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<SEC-DOCUMENT>0001362310-08-001689.txt : 20080331
<SEC-HEADER>0001362310-08-001689.hdr.sgml : 20080331
<ACCEPTANCE-DATETIME>20080331123331
ACCESSION NUMBER:		0001362310-08-001689
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20071231
FILED AS OF DATE:		20080331
DATE AS OF CHANGE:		20080331

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:		08722746

	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>c72804e10ksb.htm
<DESCRIPTION>FORM 10-KSB
<TEXT>
<HTML>
<HEAD>
<TITLE>Filed by Bowne Pure Compliance</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; margin-left: .25in; width: 7.20in">

<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>




<DIV align="center" style="font-size: 14pt; margin-top: 10pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

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

<DIV align="center" style="font-size: 18pt; margin-top: 10pt"><B>FORM 10-KSB</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">(Mark One)
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 10pt">
    <TD width="7%"></TD>
    <TD width="5%"></TD>
    <TD width="88%"></TD>
</TR>
<TR valign="top">
    <TD align="center"><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>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 12%"><B>For the fiscal year ended <U>December&nbsp;31, 2007</U>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>OR</B></DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 10pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><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>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 12%"><B>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>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Commission file number 1-9330</B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 10pt"><B><FONT style="border-bottom: 1px solid #000000">INTELLIGENT SYSTEMS CORPORATION</FONT></B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Name of small business issuer in its charter)</DIV>


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

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Georgia</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>58-1964787</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" 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="center" valign="top">(State or other jurisdiction of incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer Identification No.)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><B>4355 Shackleford Road, Norcross, Georgia</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>30093</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" 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="center" valign="top">(Address of principal executive offices)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Zip Code)</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Issuer&#146;s telephone number: <B>(770)&nbsp;381-2900</B></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Securities registered pursuant to Section&nbsp;12(b) of the Act:</B></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="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Title of each class</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Name of each exchange on which registered</B></TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Common Stock, $.01 par value</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>American Stock Exchange</B></TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>

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

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Check whether the issuer in not required to file reports pursuant to Section&nbsp;13 or 15(d) of the
Exchange Act <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Check whether the issuer (1)&nbsp;filed all reports required to be filed by Section&nbsp;13 or 15(d) of the
Securities Exchange Act during the past 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> No <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Check if there is no disclosure of delinquent filers in response to Item&nbsp;405 of Regulation&nbsp;S-B
contained in this form, and no disclosure will be contained, to the best of registrant&#146;s knowledge,
in definitive proxy or information statements incorporated by reference in Part&nbsp;III of this Form
10-KSB or any amendment to this Form 10-KSB. <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Indicated by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the
Exchange Act). Yes&nbsp;<FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</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="32%">&nbsp;</TD>

    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD nowrap><DIV style="margin-left:15px; text-indent:-15px">State issuer&#146;s revenue for its most recent fiscal year.</DIV></TD>
    <TD>&nbsp;</TD>

    <TD align="left">$19,005,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>

        <TD nowrap colspan="1" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was sold, or the average bid and
asked price of such common equity, as of a specified date within the past 60&nbsp;days. (See definition
of affiliate in Rule&nbsp;12b-2 of the Exchange Act.)
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of February&nbsp;29, 2008, 4,478,971 shares of Common Stock of the registrant were outstanding. The
aggregate market value of the Common Stock held by non-affiliates of the registrant on February&nbsp;29,
2008 was $8,106,000 (computed using the closing price of the Common Stock on February&nbsp;29, 2008 as
reported by the American Stock Exchange).
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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&nbsp;III hereof.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Transitional Small Business Disclosure Format: Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>


<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;

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: Helvetica,Arial,sans-serif; margin-left: .25in; width: 7.20in">






<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>TABLE OF CONTENTS</B>
</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="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" 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:15px; text-indent:-15px"><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" style="padding-top: 1px"><!-- 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>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#102">Item&nbsp;1. Description of Business</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#103">2. Description of Property</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><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 style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><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 style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106"><B>Part II</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#107">5. Market for Common Equity, Related Stockholder Matters, and Small Business Issuer Purchases of Equity Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#108">6. Management&#146;s Discussion and Analysis or Plan of Operation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><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 style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#110">8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#111">8A(T). Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#112">8B. Other Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113"><B>Part III</B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#114">9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance: Compliance with
Section16(a) of the Exchange Act </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#115">10. Executive Compensation</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#116">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">18</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#117">12. Certain Relationships and Related Transactions, and Director Independence</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#118">13. Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px"><A href="#119">14. Principal Accountant Fees and Services</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#120">Signatures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c72804exv10w9.htm">Exhibit 10.9</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c72804exv21w1.htm">Exhibit 21.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c72804exv23w1.htm">Exhibit 23.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c72804exv31w1.htm">Exhibit 31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c72804exv31w2.htm">Exhibit 31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="c72804exv32w1.htm">Exhibit 32.1</A></FONT></TD></TR>
<!-- End Table Body --></TABLE>
</DIV>

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

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

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PART I</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Forward-Looking Statements</B>
</DIV>



<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><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 analyses 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
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>
<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>DESCRIPTION OF BUSINESS</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Overview</B>

</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation, a Georgia corporation, and its predecessor companies have 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)&nbsp;381-2900. Our Internet address
is <u>www.intelsys.com</u>. We publish
our Securities and Exchange Commission (&#147;SEC&#148;) 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Since the early 1980&#146;s, we have conducted our operations principally through wholly and majority
owned subsidiaries or minority owned affiliates to which we devote extensive management resources.
Depending upon the needs of each company, we may undertake a variety of roles including day-to-day
management of operations, board of director participation, financing, market planning, strategic
contract negotiations, personnel and administrative roles, and similar functions. Currently, our
subsidiary and affiliate companies are primarily in the information technology industry
(principally software for business applications) although our largest subsidiary company is in the
industrial products industry. A common thread in our corporate and subsidiary efforts is bringing
new applications of technologies to business markets. Thus, one element of our business model is
being proactive in identifying emerging technologies, markets, or companies that may advance our
interests. From time to time, we see promising companies or technologies that may be candidates
for acquisition or that we believe are in line with our corporate or subsidiaries&#146; strategic
direction, thus warranting an investment of our time and money in order to build future shareholder
value. In addition, 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Financial Reporting</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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)
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.
</DIV>

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


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

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

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Industry Segments Overview</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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. (&#147;VISaer&#148;) and CoreCard Software, Inc. (&#147;CoreCard&#148;) subsidiaries and the
Industrial Products segment includes ChemFree Corporation (&#147;ChemFree&#148;). As of December&nbsp;31, 2007,
we own 100&nbsp;percent of ChemFree, 79&nbsp;percent of VISaer and 95&nbsp;percent of CoreCard. We also have two
wholly owned subsidiaries, CoreCard SRL and ISC Software in Romania and India, respectively, that
perform software development and testing for CoreCard and VISaer. On July&nbsp;31, 2006, we sold the
business of our QS Technologies subsidiary and accordingly, we have classified the QS operations as
Discontinued Operations.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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 range between three and four years.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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 situations 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
million. We also derive service revenue from implementation, customization, training and support
services. Depending on factors such as the contract terms, customer implementation and testing
schedule, and extent of customization required, the timing of revenue recognition on software
contracts not generally determinable by us with any degree of certainty in advance.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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. The business in our segments is not seasonal on a consolidated basis although
there is generally some slowdown in ChemFree&#146;s European business in late summer. The business
discussion which follows contains information on products, markets, competitors, research and
development and manufacturing for our operating subsidiaries, organized by industry segment and by
company. For further detailed financial information concerning our segments, see Note 16 in the
accompanying Notes to Consolidated Financial Statements. For further information about trends and
risks likely to impact our business, please refer to Management&#146;s Discussion and Analysis in Item&nbsp;6
of this Form 10-KSB.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Industrial Products Segment</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>ChemFree Corporation </I></B>- ChemFree is our largest subsidiary and the only one in the Industrial
Products segment of our business. ChemFree designs, manufactures and markets a line of parts
washers under the SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> trademark. The SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> system uses a proprietary advanced
bio-remediation system that cleans automotive and machine parts without using hazardous,
solvent-based chemicals. Typically, the SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> system consists of a molded plastic tub and
sink, recirculating pump, heater, control panel, filter with microorganisms, and aqueous-based
degreasing solutions. Unlike traditional solvent-based systems, there are no regulated, hazardous
products used or produced in the process and the SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> system is completely self-cleaning.
ChemFree sells replacement fluid and filters to its customers on a regular basis after the initial
parts washer sale. ChemFree has numerous US and European patents covering its SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> system
and protects its proprietary fluid and filters as trade secrets. As the leader in bio-remediating
parts washers, ChemFree seeks to continually bring new product enhancements and features to the
market.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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. 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 non-exclusive 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 10&nbsp;percent and 11&nbsp;percent of our consolidated
revenue in 2007 and 2006, respectively, and 14&nbsp;percent and 20&nbsp;percent of our Industrial Products
Segment revenue in 2007 and 2006, respectively. Part of ChemFree&#146;s revenue is derived from
multi-year lease contracts under which ChemFree provides SmartWashers<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> and supplies to nationwide
chains of auto repair shops, such as Firestone, Tires Plus and Pep Boys.
</DIV>

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


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

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</DIV>

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Beginning in 2006, ChemFree increased its sales to large corporate customers on a direct basis
using a manufacturer&#146;s representative firm. In 2007, one new corporate customer accounted for
almost 50&nbsp;percent of ChemFree&#146;s revenue (32&nbsp;percent of consolidated revenue) as a result of the
successful roll-out of a national sales program that supplied SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> machines and routine
fluid and filter replenishment to the customer&#146;s installed base of clients. Management expects a
significant volume of orders for additional machines and supplies in 2008 but it is possible that a
number of factors outside of ChemFree&#146;s control could cause that expectation not to be met. If
the volume of sales drops significantly or quickly, there is a risk that revenue and profits would
decline compared to 2007 levels and that in the near-term ChemFree&#146;s inventory levels and
production expenses would be higher than planned since ChemFree typically orders raw materials up
to 12&nbsp;weeks in advance of producing and shipping finished goods.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">ChemFree competes with larger, established companies that offer solvent-based systems, other
companies that offer aqueous-based systems, and hazardous waste hauling firms. Although smaller
than some established solvent-based firms, ChemFree believes it is competitive based on product
features, positive environmental impact, desirable health and safety features, less burdensome
regulatory compliance, and cleaning performance. ChemFree believes that overall domestic and
international market demand for its products could increase significantly if environmental
regulations in the U.S. and overseas prohibiting or restricting the use of solvent-based products,
with which ChemFree&#146;s products compete, continue to become increasingly stringent and such
regulations are enforced effectively by state, local and national governments. Moreover, ChemFree
believes there may be an opportunity to provide services, either directly or through third parties,
to customers that prefer to outsource periodic fluid and filter replenishment activities.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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 most 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. One subassembly has only a single qualified supplier presently and
shortages or price increases associated with such supplier could impact ChemFree&#146;s ability to meet
market demand for its products and/ or increase its cost of goods sold. In the past two years,
the cost of certain parts has increased significantly due to increases in the cost of plastic
materials resulting from higher oil prices, which increase has been offset in part by cost
reductions related to new product designs.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Information Technology Products and Services Segment</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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 employees in England to support customer service and sales
activities in Europe and a small technical and project management team in Australia. 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. In 2005, VISaer focused on developing and delivering to initial customers
the &#147;go-live&#148; Version 3.4 release of its software, which was achieved in late 2005. In 2006, VISaer
continued its focus on product improvements and go-live support of its existing
customers. By the end of 2006, several customer sites were live, Version 3.5 with some significant
enhancements was released and several additional customer sites had signed contracts to implement
Version 3.5 in 2007. In 2007, VISaer focused on product enhancements and go-live support with the
goal of having most of the VISaer customer base live and referenceable on Version 3.5 and its
follow-on versions. VISaer did not allocate significant resources to new sales and marketing
programs in the last two years although it delivered a significant amount of professional services
and maintenance support to its existing base of customers in 2007 and expects to do so again in
2008.
</DIV>

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


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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Regulatory requirements dictate that airlines manage their MRO processes carefully and encourage
companies to improve and automate MRO business processes, materials and asset utilization,
record-keeping and compliance reporting. VISaer&#146;s software products provide a comprehensive,
cost-effective way to do so. We believe significant sales opportunities exist in North America as
well as in the Asian Pacific, Latin American and Chinese markets. These markets include MRO
service outsourcing companies, low-cost airlines, small to mid-size domestic regional airlines,
small to large non-domestic airlines and IT services hosting companies.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">VISaer markets and sells its software in both domestic and international markets. International
customers have traditionally represented a significant part of VISaer&#146;s revenue. 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 a full suite of 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 a broader 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
Version 3.5 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>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>CoreCard Software, Inc. </I></B>- CoreCard 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 and debit card,
prepaid cards, merchant, fleet, loyalty, and accounts receivable accounts. CoreCard products allow
financial institutions and commercial customers to optimize their account management systems,
improve customer retention, lower operating costs and create greater market differentiation.
CoreCard&#146;s feature-rich, browser-based financial software allows customers to automate, streamline
and optimize business processes associated with the set-up, administration and management of credit
card, merchant and loan accounts, to process transactions and to generate reports and statements
for these accounts. Because CoreCard&#146;s products are designed to run on PC-based servers, rather
than mini or mainframe computers, customers benefit from a lower overall cost-of-ownership,
scalability, 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, account hierarchies, and flexible,
customer-defined pricing and payment terms.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">CoreCard&#146;s principal target markets include accounts receivable businesses, prepaid cards issuers,
small and mid-size banks, and retail and private-label issuers in the United States and in emerging
international markets. The company expects that a significant amount of its bankcard business will
come from international markets, particularly with respect to banks and similar institutions that
are less inclined to outsource their processing than are the domestic US banks. 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. One challenge facing most new software companies is overcoming the reluctance of
risk-averse financial customers to acquire software from a company with limited customer
installations. Certain of CoreCard&#146;s competitors, including processors, may 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 by providing customers with a robust technology platform, lower overall cost-of-ownership,
greater system flexibility, multilingual/multicurrency capabilities and more customer-driven
marketing options. Furthermore, we believe that CoreCard&#146;s products can be configured and deployed
to address problems in managing certain types of financial transactions that are not being
addressed by other alternatives. CoreCard is focusing its extensive development and limited sales
activities on establishing a growing base of referenceable customers in its target markets.
</DIV>

