions. 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="font-size: 10pt">We recognize software fees in accordance with Statement of Position (&#147;SOP&#148;) No.&nbsp;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)
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)&nbsp;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="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="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="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="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

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

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<DIV style="font-family: Helvetica,Arial,sans-serif">




<P align="left" style="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="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.



<P align="left" style="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. Thereafter, 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 two years ended December&nbsp;31, 2004, we did not capitalize any internal use software
costs.



<P align="left" style="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, 2004 and 2003.



<P align="left" style="font-size: 10pt"><I>Stock Based Compensation &#151; </I>At December&nbsp;31, 2004 we had three stock based compensation plans which
are more fully described in Note 13. As a small business issuer, 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. Beginning with the first reporting period that begins after December
31, 2005, we will no longer be allowed to use the intrinsic value recognition method and instead
will recognize the cost of employee services received in exchange for equity securities based on
the grant-date fair value of the awards. Based on the additional disclosure requirements of SFAS
No.&nbsp;148, &#147;Accounting for Stock Based Compensation &#151; Transition and Disclosure &#151; 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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands,</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>except per share amounts)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss), reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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="left">&nbsp;</TD>
    <TD align="right">(37</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(48</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proforma net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,846</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proforma net income (loss)
per common share basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.08</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proforma net income (loss)
per common share diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.08</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="font-size: 10pt">The fair value of each option granted in each of the last two 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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk free rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">4</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected life of option in years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected dividend yield rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">40</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">49</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="font-size: 10pt">Under these assumptions, the weighted average fair value of options granted in 2004 and 2003 was
$0.93 and $0.83 per share, respectively. The fair value of the grants would be amortized over the
vesting period for the options.



<P align="left" style="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 attributable to
differences between the financial statement carrying amounts of the existing assets and liabilities
and their respective tax bases.


<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


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

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<DIV style="font-family: Helvetica,Arial,sans-serif">




<P align="left" style="font-size: 10pt"><I>Comprehensive Income (Loss) </I>- Comprehensive income (loss)&nbsp;represents net income (loss)&nbsp;adjusted for
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, 2004 and 2003.



<P align="left" style="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="font-size: 10pt"><I>New Accounting Pronouncements &#151; </I>In December&nbsp;2004, the FASB eliminated the application of the
Accounting Principles Board (&#147;APB&#148;) No.&nbsp;25, &#147;Accounting for Stock Issued to Employees&#148; which
permitted companies to use the alternative intrinsic value method of accounting for stock based
compensation. The change is effective for small business issuers for the first interim or annual
reporting period that begins after December&nbsp;15, 2005. SFAS No.&nbsp;123, &#147;Accounting for Stock Based
Compensation&#148; requires companies to recognize the cost of employee services received in exchange
for awards of equity instruments based on the grant-date fair value of those awards, with limited
exceptions. We have not yet determined whether the adoption of this statement after December&nbsp;15,
2005 will have a material impact on our results of operations or financial condition. In the
discussion of Stock-based Compensation earlier in this Note 1, we disclose the effect of the use of
the fair-value provisions of SFAS No.&nbsp;123 on historical results of operations.



<P align="left" style="font-size: 10pt">In March&nbsp;2004, the Emerging Issues Task Force reached a consensus on Issue No.&nbsp;03-16, &#147;Accounting
for Investments in Limited Liability Companies&#148;. The consensus requires an investment in a Limited
Liability Company (&#147;LLC&#148;) that maintains a specific ownership account for each investor be viewed
as similar to an investment in a limited partnership for the purposes of determining whether a
noncontrolling investment in an LLC should be accounted for using the cost method or equity method
of accounting. The consensus was effective in the quarter beginning after June&nbsp;15, 2004. The
implementation of this consensus did not have a material impact on our financial position or
results of operations.



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



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



<P align="left" style="font-size: 10pt"><I>Ardext Technologies, Inc. </I><B><I>- </I></B>In the quarter ended June&nbsp;30, 2004, we wrote down the carrying value
of our investment in Ardext Technologies, Inc. We recorded a charge of $465,000 against long-term
investments and $162,000 against notes and interest receivable. In the quarter ended September&nbsp;30,
2004, we reserved an additional $12,000 for a total investment write-off of $639,000. We believe
it is unlikely we will recover our investment and accordingly have reserved against the full
carrying value.



<P align="left" style="font-size: 10pt"><I>Cirronet, Inc. &#151; </I>On May&nbsp;10, 2004, we sold our interest in Cirronet, Inc. in a private transaction
for an aggregate price of $1.1&nbsp;million, paid in cash at the closing. We recognized a gain of
$256,000 on the transaction in the quarter ended June&nbsp;30, 2004, on a carrying value of $817,000 and
an original cost basis of $525,000.



<P align="left" style="font-size: 10pt"><I>ISC Guernsey, Ltd. &#151; </I>We own a 19&nbsp;percent interest in ISC Guernsey, Ltd., an entity whose principal
asset was an investment in a U.K. based company. During the second quarter of 2004, we were
informed that ISC Guernsey sold its investment in the U.K. company for cash and that it expected to
distribute a significant portion of the proceeds to its shareholders in the future, after
determining its ongoing business needs. In the year ended December&nbsp;31, 2004, we received two cash
distributions aggregating $2.7&nbsp;million and recognized $2.7&nbsp;million which is reflected in investment
income. Based on information we received from ISC Guernsey at December&nbsp;31, 2004, other
distributions to us are likely to follow in 2005 and are expected to aggregate between $1.8&nbsp;million
and $2.1&nbsp;million. However, we are not in a position to exert influence over the timing or extent
of such distributions. Based on our current projections, we do not expect to have any tax
withholdings or to incur a tax liability related to these cash distributions.



<P align="left" style="font-size: 10pt"><I>MediZeus, Inc. &#151; </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="font-size: 10pt"><I>PaySys International, Inc</I>. &#151; On April&nbsp;27, 2001, we sold our 32&nbsp;percent ownership interest in
PaySys, an affiliate company, to First Data Corporation (&#147;FDC&#148;) and received cash proceeds of $17.8
million. An escrow fund was set aside for potential liabilities arising after the closing of the
sale. On March&nbsp;21, 2003, a settlement was reached with FDC and we received $4.5&nbsp;million cash in
the first half of 2003, which represented our 32&nbsp;percent share of the net amount released from the escrow fund. The escrow payment was recorded as
investment income in the year ended December&nbsp;31, 2003.



<P align="left" style="font-size: 10pt"><I>RF Solutions, Inc. &#151; </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 Anadigics, Inc., a publicly traded


 <P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

<DIV align="center" style="font-size: 10pt">F-12 </DIV>
</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: Helvetica,Arial,sans-serif">




<P align="left" style="font-size: 10pt">company, effective April&nbsp;2003. We received $106,000 cash in partial repayment of a note receivable from RF Solutions and reserved
$92,000 against the $198,000 carrying value of the note. Under the terms of the sale, the note
holders and preferred shareholders of RF Solutions were eligible to receive an additional payment
in common stock of Anadigics, Inc. based on achievement of post-sale performance targets. Since
the amount of any future payment was not determinable at the time of the sale, in 2003 we fully
reserved our note balance and investment in RF Solutions. In the third quarter of 2004, we
received 47,025 shares of stock of Anadigics as additional payment and recorded investment income
of $173,000 in the same quarter. At December&nbsp;31, 2004, we carry the shares of Anadigics stock at
its fair market value of $176,000 in accordance with SFAS No.&nbsp;115, &#147;Accounting for Certain
Investments in Debt and Equity Securities&#148;.



<P align="left" style="font-size: 10pt"><I>Riverside Software, LLC &#151; </I>Effective October&nbsp;1, 2004, we sold our minority interest in Riverside
Software, LLC, a technology company which we accounted for under the equity method, to privately
held Paymetric, Inc. We received shares of common stock in Paymetric in exchange for our Riverside
Software interest. We recorded an investment gain of $83,000 on a carrying value of $15,000. At
December&nbsp;31, 2004, the carrying value of our Paymetric stock is $98,000.



<P align="left" style="font-size: 10pt"><I>Silverpop, Inc. &#151; </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 3</B>



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



<P align="left" style="font-size: 10pt">The following summarizes our ownership interest in our largest (ownership and investment value),
non-significant companies included in our long-term investments.



<P align="left" style="font-size: 10pt">At December&nbsp;31, 2004, our ownership interest in each of the named companies was as follows: NKD
Enterprises, LLC (25.5%) and Horizon Software, LLC (17%). We accounted for each of the named
companies by the equity method of accounting in 2004.


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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="2"><B>Cost Basis</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Before</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Distributions</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NKD Enterprises</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,286</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Horizon Software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,711</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,500</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="font-size: 10pt">At December&nbsp;31, 2003, our ownership interest in each of the named companies was as follows: NKD
Enterprises, LLC (25.5%), Horizon Software, LLC (17%) and Cirronet, Inc. (22%). We accounted 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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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="2"><B>Cost Basis</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Before</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Distributions</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NKD Enterprises</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,286</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

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


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>As of and for the year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">25,377</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,814</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,539</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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:15px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,174</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,595</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,863</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">685</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">445</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,460</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="font-size: 10pt"><I>Marketable Securities &#151; </I>The carrying and estimated fair values of available-for-sale securities at
December&nbsp;31, 2004 and 2003 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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross unrealized gain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Estimated fair values</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">176</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 colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="font-size: 10pt">Anadigics, Inc. &#091;NASDAQ:ANAD&#093; comprises the balance of $176,000 at December&nbsp;31, 2004. We had no
available-for-sale securities at December&nbsp;31, 2003.



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



<P align="left" style="font-size: 10pt">ACCOUNTS AND NOTES RECEIVABLE



<P align="left" style="font-size: 10pt">At December&nbsp;31, 2004 and 2003, our allowance for doubtful accounts amounted to $103,000 and
$124,000, respectively. Provisions for doubtful accounts were $67,000 and $63,000 for the years
ended December&nbsp;31, 2004 and 2003, respectively.