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


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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">CoreCard licenses its software products typically for a one-time license fee or, in some cases, for
an initial installation charge and a per account fee. It provides maintenance and support services
under annual contracts, as well as professional services for customization, implementation and
training activities. Generally, CoreCard expects to sell its products directly to 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&#146;s core software platform
and modules include CoreENGINE&#153;, CoreISSUE&#153;, CoreFRAUD&#153;, CoreCOLLECT&#153; and CoreACQUIRE&#153; which are
configured with additional or specific functionality to meet the market and/or customer
requirements in applications such as prepaid, bankcard or fleet. In 2006 and 2007, CoreCard signed
several new license contracts and developed additional software functionality, including a prepaid
card application that will be ready for initial customer implementations in 2008. However, delays
or problems in completing development, testing and delivering CoreCard&#146;s new products could
adversely affect customer implementations, acceptance and references.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Incubator Program</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">For over fifteen years, we have operated the Gwinnett Innovation Park (formerly called 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. Income from incubator companies reduces our
total corporate facility and personnel costs. Because we have a large facility, we are able to
offer the benefits of the incubator program to companies in which we have no ownership interest.
We view this program as a way to stay abreast of new business opportunities and trends which may be
of benefit to our company while simultaneously contributing to our local community in a very
positive way.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Minority-Owned Partner Companies</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">A common thread in our corporate and subsidiary efforts is bringing new applications of
technologies to business markets. Thus, an important element of our business model is being
proactive in identifying emerging technologies, markets, or companies that may advance our
interests. Accordingly, we seek to identify 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 may 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.
Currently, our largest investment is a 25.5&nbsp;percent interest in NKD Enterprises, LLC (dba
CoreXpand), a software services company with an e-commerce application that allows customers to
centralize and control purchases of supplies and consumables through an online company &#147;store&#148;.
CoreXpand is located in our Gwinnett Innovation Park.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Research and Development</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We spent $5.0&nbsp;million and $5.7&nbsp;million in the years ended December&nbsp;31, 2007 and 2006, respectively,
on company sponsored research and development. During the years ended December&nbsp;31, 2007 and 2006,
almost all of our consolidated research and development expense related to VISaer and CoreCard,
with the balance spent for research at ChemFree. Although the absolute dollar amount of research
and development declined in each of the last two years, the number of employees involved in
company-wide research and development increased in 2006 and 2007 as the company added development
and testing employees in Romania and India for CoreCard and VISaer projects, at a lower cost per
employee than the domestic workforce.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Patents, Trademarks and Trade Secrets</B>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our ChemFree subsidiary has 11 U.S. patents issued and 15 patents in foreign jurisdictions issued
and pending covering various aspects of the design and construction of the SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> system and
the process of bioremediation used in the SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> system. ChemFree considers these patents an
important component of its overall business strategy. Furthermore, ChemFree considers the
proprietary formulation of the chemicals used in its fluids, which ChemFree protects as a trade
secret, to be an important intellectual property asset and competitive advantage. CoreCard has one
U.S. patent issued and several pending patent applications in the U.S. covering aspects of its core
software engine. It may be possible for competitors to duplicate certain aspects of our products
and processes even though we regard such aspects as proprietary. We have registered with the U.S.
Patent and Trademark Office and various foreign jurisdictions numerous trademarks and service marks
for our products. We believe that an active trade secret, trade name, trademark, and copyright
protection program is important in developing and maintaining brand recognition and protecting our
subsidiaries&#146; intellectual property. Our companies presently market their products under
trademarks and service marks such as SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, OzzyJuice<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, OzzyBooster&#153; ChemFree<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP>, VISaer&#153;,
CoreENGINE&#153;, CoreISSUE&#153;, CoreCOLLECT&#153;, and others.
</DIV>

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


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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Personnel</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of February&nbsp;29, 2008, we had 260 total and full-time equivalent employees in our company
(including our subsidiaries in the United States and foreign countries). 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Financial Information About Geographic Areas</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Refer to Note 15 to the Consolidated Financial Statements for financial information in response to
this item. Except for the risk associated with fluctuations in currency we do not believe there
are any specific risks attendant to our foreign operations that are significantly different than
the general business risks discussed elsewhere in this Annual Report.
</DIV>
<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 2.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>DESCRIPTION OF PROPERTY</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At February&nbsp;28, 2008, we have leases covering approximately 61,000 square feet in Norcross, GA, and
12,000 square feet in Andover, MA, to house our product development, manufacturing, sales, service
and administration operations, as well as our software development office in Romania. Such leases
expire at various dates through July&nbsp;2010. We also own a 6,350 square foot office facility in
Bhopal, India to house the software development and testing activities of our ISC Software
subsidiary. Approximately 9&nbsp;percent of the space we lease in Norcross, Georgia is subleased to
non-affiliated businesses in our small business incubator. We believe our facilities are adequate
for the foreseeable future. We do not invest in real estate or interests in real estate,
mortgages, or securities of persons primarily engaged in real estate activities.
</DIV>
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 3.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>LEGAL PROCEEDINGS</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our ChemFree subsidiary devotes considerable resources, including management time and legal fees,
to protect its rights in various patents and related contracts and expects to continue to do so in
the foreseeable future. From time to time, these efforts involve initiating legal action such as
the action described below.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In December&nbsp;2004, ChemFree filed a patent infringement action against J. Walter Co. Ltd. and J.
Walter, Inc. in the United States Court for the Northern District of Georgia. The complaint
alleges that certain of the defendant&#146;s products infringe various U.S. patents held by ChemFree and
seeks a ruling to compel defendant to cease its infringing activities. The defendant has asserted
various defenses. The parties are in the discovery phase of the case and no trial date has been
set. While the resolution and timing of any legal action is not predictable, ChemFree believes it
has sufficient grounds to prevail in this action although there can be no assurance that the case
will be resolved in its favor.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">From time to time we are or may become a party to a number of other legal matters arising in the
ordinary course of business. It is management&#146;s opinion that none of these other matters will have
a material adverse impact on our consolidated financial position or results of operations.
</DIV>
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 4.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We did not submit any matter to a vote of our shareholders during the fiscal quarter ended
December&nbsp;31, 2007.
</DIV>

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


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

<P align="center" style="font-size: 10pt"><!-- Folio -->- 8 -<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">


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

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PART II</B>
</DIV>

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

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 5.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND SMALL BUSINESS ISSUER PURCHASES
OF EQUITY SECURITIES</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Market Information</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Low</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1st Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2nd Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.95</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">3rd Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">4th Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.26</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We had 330 shareholders of record as of February&nbsp;29, 2008. 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 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 6 to the
Consolidated Financial Statements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In 2006, The American Stock Exchange (&#147;AMEX&#148;) determined that we did not meet certain of the AMEX
continued listing standards, specifically relating to minimum shareholder&#146;s equity of $4&nbsp;million.
Subsequently, we submitted a plan to regain compliance and AMEX confirmed that we had resolved the
continued listing deficiency in May&nbsp;2007. AMEX continually assesses continued listing eligibility
of all listed companies and there is no assurance that we will meet continued listing requirements
in the future. Failure to meet such requirements could impact our stock price and possibly result
in delisting of the company&#146;s common stock.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Equity Compensation Plan Information</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">See Item&nbsp;11 for information regarding securities authorized for issuance under equity compensation
plans, which is incorporated herein by reference.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Recent Sales of Unregistered Securities</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">There have been no sales of unregistered securities by the company during the period covered by
this report.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Repurchases of Securities</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The company did not repurchase any of its shares of common stock during the fourth quarter of 2007.
</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 6.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION</B></DIV></TD>
</TR>
</TABLE>
</DIV>
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Critical Accounting Policies and Estimates</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The discussion and analysis of our financial condition and results of operations is 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.
</DIV>

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


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

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

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<DIV style="font-family: Helvetica,Arial,sans-serif; margin-left: .25in; width: 7.20in">



<DIV align="justify" style="font-size: 10pt; margin-top: 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We recognize revenue for industrial products when products are shipped, at which time title
transfers to the customer, and there are no remaining future obligations. 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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;. We are presently
utilizing the completed contract method because current contracts are for new software products for
which we do not have a historical basis on which to prepare reliable estimates. Under the
completed contract method, all revenue is deferred until the customer has accepted the software and
any refund rights have expired.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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,
unforeseen technical problems and delays caused by customer issues such as lack of resources or
change in project priorities. 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 result in a loss on the contract or impact our financial results.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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 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 its
business plan could result in investment losses or an inability to recover the current carrying
value of the investment. Some 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.
Any such charges could have a material adverse impact on our financial condition or results of
operations and are generally not predictable in advance.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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, 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. In the two years ended December&nbsp;31, 2007, we did
not acquire any companies and we did not record any write-downs with respect to goodwill or other
intangibles.
</DIV>

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


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

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

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<DIV style="font-family: Helvetica,Arial,sans-serif; margin-left: .25in; width: 7.20in">



<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The determination of the value of intangible assets, especially with respect to goodwill, 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, generally 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Overview</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We derive our product revenue from sales of software licenses in our Information Technology
Products and Services 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
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:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">A change in revenue level at one of our subsidiaries may impact consolidated revenue or be
offset by an opposing change at another subsidiary.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Our software subsidiaries do not have extensive experience in their marketplaces which
makes it difficult to identify and evaluate trends that may impact their business.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Our software subsidiaries, CoreCard and VISaer, have been involved in major new product
development initiatives for at least the past five years and have limited experience
delivering and installing their current product releases at customer sites, making it
difficult to predict with certainty when they will recognize revenue on individual software
contracts.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Our subsidiaries in the Information Technology Products and Services sector are relatively
small in size and software license revenue 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.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Acquisitions or sales of subsidiaries may affect our revenue and expense levels, as
occurred in 2006 with the sale of our QS business.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Customers may decide to postpone or cancel a planned implementation of our software for any
number of reasons, which may be unrelated to our software features or contract performance,
but which may affect the amount, timing and characterization of our deferred and/or recognized
revenue.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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 subsidiaries&#146; expenses and the corporate office expenses.
Our ChemFree subsidiary generates an operating profit on an annual basis but our earlier 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, if at all, 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. 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.
</DIV>

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


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

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</DIV>

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We also frequently generate income or losses from non-consolidated companies 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 the
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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In recent years, most of our cash has been generated on an irregular basis from sales of our
investments or subsidiaries. We have used a significant amount of the cash received from these
sales to support the operations of our CoreCard and VISaer subsidiaries.</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Under SEC rules and regulations, beginning with our 2007 fiscal year we must comply with the
requirements related to internal control over financial reporting of Section&nbsp;404 of the
Sarbanes-Oxley Act of 2002 with respect to management&#146;s assessment of internal controls. In 2007,
we spent substantial management and staff time and incurred additional expenses for outside
consultants related to compliance with Section&nbsp;404. The compliance efforts constituted a
significant diversion of management time and attention in 2007. We cannot be certain about the
amount of management time and expense that will be required going forward to maintain the internal
controls and testing required for compliance nor estimate the additional auditor fees that will be
incurred or the impact, if any, that these activities will have on our operations. We are a small
company with limited resources, and our efforts to timely comply with Section&nbsp;404 constitute a
significant strain on these resources. Any failure to maintain compliance with Section&nbsp;404 could
result in sanctions or other penalties, which could adversely affect our business or financial
results.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Results of Operations</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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. As explained
in Note 2 to the Consolidated Financial Statements, we sold our former QS Technologies business in
July&nbsp;2006 and have accounted for the QS operations as Discontinued Operations in the Consolidated
Financial Statements for both 2007 and 2006. Accordingly, management&#146;s discussion of the results
of operations does not include the QS operations in the discussion of continuing operations for
either period presented.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>2007 Compared to 2006</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Revenue </I></B>- Total revenue for the year ended December&nbsp;31, 2007 was $19.0&nbsp;million, an increase of 31
percent compared to $14.5&nbsp;million for the prior year. Revenue from product sales increased 73
percent from $8.4&nbsp;million in 2006 to $14.6&nbsp;million in 2007, and service revenue declined by 27
percent, from $6.1&nbsp;million in 2006 to $4.5&nbsp;million in 2007.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Product revenue </I>includes sales of industrial products by our Industrial Products segment as well as
software licenses by our Information Technology Products and Services segment subsidiaries. The
increase in product revenue in 2007 compared to 2006 is the result of a $5.4&nbsp;million increase in
sales of industrial products and an increase of $735,000 in software license revenue.
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">In 2007, our ChemFree subsidiary experienced record levels of revenue and profits,
attributed to an increased volume of products sold in both domestic and international markets.
ChemFree&#146;s revenue grew 74&nbsp;percent and 44&nbsp;percent in the domestic and international markets,
respectively, in 2007 as compared to 2006. As a result of this growth, ChemFree&#146;s
revenue represented 69&nbsp;percent of consolidated revenue in 2007 as compared to 54&nbsp;percent of
consolidated revenue in 2006. In the domestic U.S. market, most of the increase relates to a
single end-user customer that began a national roll-out of the SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> parts washer to its
installed base of customers. An increased volume of products sold in Europe was the major
factor in the year-to-year growth in the international markets. Management believes it is
unlikely that ChemFree will record the same year-to-year increase in domestic revenue in 2008.
ChemFree&#146;s fluid and filters sales increased approximately 21&nbsp;percent in 2007 as compared to
2006, due to a larger installed base of customers that purchase such consumable supplies.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">License revenue generated by our Information Technology Products and Services segment was
$1.1&nbsp;million higher in 2007 than in 2006 due to the recognition of a single license by our
CoreCard subsidiary. In 2006, most license revenue resulted from additional licenses sold to
VISaer&#146;s existing customer base. As we have frequently cautioned, a number of factors, some
of which may be outside of our control, can cause delays in delivery of our software and
implementation by the customer, thus delaying license revenue recognition. With
mission-critical, complex software systems such as those sold by CoreCard and VISaer, customer
requirements, available resources and testing cycles may increase the scope and length of time
to complete the project beyond our original estimates.</DIV></TD>
</TR>