<P align="left" style="font-size: 10pt">The following table indicates the percentage of consolidated revenue and year-end accounts
receivable represented by each


 <P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

<DIV align="center" style="font-size: 10pt">F-13 </DIV>
</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: Helvetica,Arial,sans-serif">




<P align="left" style="font-size: 10pt">customer for any period in which such customer represented more than
10&nbsp;percent 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="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD><!-- VRule -->
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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="6" style="border-bottom: 1px solid #000000"><B>Revenue</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>A/R</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B><I>VISaer</I></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 style="border-right: 1px solid #000000">&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:-15px">Customer A</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
    <TD style="border-right: 1px solid #000000">&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: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">34</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&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:15px; text-indent:-15px"><B><I>QS Technologies</I></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 style="border-right: 1px solid #000000">&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: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">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 style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">23</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:15px; text-indent:-15px"><B><I>ChemFree</I></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 style="border-right: 1px solid #000000">&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: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer D</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">13</TD>
    <TD nowrap>%</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">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 style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">16</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt"><B>NOTE 5</B>



<P align="left" style="font-size: 10pt">SHORT-TERM BORROWINGS



<P align="left" style="font-size: 10pt">Terms and borrowings under our credit facility 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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" colspan="8" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Maximum outstanding (month-end)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at year end</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest rate at year end</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6.75</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.5</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="font-size: 10pt">We established a working capital credit facility with a bank in October&nbsp;2003 and renewed the line
in September&nbsp;2004. The $1.5&nbsp;million revolving line of credit bears interest at the prime rate
(5.25% at December&nbsp;31, 2004) 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, 2005.
We may borrow an aggregate of 80&nbsp;percent of qualified accounts receivable of our consolidated
subsidiaries plus 50&nbsp;percent of inventory, up to a maximum of $1.5&nbsp;million, less any amount tied to
a letter of credit. At December&nbsp;31, 2004, our borrowing base calculation resulted in availability
of $1.4&nbsp;million of which we had drawn down $267,000 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 6</B>



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



<P align="left" style="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, remained contingently
liable for these obligations. VISaer recorded these liabilities as deferred gain. 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 $382,000 and
$137,000 of the deferred gain in the years ended December&nbsp;31, 2004 and 2003, respectively, which is
recorded in the component of other income/expense in the consolidated statements of operations. As
of December&nbsp;31, 2003, the balance of $291,000 in deferred gain consisted of accounts payable and
accrued expenses. In December&nbsp;2004, the company determined that given the passage of time (over
four years) and the absence of any creditor or buyer claims, it was reasonable to assume that the
balance of the liabilities assumed by the buyer had been extinguished or settled.



<P align="left" style="font-size: 10pt"><B>NOTE 7</B>



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



<P align="left" style="font-size: 10pt">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">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(40</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="left" style="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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Statutory rate, blended</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">37</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">37</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37</TD>
    <TD nowrap>%)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>%)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effective rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>%)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">At December&nbsp;31, 2004, our subsidiaries had net operating loss carryforwards totaling $8.5&nbsp;million.
The net operating loss carryforwards, if unused as offsets to future taxable income, will expire
during the following years:


 <P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

<DIV align="center" style="font-size: 10pt">F-14 </DIV>
</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: Helvetica,Arial,sans-serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">2006-2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,132</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">2017</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,038</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">2019</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,901</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">2021</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">495</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">2022</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">657</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">2023</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,830</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:0px; text-indent:-0px">2024</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">454</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:0px; text-indent:-0px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,507</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">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="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 $14.2&nbsp;million and $15.6&nbsp;million at December&nbsp;31, 2004 and 2003,
respectively. Since our ability to realize the deferred tax asset is uncertain, the amount is
offset in both 2004 and 2003 by a valuation allowance of an equal amount. The deferred tax asset at
December&nbsp;31, 2004 and 2003 relates primarily to net operating loss and tax credit carryforwards,
loss limitations on investments and differences due to R&#038;D costs, unearned revenue and various
reserves. 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 8</B>



<P align="left" style="font-size: 10pt">COMMITMENTS AND CONTINGENCIES



<P align="left" style="font-size: 10pt"><I>Leases </I>- We have noncancellable operating leases expiring at various dates through June&nbsp;2009.
Future minimum lease payments are 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="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">587</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">528</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">472</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">393</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,144</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Rental expense for leased facilities and equipment related to operations amounted to $640,000 and
$759,000 for the years ended December&nbsp;31, 2004 and 2003, respectively. Companies in Intelligent
Systems Incubator sublease space from the company. For the years ended December&nbsp;31, 2004 and 2003,
the company received $155,000 and $255,000, respectively, in sublease rental income which reduced
the company&#146;s rental expense during these years.



<P align="left" style="font-size: 10pt"><I>Legal Matters &#151; </I>In 1999, a suit was brought against our ChemFree subsidiary and two other parties
by a former consultant of ChemFree. The suit challenged the ownership of various intellectual
property assets of ChemFree. ChemFree and the other parties to the litigation strongly denied the
allegations and filed suit against the consultant. The case against ChemFree was filed in the
Superior Court of Gwinnett County, Georgia and ChemFree filed suit in Federal Court seeking a
judgment against the consultant. During the quarter ended September&nbsp;30, 2004, an agreement was
reached to settle both litigation matters. ChemFree secured a full assignment of interests in all
of ChemFree&#146;s patents and patent applications worldwide (41 in the aggregate) from the former
consultant in return for periodic payments over a five year period. The payment schedule provides
for four monthly payments of $25,000, beginning August&nbsp;2, 2004, and 48&nbsp;monthly payments of $8,333
beginning in August&nbsp;2, 2005 for an aggregate consideration of $500,000 ($451,000 discounted at
6.5%). In accordance with Statement of Financial Accounting Standards No.&nbsp;142, &#147;Accounting for
Intangible Assets&#148;, we believe that the present value of the future payment stream is fully
recoverable at this time. Based on our current estimations, we believe the average useful life of
these patents to be 10&nbsp;years, which does not exceed legal lives. In the year ended December&nbsp;31,
2004, amortization expense related to this asset was $15,000. The unamortized value of the
ChemFree patents of $443,000 (which includes other miscellaneous amounts in addition to the amount
discussed above) is included in the category &#147;other intangibles, net&#148; on the balance sheet at
December&nbsp;31, 2004.



<P align="left" style="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 due to CoreCard discontinuing operations, ISC
has guaranteed to 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 operational milestones by
CoreCard or after five years, whichever occurs sooner. As of December&nbsp;31, 2004, it does not
appear probable that the guarantee will be paid; thus no amounts have been accrued with respect to
this guarantee. Upon acceptance of the software by the customer, CoreCard


 <P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

<DIV align="center" style="font-size: 10pt">F-15 </DIV>
</DIV>

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<DIV style="font-family: Helvetica,Arial,sans-serif">




<P align="left" style="font-size: 10pt">recognized $1.3&nbsp;million in license revenue in respect of this license agreement in 2004.



<P align="left" style="font-size: 10pt"><B>NOTE 9</B>



<P align="left" style="font-size: 10pt">POST-RETIREMENT BENEFITS



<P align="left" style="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, 2004 and 2003, we have
accrued $100,000 and $150,000, respectively, for future payments under the plan. In January&nbsp;2004,
we made a lump sum payment of $50,000 to a director upon his retirement from the board.



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



<P align="left" style="font-size: 10pt">DEFINED CONTRIBUTION PLANS



<P align="left" style="font-size: 10pt">We maintain two 401(k) defined contribution plans covering substantially all U.S. employees. Our
matching contributions under the plans, which are optional and are based on the level of individual
participant&#146;s contributions, amounted to $125,000, and $145,000 in 2004 and 2003, respectively.



<P align="left" style="font-size: 10pt"><B>NOTE 11</B>



<P align="left" style="font-size: 10pt">RELATED PARTY TRANSACTION



<P align="left" style="font-size: 10pt">The lease on our headquarters and primary facility at 4355 Shackleford Road, Norcross, Georgia
expired May&nbsp;31, 2004. The former landlord was unwilling to renew this lease and had instead
expressed a desire to sell the facility. On June&nbsp;1, 2004, ISC Properties, LLC, an entity
controlled by our Chairman and Chief Executive Officer, J. Leland Strange, purchased the facility
from the former landlord and leased approximately 45&nbsp;percent of the facility to the company in
order to allow us to stay in the present facility and to avoid the disruption and expense of a
move. After careful consideration, the company&#146;s Board of Directors concluded that the lease
transaction was fair to the company and in the best interests of the company and its shareholders,
and approved the lease transaction between the company and ISC Properties, LLC effective June&nbsp;1,
2004. Mr.&nbsp;Strange recused himself from deliberations concerning, and voting to approve, the lease
transaction. In connection with this approval, the Board of Directors waived the conflict of
interest provisions of our Code of Ethics as they apply to Mr.&nbsp;Strange in connection with the lease
transaction. In 2004, we paid $229,000 in rent to ISC Properties, LLC. We also evaluated the
arrangement to determine if ISC Properties, LLC should be considered a Variable Interest Entity
(&#147;VIE&#148;) within the guidance of Financial Accounting Standards Board FIN No.&nbsp;46. After carefully
considering the characteristics of the relationship between the company and ISC Properties, LLC, it
was determined that ISC Properties, LLC did not meet the criteria of a VIE and, as a result, ISC
Properties, LLC is not consolidated with the company.



<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="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 year ended December&nbsp;31, 2003, we
repurchased and retired 12,808 shares of our common stock at prevailing market prices. No
repurchases were made in 2004.



<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="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. No options were granted under the 2003 Plan in 2004. During 2003, 100,000 options
were granted to officers under the 2003 Plan. 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, 2004, a total of 957,000
options under all three Plans have been granted, 724,320 have been exercised and 142,014 options
are fully vested and exercisable at a weighted average price per share of $3.19. All options expire
ten years from their respective dates of grant. At December&nbsp;31, 2004, the weighted average
remaining contractual life of the outstanding options is 7&nbsp;years.


 <P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

<DIV align="center" style="font-size: 10pt">F-16 </DIV>
</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: Helvetica,Arial,sans-serif">




<P align="left" style="font-size: 10pt">Stock option transactions during the two years ended December&nbsp;31, 2004 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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options outstanding
at Jan. 1</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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,000</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 colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options outstanding at Dec. 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">226,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">220,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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:15px; text-indent:-15px">Options available for
grant at Dec. 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">470,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">482,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercisable at Dec. 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,014</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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:15px; text-indent:-15px">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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD nowrap align="right">1.51-$1.75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD nowrap align="right">1.75-$3.15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD nowrap align="right">1.51-$4.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD nowrap align="right">1.51-$4.26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average option price per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.54</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at Dec. 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at Dec. 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.86</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<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="font-size: 10pt">Foreign revenues are based on the location of the customer. Revenues from customers by geographic
areas for the two years ended December&nbsp;31, 2004 are 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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">United Kingdom</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,727</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Chile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">362</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Australia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">374</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">New Zealand</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">256</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Subtotal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,790</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,933</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,544</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,334</TD>
    <TD>&nbsp;</TD>

</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="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, 2004 and
2003, income before provision for income taxes derived from foreign subsidiaries approximated
$103,000 and $0, respectively. Substantially all long-lived assets are in the United States.