</TABLE>
</DIV>

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


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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Service revenue </I>generated by our Information Technology Products and Services subsidiaries
decreased by 27&nbsp;percent ($1.6&nbsp;million) in 2007 as compared to 2006. This year-to-year decrease is
primarily attributable to a single, multi-year contract at the VISaer subsidiary that was completed
and recognized in early 2006, contributing $1.8&nbsp;million in services revenue. Excluding the impact
of that 2006 contract, service revenue would have shown a slight decrease year-to-year.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Cost of Revenue </I></B>- A comparison of the cost of revenue between 2007 and 2006 is influenced
significantly by the change in revenue mix between years as described above. Total cost of revenue
was $10.4&nbsp;million (55&nbsp;percent of total revenue) in 2007 compared to $7.2&nbsp;million (50&nbsp;percent of
total revenue) in 2006.
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Cost of <I>product </I>revenue in 2007 was $7.7&nbsp;million (53&nbsp;percent of total product revenue)
compared to $4.4&nbsp;million (52&nbsp;percent of total product revenue) in 2006. The difference
between 2007 and 2006 is due to the proportionately greater amount of product revenue
generated by our industrial products, which have a higher cost of sales than do our software
license products. In addition, in 2007 a greater proportion of industrial products revenue was
derived from SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> machine sales which have a higher material cost than do consumable
fluid and filter products. Furthermore, the company experienced an increase in the cost of
certain of its plastic components due to increases in the price of oil. These increased costs
are likely to continue in the foreseeable future. In 2007, the company implemented price
increases and re-engineered its SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> design to offset some of these costs.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Cost of <I>service </I>revenue (which relates to the Information Technology subsidiaries only) was
$2.7&nbsp;million (60&nbsp;percent of service revenue) in 2007, as compared to $2.8&nbsp;million (46&nbsp;percent
of service revenue) in 2006. The decline in gross margin percentage between periods reflects
primarily a higher number of hours and average standard cost for CoreCard&#146;s customer support
and professional services activities in 2007 than in 2006.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Operating Expenses </I></B>- Consolidated operating expenses were 11&nbsp;percent higher in 2007 than in 2006 on
a 31&nbsp;percent increase in revenue. Lower research and development expenses were offset by increases
in marketing and general and administrative expenses. Marketing expenses increased by 49&nbsp;percent
($1.0&nbsp;million) year-to-year, mainly due to increased sales commission payable to a third party by
the ChemFree subsidiary related to the increased volume of domestic sales. General and
administrative expense in 2007 was 24&nbsp;percent ($839,000) higher in 2007 compared to 2006,
principally reflecting higher legal costs and management bonuses at the ChemFree subsidiary.
Consolidated research and development expense was $664,000 less in 2007 than in 2006, decreasing
from $5.7&nbsp;million to $5.0&nbsp;million due to a combination of factors, including a reduction in the
number of employees allocated to R&#038;D at VISaer&#146;s domestic operation, offset in part by a greater
number of technical employees at our subsidiary in India. In addition, in 2007 a larger component
of expense was recorded as cost of services revenue at CoreCard or was classified on the balance
sheet as cost associated with in-process, deferred revenue contracts. Such deferred costs will be
recognized when the corresponding deferred revenue is recognized. Although the total number of
employees involved in R&#038;D increased on a consolidated basis, the offshore technical resources at
the company&#146;s offices in Romania and India contribute to a lower average employee cost and increase
the productivity of the entire workforce.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Operating Loss </I></B>- Our loss from operations was $3.9&nbsp;million in 2007, a slight improvement compared
to $4.0&nbsp;million in 2006.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Interest Income, net </I></B><I>- </I>We recognized net interest income of $136,000 and $57,000 in 2007 and 2006,
respectively. The increase in 2007 reflects interest earned on the notes receivable related to the
sale of our QS Technologies business for the entire year in 2007 as well as lower borrowings under
our bank line of credit. In 2006, interest was earned on the notes issued by the buyers of our QS
Technologies business and Horizon Software International investment, as described in Notes 2 and 3
to the Consolidated Financial Statements, offset in part by a higher level of borrowings under our
bank line of credit during the first seven months of 2006.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Investment Income, net </I></B>- We recognized $81,000 and $2.5&nbsp;million in net investment income in 2007
and 2006, respectively. The 2006 investment income reflects mainly the gain of $2.6&nbsp;million on the
sale of our Horizon Software International investment, offset in part by a charge of $98,000 to
reduce the carrying value of our investment in Paymetric, a privately held company. In 2007, we
earned additional investment income of $92,000 related to Horizon Software, offset by a loss of
$11,000 on the sale of a marketable security. Refer to Notes 2 and 3 to the Consolidated Financial
Statements for more details on the transactions noted in this section.
</DIV>

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



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</DIV>

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Equity Earnings (Loss) of Affiliate Companies - </I></B>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 several companies operating in different industries and thus aggregate earnings (losses)&nbsp;are
subject to considerable fluctuation from quarter-to-quarter and year-to-year. In 2007 and 2006, we
recorded $13,000 in net equity losses and $374,000 in net equity earnings, respectively, of
affiliate companies. Affiliate companies include Horizon Software International (through August
31, 2006, the date of the sale of our interest), NKD Enterprises and Alliance Technology Ventures.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Other Income (Expense), net - </I></B>In 2007, we recorded $49,000 in other expense, the majority of which
is due to the write-down of the unamortized value of certain leased equipment at the ChemFree
subsidiary.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Income taxes - </I></B>Income tax expense in 2007 reflects certain state tax liabilities at two
subsidiaries. We did not accrue for any income tax liability in 2006 and we believe our deferred
tax assets should be fully reserved at December&nbsp;31, 2007 and 2006 given their character and our
historical losses.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Discontinued Operations</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Net Income from Discontinued Operations - </I></B>The amounts recorded in 2006 reflect the results of
operations of the QS Technologies subsidiary which has been classified as a discontinued operation
as a result of the sale of the QS business, as disclosed in more detail in Note 2 to the
Consolidated Financial Statements.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Gain on Sale of Discontinued Operations  -  </I></B>In 2006, we recorded a gain of $4.9&nbsp;million on the sale
of the QS business. In 2007, we recorded an additional gain on the sale of $1.3&nbsp;million reflecting
$1.2&nbsp;million in earned contingency payments and the reversal of $97,000 in excess accruals related
to estimated transaction related expenses.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Liquidity and Capital Resources</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our cash balance at December&nbsp;31, 2007 was $554,000 compared to $2.1&nbsp;million at December&nbsp;31, 2006.
During the year ended December&nbsp;31, 2007, our principal sources of cash were $3.4&nbsp;million from
payments received on principal and interest on notes receivable, consisting of payment in full of
the $2.9&nbsp;million note related to the sale of our Horizon Software investment and scheduled payments
of principal and interest totaling $542,000 from the buyer of our QS Technologies business. We
also borrowed $415,000 under our line of credit and $178,000 under a term loan for ChemFree&#146;s new
accounting software system. During 2007, we used approximately $4.1&nbsp;million in the aggregate
principally to support our CoreCard subsidiary&#146;s U.S. and international operations, and to a lesser
extent, our VISaer subsidiary operations. In addition, other uses of cash included
$520,000 to increase inventory levels to support ChemFree product sales and approximately $385,000
to acquire an office facility to house our software subsidiary in India.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In recent years, most of our cash has been generated on an irregular basis from sales of assets, as
exemplified by the QS Technologies and Horizon Software International transactions in 2006. We
have used a significant amount of the cash received from such sales to support the operations of
our CoreCard and VISaer subsidiaries. In 2007, we used more cash than originally forecasted to
support our software operations due to slippage in anticipated contract payments during the year.
The delays resulted from a combination of factors including complex customer requirements that
resulted in more time than estimated to complete initial statements of work, longer than expected
review and approval cycles by large customers, and more time than anticipated for testing and
quality assurance cycles. In 2008, we do not expect the same level of cash investment in these
software subsidiaries and we anticipate that ChemFree will generate greater positive cash flow. A
significant amount of our consolidated expenses are related to personnel, none of whom are
represented by a union or have employment contracts.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In April&nbsp;2008, we anticipate receiving cash of between $1.2&nbsp;million and $1.4&nbsp;million related to the
earn-out contingency payment from the buyer of our QS Technologies business. We renewed our $2.0
million line of credit on December&nbsp;1, 2007 and expect to use it as necessary to support short-term
cash needs. At this time, we estimate that our receivable and inventory balances will support a
borrowing base calculation sufficient for our borrowing needs. However, it is difficult to
estimate such balances except in the near-term and it is possible that our borrowing base
calculation would not support our intended use of the line of credit, in which case we could
experience a temporary cash shortfall unless the bank agreed to a short term waiver. Delays in
meeting project milestones or software delivery commitments could cause customers to postpone
payments and increase our need for cash during 2008. Presently, we do not believe there is a
material risk to successfully perform under these software contracts. However, 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 for our software
subsidiaries. As a result, we may need to increase the use of our bank line of credit, scale back
operations, seek alternative financing or consider the sale of a business, which could impact our
performance under the software contracts, at least in the near term.
</DIV>

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


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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Beyond 2008, we currently 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Off-Balance Sheet Arrangements</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We do not currently have any off-balance sheet arrangements that are reasonably likely to have a
current or future material adverse effect on our financial condition, liquidity or results of
operations.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Factors That May Affect Future Operations</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Future operations in both the Information Technology Products and Services 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 our software 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Among the numerous factors that may affect our consolidated results of operations or financial
condition are the following:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Delays in software development projects could cause our customers to delay implementations,
delay payments or cancel contracts, which would increase our costs and reduce our revenue.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Our CoreCard subsidiary could fail to improve its ability to deliver software products
which meet the business and technology requirements of its target markets within a reasonable
time frame and at a price point that supports a profitable, sustainable business model.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">One of ChemFree&#146;s customers represented approximately 32&nbsp;percent of our consolidated
revenue in 2007 and any unplanned changes in the volume of orders or timeliness of payments
from such customer could have a negative impact on inventory levels and cash, at least in the
near-term.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Failure by our ChemFree subsidiary to protect its intellectual property assets could
increase competition in the marketplace and result in greater price pressure and lower
margins, thus potentially impacting sales, profits and projected cash flows.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Software errors or poor quality control may delay product releases, increase our costs,
result in non-acceptance of our software by customers or delay revenue recognition.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Compliance with the internal controls over financial reporting requirements of Section&nbsp;404
of the Sarbanes-Oxley Act of 2002 could increase operating expenses and divert management and
staff resources.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Water shortages in the State of Georgia, ChemFree&#146;s base of operations, could impact
availability and price of water that is used to manufacture certain of its consumable
products, resulting in reduced revenue and gross margins.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Competitive pressures (including pricing, changes in customer requirements and preferences,
and competitor product offerings) may cause prospective customers to choose an alternative
product solution, resulting in lower revenue and profits (or increased losses).</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">In 2008, ChemFree will convert to a new accounting software system. We do not have
experience in such an activity and are relying on consultants to assist us in this process.
While we believe we have a good plan in place for the transition, unanticipated problems could
occur which may have a negative impact on operations or timely financial reporting.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Our CoreCard or VISaer subsidiaries could fail to establish a base of reference 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
subsidiaries&#146; operations.</DIV></TD>
</TR>

</TABLE>
</DIV>

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


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

<P align="center" style="font-size: 10pt"><!-- Folio -->- 15 -<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">



<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">In certain limited situations, ChemFree lease customers are permitted to terminate the
lease covering a SmartWasher<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> machine, requiring the unamortized balance of the original
machine cost to be written off which could reduce profits in that reporting period and result
in lower revenue in future periods.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Our products&#146; specifications and features could fail to achieve market acceptance.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Our software subsidiaries could fail to retain key software developers and managers who
have accumulated years of know-how in our target markets and company products, or fail to
attract and train a sufficient number of new software developers and testers to support our
product development plans and customer requirements at projected cost levels.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Further increases in the price of oil could increase the cost of certain plastic components
used in ChemFree&#146;s products and could affect VISaer&#146;s results if potential aviation customers
delay or cancel purchases of software or services in the face of declining industry trends or
poor financial condition.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Delays in anticipated customer payments for any reason would increase our cash requirements
and possibly our losses.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Declines in performance, financial condition or valuation of minority-owned companies could
cause us to write-down the carrying value of our investment or postpone an anticipated
liquidity event, which could negatively impact our earnings and cash.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Negative trends affecting the commercial aviation industry worldwide could impact VISaer&#146;s
customer purchases, thus increasing its losses and need for cash.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Failure to meet the continued listing standards of The American Stock Exchange could result
in delisting of our common stock, with a potentially negative impact on market price and
liquidity of our common stock.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Other general economic and political conditions could cause customers to delay or cancel
software purchases.</DIV></TD>
</TR>