<P align="left" style="font-size: 10pt">At December&nbsp;31, 2004 and 2003, foreign subsidiaries had assets of $267,000 and $443,000,
respectively, and total liabilities of $743,000 and $698,000, respectively.



<P align="left" style="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="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">INDUSTRY SEGMENTS



<P align="left" style="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 two years ended December&nbsp;31, 2004.


 <P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

<DIV align="center" style="font-size: 10pt">F-17 </DIV>
</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: Helvetica,Arial,sans-serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,032</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,118</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,928</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</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">591</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,777</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,740</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,039</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,216</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,024</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,334</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,652</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">721</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">395</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">422</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,764</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,039</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">A reconciliation of consolidated segment data above to consolidated income (loss), depreciation and
amortization, capital expenditures and assets 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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated segments operating
income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(7,652</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(804</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(740</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(274</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,392</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</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">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,040</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity of affiliates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(76</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">392</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,838</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated segments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">721</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</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 colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">598</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated segments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">395</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">422</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">434</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</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="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated segments
identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,790</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,764</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,114</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,978</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,742</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt"><B>NOTE 16</B>



<P align="left" style="font-size: 10pt">EARNINGS (LOSS)&nbsp;PER SHARE



<P align="left" style="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="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:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(in thousands except</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>per share data)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net earnings (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average shares
outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net earnings (loss)
per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.07</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net earnings (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(4,798</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average shares
outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129</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 colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,483</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net earnings (loss)&nbsp;per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1.07</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">At December&nbsp;31, 2004, there were no potentially dilutive stock options excluded from diluted
weighted average shares outstanding.


 <P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

<DIV align="center" style="font-size: 10pt">F-18 </DIV>
</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: Helvetica,Arial,sans-serif">


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

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



<DIV align="center" style="font-size: 10pt"><B>VALUATION AND QUALIFYING ACCOUNTS AND RESERVES<BR>
For the Years Ended December&nbsp;31, 2003 and 2004</B><BR>
<I>(in thousands)</I></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="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&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="2"><B>Balance at</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Charged to</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Balance at</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Beginning</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Costs</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>End of</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Description</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>of Period</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>and Expenses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Deductions </B><SUP style="font-size: 85%; vertical-align: text-top">a</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Period</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Allowance for Doubtful Accounts</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:30px; text-indent:-15px">Year Ended December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">124</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Year Ended December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(88</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P>
<HR size="1" width="18%" align="left" noshade color="#000000">

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

<TR valign="top">
    <TD width="1%" nowrap align="left">a.</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Write-offs of accounts receivable against allowance accounts.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>


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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>g94136exv10w1.txt
<DESCRIPTION>EX-10.1 LEASE AGREEMENT
<TEXT>
<PAGE>
GEORGIA                                                             Exhibit 10.1

GWINNETT COUNTY


                                     PARTIES

         This Lease Agreement, made this 1st day of June 2004, by and between
ISC PROPERTIES, LLC, hereinafter referred to as "Landlord"; and INTELLIGENT
SYSTEMS CORPORATION, hereinafter referred to as "Tenant";

                                   WITNESSETH:

         1.01 Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the property hereinafter referred to as the LEASED PREMISES, described
as: 61,000 sq. ft. of office and warehouse, at 4355 Shackleford Road, Norcross,
Georgia 30093, Gwinnett County, Building 2 in Gwinnett Park.

                                      TERM

         2.01 TO HAVE AND TO HOLD said Leased Premises for a term of five (5)
years, commencing on June 1, 2004 upon the following terms, conditions, and
covenants:

                                     RENTAL

         3.01 As rental for the Leased Premises, Tenant agrees to pay to
Landlord, the sum of THREE HUNDRED AND SIXTY NINE THOUSAND DOLLARS AND NO/100
DOLLARS ($369,965.00) per year, payable in monthly installments each in the
amount of $30,830.42, on or before the first day of each calendar month together
with any other additional rental as hereinafter set forth through May 31, 2009.
If the lease shall commence on any date other than the first day of a calendar
month, or end on any date, other than the last day of a calendar month, rent for
such month shall be prorated.

         3.02 In addition to the Rentals called for herein, Landlord agrees to
contract for the landscape (common area) maintenance service and Tenant agrees
to pay the Landlord an additional rental of NINETEEN HUNDRED AND SIX DOLLARS
($1,906.00) per month for said landscaping service. Said fee shall increase
each year during the term of the lease. The amount of the increase shall be
based on the Consumer Price Index as published in the Wall Street Journal for
the expiring year of the lease.

         3.03 Tenant agrees to pay as additional rent to Landlord, upon demand,
its pro rata share of any utility surcharges, or any other costs levied,
assessed or imposed by, or at the direction of, or resulting from statutes or
regulations, or interpretations thereof, promulgated by any Federal, State,
Municipal or local governmental authorities in connection with the use or
occupancy of the Leased Premises.

                         DELAY IN DELIVERY OF POSSESSION

         4.01 If Landlord, for any reason whatsoever, cannot deliver possession
of the Leased Premises to Tenant at the commencement of the term of this Lease,
this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant
for any loss or damage resulting therefrom, but in the event there shall be a
proportionate reduction of rent covering the period between the commencement of
the term and the time when Landlord can deliver possession. If delay is longer
than three (3) months, Landlord will provide Tenant equivalent space as the
Lease Premise or other such space as Landlord may have available, until the
Lease Premise can be completed, at no charge to Tenant. The term of this Lease
shall be extended by such delay.


                                 USE OF PREMISES

         5.01 The Leased Premises may be used and occupied only for general
manufacturing and assembly, testing, warehousing and distribution, showroom and
offices and for no other purpose or purposes, without Landlord's prior written
consent. Tenant shall promptly comply at its sole expense with all laws,
ordinances, orders, and regulations affecting the Leased Premises and their
cleanliness, safety, occupation and use. Tenant




<PAGE>

shall not do or permit anything to be done in or about the Leased Premises, or
bring or keep anything in the Leased Premises that will in any way increase the
fire insurance upon the Building. Tenant will not perform any act or carry on
any practices that may injure the Building or be a nuisance or menace to tenants
of adjoining premises. Tenant shall not cause, maintain or permit any outside
storage on or about the Leased Premises, including pallets or other refuse. The
rear loading areas of the Tenant's unit must be clean and unobstructed.

                                    UTILITIES

         6.01 Landlord shall not be liable in the event of any interruption in
the supply of any utilities. Tenant agrees that it will not install any
equipment which will exceed or overload the capacity of any utility facilities
and that if any equipment installed by Tenant shall require additional utility
facilities, the same shall be installed by Tenant at Tenant's expense in
accordance with plans and specifications approved in writing by Landlord. Tenant
shall be solely responsible for and shall pay all charges for use or consumption
of sanitary sewer, water, gas, electricity or any other utility services for the
Leased Premises.

                             ACCEPTANCE OF PREMISES

         7.01 By entry hereunder, Tenant acknowledges that it has examined the
Leased Premises and accepts the same as being in the condition called for by
this Lease, and as suited for the uses intended by Tenant.

                          ALTERATIONS, MECHANICS' LIENS

         8.01 Alterations may not be made to the Leased Premises without prior
written consent of Landlord, and any alterations of the Leased Premises
excepting movable furniture and trade fixtures shall at Landlord's option become
part of the realty and belong to the Landlord.

         8.02 Should Tenant desire to alter the Leased Premises and Landlord
gives written consent to such alterations, at Landlord's option, Tenant shall
contract with a contractor approved by Landlord for the construction of such
alterations.

         8.03 Notwithstanding anything in paragraph 8.02 above, Tenant may, upon
written consent of Landlord, install trade fixtures, machinery or other trade
equipment in conformance with the ordinances of the applicable city and county,
and the same may be removed upon the termination of this Lease provided Tenant
shall not be in default under any of the terms and conditions of this Lease, and
the Leased Premises are not damaged by such removal. Tenant shall return the
Leased Premises on the termination of this Lease in the same condition as when
rented to Tenant, reasonable wear and tear only excepted. Tenant shall keep the
Leased Premises, the Building and property in which the Leased Premises are
situated free from any liens arising out of any work performed for, materials
furnished to, or obligations incurred by Tenant. All such work, provided for
above, shall be done at such times and in such manner as Landlord may from time
to time designate. Tenant shall give Landlord written notice five (5) days prior
to employing any laborer or contractor to perform work resulting in an
alteration of the Leased Premises so that Landlord may post a notice of
non-responsibility.

                             WASTE AND QUIET CONDUCT

         9.01 Tenant shall not commit, or suffer any waste upon the Leased
Premises, or any nuisance, or other act or thing, which may disturb the quiet
enjoyment of any other tenant in the Building containing the premises, or any
building in the project in which the premises are located.


                             FIRE INSURANCE, HAZARDS

         10.01 No use shall be made or permitted to be made of the Leased
Premises, nor acts done which might increase the existing rate of insurance upon
the Building or cause the cancellation of any insurance policy covering the
Building, or any part thereof, nor shall Tenant sell, or permit to be kept, used
or sold, in or about the Leased Premises, any article which may be prohibited by
the Standard form of fire insurance policies. Tenant


                                       2
<PAGE>

shall, at its sole cost and expense, comply with any and all requirement
pertaining to the Leased Premises, of any insurance organization or company,
necessary for the maintenance of reasonable fire and public liability insurance,
covering the Leased Premises, Building and appurtenances. Tenant agrees to pay
to Landlord as additional rent, any increase in premiums on policies which may
be carried and loss of rent caused by fire and the perils normally included in
extended coverage above the rates presently being paid by the Landlord as of the
date hereof.

         10.02 Tenant shall maintain in full force and effect on all of its
fixtures and equipment in the Leased Premises a policy or policies of fire and
extended coverage insurance with standard coverage endorsement to the extent of
at least eighty percent (80%) of their insurable value. During the term of this
Lease the proceeds from any such policy or policies of insurance shall be used
for the repair or replacement of the fixtures, and Landlord will sign all
documents necessary or proper in connection with the settlement of any claim or
loss by Tenant. Landlord will not carry insurance on Tenant's possessions.
Tenant shall furnish Landlord with a certificate of such policy within thirty
(30) days of the commencement of this Lease, and whenever required, shall
satisfy Landlord that such policy is in full force and effect.

                               LIABILITY INSURANCE

         11.01 Tenant, at its own expense, shall provide and keep in force with
companies acceptable to Landlord public liability insurance for the benefit of
Landlord and Tenant jointly against liability for bodily injury and property
damage in the amount of not less than Two Million Dollars ($2,000,000.00) in
respect to injuries to or death of more than one person in any one occurrence,
in the amount of not less than One Million Dollars ($1,000,000.00) in respect to
injuries to or death of any one person, and in the amount of not less than Fifty
Thousand Dollars ($50,000.00) per occurrence in respect to damage to property,
such limits to be for any greater amounts as may be reasonably indicated by
circumstances from time to time existing. Tenant shall furnish Landlord with a
certificate of such policy (which certificate shall contain the insurer's waiver
of subrogation rights exercisable against the Landlord) within thirty (30) days
of the commencement date of this Lease and whenever required shall satisfy
Landlord that such policy is in full force and effect. Such policy shall name
Landlord as an additional insured and shall be primary and non-contributing with
any insurance carried by Landlord. The policy shall further provide that it
shall not be cancelled or altered without twenty (20) days prior written notice
to Landlord,

                            INDEMNIFICATION BY TENANT

         12.01 Tenant shall indemnify and hold harmless Landlord against and
from any and all claims arising from Tenant's use of the Leased Premises (other
than those arising from negligence of Landlord or its agent employees), or the
conduct of its business or from any activity, work, or thing doing, permitted or
suffered by the Tenant in or about the Leased Premises, and shall further
indemnify and hold harmless Landlord against and from any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Lease, or arising from any act, neglect,
fault or omission of the Tenant, or of its agents or employees, and from and
against all costs, attorney's fees, expenses and liabilities incurred in or
about such claim or any action or proceeding brought relative thereto and in
case any action or proceeding be brought against Landlord by reason of any such
claim, Tenant upon notice from Landlord shall defend the same at Tenant's
expense by counsel, chosen by Tenant and who is reasonably acceptable to
Landlord. Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of damage to property or injury to persons in or about the
Leased Premises from any cause whatsoever except that which is caused by the
failure of Landlord to observe any of the terms and conditions of this Lease
where such failure has persisted for an unreasonable period of time after
written notice of such failure, and Tenant hereby waives all claims in respect
thereof against Landlord. The obligations of Tenant under this section arising
by reason of any occurrence taking place during the term of this Lease shall
survive any termination of this Lease.

                                WAIVER OF CLAIMS

         13.01 Tenant, as a material part of the consideration to be rendered to
Landlord, hereby waives all claims against Landlord for damages to goods, wares
and merchandise


                                       3

<PAGE>

in, upon or about the Leased Premises and for injury to Tenant, its agents,
employees, invitees, or third persons in or about the Leased Premises from any
cause arising at any time, other than the negligence of Landlord, its agents and
employees.

                                    REPAIRS

         14.01 Tenant shall, at its sole cost, keep and maintain the Leased
Premises and appurtenances and every part thereof (excepting exterior walls and
roofs which Landlord agrees to repair) including by way of illustration and not
by way of limitation all windows and skylights, doors, any store front and the
interior of the Leased Premises, including all plumbing, heating, air
conditioning, sewer, electrical systems and all fixtures and all other similar
equipment serving the Leased Premises in good and sanitary order, condition, and
repair. Tenant shall, at its sole cost, keep and maintain all utilities,
fixtures and mechanical equipment used by Tenant in good order, condition, and
repair. All windows shall be washed and cleaned as often as necessary to keep
them clean and free from smudges and stains. In the event Tenant fails to
maintain the Leased Premises as required herein or fails to commence repairs
(requested by Landlord in writing) within thirty (30) days after such request,
or fails diligently to proceed thereafter to complete such repairs, Landlord
shall have the right in order to preserve the premises or portion thereof,
and/or the appearance thereof, to make such repairs or have a contractor make
such repairs and charge Tenant for the cost thereof as additional rent, together
with interest at the rate of eight percent (8%) per annum from the date of
making such payments.

         14.02 Landlord agrees to keep in good repair the roof, foundations, and
exterior walls of the premises except repairs rendered necessary by the
negligence of Tenant, its agents, employees or invitees. Landlord gives to
Tenant exclusive control of premises and shall be under no obligation to inspect
said premises. Tenant shall promptly report in writing to Landlord any defective
condition known to it which Landlord is required to repair, and Landlord shall
move with reasonable diligence to repair such item. Failure to report such
defects shall make Tenant responsible to Landlord for any liability incurred by
Landlord by reason of such defects.

                               SIGNS, LANDSCAPING

         15.01 Landlord shall have the right to control landscaping and approve
the placing of signs and the size and quality of the same. Tenant shall make no
alterations or additions to the Leased Premises or landscaping and shall place
no exterior signs on the Leased Premises without the prior written consent of
Landlord. Any signs not in conformity with the Lease may be immediately removed
by Landlord.


                                ENTRY BY LANDLORD

         16.01 Tenant shall permit Landlord and Landlord's agents to enter the
Leased Premises at all reasonable times for the purpose of inspecting the same
or for the purpose of maintaining the Building, or for the purpose of making
repairs, alterations, or additions to any portion of the Building, including the
erection and maintenance of such scaffolding, canopies, fences and props as may
be required, or for the purpose of posting notices of non-responsibility for
alterations, additions, or repairs, or for the purpose of showing the premises
to prospective tenants, or placing upon the Building any usual or ordinary "for
sale" signs, without any rebate of rent and without any liability to Tenant for
any loss of occupation or quiet enjoyment of the Leased Premises thereby
occasioned; and shall permit Landlord at any time within thirty (30) days prior
to the expiration of this Lease, to place upon the Leased Premises any usual or
ordinary "to let" or "to lease" signs. For each of the aforesaid purposes,
Landlord shall at all times have and retain a key with which to unlock all of
the exterior doors about the Leased Premises.

                          TAXES AND INSURANCE INCREASE

         17.01 Tenant shall pay before delinquency any and all taxes,
assessments, license fees, and public charges levied, assessed, or imposed and
which become payable during the Lease upon Tenant's fixtures, furniture,
appliances and personal property installed or located in the Leased Premises.

                                       4

<PAGE>

         17.02 Tenant shall pay upon demand, as additional rental during the
term of this lease and any extension or renewal thereof, the amount by which all
taxes (including, but not limited to, ad valorem taxes, special assessments and
governmental charges) on the Leased Premises for each tax year exceeds all taxes
on the premises for 2005. In the event the premises are less than the entire
property assessed for such taxes for any such tax year, then the tax for any
such year applicable to the premises shall be determined by proration on the
basis that the total floor area of the Leased Premises bears to the total floor
area of the entire property assessed. If the final year of the lease term fails
to coincide with the tax year, then any excess for the tax year during which the
term ends shall be reduced by the pro rata part of such tax year beyond the
lease term.

         17.03 Tenant agrees to pay the amount for all taxes levied upon or
measured by the rent payable hereunder, whether as a so-called sales tax,
transaction privilege tax, excise tax, or otherwise (but no income taxes shall
be payable by Tenant). Such taxes shall be due and payable at the same time as
and in addition to each payment of rent.

         17.04 Commencing in the second year of the lease and during each
remaining year of the lease term or any extension or renewal thereof, in the
event that the insurance premiums payable by the Landlord for fire and extending
coverage on the property are increased, whether such increase is due to an
increase in the valuation of the building, or in the applicable rate of
insurance, then Tenant agrees to pay Landlord as additional rental, Tenant's pro
rata share of the increase in said insurance premiums over the base amount paid
in the first year of the lease. Tenant's pro rata share shall be based on the
square footage of the premises leased to Tenant (as specified in paragraph 1.01
hereof) compared to the total square footage of space in the entire building.
Tenant agrees to pay Landlord said increased amount within thirty (30) days
after receipt of a notice in writing from Landlord, of the increase in said
insurance premiums. If during the final year of the Lease, or any extension or
renewal thereof, the term does not coincide with the year upon which the
insurance rate is determined, the increase in premiums for the portion of that
year shall be prorated according to the number of months during which Tenant was
in possession of the Leased Premises.

         17.05 The provisions hereof shall survive the termination of the Lease
or any extension or renewal thereof as referred to in the preceding paragraphs
17.02 and 17.04.

                                   ABANDONMENT

         18.01 Tenant shall not vacate nor abandon Leased Premises at any time
during the term of this Lease; and if Tenant shall abandon, vacate or surrender
the Leased Premises, or be dispossessed by process of law, or otherwise, any
personal property belonging to Tenant and left on the Leased Premises shall, at
the option of the Landlord, be deemed abandoned.

                                   DESTRUCTION

         19.01 In the event of (a) a partial destruction of the Leased Premises
or the Building during the Lease term which requires repairs to either the
Leased Premises or the Building, or (b) the Leased Premises or the Building
being declared unsafe or unfit for occupancy by any authorized public authority
for any reason other than Tenant's act, use or occupation which declaration
requires repairs to either the Leased Premises or the Building, Landlord shall
forthwith make repairs, provided repairs can be made within sixty (60) days
under the laws and regulations of authorized public authorities, but partial
destruction (including any destruction necessary in order to make repairs
required by any declaration) shall in no way annul or void this Lease, except
that Tenant shall be entitled to a proportionate reduction of rent while such
repairs are being made. The proportionate reduction is to be based upon the
extent to which the making of repairs shall interfere with the business carried
on by Tenant in the Leased Premises. In making repairs Landlord shall be
obligated to replace only such glazing as shall have been damaged by fire and
other damaged glazing shall be replaced by Tenant. If repairs cannot be made
within sixty (60) days, Landlord may, at its option, make same within a
reasonable time, this Lease continuing in full force and effect and the rent to
be proportionately abated, as in this paragraph provided. In the event that
Landlord does not so elect to make repairs which cannot be made within sixty
(60) days, or repairs cannot be made under current laws and regulations, this
Lease may be terminated at the option of either party. A total destruction
(including any destruction required by any authorized public authority) of
either the Leased

                                       5


<PAGE>

Premises or the Building shall terminate this Lease. In the event of any dispute
between Landlord and Tenant relative to the provisions of this paragraph, they
may each select an arbitrator, the two arbitrators so selected shall select a
third arbitrator and the three arbitrators so selected shall hear and determine
the controversy and their decision thereon shall be final and binding on both
Landlord and Tenant who shall bear the cost of such arbitration equally between
them. Landlord shall not be required to repair any property installed in the
Leased Premises by Tenant. Tenant waives any right under applicable laws
inconsistent with the terms of this paragraph and in the event of destruction
agrees to accept any offer by Landlord to provide tenant with comparable space
within the project in which the Premises are located on the same terms as this
Lease.