</TABLE>
</DIV>

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

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Recent Accounting Pronouncements</B>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In September&nbsp;2006, the FASB issued FASB Statement No.&nbsp;157, &#147;Fair Value Measurements&#148; (FASB No.157)
to increase consistency and comparability in fair value measurements. FASB No.&nbsp;157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures about fair value
measurements of certain assets, liabilities and items in stockholders&#146; equity that are measured at
fair value. FASB No.&nbsp;157 is effective for financial statements issued for fiscal years beginning
after November&nbsp;15, 2007 and, accordingly, we will adopt FASB No.157 in the first quarter of 2008.
The company has not yet determined the effect, if any, the adoption of FASB No.157 will have on its
financial position, results of operations and cash flows.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On February&nbsp;15, 2007, the FASB issued Statement No.&nbsp;159, (FASB No.&nbsp;159) &#147;The Fair Value Option for
Financial Assets and Financial Liabilities: Including an Amendment of FASB Statement No.&nbsp;115.&#148;
FASB No.159, which builds on other statements related to fair value such as Statement No.&nbsp;157
above, permits entities to elect to measure many financial instruments and certain other items at
fair value with changes in value reported in earnings. It is designed to mitigate earnings
volatility that arises when assets and liabilities are measured differently. FASB No.&nbsp;159 is
effective for financial statements issued for fiscal years beginning after November&nbsp;15, 2007 and,
accordingly, we will adopt FASB No.&nbsp;159 in the first quarter of 2008. The company has not yet
determined the effect, if any, the adoption of FASB No.159 will have on its financial position,
results of operations and cash flows.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 7.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>FINANCIAL STATEMENTS</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following consolidated financial statements and related report of registered public accounting
firm are included in this report and are incorporated by reference in Part&nbsp;II, Item&nbsp;7 hereof. See
Index to Financial Statements on page F-1 hereof.
</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="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Report of Independent Registered Public Accounting Firm</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Balance Sheets at December&nbsp;31, 2007 and 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Operations for the years ended December&nbsp;31, 2007 and 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Stockholders&#146; Equity and Comprehensive Income (Loss)
for the years ended December&nbsp;31, 2007 and 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Statements of Cash Flows for the years ended December&nbsp;31, 2007 and 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes to Consolidated Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


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


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

<P align="center" style="font-size: 10pt"><!-- Folio -->- 16 -<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">


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

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 8.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">None
</DIV>

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

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 8A(T).</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>CONTROLS AND PROCEDURES</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of the end of the period covered by this report, we 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>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The management of Intelligent Systems Corporation is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rule&nbsp;13a &#151; 15(f) under the
Securities Exchange Act of 1934. The company maintains accounting and internal control systems
which are intended to provide reasonable assurance that the assets are safeguarded against loss
from unauthorized use or disposition, transactions are executed in accordance with management&#146;s
authorization and accounting records are reliable for preparing financial statements in accordance
with accounting principles generally accepted in the United States of America.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Internal control over financial reporting cannot provide absolute assurance of achieving financial
reporting objectives because of its inherent limitations. Internal control over financial
reporting is a process that involves human diligence and compliance and is subject to lapses in
judgment and breakdowns resulting from human failures. Internal control over financial reporting
also can be circumvented by collusion or improper management override. Because of such
limitations, there is a risk that material misstatements may not be prevented or detected on a
timely basis by internal control over financial reporting. However, these inherent limitations are
known features of the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, risk.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The company&#146;s management assessed the effectiveness of the company&#146;s internal control over
financial reporting as of December&nbsp;31, 2007. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations (COSO)&nbsp;of the Treadway Commission
in <I>Internal Control &#151; Integrated Framework.</I>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Based on our assessment management believes that, as of December&nbsp;31, 2007, the company&#146;s internal
control over financial reporting is effective based on those criteria.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">This annual report does not include an attestation report of the company&#146;s registered public
accounting firm regarding internal control over financial reporting. Management&#146;s report was not
subject to attestation by the company&#146;s registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the company to provide only
management&#146;s report in this annual report.
</DIV>
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 8B.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>OTHER INFORMATION</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Not applicable.
</DIV>

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


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

<P align="center" style="font-size: 10pt"><!-- Folio -->- 17 -<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">


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

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PART III</B>
</DIV>

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

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 9.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE:
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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
2008 Annual Meeting of Shareholders (the &#147;Proxy Statement&#148;) for information about the individual
nominated as a director and about the directors and executive officers of the company. This
information is incorporated into this Item&nbsp;9 by reference. 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 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 the Proxy Statement. This information is incorporated into this Item&nbsp;9 by reference.
Information regarding the company&#146;s Audit Committee and its composition is contained under the
caption &#147;Proposal 1 &#151; The Election of One Director &#151; Nominee&#148; and &#147;Proposal 1 &#151; The Election of One
Director &#151; Meetings and Committees of the Board of Directors&#148; in the Proxy Statement. This
information is incorporated into this Item&nbsp;9 by reference.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">There have been no material changes to the procedures by which shareholders may recommend nominees
to the company&#146;s Board of Directors.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We have 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>. We also disclose on our 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>
<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 10.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>EXECUTIVE COMPENSATION</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Please refer to the subsection entitled &#147;Proposal 1 &#151; The Election of One Director &#151; Executive
Compensation&#148; in the Proxy Statement for information about management compensation. This
information is incorporated into this Item&nbsp;10 by reference.
</DIV>
<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 11.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS</B></DIV></TD>
</TR>
</TABLE>
</DIV>
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>Securities Authorized for Issuance Under Equity Compensation Plans</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(c) Number of securities remaining</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(a) Number of securities to be</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(b) Weighted-average</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">available for future issuance under</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">issued upon exercise of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">exercise price of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">equity compensation plans</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">outstanding options, warrants</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">outstanding options,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(excluding securities reflected in</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Plan category</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">and rights</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">warrants and rights</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">column (a))</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity compensation
plans approved by
security holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity compensation
plans not approved
by security holders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 0px solid #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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>&nbsp;</TD>
    <TD align="right">209,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">446,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The company instituted its 1991 Incentive Stock Plan (the &#147;1991 Plan&#148;) in December&nbsp;1991 and the
1991 Plan expired in December&nbsp;2001. Effective August&nbsp;22, 2000, the company adopted the
Non-Employee Director Stock Option Plan (the &#147;Director Plan&#148;). Up to 200,000 shares of common stock
may be issued under the Director Plan to non-employee directors with each director receiving an
initial grant of 5,000 options followed by annual grants of 4,000 options on the date of each
subsequent Annual Meeting. The company 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
2006 or 2007. Twelve thousand options were granted under the Director Plan in 2007. Non-qualified
stock options are granted under the company&#146;s equity compensation plans at fair market value on the
date of grant and vest ratably over two or three year periods after the date of grant.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Please refer to the subsection entitled &#147;Voting &#151; Security Ownership of Certain Beneficial Owners
and Management&#148; in the Proxy Statement for information about the ownership of our $0.01 par value
common stock by certain persons. This information is incorporated into this Item&nbsp;11 by reference.
</DIV>

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


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

<P align="center" style="font-size: 10pt"><!-- Folio -->- 18 -<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">


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

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 12.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The lease on our headquarters and primary facility at 4355 Shackleford Road, Norcross, Georgia is
held by ISC Properties, LLC, an entity controlled by J. Leland Strange, our Chairman and Chief
Executive Officer. Mr.&nbsp;Strange holds a 100% ownership interest in ISC Properties, LLC. In each
of the years ending December&nbsp;31, 2007 and 2006, we paid ISC Properties, LLC $459,000 in rent.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Please refer to the subsection entitled &#147;Proposal 1 &#151; The Election of One Nominee&#148; in the Proxy
Statement referred to in Item&nbsp;9 for information regarding the independence of the company&#146;s
directors. This information is incorporated into this Item&nbsp;12 by reference.
</DIV>
<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 13.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>EXHIBITS</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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.
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Asset Purchase Agreement dated as of July&nbsp;31, 2006 by and between QS Technologies, Inc. and
Intelligent Systems Corporation, as Sellers, and Netsmart Public Health, Inc. as Buyer and
Netsmart Technologies, Inc. (Incorporated by reference to Exhibit&nbsp;2.1 of the Registrant&#146;s Form
8-K dated July&nbsp;31, 2006.)</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Promissory Note of Netsmart Technologies, Inc. dated July&nbsp;31, 2006. (Incorporated by
reference to Exhibit&nbsp;2.2 to the Registrant&#146;s Form 8-K dated July&nbsp;31, 2006.)</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.)</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Bylaws of the Registrant dated December&nbsp;7, 2007. (Incorporated by reference to Exhibit&nbsp;3.2
of the Registrant&#146;s Form 8-K dated December&nbsp;7, 2007.)</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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 <BR>
8-K dated November&nbsp;25, 1997 and filed on December&nbsp;16, 1997.)</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.)</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">10.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Lease Agreement dated June&nbsp;1, 2004, between the Registrant and ISC Properties, LLC.
(Incorporated by reference to Exhibit&nbsp;10.1 of the Registrant&#146;s Form 10-KSB for the year ended
December&nbsp;31, 2004.)</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">10.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Management Compensation Plans and Arrangements:</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<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="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Intelligent Systems Corporation 2003 Stock Incentive Plan</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Intelligent Systems Corporation Change in Control Plan for Officers</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Intelligent Systems Corporation Outside Director&#146;s Retirement Plan</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Non-Employee Directors Stock Option Plan</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Exhibits 10.2(b) and (c)&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.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Exhibit&nbsp;10.2(d) 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.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">10.3</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.)</DIV></TD>
</TR>

</TABLE>
</DIV>

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


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

<P align="center" style="font-size: 10pt"><!-- Folio -->- 19 -<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">



<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">10.4</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.)</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">10.5</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.)</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">10.6</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.)</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">10.7</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.)</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">10.8</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.)</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">10.9</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Sixth Modification to Loan Documents by and among Intelligent Systems Corporation and
Fidelity Bank dated December&nbsp;1, 2007.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">21.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">List of subsidiaries of Registrant.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">23.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Consent of Tauber &#038; Balser, P.C.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">31.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Certification of Chief Executive Officer Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">31.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Certification of Chief Financial Officer Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">32.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Certification Pursuant to 18 U.S.C. Section&nbsp;1350, as Adopted Pursuant to Section&nbsp;906 of the
Sarbanes-Oxley Act of 2002.</DIV></TD>
</TR>

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

<DIV align="left" style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000">
<TR>
    <TD width="7%"></TD>
    <TD width="1%"></TD>
    <TD></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><B>ITEM 14.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><B>PRINCIPAL ACCOUNTANT FEES AND SERVICES</B></DIV></TD>
</TR>
</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Please refer to the subsection entitled &#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 public accountants. This information is incorporated into this Item&nbsp;14 by reference.
</DIV>

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


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

<P align="center" style="font-size: 10pt"><!-- Folio -->- 20 -<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">


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

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>SIGNATURES</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In accordance with Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
</DIV>

<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">INTELLIGENT SYSTEMS CORPORATION<BR>
Registrant<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date:  March 31, 2008&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" 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>&nbsp;</TD>
    <TD colspan="2" align="left">J. Leland Strange&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Chairman of the Board, President
and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<DIV align="justify" style="font-size: 10pt; margin-top: 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>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Capacity</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Date</B></TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:15px; text-indent:-15px"><I>/s/ J. Leland Strange</I><BR>
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
J. Leland Strange
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>Chairman of the Board, President,<BR>
Chief Executive Officer and Director<BR>
(Principal Executive Officer)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;31, 2008</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><I>/s/ Bonnie L. Herron</I><BR>
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Bonnie L. Herron
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" nowrap>Chief Financial Officer<BR>
(Principal Accounting and Financial Officer)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;31, 2008</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><I>/s/ James V. Napier</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;31, 2008</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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top" style="border-top: 0px solid #000000">&nbsp;
James V. Napier</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><I>/s/ John B. Peatman</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;31, 2008</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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top" style="border-top: 0px solid #000000">&nbsp;
John B. Peatman</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom"><!-- Blank Space -->
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><I>/s/ Parker H. Petit</I>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">March&nbsp;31, 2008</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">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top" style="border-top: 0px solid #000000">&nbsp;
Parker H. Petit</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

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


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



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

<P align="center" style="font-size: 10pt"><!-- Folio -->- 21 -<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>INTELLIGENT SYSTEMS CORPORATION<BR>
INDEX TO FINANCIAL STATEMENTS</B>
</DIV>


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

<DIV align="justify" style="margin-top: 10pt; margin-right:4%; font-size: 10pt"><B>Financial Statements:</B>
</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="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#301">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 style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#302">Consolidated Balance Sheets &#151; December&nbsp;31, 2007 and 2006</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-3</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#303">Consolidated Statements of Operations &#151; Years Ended December&nbsp;31, 2007 and 2006</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-4</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#304">Consolidated Statements of Stockholders&#146; Equity and Comprehensive Income (Loss) -
Years Ended December&nbsp;31, 2007 and 2006</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-5</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#305">Consolidated Statements of Cash Flows &#151; Years Ended December&nbsp;31, 2007 and 2006</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-6</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><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>
<!-- End Table Body --></TABLE>
</DIV>



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

<P align="center" style="font-size: 10pt"><!-- Folio -->F-1<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">
<DIV align="left">
<A name="301"></A>
</DIV>

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


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">To the Board of Directors and Shareholders of<BR>
Intelligent Systems Corporation
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We have audited the accompanying consolidated balance sheets of Intelligent Systems Corporation and
subsidiaries (the &#147;Company&#148;) as of December&nbsp;31, 2007 and 2006, and the related consolidated
statements of operations, stockholders&#146; equity and comprehensive income (loss), and cash flows for
the years then ended. These financial statements are the responsibility of the Company&#146;s
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We conducted our audits 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. The
Company is not required to have, nor were we engaged to perform, an audit of their internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company&#146;s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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, 2007 and 2006, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the United States of
America.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U><I>/s/
Tauber &#038; Balser, P.C.</I></U>
</DIV>


<DIV align="justify" style="margin-top: 10pt; margin-right:4%; font-size: 10pt">Atlanta, Georgia<BR>
March&nbsp;28, 2008
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-2<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Intelligent Systems Corporation</B>
</DIV>

<DIV align="left">
<A name="302"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED BALANCE SHEETS</B></DIV>


<DIV align="center" style="font-size: 10pt"><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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>As of December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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 valign="bottom" style="padding-top: 1px">
    <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; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,136</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,139</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,006</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Notes and interest receivable, current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,445</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">904</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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">6,874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,563</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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">1,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,174</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes and interest receivable, net of current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">841</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">1,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,009</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,047</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other intangibles, net</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">359</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,010</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</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="padding-top: 1px">
    <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 valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">593</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,558</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,094</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued payroll</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">974</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">1,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,088</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,714</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">356</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingencies (Note 9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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="padding-top: 1px">
    <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, 2007 and 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,425</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">(127</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(127</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">(14,343</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,919</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,424</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">12,622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,010</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>The accompanying notes are an integral part of these consolidated financial statements.</I>
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-3<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Intelligent Systems Corporation</B>
</DIV>

<DIV align="left">
<A name="303"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED STATEMENTS OF OPERATIONS</B></DIV>


<DIV align="center" style="font-size: 10pt"><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="58%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" colspan="3" style="border-bottom: 1px solid #000000"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&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="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,401</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,059</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,460</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&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="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,355</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,655</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,812</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total cost of revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,403</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,167</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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 align="left" valign="top">&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="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Marketing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,075</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,059</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">General &#038; administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,358</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,519</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Research &#038; development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,032</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,696</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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 align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,863</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,981</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&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; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Investment income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,547</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity in income (loss)&nbsp;of affiliate companies, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">374</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(49</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><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss from continuing operations before income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,707</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,004</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss from continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,724</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,004</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from discontinued operations, no tax effect</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&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">600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on sale of discontinued operations, no tax effect</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,873</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,424</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,469</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss per
share from continuing operations:
&nbsp;<font style="margin-left: 32px">Basic</font></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.83</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.22</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">

<TD><DIV style="margin-left:300px; text-indent:-15px"><font style="margin-left: 5px">&nbsp;Diluted</font></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.83</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.22</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income per
share from discontinued operations: &nbsp;<font style="margin-left: 2px">Basic</font></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">

<TD><DIV style="margin-left:300px; text-indent:-15px"><font style="margin-left: 5px">&nbsp;Diluted</font></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income
(loss)&nbsp;per share: &nbsp;<font style="margin-left: 141px">Basic</font></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.54</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">

<TD><DIV style="margin-left:300px; text-indent:-15px"><font style="margin-left: 5px">&nbsp;Diluted</font></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.54</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.98</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic weighted average common shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</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 valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted weighted average common shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</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">4,571,261</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>The accompanying notes are an integral part of these consolidated financial statements.</I>
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-4<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Intelligent Systems Corporation</B>
</DIV>

<DIV align="left">
<A name="304"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED STATEMENTS OF</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>STOCKHOLDERS&#146; EQUITY AND COMPREHENSIVE INCOME (LOSS)</B></DIV>


<DIV align="center" style="font-size: 10pt"><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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>STOCKHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Common stock, number of shares, </B>beginning and 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><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Additional Paid-in capital, </B>beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,425</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:15px; text-indent:-15px">Additions during year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">End of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,425</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">(127</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(61</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(12</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in unrealized loss on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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">(127</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(127</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <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">(11,919</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,388</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,424</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,469</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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">(14,343</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,919</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total stockholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,424</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="top"><!-- 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>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 valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,424</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,469</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss):</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">Foreign currency translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(12</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in unrealized loss on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,424</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,403</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>The accompanying notes are an integral part of these consolidated financial statements.</I>
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-5<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Intelligent Systems Corporation</B>
</DIV>

<DIV align="left">
<A name="305"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B></DIV>


<DIV align="center" style="font-size: 10pt"><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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,424</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,469</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net income (loss)&nbsp;to net cash used for operating activities:</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="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss on disposal of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock-based compensation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain on sale of QS business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,300</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,873</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Investment income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(81</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,547</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity in (earnings)&nbsp;loss of affiliate companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(374</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Changes in operating assets and liabilities, net of effect of sale of QS business</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; padding-top: 1px">
    <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">(133</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(179</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accrued interest receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(103</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(519</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(134</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(568</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">(76</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accrued payroll</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188</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; padding-top: 1px">
    <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">(567</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Accrued expenses and other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(232</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(93</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <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">(4,175</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,928</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</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; padding-top: 1px">
    <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="padding-top: 1px">
    <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">39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,033</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from sale of QS business</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">1,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">385</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from notes receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">143</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Payments on notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(145</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(100</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">(1,355</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(523</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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">2,027</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,838</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</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; padding-top: 1px">
    <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" style="padding-top: 1px">
    <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">928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,335</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">(350</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,435</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from exercise of stock option in subsidiary</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash provided by (used for) financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(97</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</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="padding-top: 1px">
    <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">(12</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,582</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,758</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">2,136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">378</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,136</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>The accompanying notes are an integral part of these consolidated financial statements.</I>
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-6<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Intelligent Systems Corporation<BR>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash paid during the year for interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">105</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash paid during the year for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES IN 2006:</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Sale of Horizon Software Investment:</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As explained in Note 3 to the consolidated financial statements, the Company sold its 17&nbsp;percent
interest in Horizon as of August&nbsp;31, 2006. The carrying value of the Horizon investment at the
time of the sale was $3,062,000 and the proceeds of the sale included a note receivable of
$2,850,000 in addition to the cash proceeds of $2,850,000. The sale resulted in a gain of
$2,638,000.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">S<I>ale of QS Technologies Business (Discontinued Operations):</I>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Below is a reconciliation of the cash and non-cash activities associated with the sale of the QS
Technologies business, as disclosed in Note 2 to the consolidated financial statements. The assets
and liabilities were valued at their carrying values as of the date of the transaction, July&nbsp;31,
2006.
</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="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><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 valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from sale of QS Technologies Business:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Note receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,435</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Liabilities assumed by (assets transferred to) buyer:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(167</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued payroll</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,730</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accrued transaction related expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(515</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on sale of QS Technologies business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,873</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>The
accompanying notes are an integral part of these consolidated
financial statements.</I>
</DIV>


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

<P align="center" style="font-size: 10pt"><!-- Folio -->F-7<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">



<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation
</DIV>

<DIV align="left">
<A name="306"></A>
</DIV>
<DIV align="center" style="font-size: 10pt">Notes to Consolidated Financial Statements</DIV>



<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Organization </I>- In this document, terms such as the &#147;company&#148;, &#147;we&#148;, &#147;us&#148;, and &#147;ISC&#148; refer to
Intelligent Systems Corporation, a Georgia corporation, and its consolidated subsidiaries.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Nature of Operations </I>- Consolidated companies (in which we have majority ownership and control) are
engaged in two industries: Information Technology Products and Services and Industrial Products.
Continuing operations in Information Technology Products and Services, which consist of our VISaer
and CoreCard Software subsidiaries, include development and sales of software licenses and related
professional services and software maintenance contracts. Operations in the Industrial Product
segment include the manufacture and sale of bio-remediating parts washer systems by our ChemFree
subsidiary. Our operations are explained in further detail in Note 16. Included in Discontinued
Operations is our former subsidiary, QS Technologies, Inc., a company engaged in the development
and sales of software products and services, which was sold effective July&nbsp;31, 2006. Our affiliate
companies (in which we have a minority ownership) are mainly involved in the information technology
industry.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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 inter-company accounts and transactions.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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 parts and repair, aircraft operators and maintenance providers, and financial
services entities. We perform continuing credit evaluations of our customers&#146; financial condition
and we generally do not require collateral. The amount of accounting loss for which we are at risk
in these unsecured receivables is limited to their carrying value.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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 estimated
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, 2007 is adequate. However, actual write-offs might exceed the recorded
allowance.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-8<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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, 2007 and 2006 is as follows:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">768</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finished goods</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">904</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Property and Equipment </I>- Property and equipment are carried at cost less accumulated depreciation.
For financial reporting purposes, we use the straight-line method of depreciation for machinery,
equipment, facilities, furniture and fixtures.
</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="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Classification</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Useful life in years</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Machinery and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3 &#150; 5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture &#038; fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5 &#150; 7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">1 &#150; 5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Building</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The cost of each major class of property and equipment at December&nbsp;31, 2007 and 2006 is as follows:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Machinery and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,894</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">201</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">273</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Building</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">413</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Subtotal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,368</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,767</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,359</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,009</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>

<TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Depreciation
expense was $440,000 and $373,000 in 2007 and 2006, respectively. These expenses are
generally included in general and administrative expenses, except with respect to our Industrial
Products Segment, where the depreciation expense related primarily to products leased to customers
is included in cost of revenue.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Leased Equipment </I>- In the Industrial Products segment, certain equipment is leased to customers.
In the years ended December&nbsp;31, 2007 and 2006, we recorded a charge of $30,000 and $51,000,
respectively, to reduce the carrying value of certain leased equipment which was no longer in
service. The cost, carrying value and accumulated depreciation associated with the leased
equipment at December&nbsp;31, 2007 and 2006 is as follows:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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">$</TD>
    <TD align="right">1,263</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,112</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(809</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(706</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Carrying value of equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">406</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


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

<P align="center" style="font-size: 10pt"><!-- Folio -->F-9<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The minimum future lease revenue under non-cancelable contracts at December&nbsp;31, 2007 is as follows:
</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="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><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 valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">207</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">207</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum future lease revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">414</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">There is no contingent rental income under the leases. The leased equipment assets are included in
Machinery and Equipment at December&nbsp;31, 2007 and 2006.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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.
The aggregate value of investments accounted for by the equity method was $897,000 and $944,000 at
December&nbsp;31, 2007 and 2006, respectively. At both December&nbsp;31, 2007 and 2006, the aggregate value
of investments accounted for by the cost method was $230,000.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Marketable securities, which are included in other current assets, 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, 2007, we did not have any marketable
securities. At December&nbsp;31, 2006, the aggregate fair market value of our available-for-sale
securities consisted of equity securities totaling $38,000. When calculating gain or loss the sale
of an investment, we use the average cost basis of the securities. The amount ($38,000) includes a
net unrealized holding loss of $11,000 as of December&nbsp;31, 2006. This amount is reflected as a
separate component of stockholders&#146; equity.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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;Business Combinations&#148; and SFAS No.
142, &#147;Goodwill and Other Intangible Assets&#148;. In accordance with SFAS No.&nbsp;142, we periodically, but
at least annually, assess goodwill for impairment. Our annual assessment date is at year end.
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, 2007 and 2006, the carrying value of goodwill was
$2,047,000 and no impairment was identified.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Other intangibles, net at December&nbsp;31, 2007 and 2006 consisted of the following:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Patents</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(151</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(105</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">359</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of December&nbsp;31, 2007, annual amortization expense for intangibles for the following years is
expected to be:
</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="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><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 valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total amortization expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">313</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