                            ASSIGNMENT AND SUBLETTING

         20.01 Landlord shall have the right to transfer and assign, in whole or
in part its rights and obligations in the Building and Property that are the
subject of this Lease. Tenant shall not assign this Lease or sublet all or any
part of the Leased Premises without the prior written consent of the Landlord,
which shall not be unreasonably withheld. Landlord agrees that Tenant may sublet
parts of the Leased Premises to companies in its incubator program without first
obtaining Landlord consent. In the event of any assignment or subletting, Tenant
shall nevertheless at all times, remain fully responsible and liable for the
payment of the rent and for compliance with all of its other obligations under
the terms, provisions and covenants of this Lease. Upon the occurrence of an
"event of default" as defined below, if all or any part of the Leased Premises
are then assigned or sublet, Landlord, in addition to any other remedies
provided by this Lease or provided by law, may at its option, collect directly
from the assignee or subtenant all rents becoming due to Tenant by reason of the
assignment or sublease, and Landlord shall have a security interest in all
properties on the Leased Premises to secure payment of such sums. Any collection
directly by Landlord from the assignee or subtenant shall not be construed to
constitute a novation or a release of Tenant from the further performance of its
obligations under this Lease.

                              INSOLVENCY OF TENANT

         21.01 Either (a) the appointment of a receiver to take possession of
all or substantially all of the assets of Tenant, or (b) a general assignment by
Tenant for the benefit of creditors, or (c) any action taken or suffered by
Tenant under any insolvency or bankruptcy act shall, if any such appointments,
assignments or action continues for a period of thirty (30) days, constitute a
breach of this Lease by Tenant, and Landlord may at its election without notice,
terminate this Lease and in that event be entitled to immediate possession of
the Leased Premises and damages as provided below.

                                BREACH BY TENANT

         22.01 In the event of a default, Landlord besides other rights or
remedies that it may have, shall have the right to either terminate this Lease
or from time to time, without terminating this Lease relet the Leased Premises
or any part thereof for the account and in the name of Tenant or otherwise, for
any such term or terms and conditions as Landlord in its sole discretion may
deem advisable with the right to make reasonable alterations and repairs to the
Leased Premises. Tenant shall pay to Landlord, as soon as ascertained, the costs
and expenses incurred by Landlord in such reletting or in making such reasonable
alterations and repairs. Should such rentals received from time to time from
such reletting during any month be less than that agreed to be paid during that
month by Tenant hereunder, the Tenant shall pay such deficiency to Landlord,
Such deficiency shall be calculated and paid monthly.

         22.02 No such reletting of the Leased Premises by Landlord shall be
construed as an election on its part to terminate this Lease unless a notice of
such intention be given to Tenant or unless the termination thereof be decreed
by a court of competent jurisdiction. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this Lease
for such previous breach provided it has not been cured. Should Landlord at any
time terminate this Lease for any breach, in addition to any other remedy it may
have, it may recover from Tenant all damages it may incur by reason of such
breach, including the cost of recovering the Leased Premises, and including (1)
all amounts that would have fallen due as rent between the time of termination
of this Lease and the Urns of judgment, or other award, less the avails of all
relettings and attornments,


                                       6

<PAGE>

plus interest on the balance at the rate of eight percent (8%) per year, and (2)
the worth at the time of the judgment or other award, of the amount by which the
unpaid rent for the balance of the term exceeds the amount of such rental loss
that Tenant proves could be reasonably avoided; (3) any other amount necessary
to compensate Landlord for all the detriment proximately caused by Tenant's
failure to perform his obligations under this Lease or which in the ordinary
course of events would likely to result therefrom. "Worth" as used in this
provision, is computed by discounting the total at the discount rate of the
Federal Reserve Bank of Atlanta at the time of the judgment, or award, plus one
percent (1%).

                       ATTORNEYS' FEES/COLLECTION CHARGES

         23.01 Should Landlord be named as a defendant in any suit brought
against Tenant in connection with or arising out of Tenant's occupancy
hereunder, Tenant shall pay to Landlord its cost and expenses incurred in such
suit, including reasonable attorneys' fees. If any rent or other sums of money
owed or owing under this Lease is collected by or through an attorney at law,
Tenant agrees to pay fifteen percent (15%) thereof as attorneys' fees.

                                  CONDEMNATION

         24.01 If, at any time during the term of this lease, title to the
entire Leased Premises should become vested in a public or quasi-public
authority by virtue of the exercise of expropriation, appropriation,
condemnation or other power in the nature of eminent domain, or by voluntary
transfer from the owner of the Leased Premises under threat of such a taking
then this Lease shall terminate as of the time of such vesting of title, after
which neither party shall be further obligated to the other except for
occurrence antedated such taking. The same results shall follow if less than the
entire Leased Premises be thus taken, or transferred in lieu of such a taking,
but to such extent that it would be legally and commercially impossible for
Tenant to occupy the portion of the Leased Premises remaining, and impossible
for Tenant reasonable to conduct his trade or business therein.

         24.02 Should there be such a partial taking or transfer in lieu
thereof, but not to such an extent as to make such continued occupancy and
operation by Tenant an impossibility, then this Lease shall continue on all of
its same terms and conditions subject only to an equitable reduction in rent
proportionate to such taking.

         24.03 In the event of any such taking or transfer, whether of the
entire Leased Premised, or a portion thereof, it is expressly agreed and
understood that all sums awarded, allowed or received in connection therewith
shall belong to Landlord, and any rights otherwise vested in Tenant are hereby
assigned to Landlord, and Tenant shall have no interest in or claim to any such
sums or any portion thereof, whether the same be for the taking of the property
or for damages, or otherwise,

                                     NOTICES

         25.01 All notices, statements, demands, requests, consents, approvals,
authorization, offers, agreements, appointments, or designations under this
Lease by either party to the other shall be in writing and shall be sufficiently
given and served upon the other party, if sent by certified mail, return receipt
requested, postage prepaid, and addressed as follows:

         (a) To Tenant at the Leased Premises;

         (b) To Landlord, addressed to Landlord at One Meca Way, Norcross,
Georgia 30093, with a copy to such other place as Landlord may from time to time
designate by notice to Tenant.

                                     WAIVER

         26.01 The waiver by Landlord of any breach of any term, covenant, or
condition herein contained shall not be deemed to be a waiver of such term,
covenant, or condition or any subsequent breach of the same or any other term,
covenant, or condition herein contained, The subsequent acceptance of rent
hereunder by Landlord shall not be deemed

                                       7
<PAGE>


to be a waiver of any preceding breach by Tenant of any term, covenant, or
condition of this Lease, other than the failure of Tenant to pay the particular
rental so accepted regardless of Landlord's knowledge of such preceding breach
at the time of acceptance of such rent.


                             EFFECT OF HOLDING OVER

         27.01 If Tenant should remain in possession of the Leased Premises
after the expiration of the Lease term and without executing a new Lease, then
such holding over shall be construed as a tenancy from month-to-month, subject
to all the conditions, provisions, and obligations of this Lease insofar as the
same are applicable to a month-to-month tenancy, except that the rent payable
pursuant to subparagraph 3.01 hereof shall be doubled.

                                  SUBORDINATION

         28.01 This Lease, at Landlord's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation for security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof,

         28.02 Tenant agrees to execute any documents required to effectuate
such subordination or to make this Lease prior to the lien of any ground lease,
mortgage or deed of trust, as the case may be, and failing to do so within ten
(10) days after written demand, does hereby make, constitute and irrevocably
appoint Landlord as Tenant's attorney in fact and in Tenant's name, place and
stead, to do so. If requested to do so, Tenant agrees to attorn to any person or
other entity that acquires title to the real property encompassing the Leased
Premises, whether through judicial foreclosure, sale under power, or otherwise,
and to any assignee of such person or other entity,

                              ESTOPPEL CERTIFICATE

         29.01 Upon ten (10) days notice from Landlord to Tenant, Tenant shall
deliver a certificate dated as of the 1st day of the calendar month in which
such notice is received, executed by an appropriate officer, partner or
individual, and stating (i) the commencement date of this Lease; (ii) the space
occupied by Tenant hereunder; (iii) the expiration date hereof; (iv) a
description of any renewal or expansion options; (v) the amount of rental
currently and actually paid by Tenant under this lease; (vi) the nature of any
default or claimed default hereunder by Landlord and (vii) that Tenant is not in
default hereunder nor has any event occurred which with the passage of time or
the giving of notice would become a default by Tenant hereunder,

                                     PARKING

         30.01 Tenant shall be entitled to park in common with other tenants of
Landlord. Tenant agrees not to overburden the other tenants in the use of
parking facilities. Landlord reserves the right in its absolute discretion to
determine whether parking facilities are becoming crowded and, in such event, to
allocate parking spaces among Tenant and other tenants. There will be no
assigned parking. Tenant agrees to park all Tenants' trucks in the parking
spaces provided at the rear of the Building. "Parking" as used herein means the
use by Tenant's employees, its visitors, invitees, and customers for the parking
of motor vehicles for such periods of time as are reasonably necessary in
connection with use of and/or visits to the demised premises. No vehicle may be
repaired or serviced in the parking area and any vehicle deemed abandoned by
Landlord will be towed from the project and all costs therein shall be borne by
the Tenant. All driveways, ingress and egress, and all parking spaces are for
the joint use of all tenants. No area outside of premises shall be used by
Tenant for storage without Landlord's prior written permission. There shall be
no parking permitted on any of the streets or roadways located in Gwinnett Park,

                               MORTGAGE PROTECTION

         31.01 In the event of any default on the part of Landlord, Tenant will
give notice by registered or certified mail to any beneficiary of a deed or
trust or mortgagee of a

                                       8
<PAGE>
mortgage covering the Premises whose address shall have been furnished it, and
shall offer such beneficiary or mortgagee a reasonable opportunity to cure the
default, including time to obtain possession of the Premises by power of sale or
a judicial foreclosure, if such should prove necessary to effect a cure.

                              PROTECTIVE COVENANTS

         32.01 This Lease is subject to the Protective Covenants of Interstate
Industrial Park, attached hereto as Exhibit "A", and to such rules and
regulations pertaining to Gwinnett Park which may hereafter be adopted and
promulgated.


                            MISCELLANEOUS PROVISIONS

         A. Whenever the singular number is used in this Lease and when required
by the context, the same shall include the plural, and the masculine gender
shall include the feminine and neuter genders, and the word "person" shall
include corporation, firm or association. If there be more than one tenant, the
obligations imposed upon Tenant under this Lease shall be joint and several.