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

<P align="center" style="font-size: 10pt"><!-- Folio -->F-10<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Deferred
Revenue - </I>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 2008, and payments by ChemFree lease customers that are billed quarterly for leased
equipment and supplies. Net billings in excess of costs are included in deferred revenue. Net
costs in excess of billings on incomplete contracts are included in other current assets. 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Fair Value of Financial Instruments </I>- The carrying value of cash, accounts receivable, short-term
notes receivable including $1,300,000 included in other current assets, accounts payable and
certain other financial instruments (such as short-term borrowings, accrued expenses, and other
current liabilities) included in the accompanying consolidated balance sheets approximates their
fair value principally due to the short-term maturity of these instruments. The carrying value of
notes receivable beyond one year approximates fair value because they bear interest at rates
currently offered in the market for notes receivable with similar terms and conditions. The fair
value of equity method and cost method investments has not been determined as it was impracticable
to do so.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Financial instruments that potentially subject us to concentrations of credit risk consist
principally of cash and trade accounts and notes 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>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="76%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<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">ChemFree:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Industrial services companies, automotive parts distributors and equipment rental depots</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">VISaer:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Aviation</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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,
customization, reimbursable expenses, maintenance and support for software products.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We recognize revenue for industrial products when products are shipped, at which time title
transfers to the customer and there are no remaining future obligations. 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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;. We are presently
utilizing the completed contract method because current contracts are for new software products for
which we do not have a historical basis on which to prepare reliable estimates. Under the completed
contract method, all revenue is deferred until the customer has accepted the software and any
refund rights have expired.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-11<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Service revenue related to implementation, consulting, customization, 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Cost of Revenue </I>- Cost of revenue for product revenue includes direct material, direct labor,
production overhead and third party license fees. Cost of revenue for service revenue includes
direct cost of services rendered, including reimbursed expenses. For software contracts, we
capitalize the contract specific direct costs and recognize the costs when the associated revenue
is recognized.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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 costs 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 year ended December&nbsp;31, 2007, we capitalized $319,000 related to a new accounting (ERP)
system for our ChemFree subsidiary which we expect to begin amortizing April&nbsp;1, 2008. During the
year ended December&nbsp;31, 2006, we did not capitalize any internal use software costs.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Warranty Costs </I>- We accrue the estimated costs associated with our industrial 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, 2007 and 2006. At December&nbsp;31, 2007
and 2006, the warranty accrual was $142,000 and $71,000, respectively.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Legal expense </I>- Legal expenses are recorded as a component of general and administrative expense in
the period in which such expenses are incurred.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Research and Development </I>- Research and development costs consist principally of compensation and
benefits paid to certain company employees and certain other direct costs. All research and
development costs are expensed as incurred.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Stock Based Compensation </I>- At December&nbsp;31, 2007, we have two stock-based compensation plans in
effect which are more fully described in Note 14. In December&nbsp;2004, the FASB issued FASB Statement
No.&nbsp;123R, &#147;Share-Based Payment&#148; (SFAS No.&nbsp;123R) which replaced APB No.&nbsp;25 and SFAS 123. We
adopted SFAS 123R effective January&nbsp;1, 2006 using the modified prospective application method of
adoption which requires us to record compensation cost related to unvested stock awards as of
December&nbsp;31, 2005 by recognizing the unamortized grant date fair value in accordance with
provisions of SFAS 123R on a straight line basis over the service periods of each award. We have
estimated forfeiture rates based on our historical experience. Stock option compensation expense
for the years ended December&nbsp;31, 2007 and 2006 has been recognized as a component of general and
administrative expenses in the accompanying Consolidated Financial Statements.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-12<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As a result of adopting SFAS 123R, we recorded $13,000 and $12,000 of stock-based compensation
expense in the years ended December&nbsp;31, 2007 and 2006, respectively. Had we continued to account
for these options under APB 25, we would have recorded no such expense in either period.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In 2007, 12,000 options were granted at fair market value on the date of grant pursuant to the
Non-employee Directors Stock Option Plan. No options were granted during 2006. The fair value of
each option granted in 2007 has been estimated as of the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">6.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">49</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Under these assumptions, the weighted average fair value of options granted in 2007 was $2.07 per
share. The fair value of the grants is being amortized over the vesting period for the options.
All of the company&#146;s stock-based compensation expense relates to stock options. The total
remaining unrecognized compensation cost related to unvested options amounted to $12,420 and is
expected to be recognized over the next year.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Income
Taxes - </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. As such, 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 and for income tax carryforwards.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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 currency translation
adjustments at December&nbsp;31, 2007 and 2006.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>New
Accounting Pronouncements - </I>In September&nbsp;2006, the FASB issued FASB Statement No.&nbsp;157, &#147;Fair
Value Measurements&#148; (FASB No.157) to increase consistency and comparability in fair value
measurements. FASB No.&nbsp;157 defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements of certain assets, liabilities and items in
stockholders&#146; equity that are measured at fair value. FASB No.&nbsp;157 is effective for financial
statements issued for fiscal years beginning after November&nbsp;15, 2007 and, accordingly, we will
adopt FASB 157 in the first quarter of 2008. The company has not yet determined the effect, if
any, the adoption of FASB 159 will have on its financial position, results of operations and cash
flows.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On February&nbsp;15, 2007, the FASB issued Statement No.&nbsp;159, (FASB No.159) &#147;The Fair Value Option for
Financial Assets and Financial Liabilities: Including an Amendment of FASB Statement No.&nbsp;115&#148;.
FASB No.&nbsp;159, which builds on other statements related to fair value such as Statement No.&nbsp;157
above, permits entities to elect to measure many financial instruments and certain other items at
fair value with changes in value reported in earnings. It is designed to mitigate
earnings volatility that arises when assets and liabilities are measured differently. FASB No.&nbsp;159
is effective for financial statements issued for fiscal years beginning after November&nbsp;15, 2007
and, accordingly, we will adopt FASB 159 in the first quarter of 2008. The company has not yet
determined the effect, if any, the adoption of FASB 159 will have on its financial position,
results of operations and cash flows.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-13<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>2. DISCONTINUED OPERATIONS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Effective July&nbsp;31, 2006, we completed the sale of the business and certain assets of our QS
Technologies, Inc. (&#147;QS&#148;) subsidiary to Netsmart Public Health, Inc. and its parent company,
Netsmart Technologies, Inc., referred to collectively as &#147;Netsmart&#148;. Netsmart is an independent
third party that expressed an interest in acquiring the QS business and the company subsequently
negotiated an arms-length transaction resulting in the sale of the QS business. We sold the
operations and assets associated with the QS business for a combination of $1,900,000 in cash, a
promissory note of Netsmart in the amount of $1,435,000 and additional payments totaling $305,000
for unbilled receivables of QS. In addition, Netsmart assumed liabilities of QS, net of assets
acquired, of $1,748,000 in the aggregate. We retained accounts receivable and cash of QS. The
unsecured promissory note of Netsmart bears interest at the rate of 8.25&nbsp;percent and is payable in
thirty-six monthly payments of $45,133 beginning September&nbsp;1, 2006.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In accordance with Financial Accounting Standards Board Statement No.144, &#147;Accounting for the
Impairment or Disposal of Long-Lived Assets&#148;, the QS business is presented as discontinued
operations for the two years ended December&nbsp;31, 2007. Based on the carrying basis of the assets and
liabilities transferred to Netsmart at July&nbsp;31, 2006 and estimated costs and expenses incurred in
connection with the sale, we recorded in 2006 a net gain on the sale of QS of $4,873,000.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The transaction also provided for contingent payments of up to $1,450,000 based on the attainment
by the QS business of certain levels of revenue and bookings in 2007. As the amount, if any, of
such payments was not quantifiable at the time of the transaction, no amount was recorded for such
contingency payments at the time of the sale. In the year ended December&nbsp;31, 2007, we recorded an
additional gain on the sale of QS aggregating $1,300,000, included in other current assets,
consisting of $1,225,000 related to contingent payments earned on the sale and $75,000 to reverse
certain accruals for post-closing expenses and adjustments.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following condensed financial information is provided for the QS Discontinued Operations for
the periods shown.
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006 *</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,934</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating 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">602</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income before tax</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">600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax</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; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income from discontinued operations</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">&nbsp;600</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>




<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR style="font-size: 6pt">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="96">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><I>*</I></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><I>Includes results for 7&nbsp;months ended July&nbsp;31, 2006, the date of the sale of the QS business</I></DIV></TD>
</TR>

</TABLE>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>3. SALES AND WRITE-DOWNS OF ASSETS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Gains, losses and writedowns related to long-term investments described below are reflected in the
category investment income, net in the Consolidated Statements of Operations.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Aderis Pharmaceuticals, Inc. </I>- In the year ended December&nbsp;31, 2005, we wrote down the carrying
value of our investment in Aderis Pharmaceuticals, Inc. to net realizable value, based the sale of
the privately held company. We recorded a charge of $101,000 against long-term investments. In
2007, we recorded investment income of $20,000 related to a post-closing distribution from Aderis.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Horizon
Software Interest - </I>Effective August&nbsp;31, 2006, we completed the sale of our 17&nbsp;percent
ownership position in Horizon Software International, LLC (&#147;Horizon&#148;) to Horizon Software
Holdings, Inc., an entity comprised of the founder and officers of Horizon (the &#147;Horizon Buyer&#148;)
for a purchase price of $5,600,000. Simultaneously, we sold our interest in an affiliate company
of Horizon for $100,000. At the close of the transaction, we received an aggregate of $2,850,000
in cash and a promissory note from the Horizon Buyer in the principal amount of $2,850,000. We
recorded a gain of $2,638,000 on the sale of our Horizon interest on a carrying value of $3,062,000
at the time of the sale. In 2007, we recorded $73,000 in investment income reflecting a
distribution from Horizon attributed to our ownership interest in 2006.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-14<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="Center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements

</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Paymetric.
Inc. - </I>In December&nbsp;2006, we recorded a charge of $98,000 to reduce the carrying value of
our interest in Paymetric, Inc., a private technology company in which we are a small common
shareholder, to net realizable value which we estimated to be zero.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>4. INVESTMENTS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At December&nbsp;31, 2007 and 2006, our ownership interest in NKD Enterprises, LLC was 25.5% in both
periods and our interest in Horizon Software International, LLC was 0% and 17%, respectively (we
sold our interest in Horizon Software on August&nbsp;31, 2006 as explained in Note 3). We account for
each of these companies by the equity method of accounting for the periods in which we held each
investment. The carrying value of NKD Enterprises is included in long term investments.
</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="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000"><B>At December 31,</B>
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Carrying Value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Original</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">
<I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Investment</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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">$</TD>
    <TD align="right">897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,286</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" 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: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006 *</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,708</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,673</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,762</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,154</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,938</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,049</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,512</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,530</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>




<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR style="font-size: 6pt">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="96">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left"><I>*</I></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify"><I>Includes data for Horizon Software through date of sale, August&nbsp;31, 2006.</I></DIV></TD>
</TR>

</TABLE>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Marketable
Securities - </I>The carrying and estimated fair values of available-for-sale securities at
December&nbsp;31, 2007 and 2006 are summarized as follows:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross unrealized loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Estimated fair values</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Inhibitex, Inc. &#091;NASDAQ:INHX&#093; comprised the balance of $38,000 at December&nbsp;31, 2006.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>5. ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At December&nbsp;31, 2007 and 2006, our allowance for doubtful accounts amounted to $11,000 and $66,000,
respectively. Net charges against the allowance for doubtful accounts were $44,000 and $29,000 in
2007 and 2006, respectively.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-15<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following table indicates the percentage of consolidated revenue and year-end accounts
receivable represented by each customer for any period in which such customer represented more than
10&nbsp;percent of consolidated revenue or year-end accounts receivable.
</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="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" 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: 0px solid #000000">&nbsp;</td>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Accounts Receivable</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 0px solid #000000">&nbsp;</td>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <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: 0px 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="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer A</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
    <TD style="border-right: 0px solid #000000">&nbsp;</td>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">18</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 0px solid #000000">&nbsp;</td>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">20</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">14</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer C</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">32</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 0px solid #000000">&nbsp;</td>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">18</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; padding-top: 1px">
    <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>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 0px solid #000000">&nbsp;</td>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">12</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B><I>CoreCard</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: 0px 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; padding-top: 1px">
    <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: 0px 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>
<TR valign="bottom" style="padding-top: 1px">
    <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: 0px 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; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer F</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</TD>
    <TD nowrap>%</TD>
    <TD style="border-right: 0px 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>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As explained in Note 2 to the Consolidated Financial Statements, in connection with the sale of our
QS Technologies business, we received a promissory note from the buyer in the amount of $1,435,000,
which bears interest at the rate of 8.25&nbsp;percent annually and is payable in thirty-six monthly
payments of $45,000 beginning September&nbsp;1, 2006. At December&nbsp;31, 2007, the current portion of the
principal amount of this note is $491,000 and the non-current portion is $350,000. At December&nbsp;31,
2006, the current portion of the principal amount of this note was $452,000 and the non-current
portion was $841,000.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On August&nbsp;31, 2006, we received a promissory note from the buyer of Horizon Software in the
principal amount of $2,850,000 as explained in Note 3 to the Consolidated Financial Statements.
The note bore interest at the prime rate plus one and one half percent annually and had a maturity
date of January&nbsp;31, 2007. The $2,850,000 principal amount of the note is included in current notes
receivable in the Consolidated Financial Statements as of December&nbsp;31, 2006. On January&nbsp;4, 2007,
the note and accrued interest were paid in full.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>6. SHORT-TERM BORROWINGS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Terms and borrowings under our primary credit facility are summarized as follows:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" 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: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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">$</TD>
    <TD align="right">415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,145</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at year end</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">415</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; padding-top: 1px">
    <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">8.75</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">9.75</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">9.25</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">9.5</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We established a working capital credit facility with a bank in October&nbsp;2003 and have renewed the
line periodically with the most recent renewal effective December&nbsp;1, 2007. The $2,000,000
revolving line of credit bears interest at the prime rate 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 December&nbsp;1, 2008. 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 $2,000,000. At
December&nbsp;31, 2007, our borrowing base calculation resulted in availability of $1,655,000, of which
we had drawn down $415,000 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. The loan agreement also contains 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.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-16<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">On July&nbsp;25, 2007, our ChemFree subsidiary entered into a financing arrangement with a bank to
borrow up to $300,000 to finance the purchase of a new accounting system. The terms of the
arrangement provide that ChemFree could draw down up to $300,000 and pay interest only on the
outstanding balance until February&nbsp;24, 2008, at which time repayment of the $300,000 principal
amount and interest converts to a term loan with 36 equal monthly payments of principal and
interest of $9,393.00. The interest rate is fixed at 7.95&nbsp;percent and the loan is secured by
assets of ChemFree and guaranteed by Intelligent Systems Corporation. At December&nbsp;31, 2007, the
amount outstanding under the loan was $176,000, which is included in the category Short-term
Borrowings in the Consolidated Financial Statements. Effective February&nbsp;24, 2008 when the
arrangement converts to a term loan, the short-term and long-term balances of the note will be
classified separately.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>7. NOTE PAYABLE</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">In March&nbsp;2006, our VISaer subsidiary and a customer reached a mutual agreement to terminate a
Software License Agreement. The Settlement and Release Agreement provided for a refund to the
customer of $512,000 of certain prepaid maintenance and other expenses to be paid in monthly
installments over a three year period. VISaer issued an unsecured note payable in the amount of
$512,000 (recorded as $446,000, which is equal to $512,000 discounted at 9.25%). At December&nbsp;31,
2007 and 2006, the current portion of the note payable ($159,000 and $135,000, respectively) is
included in other current liabilities and the long-term portion of the note payable ($42,000 and
$210,000, respectively) is included in long-term liabilities.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>8. INCOME TAXES</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The income tax provision from continuing operations consists of the following:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" 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: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Following is a reconciliation of estimated income taxes at the blended statutory rate from
continuing operations to estimated tax expense (benefit)&nbsp;as reported:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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">38</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">38</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">(38</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(38</TD>
    <TD nowrap>%)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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">0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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">0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