         B. The headings or titles to paragraphs of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part of this Lease.

         C. This instrument contains all of the agreements and conditions made
between the parties to this Lease and may not be modified orally or in any other
manner than by agreement in writing signed by all parties to this Lease.

         D. Time is of the essence of each term and provision of this Lease.

         E. Except as otherwise expressly stated, each payment required to be
made by Tenant shall be in addition to and not in substitution for other
payments to be made by Tenant.

         F. Subject to paragraph 20, the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors, and assigns of Landlord and Tenant.

         G. All covenants and agreements to be performed by Tenant under any of
the terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent.

         H. Where the consent of a party is required, such consent will not be
unreasonably withheld.

         I. This lease shall create the relationship of Lessor and Lessee
between Landlord and Tenant; no estate shall pass out of Landlord; Tenant has
only a usufruct, not subject to levy and/or sale and not assignable by Tenant
except as provided in paragraph 20.01 hereof.

         J. Tenant acknowledges and agrees that Landlord shall not provide
guards or other security protection for the Leased Premises and that any and all
security protection shall be the sole responsibility of Tenant.

         K. This lease shall be governed by Georgia law.

         L. Tenant shall not record this Lease or a memorandum thereof without
the written consent of Landlord. Upon the request of Landlord, Tenant shall join
in the execution of a memorandum or so-called "short form" of this Lease for the
purpose of recordation. Said memorandum or short form of this Lease shall
describe the parties, the Demised Premises and the Lease term, and shall
incorporate this Lease by references.

         M. No agent or broker fees shall be payable by Tenant or Landlord with
respect to this Lease.

                                       9

<PAGE>


         N. Tenant may offer to provide telephone and internet services to other
companies within the Leased Premises or in the balance of the facility to
companies that enter into a separate lease with Landlord. Tenant shall have the
right to charge and collect payment for such services at rates determined by
Tenant. Unless otherwise agreed, Tenant shall have full responsibility for
expenses and liabilities associated with providing such services. Landlord
agrees that Tenant may occupy the telephone equipment room in the unleased
portion of the facility at no additional cost for the purposes of providing such
services to Tenant itself or to other companies.

         O. Landlord agrees that during the term of the Lease, at its option,
Tenant may store modular workstations in the unleased portion of the facility
and Landlord may provide such workstations to other tenants in the unleased
portion of the facility without any payment to Tenant.

         P. Tenant shall have the option, provided this Lease is then of full
force and effect, and Tenant is not then in default hereunder, to renew this
Lease for one additional five year term. Such renewal shall be on the same terms
and conditions herein set forth and pertaining to the original term, except that
the monthly installment applicable to the option term shall be the original
monthly installment increased by an annual cost of living adjustment for each
year of the original term. Such renewal option may be exercised only by Tenant
giving Landlord written notice not less than twelve (12) months prior to the
expiration of the original term. The cost of living adjustment shall be
determined based on the Consumer Price Index as published in the Wall Street
Journal for each 12 month period during the original term.

         IN WITNESS WHEREOF, The parties hereto who are individuals have set
their hands and seals, and the parties who are corporations have caused this
instrument to be duly executed by its proper officers and its corporate seal to
be affixed, as of the day and year first above written.


Signed, sealed and delivered               ISC PROPERTIES, LLC.
as to LANDLORD, in the
presence of:
                                           /s/ J. Leland Strange
                                           -------------------------------------
                                           BY: J. Leland Strange

/s/ Rebecca L. Cox
- -------------------------------
Notary Public

            REBECCA L. COX
Notary Public, Cobb County, Georgia
My Commission Expires March 15, 2005


Signed, sealed and delivered
as to TENANT, in the
presence of:
                                           INTELLIGENT SYSTEMS CORPORATION

                                               /s/ Bonnie L. Herron
                                               ---------------------------------
                                               BY: Bonnie L. Herron
                                                 Vice president and CFO

ATTEST:

/s/ Marcy M. Powers
- --------------------------------
Marcy M. Powers


                                       10
<PAGE>

                                   "EXHIBIT A"

                              PROTECTIVE COVENANTS

                                 GWINNETT PARK

                                NORCROSS, GEORGIA

1.   The exterior walls of all buildings shall be of masonry construction, its
     equivalent or better. The use of materials shall be subject to the approval
     of the Planning Advisory Committee.

2.   No site or lot shall be used for any purpose or business which is
     considered dangerous or unsafe, or which constitutes a nuisance, or is
     noxious or offensive by reason of emission of just, odor, gas, smoke, fumes
     or noise.

3.   No loading docks shall be constructed facing any public street or highway
     unless said loading dock and every part thereof is at least one hundred
     (100) feet inside the right-of-way line of the street or highway on which
     said loading dock fronts.

4.   Outdoor storage yards shall be screened from public view and shall be
     placed as to conform to the building line restrictions set forth in
     Paragraph 7 of these restrictive covenants.

5.   Tenants shall not permit their employees to regularly park during business
     hours on public streets within said Industrial Community. It will be the
     responsibility of the said tenant, their successors, assigns, or other
     persons holding under them to provide adequate off-street parking for
     employees and visitors within property lines. All such parking areas shall
     be covered with a hard, dust free, paved surface. All paved areas will be
     curbed.

6.   The ratio of building coverage to the total site area will be subject to
     the approval of the Planning Committee but in no case may the ratio
     exceed fifty percent (50%).

7.   No building shall be constructed on any lot nearer than thirty (30) feet to
     the right-of-way line of street. In the case of corner lots both thirty
     (30) foot front setbacks will apply. There must be maintained a strip of
     twelve (12) feet minimum of landscaped ground, landscaped in accordance
     with the architects plans, along and within the street property lines,
     exclusive of drives and walks.

8.   Minimum side yards shall be twenty-five (25) feet and shall aggregate fifty
     (50) feet on each individually owned lot, provided, however, where suitable
     the twenty-five (25) foot minimum may be waived by the Planning Advisory
     Committee. In the event more than one lot shall be owned by one person or
     entity and in the improvement of such lot or track a building shall be
     erected on more than one lot, then the side line restriction on the
     interior line or lines shall be waived. Provided, further, that if a part
     of a tract or lot shall be shod before any improvement shall have been
     erected, then the line between the part sold and the part retained shall be
     the property line to which the setback restrictions shall apply.

9.   The tenant of any site or lot shall at all times keep the premises,
     buildings, improvements and appurtenances in a safe, clean, wholesome
     condition and comply in all respects with all government, health, fire and
     police requirements and regulation, and any tenant will remove at his or
     its own expense any rubbish of any character whatsoever which may
     accumulate on said site or lot, and in the event said tenant fails to
     comply with any or all of the aforesaid specifications and/or requirements,
     then and only then, the owner shall have the right, privilege and license
     to enter upon the premises and make any and all


                                       11

<PAGE>

     corrections or improvements that may be necessary to meet such standards at
     the expense of the tenant.

10.  The tenant of any site or lot shall at all times keep the landscaping in
     good order and condition. Should the tenant of any site or lot fail to
     remedy any deficiency in the maintenance of the landscaping after proper
     notification by the Planning Advisory Committee, the owner hereby expressly
     reserves the right, privilege and license to make any and all corrections
     or improvements in landscape maintenance at the expense of the tenant.

11.  Plans and specifications for the construction, installation or alteration
     of all outdoor signs shall be first submitted to and have the written
     approval of Gwinnett Park, its successors or assigns, which approval shall
     not be unreasonably withheld.

12.  The invalidation of any one of the restrictions herein set forth or the
     failure to enforce any of said restrictions at the time of its violation
     shall in no event effect any of the other restrictions nor be deemed a
     waiver of the right to enforce the same thereafter.

13.  Each of the above and foregoing protective covenants shall apply to owners
     of property within the Gwinnett Park, as well as tenants. Wherever the word
     "tenant" is used in these protective covenants, the same shall be
     constructed to include owners.

                                       12

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>3
<FILENAME>g94136exv10w9.txt
<DESCRIPTION>EX-10.9 FIRST MODIFICATION TO LOAN DOCUMENTS
<TEXT>
<PAGE>

                                                                    Exhibit 10.9

                      FIRST MODIFICATION TO LOAN DOCUMENTS


         THIS FIRST MODIFICATION TO LOAN DOCUMENTS (herein the "MODIFICATION")
is made and entered into as of this 1st day of September, 2004, by and between
INTELLIGENT SYSTEMS CORPORATION, a Georgia corporation (herein the "BORROWER"),
QS TECHNOLOGIES, INC., a Georgia corporation, VISAER, INC., a Delaware
corporation, CORECARD SOFTWARE, INC., a Delaware corporation, and CHEMFREE
CORPORATION, a Georgia corporation (the aforesaid four corporations being
individually and collectively referred to herein as the "GUARANTORS"), and
FIDELITY BANK, a Georgia state chartered bank (f/k/a Fidelity National Bank)
(herein the "LENDER").

                                    RECITALS:

         WHEREAS, on October 1, 2003, Lender made a loan to Borrower in the
original principal amount of One Million Five Hundred Thousand and No/100
Dollars ($1,500,000.00) (the "LOAN") evidenced by that certain Commercial
Promissory Note dated October 1, 2003 executed by Borrower in favor of Lender
(herein the "NOTE").

         WHEREAS, the Loan and the Note are secured and evidenced by, among
other instruments, the following:

         (a)      Security Agreement from Borrower in favor of Lender dated of
                  even date with the Note (herein the "SECURITY AGREEMENT");

         (b)      Loan Agreement by and between Borrower and Lender dated of
                  even date with the Note (herein the "LOAN AGREEMENT");

         (c)      Financing Statement filed in Gwinnett County, Georgia records,
                  File no. 067-2003-010805 (herein the "FINANCING STATEMENT");

         (d)      Negative Pledge Agreement by and between Borrower and Lender
                  dated of even date with the Note (herein the "NEGATIVE PLEDGE
                  AGREEMENT");

         (e)      Assignment of Policy as Collateral Security from Borrower in
                  favor of Lender dated of even date with the Note (herein the
                  "LIFE INSURANCE ASSIGNMENT"); and

         (f)      Subordination Agreements from Borrower and certain of the
                  Guarantors in favor of Lender dated of even date with the Note
                  (herein "SUBORDINATION AGREEMENTS").

The Security Agreement, the Loan Agreement, the Financing Statement, the
Negative Pledge Agreement, the Life Insurance Assignment and the Subordination
Agreements are collectively referred to herein as the "LOAN DOCUMENTS".