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

<P align="center" style="font-size: 10pt"><!-- Folio -->F-17<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of December&nbsp;31, the following net operating loss carryforwards, if unused as offsets to future
taxable income, will expire during the following years:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2017</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,038</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2019</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,901</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2021</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">495</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2022</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">234</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">234</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2023</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,778</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,212</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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">$</TD>
    <TD align="right">12,996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,660</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Net deferred tax assets consist of the following at December&nbsp;31:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax 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="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Federal, state and foreign loss carryforward</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,376</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capitalized research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,711</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,054</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,758</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(203</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(138</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Federal and state tax credits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,238</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(521</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(722</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">342</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total deferred tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,830</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Less valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,344</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(12,830</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Federal and state tax credits of $3,109,000 included in the above table expire at various dates
between 2012 and 2027.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We have a deferred tax asset of approximately $13.3&nbsp;million at December&nbsp;31, 2007 and $12.8&nbsp;million
at December&nbsp;31, 2006. The deferred tax asset has been offset by a valuation allowance in 2007 and
2006 of $13.3&nbsp;million and $12.8&nbsp;million, respectively, because the company believes that it is more
likely than not that the amount will not be realized. No deferred taxes have been provided on
temporary differences related to investments in foreign subsidiaries because these investments are
considered to be permanent. The total deferred tax asset and related valuation allowance at
December&nbsp;31, 2006 have been reduced by approximately $6,831,000 from the amount previously reported
as a result of an error in the calculation of bases differences for long-term investments.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Effective January&nbsp;1, 2007, we adopted the provisions of Financial Accounting Standards Board
Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in Income Taxes &#150; an Interpretation of FASB
Statement No.&nbsp;109&#148; (&#147;FIN 48&#148;). FIN 48 prescribes a recognition threshold that a tax position is
required to meet before being recognized in the financial statements and provides guidance on
derecognition, measurement, classification, interest and penalties, accounting in interim periods,
disclosure and transition issues. We have recognized tax benefits from all tax positions we have
taken, and there has been no adjustment to any carry forwards (net operating loss or research and
development credits) as a result of the implementation of FIN 48. The adoption of FIN 48 did not
have a material effect on our consolidated financial position or results of operations. As of
December&nbsp;31, 2007, we do not have any material unrecognized tax benefits and we do not anticipate
any significant changes in the balance of unrecognized tax benefits during the next twelve months.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Our policy is to recognize accrued interest related to uncertain tax positions in interest expense
and related penalties, if applicable, in general and administrative expense. No interest expense or
penalties were recognized during the years ended December&nbsp;31, 2007 and 2006.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-18<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We file a consolidated U.S. federal income tax return for all subsidiaries in which our ownership
equals or exceeds 80%, as well as individual subsidiary returns in various states and foreign
jurisdictions. Our VISaer subsidiary files a separate U.S. federal income tax return. With few
exceptions we are no longer subject to U.S. federal, state and local or foreign income tax
examinations by taxing authorities for years before 2003.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>9. COMMITMENTS AND CONTINGENCIES</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Leases </I>- We have noncancellable operating leases expiring at various dates through July&nbsp;2010.
Future minimum lease payments are as follows:
</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="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><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 valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">626</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">339</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,049</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Included in the above are future minimum lease payments to a related party of $464,000 and $194,000
in 2008 and 2009, respectively.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Rental expense for leased facilities and equipment related to continuing operations amounted to
$607,000 and $604,000 for the years ended December&nbsp;31, 2007 and 2006, respectively. Companies in
Intelligent Systems incubator sublease space from the company. For the years ended December&nbsp;31,
2007 and 2006, we received $95,000 and $77,000, respectively, in sublease rental income which
reduced the company&#146;s rental expense during these years.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>Legal
Matters - </I>In December&nbsp;2004, ChemFree filed a patent infringement action against J. Walter Co.
Ltd. and J. Walter, Inc. in the United States Court for the Northern District of Georgia. The
complaint alleges that certain of the defendant&#146;s products infringe various U.S. patents held by
ChemFree and seeks a ruling to compel defendant to cease its infringing activities. The defendant
has asserted various defenses. The parties are in the discovery phase of the case and no trial
date has been set. While the resolution and timing of any legal action is not predictable,
ChemFree believes it has sufficient grounds to prevail in these actions, although there can be no
assurance that the disputes will be resolved in its favor.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><I>ISC
Guarantees - </I>In conjunction with a Software License Agreement entered into on June&nbsp;12, 2003
between our CoreCard subsidiary 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 which is estimated to be approximately $400,000. The guarantee expires in
June&nbsp;2008. As of December&nbsp;31, 2007, it does not appear probable that the guarantee will be paid;
thus no amounts have been accrued with respect to this guarantee.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>10. POST-RETIREMENT BENEFITS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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, 2007 and 2006, we have
accrued $150,000 and $145,000, respectively, for future payments under the plan.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-19<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>11. DEFINED CONTRIBUTION PLANS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We maintain two 401(k) defined contribution plans covering substantially all U.S. employees. Our
matching contributions under the plans, which are optional, are based on the level of individual
participant&#146;s contributions, amounted to $72,000 and $85,000 in 2007 and 2006, respectively.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>12. RELATED PARTY TRANSACTION</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The lease on our headquarters and primary facility at 4355 Shackleford Road, Norcross, Georgia is
held by ISC Properties, LLC, an entity controlled by our Chairman and Chief Executive Officer, J.
Leland Strange. Mr.&nbsp;Strange holds a 100% ownership interest in ISC Properties, LLC. In each of
the years ended December&nbsp;31, 2007 and 2006, we paid $459,000 in rent to ISC Properties, LLC.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>13. STOCKHOLDERS&#146; EQUITY</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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 but no repurchases were authorized or made in 2007 or 2006.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>14. STOCK OPTION PLANS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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, with vesting of such options occurring equally over a 3-year time period. No
options were granted under the 2003 Plan in the two years ended December&nbsp;31, 2007. We instituted
the 1991 Incentive Stock Plan (the &#147;1991 Plan&#148;) in December&nbsp;1991 and the 1991 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, which vests in 50% increments on the first and second
anniversary. Stock options under all three plans are granted at fair market value on the date of
grant. As of December&nbsp;31, 2007, a total of 981,000 options under all three Plans have been granted,
724,320 have been exercised and 197,000 options are fully vested and exercisable. All options
expire ten years from their respective dates of grant.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">As of December&nbsp;31, 2007, there was $12,000 compensation cost related to nonvested share-based
compensation arrangements granted under the Plans. The total fair value of shares vested during
the years ended December&nbsp;31, 2007 and 2006 was $13,000 and $12,000, respectively.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-20<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Stock option transactions during the years ended December&nbsp;31, 2007 and 2006 were as follows:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options outstanding at January 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">238,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <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" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,666</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,014</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options outstanding at December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203,666</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</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="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options available for grant at December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">446,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">458,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</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; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercisable at December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197,666</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</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="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercise 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; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD nowrap align="right">2.96-$4.25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</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-$4.26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average exercise price per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canceled</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at December 31</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 0px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 0px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following tables summarize information about the stock options outstanding under the company&#146;s
option plans as of December&nbsp;31, 2007.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Options Outstanding:</B>
</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="25%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" 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">Wgt. Avg.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp; </TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"> Contractual </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Wgt. Avg. </TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Range of Exercise Price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Life Remaining</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Exercise Price</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">$1.51 - $2.08</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">5.6 yrs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.62</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">$3.15 - $4.26</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">4.3 yrs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.91</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">5.1 yrs</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom">
<td colspan="13">
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>Options Exercisable:</B>
</DIV>
</td>
</tR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR style="font-size: 10pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Wgt. Avg.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Aggregate</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Range of Exercise Price</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Exercisable</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Exercise Price</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Intrinsic Value</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">$1.51 - $2.08</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">235,582</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">$3.15 - $4.26</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">$1.51 - $4.26</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">238,382</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the
difference between the company&#146;s closing stock price on the last trading day of the year ended
December&nbsp;31, 2007 and the exercise price, multiplied by the number of in-the-money options) that
would have been received by the option holders had all option holders exercised their options on
December&nbsp;31, 2007. The amount of aggregate intrinsic value will change based on the fair market
value of the company&#146;s common stock.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-21<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>15. FOREIGN REVENUES AND OPERATIONS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Foreign revenues are based on the location of the customer. Revenues from customers by geographic
areas for the years ended December&nbsp;31, 2007 and 2006 are as follows:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" 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: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">United Kingdom</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,249</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,596</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Chile</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">490</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">940</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Pacific Rim *</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,253</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; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Panama</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">277</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Ireland</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">China</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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">4,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,934</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,646</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,526</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&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">$</TD>
    <TD align="right">19,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,460</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>




<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR style="font-size: 6pt">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="96">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="text-align: justify">Includes Australia, New Zealand, Japan and Singapore.</DIV></TD>
</TR>

</TABLE>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">With the acquisition of VISaer in 2001, we acquired foreign subsidiaries in the United Kingdom and
Ireland and in 2004 established an office in Australia. In 2003, we established a subsidiary of
CoreCard Software in Romania for software development and testing activities and in 2006 we
established a subsidiary in India for additional software development and testing activities. With
the exception of a facility in India acquired in 2007 to house our India-based employees,
substantially all long-lived assets are in the United States.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At December&nbsp;31, 2007 and 2006, foreign subsidiaries had assets of $822,000 and $321,000,
respectively, and total liabilities of $590,000 and $556,000, respectively. There are no currency
exchange restrictions related to our foreign subsidiaries that would affect our financial position
or results of operations.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Refer to Note 1 for a discussion regarding how we account for translation of non-U.S. currency
amounts.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>16. INDUSTRY SEGMENTS</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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 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 income
(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, investments and notes receivable.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-22<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">The following table contains segment information for the years ended December&nbsp;31, 2007 and 2006:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B><BR><I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,690</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,296</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,256</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital expenditures</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">123</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,624</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,047</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- 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="padding-top: 1px">
    <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; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,188</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,769</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">446</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">256</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">368</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,932</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,849</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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="padding-top: 1px"><!-- 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; padding-top: 1px">
    <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" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">14,460</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,762</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,810</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">522</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">491</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,373</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,047</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">A reconciliation of consolidated segment data above to consolidated data follows:
</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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B><BR>
<I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated segments operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,762</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,810</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <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">(1,101</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,171</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated loss from continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,863</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(3,981</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B><BR>
<I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated segments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">522</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</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; padding-top: 1px">
    <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" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated segments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">491</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">523</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&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="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>As of December 31,</B><BR>
<I>(in thousands)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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" style="padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated segments identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,473</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,537</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,622</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,010</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


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

<P align="center" style="font-size: 10pt"><!-- Folio -->F-23<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Notes to Consolidated Financial Statements
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B>17. EARNINGS (LOSS)&nbsp;PER SHARE</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 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 give
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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 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>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head --><TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" 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: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><I>(in thousands except per share data)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<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" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net earnings (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,424</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,469</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average common 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">4,479</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net earnings (loss)&nbsp;per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.54</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</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; padding-top: 1px">
    <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" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net earnings (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(2,424</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,469</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff; padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Weighted average common 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">4,479</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effect of dilutive potential common shares: stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,571</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net earnings (loss)&nbsp;per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.54</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.98</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">At December&nbsp;31, 2007, potentially dilutive stock options to purchase 149,645 shares of the
company&#146;s common stock were not included in the diluted earnings (loss)&nbsp;per share as their effect
would be antidilutive.
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

<P align="center" style="font-size: 10pt"><!-- Folio -->F-24<!-- /Folio -->
</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; margin-left: .25in; width: 7.20in">
<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Exhibit&nbsp;Index</B>
</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="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Exhibit Number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000">Description</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sixth Modification to Loan Documents by and among Intelligent Systems Corporation and
Fidelity Bank dated December&nbsp;1, 2007.</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">List of subsidiaries of Registrant.</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of Tauber and Balser, P.C.</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification Pursuant to 18 U.S.C.
Section&nbsp;1350, as Adopted Pursuant to Section&nbsp;9056 of the
Sarbanes-Oxley Act of 2002.</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


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



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

<P align="center" style="font-size: 10pt"><!-- Folio -->-22-<!-- /Folio -->
</DIV>



</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>2
<FILENAME>c72804exv10w9.htm
<DESCRIPTION>EXHIBIT 10.9
<TEXT>
<HTML>
<HEAD>
<TITLE>Filed by Bowne Pure Compliance</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; margin-left: .25in; width: 7.20in">

<DIV align="right" style="font-size: 10pt; margin-top: 10pt"><B>Exhibit 10.9</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U><B>SIXTH MODIFICATION TO LOAN DOCUMENTS</B></U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>THIS SIXTH MODIFICATION TO LOAN DOCUMENTS </B>(herein the &#147;<B>Modification&#148;</B>) is made and entered into
as of this 1<SUP style="font-size: 85%; vertical-align: text-top">st</SUP> day of December, 2007, by and between <B>Intelligent Systems Corporation, </B>a
Georgia corporation (herein the &#147;<B>Borrower&#148;</B>), <B>QS Technologies, Inc., </B>a Georgia corporation, <B>Visaer,
Inc</B>., a Delaware corporation, <B>Corecard Software, Inc.</B>, a Delaware corporation, and <B>Chemfree
Corporation</B>, a Georgia corporation (the aforesaid four corporations being individually and
collectively referred to herein as the &#147;<B>Guarantors</B>&#148;), and <B>Fidelity Bank, </B>a Georgia state chartered
bank (f/k/a Fidelity National Bank ) (herein the &#147;<B>Lender&#148;</B>).
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><U>RECITALS</U>:
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">WHEREAS, on October&nbsp;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 &#147;<B>Loan&#148;</B>) evidenced by
that certain Commercial Promissory Note dated October&nbsp;1, 2003 executed by Borrower in favor of
Lender (herein the &#147;<B>Note&#148;</B>).
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">WHEREAS, the Loan and the Note are secured and evidenced by, among other instruments, the
following:
</DIV>