         WHEREAS, on October 1, 2003, each of the Guarantors executed a Guaranty
in favor of Lender whereby each of the Guarantors guaranteed all of the
obligations of Borrower to Lender contained under the Loan, Note and Loan
Documents (herein collectively the "Guaranties");

         WHEREAS, in order to secure their obligations under the terms of the
Guaranties, each of the Guarantors executed in favor of Lender certain Security
Agreements dated October 1, 2003 (herein the "Guarantor Security Agreements"),
which Guarantor Security Agreements are further evidenced by a Financing
Statement filed in Gwinnett County, Georgia Records File No. 067-2003-010805 and
that certain Financing Statement filed with the Delaware Department of State
under Filing No. 3274987 (herein collectively the "Guarantor Financing
Statements") (the Guaranties, the Guarantor Security Agreements and the
Guarantor Financing Statements are herein collectively referred to herein as the
"Guaranty Documents");


<PAGE>

         WHEREAS, Borrower has requested and Lender has agreed to extend the
Maturity Date of the Loan and Note from September 1, 2004 to September 1, 2005,
and Borrower, Guarantors and Lender desire to enter into this Agreement in order
to modify and ratify certain other terms and conditions of the Note, the Loan
Documents and the Guaranty Documents as more particularly set forth herein.

         NOW, THEREFORE, for and in consideration of Ten and No/100 Dollars
($10.00) and other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, Lender, Borrower and Guarantors
hereby agree as follows:

         1. Recitals. The foregoing recitals are true and correct and are
incorporated herein by this reference.

         2. Capitalized Terms. All capitalized terms contained in this
Modification shall have the same meaning afforded to them in the Note, Loan
Documents and Guaranty Documents.

         3. Specific Modifications to Documents.

            a.  The Note, each of the Loan Documents and each of the Guaranty
                Documents are hereby modified to reflect that the Maturity Date
                of the Loan and the Note is hereby extended from September
                1, 2004 to September 1, 2005.

            b.  The Note is hereby modified to provide that payments of interest
                only, in arrears, shall continue to be due and payable on the
                first (1st) day of each month hereafter as set forth under the
                terms of the Note, with the entire outstanding principal balance
                and all accrued interest and other charges being due and payable
                in full on September 1, 2005.

            c.  Section 1.l(c) of the Loan Agreement is hereby amended to
                provide that the advance rate on the QS Tech's Eligible Accounts
                is hereby increased from 70% to 80%. All other advance rates set
                forth in such paragraph shall remain unchanged.

            d.  Section 5.2 of the Loan Agreement is hereby modified to delete
                the phrase "In an Event of Default," at the beginning of such
                section.

            e.  Section 11.1 of the Loan Agreement is hereby modified to replace
                the date "September 1, 2004" contained in the third line of such
                section with the date "September 1, 2005".

            f.  Exhibit "A" currently attached to the Negative Pledge Agreement
                is hereby replaced with the Exhibit "A" which is attached to
                this Modification and is incorporated herein by this reference.

         4. No Impairment. Borrower and Guarantors agree that the terms and
provisions hereof shall in no manner impair, limit, restrict or otherwise affect
the obligations of Borrower and Guarantors to Lender or the priority of any lien
evidenced by the Note, the Loan Documents or the Guaranty Documents, except as
modified hereby.

         5. No Defenses. Borrower and Guarantors acknowledge that they have no
offsets, claims, counterclaims or defenses against Lender or under any of their
obligations contained in the Note, the Loan Documents or the Guaranty Documents
and to the extent any such offsets, claims, counterclaims, or defenses exist,
the same are hereby waived by the Borrower and Guarantors.


<PAGE>

         6. Ratification. Except as amended hereby, each and every term and
provision of the Note, the Loan Documents and the Guaranty Documents are hereby
ratified and affirmed by Borrower and Guarantors and shall remain in full force
and effect.

         7. No Novation. It is the intention of the parties hereto that the
execution and delivery of this Modification shall in no way constitute a
novation or extinguishment of the debt evidenced by the Note, Loan Documents or
the Guaranty Documents.

         8. Effect of Modification. In signing this Modification, the parties
hereto expressly certify and covenant that they have carefully read all
provisions contained herein, have had an opportunity to consult with legal
counsel of their choosing and to consider the ramifications and terms of this
Modification, and they have voluntarily signed this Modification with the
understanding that it will be final and binding as to their interests and they
have had a sufficient opportunity to review the Modification and consult with
counsel of their choice prior to making such decision to execute this
Modification. The parties hereby represent and warrant that this Modification is
executed without reliance on any statement or representation of the other,
except as expressly set forth in the within and foregoing Modification, and this
Modification constitutes the entire Modification between the parties hereto and
that no promise or inducement or consideration, other than that expressed in the
within and foregoing Modification, has been offered or accepted and all such
prior inducements or considerations are deemed merged herein.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                     [SIGNATURES COMMENCE ON FOLLOWING PAGE]

<PAGE>


         IN WITNESS WHEREOF, Borrower, Guarantors and Lender have set their
hands and seals to this Modification as of the day and year first above-written.

                                    BORROWER:

                                    INTELLIGENT SYSTEMS CORPORATION,
                                    a Georgia corporation

                                    By: /s/ J. Leland Strange
                                       -----------------------------------------
                                    Title: Pres.
                                          --------------------------------------
                                    Attest: /s/ Bonnie L. Herron
                                           -------------------------------------
                                    Title: Sec.
                                          --------------------------------------

                                                    [CORPORATE SEAL]


                                    GUARANTORS:
                                    QS TECHNOLOGIES, INC., a Georgia corporation

                                    By: /s/ Bonnie L. Herron
                                       -----------------------------------------
                                    Title: Sec./Treas.
                                          --------------------------------------
                                    Attest: /s/ J.W. Goodhew
                                           -------------------------------------
                                    Title: Director

                                                    [CORPORATE SEAL]

                                    VISAER, INC., a Delaware corporation

                                    By:
                                       -----------------------------------------
                                    Title:
                                          --------------------------------------
                                    Attest:
                                           -------------------------------------
                                    Title:
                                          --------------------------------------

                                                    [CORPORATE SEAL]

                                    CORECARD S0FTWARE, INC.,
                                    a Delaware corporation

                                    By: /s/ J. Leland Strange
                                       -----------------------------------------
                                    Title: Pres.
                                          --------------------------------------
                                    Attest: /s/ Bonnie L. Herron
                                           -------------------------------------
                                    Title:  Sec.
                                          --------------------------------------

                                                    [CORPORATE SEAL]

                                    CHEMFREE CORPORATION,
                                    a Georgia corporation

                                    By: /s/ F. A. Marks
                                       -----------------------------------------
                                    Title: Pres.
                                          --------------------------------------
                                    Attest: /s/ Bonnie L. Herron
                                           -------------------------------------
                                    Title: Sec.
                                          --------------------------------------

                                                    [CORPORATE SEAL]


                    (SIGNATURES CONTINUED ON FOLLOWING PAGE)


<PAGE>

         IN WITNESS WHEREOF, Borrower, Guarantors and Lender have set their
hands and seals to this Modification as of the day and year first above-written.





                                    BORROWER:

                                    INTELLIGENT SYSTEMS CORPORATION,
                                    a Georgia Corporation

                                    By:
                                       -----------------------------------------
                                    Title:
                                          --------------------------------------
                                    Attest:
                                           -------------------------------------
                                    Title:
                                          --------------------------------------

                                                    [CORPORATE SEAL]

                                    GUARANTORS:
                                    QS TECHNOLOGIES, INC., a Georgia Corporation

                                    By:
                                       -----------------------------------------
                                    Title:
                                          --------------------------------------
                                    Attest:
                                           -------------------------------------
                                    Title:
                                          --------------------------------------


                                                    [CORPORATE SEAL]

                                    VISAER, INC., a Delaware corporation

                                    By: /s/ David T. Spellman
                                       -----------------------------------------
                                    Title: President
                                          --------------------------------------
                                    Attest: Rob Arnold
                                           -------------------------------------
                                    Title: Assistant Secretary
                                          --------------------------------------

                                                    [CORPORATE SEAL]

                                    CORECARD SOFTWARE, INC.,
                                    a Delaware corporation

                                    By:
                                       -----------------------------------------
                                    Title:
                                          --------------------------------------
                                    Attest:
                                           -------------------------------------
                                    Title:
                                          --------------------------------------

                                                    [CORPORATE SEAL]

                                    CHEMFREE CORPORATION,
                                    a Georgia corporation


                                    By:
                                       -----------------------------------------
                                    Title:
                                          --------------------------------------
                                    Attest:
                                           -------------------------------------
                                    Title:
                                          --------------------------------------

                                                    [CORPORATE SEAL)

                    (SIGNATURES CONTINUED ON FOLLOWING PAGE)


<PAGE>


            (SIGNATURE PAGE TO FIRST MODIFICATION TO LOAN DOCUMENTS)


                                    LENDER:

                                    FIDELITY BANK,
                                    a Georgia state chartered bank
                                    (f/k/a Fidelity National Bank)


                                    By: /s/ Rusty Blamlett
                                       -----------------------------------------
                                    Title: V.P.
                                          --------------------------------------

                                                         (BANK SEAL)

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>4
<FILENAME>g94136exv10w10.txt
<DESCRIPTION>EX-10.10 CONSENT ORDER
<TEXT>
<PAGE>
                                                                   Exhibit 10.10



                       IN THE UNITED STATES DISTRICT COURT
                      FOR THE NORTHERN DISTRICT OF GEORGIA
                                ATLANTA DIVISION

CHEMFREE CORPORATION,               )
                                    )
    Plaintiff,                      )     Civil Action
                                    )
    v.                              ) No. l 00-CV-l530-JOF
                                    )
JAMES C. McCLURE,                   )
                                    )
    Defendant                       )

                                  CONSENT ORDER

         WHEREAS the jury trial of the within case was scheduled to start Monday
July 12, 2004, and when the parties reported for the trial and before the
selection of the jury, the Court held a pretrial conference with the parties and
their counsel;

         WHEREAS during the pretrial conference, the parties reached a
settlement set forth below and entered as the Court's Order;

         WHEREAS the parties were hindered from preparing a consent order until
after August 18 because of the unavailability of a transcript of the pretrial
conference;

         WHEREAS the parties have been negotiating in good faith an Assignment
of Mr. McClure's interest in certain patents and patent applications in
accordance with Mr. McClure's obligation under the Employee Confidentiality
Agreement; and

         WHEREAS Mr. McClure executed an Assignment on September 2, 2004, which
Assignment has been acknowledged and accepted by Chemfree Corporation
("Chemfree");

         On consent of the parties, and for good cause shown, it is therefore
hereby ORDERED that:

                                      -1-

<PAGE>


         Plaintiff releases all claims that Plaintiff asserted against Defendant
in the within case or that Plaintiff could have asserted against Defendant in
the within case,

         Defendant releases all claims that Defendant asserted against Plaintiff
in the within case or that Defendant could have asserted against Plaintiff in
the within case.

         Plaintiff will pay $500,000 to Defendant pursuant to the schedule set
forth below. Plaintiff will make the following payments on or before the
following dates to Defendant: $50,000 on September 3, 2004; $25,000 on October
2, 2004, and $25,000 on November 2, 2004. Plaintiff, starting August 2, 2005,
will pay Defendant $8,333.34 per month for 48 consecutive months.

         If Defendant dies before Plaintiff makes all of the required payments,
Plaintiff will make the remaining payments to Defendant's Estate.

         Plaintiff's payments required by this Consent Order are to be made by
checks made payable to James C. McClure and Gary Bunch, P.C. or to the Estate of
James C. McClure and Gary Bunch, P.C.

         Chemfree, by September 7, 2004, will dismiss with prejudice all claims
that it has asserted in the case pending in the Superior Court of Gwinnett
County, Georgia, styled JAMES C. MCCLURE, Plaintiff, v. ZYMO INTERNATIONAL,
INC., a Delaware Corporation, G. ROBERT WHITEMAN and CHEMFREE CORPORATION,
Defendants, and ZYMO INTERNATIONAL, INC., a Delaware Corporation, and CHEMFREE
CORPORATION, a Georgia Corporation, Plaintiffs in Counterclaim v. ENVIRO-TECH
ENVIRONMENTAL SERVICES, INC., Defendant in Counterclaim, Civil Action File
Number 99-A1969-5 ("Gwinnett County Case"). Chemfree releases all claims that
Chemfree

                                      -2-

<PAGE>


asserted in the Gwinnett County Case or that it could have asserted in the
Gwinnett County Case.

         Mr. McClure, by September 7, 2004, will dismiss with prejudice all
claims that he asserted against Chemfree in the case, pending in the Superior
Court of Gwinnett County styled JAMES C. MCCLURE, Plaintiff, v. ZYMO
INTERNATIONAL, INC., a Delaware Corporation, G. ROBERT WHITEMAN and CHEMFREE
CORPORATION, Defendants, and ZYMO INTERNATIONAL, INC., a Delaware Corporation,
and CHEMFREE CORPORATION, Plaintiffs in Counterclaim v. ENVIRO-TECH
ENVIRONMENTAL SERVICES, INC., Defendant in Counterclaim Civil Action File Number
99A-1969-5 ("Gwinnett County Case"). Mr. McClure releases all claims that he
asserted against Chemfree in the Gwinnett County Case or that he could have
asserted against Chemfree in the Gwinnett County Case. Mr. McClure, by
dismissing and releasing claims against Chemfree in the Gwinnett County Case,
does not dismiss or release his claims against the other parties in the Gwinnett
County Case.

         The parties will bear their respective costs of litigation, including
attorney's fees, in the within case and the Gwinnett County Case.

         The parties agree to this Consent Order as evidenced by signatures of
counsel affixed hereto.

         SO ORDERED, this 10th day of September, 2004.


                                                    /s/ J. Owen Forrester
                                                    ----------------------------
                                                    J. Owen Forrester
                                                    Senior District Court Judge


                                      -3-

<PAGE>



CONSENTED:

/s/ Larry A. Roberts
- -------------------------------------------
Larry A. Roberts
KILPATRICK STOCKTON LLP
1100 Peachtree Street
Suite 2800
Atlanta, GA 30309
(404) 745-2409
Fax: (404)
COUNSEL FOR PLAINTIFF CHEMFREE CORPORATION

/s/ Gary Bunch
- -------------------------------------------
Gary Bunch
GARY BUNCH PC
1718 Peachtree Street, N.W.
Suite 1085
Atlanta, Georgia 30309
(404) 815-0820
Fax:(404) 815-0790
COUNSEL FOR DEFENDANT JAMES C. McCLURE

                                      -4-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>5
<FILENAME>g94136exv21w1.txt
<DESCRIPTION>EX-21.1 LIST OF SUBSIDIARIES
<TEXT>
<PAGE>
                                                                               .
                                                                               .
                                                                               .
                                                                   EXHIBIT 21.1


                        INTELLIGENT SYSTEMS CORPORATION

           LIST OF PRINCIPAL SUBSIDIARY COMPANIES AS OF MARCH 1, 2005


<TABLE>
<CAPTION>
SUBSIDIARY NAME                              STATE OF ORGANIZATION
- ---------------                              ---------------------

<S>                                          <C>
ChemFree Corporation                         Georgia
CoreCard Software, Inc.                      Delaware
QS Technologies, Inc.                        Georgia
VISaer, Inc.                                 Delaware
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>6
<FILENAME>g94136exv23w1.txt
<DESCRIPTION>EX-23.1 CONSENT OF TAUBER & BALSER, P.C.
<TEXT>
<PAGE>
                                                                   EXHIBIT 23.1


            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Intelligent Systems Corporation
Norcross, GA

We hereby consent to the incorporation by reference in the registration
statements Form S-8 No. 333-58134 and No. 333-32157 of our report dated March
3, 2005, relating to the consolidated financial statements and schedule of
Intelligent Systems Corporation and Subsidiaries appearing in the company's
annual report on Form 10-KSB for the year ended December 31, 2004.

/s/ Tauber & Balser, P.C.

Tauber & Balser, P.C.


Atlanta, Georgia
March 28, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>7
<FILENAME>g94136exv23w2.txt
<DESCRIPTION>EX-23.2 CONSENT OF BDO SEIDMAN, LLP.
<TEXT>
<PAGE>
                                                                   EXHIBIT 23.2


            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Intelligent Systems Corporation
Norcross, GA

We hereby consent to the incorporation by reference in the registration
statements on Form S-8 (No. 333-58134 and No. 333-32157) of our report dated
March 4, 2004, relating to the consolidated financial statement and schedule of
Intelligent Systems Corporation and Subsidiaries appearing in the company's
annual report on Form 10-KSB for the year ended December 31, 2004.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

Atlanta, Georgia
March 28, 2005
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>8
<FILENAME>g94136exv31w1.htm
<DESCRIPTION>EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-31.1 SECTION 302 CERTIFICATION OF THE CEO</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: Helvetica,Arial,sans-serif">


<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;31.1</B>



<P align="center" style="font-size: 10pt"><B>CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO<BR>
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002</B>



<P align="left" style="font-size: 10pt">I, J. Leland Strange, the Chief Executive Officer of Intelligent Systems Corporation, certify that:



<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="left">1.&nbsp;&nbsp;</TD>
    <TD>I have reviewed this annual report on Form 10-KSB of Intelligent Systems Corporation;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">2.&nbsp;&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">3.&nbsp;&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">4.&nbsp;&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e) for the registrant and we have:</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%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">a)&nbsp;&nbsp;</TD>
    <TD>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</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">b)&nbsp;&nbsp;</TD>
    <TD>evaluated the effectiveness of the registrant&#146;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</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">c)&nbsp;&nbsp;</TD>
    <TD>disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the
registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant&#146;s internal control
over financial reporting.</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="4%" nowrap align="left">5.&nbsp;&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the
audit committee of registrant&#146;s board of directors (or persons performing the equivalent
functions):</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%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">a)&nbsp;&nbsp;</TD>
    <TD>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&#146;s ability to record, process, summarize and report financial information;
and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">b)&nbsp;&nbsp;</TD>
    <TD>any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">Date: March&nbsp;30, 2005



<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" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">                                            <I>/s/ J. Leland Strange</I>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">J. Leland Strange&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Chief Executive Officer and President&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>9
<FILENAME>g94136exv31w2.htm
<DESCRIPTION>EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-31.2 SECTION 302 CERTIFICATION OF THE CFO</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: Helvetica,Arial,sans-serif">


<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>

</TABLE>

<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;31.2</B>



<P align="center" style="font-size: 10pt"><B>CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO<BR>
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002</B>



<P align="left" style="font-size: 10pt">I, Bonnie L. Herron, the Chief Financial Officer of Intelligent Systems Corporation, certify that:



<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="left">1.&nbsp;&nbsp;</TD>
    <TD>I have reviewed this annual report on Form 10-KSB of Intelligent Systems Corporation;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">2.&nbsp;&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">3.&nbsp;&nbsp;</TD>
    <TD>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;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="left">4.&nbsp;&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and
15d-15(e) for the registrant and we have:</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%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">a)&nbsp;&nbsp;</TD>
    <TD>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</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">b)&nbsp;&nbsp;</TD>
    <TD>evaluated the effectiveness of the registrant&#146;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</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">c)&nbsp;&nbsp;</TD>
    <TD>disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the
registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant&#146;s internal control
over financial reporting.</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="4%" nowrap align="left">5.&nbsp;&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officers and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the
audit committee of registrant&#146;s board of directors (or persons performing the equivalent
functions):</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%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">a)&nbsp;&nbsp;</TD>
    <TD>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&#146;s ability to record, process, summarize and report financial information;
and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="left">b)&nbsp;&nbsp;</TD>
    <TD>any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">Date: March&nbsp;30, 2005



<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" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">                                            <I>/s/ Bonnie L. Herron</I>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Bonnie L. Herron&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>10
<FILENAME>g94136exv32w1.htm
<DESCRIPTION>EX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: Helvetica,Arial,sans-serif">


<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>

</TABLE>

<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;32.1</B>



<P align="center" style="font-size: 10pt"><B>CERTIFICATION PURSUANT TO<BR>
18 U.S.C. SECTION 1350,<BR>
AS ADOPTED PURSUANT TO<BR>
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</B>



<P align="left" style="font-size: 10pt">Each of the undersigned officers of Intelligent Systems Corporation (the &#147;Company&#148;) hereby
certifies to his or her knowledge that the Company&#146;s annual report on Form&nbsp;10-KSB for the period
ended December&nbsp;31, 2004 (the &#147;Report&#148;), as filed with the Securities and Exchange Commission on the
date hereof, fully complies with the requirements of Section&nbsp;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.



<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" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: March 30, 2005&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left"><I>/s/ J. Leland Strange</I>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">J. Leland Strange&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<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" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left"><I>/s/ Bonnie L. Herron</I>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Bonnie L. Herron&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><FONT style="font-variant: SMALL-CAPS">Intelligent Systems Corporation</FONT>

</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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