<DIV style="margin-top: 10pt">
<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="3%" nowrap align="left">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Security Agreement from Borrower in favor of Lender dated of even date with the
Note (herein the &#147;<B>Security Agreement&#148;</B>);</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Loan Agreement by and between Borrower and Lender dated of even date with the
Note (herein the &#147;<B>Loan Agreement&#148;</B>);</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Financing Statement filed in Gwinnett County, Georgia records, File no.
067-2003-010805 (herein the &#147;<B>Financing Statement</B>&#148;).</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Negative Pledge Agreement by and between Borrower and Lender dated of even date
with the Note (herein the &#147;<B>Negative Pledge Agreement&#148;</B>);</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(e)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Assignment of Policy as Collateral Security from Borrower in favor of Lender
dated of even date with the Note (herein the &#147;<B>Life Insurance Assignment&#148;</B>); and</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(f)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Subordination Agreements from Borrower and certain of the Guarantors in favor
of Lender dated of even date with the Note (herein &#147;<B>Subordination Agreements&#148;</B>).</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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 &#147;<B>Loan Documents&#148;</B>.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">WHEREAS, on October&nbsp;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 &#147;Guaranties&#148;);
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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&nbsp;1, 2003 (herein
the &#147;Guarantor Security Agreements&#148;), which Guarantor Security Agreements are further evidenced by
a Financing Statement filed in Gwinnett County, Georgia Records File No.&nbsp;067-2003-010805 and that
certain Financing Statement filed with the Delaware Department of State under Filing No.&nbsp;3274987
(herein collectively the &#147;Guarantor Financing Statements&#148;) (the Guaranties, the Guarantor Security
Agreements and the Guarantor Financing Statements are herein collectively referred to herein as the
&#147;Guaranty Documents&#148;);
</DIV>
<P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp;

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: Helvetica,Arial,sans-serif; margin-left: .25in; width: 7.20in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">WHEREAS, Lender, Borrower and the Guarantors entered into that certain First Modification of
Loan Documents dated as of September&nbsp;1, 2004 for the purpose of extending the Maturity Date of the
Loan on the Note from September&nbsp;1, 2004 to September&nbsp;1, 2005 (all references to the Loan, Note,
Loan Documents and Guaranty shall be as amended by the aforesaid First Modification of Loan
Documents);
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">WHEREAS, Lender, Borrower and the Guarantors entered into that certain Second Modification of
Loan Documents dated as of September&nbsp;1, 2005 for the purpose of extending the Maturity Date of the
Loan on the Note from September&nbsp;1, 2005 to September&nbsp;1, 2006 and to increase the maximum
availability under the Loan and the Note from $1,500,000 to $2,000,000 (all references to the Loan,
Note, Loan Documents and Guaranty shall be as amended by the aforesaid Second Modification of Loan
Documents);
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">WHEREAS, Borrower requested and Lender agreed to increase the maximum availability under the
Loan and the Note from $2,000,000 to $2,500,000 and Borrower, Guarantors and Lender entered into
that certain Third Modification of Loan Documents dated as of June&nbsp;16, 2006 in order to modify and
ratify certain terms and provisions of the Note, the Loan Documents and the Guaranty Documents as
more particularly set forth therein (all references to the Loan, Note, Loan Documents and Guaranty
shall be as amended by the aforesaid Third Modification of Loan Documents);
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">WHEREAS, Borrower requested and Lender agreed to decrease the maximum availability under the
Loan and the Note from $2,500,000 to $2,000,000 and to further extend the Maturity Date of the Loan
and Note from September&nbsp;1, 2006 to December&nbsp;1, 2006, and Borrower, Guarantors and Lender entered
into that certain Fourth Modification of Loan Documents dated as of August&nbsp;11, 2006 in order to
modify and ratify certain terms and provisions of the Note, the Loan Documents and the Guaranty
Documents as more particularly set forth therein (all references to the Loan, Note, Loan Documents
and Guaranty shall be as amended by the aforesaid Fourth Modification of Loan Documents);
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">WHEREAS, Lender, Borrower and the Guarantors entered into that certain Fifth Modification of
Loan Documents dated as of December&nbsp;1, 2006 for the purpose of extending the Maturity Date of the
Loan on the Note from December&nbsp;1, 2006 to December&nbsp;1, 2007 (all references to the Loan, Note, Loan
Documents and Guaranty shall be as amended by the aforesaid Fifth Modification of Loan Documents);
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">WHEREAS, Borrower has requested and Lender has agreed to further extend the Maturity Date of
the Loan and Note from December&nbsp;1, 2007 to December&nbsp;1, 2008 and Borrower, Guarantors and Lender
desire to enter into this Amendment in order to modify and ratify certain terms and provisions of
the Note, the Loan Documents and the Guaranty Documents as more particularly set forth herein.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">1.&nbsp;<U>Recitals</U>. The foregoing recitals are true and correct and are incorporated herein
by this reference.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">2.&nbsp;<U>Capitalized Terms</U>. All capitalized terms contained in this Modification shall have
the same meaning afforded to them in the Note, Loan Documents and Guaranty Documents.
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">3. <U>Specific Modifications to Documents</U>.
</DIV>

<DIV style="margin-top: 10pt">
<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="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The maximum availability under the terms of the Loan
shall continue to be $2,000,000 during the remaining term of the Loan.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Maturity Date of the Loan and the Note is hereby
extended from December&nbsp;1, 2007 to December&nbsp;1, 2008.</DIV></TD>
</TR>

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

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: Helvetica,Arial,sans-serif; margin-left: .25in; width: 7.20in">

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


</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">4.&nbsp;<U>No Impairment</U>. 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">5.&nbsp;<U>No Defenses</U>. 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">6.&nbsp;<U>Ratification</U>. 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. The Guarantors hereby specifically
acknowledge and consent to the extension of the Maturity Date from December&nbsp;1, 2007 to December&nbsp;1,
2008, as well as the prior release by Lender of (i)&nbsp;all of Lender&#146;s collateral interest with
respect to Borrower&#146;s interest in Horizon Software International, LLC and (ii)&nbsp;all of Lender&#146;s
collateral interest in certain of the primary assets of QS Technologies, Inc.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">7.&nbsp;<U>No Novation</U>. 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.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">8.&nbsp;<U>Effect of Modification</U>. 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<B>.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 10pt">&#091;REMAINDER OF PAGE INTENTIONALLY LEFT BLANK&#093;
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 10pt">&#091;SIGNATURES COMMENCE ON FOLLOWING PAGE&#093;

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

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<DIV style="font-family: Helvetica,Arial,sans-serif; margin-left: .25in; width: 7.20in">

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">IN WITNESS WHEREOF, Borrower, Guarantors and Lender have set their hands and seals to this
Sixth Modification as of the day and year first above-written.
</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="45%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&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" nowrap><U><B>BORROWER</B></U>:

</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left" nowrap><b>
INTELLIGENT SYSTEMS CORPORATION,</B><br>
a Georgia corporation</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Leland Strange
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
Title:&nbsp;&nbsp;President / CEO<br>
Attest: /s/ Bonnie Herron<br>
<DIV style="font-size: 1pt; border-top: 1px solid #000000; margin-left: 15%">&nbsp;</DIV>
Title:&nbsp;&nbsp;Secretary
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <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="center" valign="top">&#091;CORPORATE SEAL&#093;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left" nowrap><u><B>GUARANTORS</B></u>:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left" nowrap><b>QS TECHNOLOGIES, INC., </B>a Georgia corporation</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Leland Strange</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">&nbsp;
</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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title: President<br>
Attest: /s/ Bonnie Herron<br>
<DIV style="font-size: 1pt; border-top: 1px solid #000000; margin-left: 15%">&nbsp;</DIV>
Title: Secretary</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <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="center" valign="top">&#091;CORPORATE SEAL&#093;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>VISAER, INC</B>., a Delaware corporation</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ David Spellman</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">&nbsp;
</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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title: President and CEO<br>
Attest: /s/ Martin Crockett<br>
<DIV style="font-size: 1pt; border-top: 1px solid #000000; margin-left: 15%">&nbsp;</DIV>
Title: Controller</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <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="center" valign="top">&#091;CORPORATE SEAL&#093;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>CORECARD SOFTWARE, INC.</B>,<br>
a Delaware corporation</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ J. Leland Strange</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">&nbsp;
</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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title: President / CEO<br>
Attest: /s/ Bonnie Herron<br>
<DIV style="font-size: 1pt; border-top: 1px solid #000000; margin-left: 15%">&nbsp;</DIV>
Title: Secretary</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <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="center" valign="top">&#091;CORPORATE SEAL&#093;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left"><B>CHEMFREE CORPORATION</B>,<br>
a Georgia corporation</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Francis A. Marks</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">&nbsp;
</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">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title: President<br>
Attest: /s/ Bonnie Herron<br>
<DIV style="font-size: 1pt; border-top: 1px solid #000000; margin-left: 15%">&nbsp;</DIV>
Title: Secretary</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px"><!-- Blank Space -->
    <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" style="padding-top: 1px">
    <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="center" valign="top">&#091;CORPORATE SEAL&#093;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt">(SIGNATURES CONTINUED ON FOLLOWING PAGE)
</DIV>


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

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>




<DIV style="font-family: Helvetica,Arial,sans-serif; margin-left: .25in; width: 7.20in">



<DIV align="center" style="font-size: 10pt; margin-top: 10pt">(SIGNATURE PAGE TO SIXTH MODIFICATION TO LOAN DOCUMENTS)
</DIV>


<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"><U><B>LENDER</B></U><B>:<BR>
<BR>
FIDELITY BANK,</B><BR>
a Georgia state chartered bank<BR>
(f/k/a Fidelity National Bank)<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Raymond H. Zavacki
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Title:      Vice President</TD>
    <TD>&nbsp;</TD>
</TR>
<tr style="font-size: 10pt"><td>&nbsp;</td></tr>
<TR>
    <TD>&nbsp;</TD>


    <TD colspan="3" align="center">(BANK SEAL)</TD>

</TR>

</TABLE>



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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>3
<FILENAME>c72804exv21w1.htm
<DESCRIPTION>EXHIBIT 21.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Filed by Bowne Pure Compliance</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; margin-left: .25in; width: 7.20in">

<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>

<DIV align="right" style="font-size: 10pt; margin-top: 10pt"><B>Exhibit&nbsp;21.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>INTELLIGENT SYSTEMS CORPORATION</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 10pt"><B>LIST OF PRINCIPAL SUBSIDIARY COMPANIES AS OF MARCH 1, 2008</B>

</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="73%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="22%">&nbsp;</TD>
</TR>
<TR style="font-size: 10pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B><I>Subsidiary Name</I></B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B><I>State / Country of Organization</I></B></TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ChemFree Corporation
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Georgia</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">CoreCard Software, Inc.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Delaware</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">CoreCard SRL
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Romania</TD>
</TR>
<TR valign="bottom" style="padding-top: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ISC Software Pvt. Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">India</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">VISaer, Inc.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Delaware</TD>
</TR>
<!-- End Table Body --></TABLE>
</DIV>


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

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>4
<FILENAME>c72804exv23w1.htm
<DESCRIPTION>EXHIBIT 23.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Filed by Bowne Pure Compliance</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; margin-left: .25in; width: 7.20in">

<DIV align="right" style="font-size: 10pt; margin-top: 10pt"><B>Exhibit&nbsp;23.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CONSENT OF REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Intelligent Systems Corporation<BR>
Norcross, GA
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We hereby consent to the incorporation by reference in the registration statements Form S-8 No.
333-58134 and No.&nbsp;333-32157 of our report dated March&nbsp;28, 2008, relating to the consolidated
financial statements of Intelligent Systems Corporation and Subsidiaries appearing in the company&#146;s
annual report on Form 10-KSB for the year ended December&nbsp;31, 2007.
</DIV>

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

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Tauber &#038; Balser, P.C.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Atlanta, Georgia<BR>
March&nbsp;28, 2008
</DIV>
<P align="center" style="font-size: 10pt">&nbsp;

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>5
<FILENAME>c72804exv31w1.htm
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Filed by Bowne Pure Compliance</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; margin-left: .25in; width: 7.20in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Exhibit&nbsp;31.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 0pt"><B>SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002</B>

</DIV>
<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">I, J. Leland Strange, the Chief Executive Officer of Intelligent Systems Corporation, certify that:
</DIV>


<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">I have reviewed this Annual Report on Form 10-KSB of Intelligent Systems Corporation;</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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;</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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;</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The registrant&#146;s other certifying officer 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) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f) for the registrant and have:</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<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="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; and</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The registrant&#146;s other certifying officer 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):</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<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="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Date: March&nbsp;31, 2008
</DIV>


<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>

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


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

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

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>6
<FILENAME>c72804exv31w2.htm
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<HTML>
<HEAD>
<TITLE>Filed by Bowne Pure Compliance</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; margin-left: .25in; width: 7.20in">

<DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Exhibit&nbsp;31.2</B>
</DIV>


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



<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">I, Bonnie L. Herron, the Chief Financial Officer of Intelligent Systems Corporation, certify that:
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">I have reviewed this Annual Report on Form 10-KSB of Intelligent Systems Corporation;</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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;</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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;</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The registrant&#146;s other certifying officer 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) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f) for the registrant and have:</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<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="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; and</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">7.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The registrant&#146;s other certifying officer 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):</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 10pt">
<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="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
</TR> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">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.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Date: March&nbsp;31, 2008
</DIV>


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    <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>

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


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

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
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<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>7
<FILENAME>c72804exv32w1.htm
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Filed by Bowne Pure Compliance</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; margin-left: .25in; width: 7.20in">



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


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



<DIV align="justify" style="font-size: 10pt; margin-top: 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 10-KSB for the period
ended December&nbsp;31, 2007 (the &#147;Report&#148;), as filed with the Securities and Exchange Commission on the
date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended, and that the information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of the
Company.
</DIV>

<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 align="left">Date: March 31, 2008&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 style="font-size: 10pt"><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>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">A signed original of this written statement required by Section&nbsp;906 has been provided to
Intelligent Systems Corporation and will be retained by Intelligent Systems Corporation and
furnished to the Securities and Exchange Commission or its staff upon request.
</DIV>

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



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

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




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