<SEC-DOCUMENT>0000950123-11-001187.txt : 20110307
<SEC-HEADER>0000950123-11-001187.hdr.sgml : 20110307
<ACCEPTANCE-DATETIME>20110107060045
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0000950123-11-001187
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20110107

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INTELLIGENT SYSTEMS CORP
		CENTRAL INDEX KEY:			0000320340
		STANDARD INDUSTRIAL CLASSIFICATION:	BOLTS, NUTS, SCREWS, RIVETS & WASHERS [3452]
		IRS NUMBER:				581964787
		STATE OF INCORPORATION:			GA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	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
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<DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 70%">January&nbsp;7, 2011
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Securities and Exchange Commission<BR>
Washington, DC 20549
</DIV>
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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Re:</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>Intelligent Systems Corporation<BR>
Form&nbsp;10-K for the Fiscal Year Ended December&nbsp;31, 2009<BR>
Filed March&nbsp;23, 2010<BR>
Definitive Proxy Statement on Schedule&nbsp;14A<BR>
Filed April&nbsp;9, 2010<BR>
File No.&nbsp;001-09330</B></TD>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Ladies and Gentlemen:
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">This letter constitutes the response of Intelligent Systems Corporation (the &#147;Company&#148;) to the
follow-up comment letter dated December&nbsp;30, 2010, regarding the Company&#146;s Form 10-K for fiscal year
2009 and its Definitive Proxy Statement filed April&nbsp;9, 2010.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Our responses below correspond to the numbered paragraphs in the follow-up comment letter.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Form&nbsp;10-K for the Fiscal Year Ended December&nbsp;31, 2009</U>
</DIV>


<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Item&nbsp;1. Business, page 1</U><BR>
<U>Information Technology Products and Services, page 3</U>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">1.&nbsp;With a view towards future disclosure, we have addressed your comments in the attached draft
disclosure in Item&nbsp;1. <U>Business</U>, which has been marked to show changes from our draft
disclosure previously provided per our response letter dated December&nbsp;4, 2010. See the revisions
to the fourth paragraph from the end of such section.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U>Item&nbsp;8A(T). Controls and Procedures, page 16</U><BR>
<U>Evaluation of Disclosure Controls and Procedures, page 16</U>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">2.&nbsp;In future filings we will remove references to the level of assurance of our disclosure controls
and procedures.
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 10pt">Securities and Exchange Commission<BR>
January <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 2011<BR>
Page 2

</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">The Company hereby acknowledges that:
</DIV>

<DIV style="margin-top: 10pt">
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    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Company is responsible for the adequacy and accuracy of the disclosure in its
filings under the Securities Exchange Act of 1934;</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>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">Staff comments or changes to disclosure in response to staff comments do not foreclose
the Commission from taking any action with respect to such filings; and</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
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    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify">The Company may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities law of the United States.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 8%">Please contact Larry Ledbetter at (404)&nbsp;835-9503 if you have any questions concerning this
response.
</DIV>

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    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Sincerely,<BR>
<BR>
Intelligent Systems Corporation<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/  Bonnie L. Herron
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top">Name:&nbsp;&nbsp;</TD>
    <TD align="left">Bonnie L. Herron&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top">Title:&nbsp;&nbsp;</TD>
    <TD align="left">Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><U><B>DRAFT DISCLOSURE SHOWING CHANGES TO PRIOR SUBMISSION &#151; FILED WITH RESPONSE LETTER TO SEC ON 1-7-11</B><BR><BR>
<B>Information Technology Products and Services Segment</B></U>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt"><B><I>CoreCard Software, Inc. </I></B><I>&#151; </I>The principal operating company in our Information Technology Products
and Services segment is CoreCard Software, Inc. (&#147;CoreCard&#148;). Our wholly owned subsidiaries,
CoreCard SRL and ISC Software in Romania and India, respectively, perform software development and
testing for CoreCard but do not sell products or services to third parties. Accordingly, this
discussion describes the CoreCard business as a single business unit. CoreCard designs, develops,
and markets a comprehensive suite of software solutions to accounts receivable businesses,
financial institutions (such as banks and credit unions), retailers and processors to manage their
credit and debit card, prepaid cards, private label cards, fleet cards, loyalty programs, and
accounts receivable and small loan transactions. The CoreCard<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> software solutions allow companies
to issue various types of debit and credit cards as well as revolving loans, to set up and maintain
account data, to record advances and payments, to assess fees, interest and other charges, to
resolve disputes and chargebacks, to manage collections of accounts receivable, to generate reports
and to settle transactions with financial transactions and network associations.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">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 $150,000 to over $1&nbsp;million. We derive service revenue from implementation,
customization, training and support services. We have also begun to offer boutique processing
services (running the CoreCard software platform) and will derive monthly fees for providing
processing services beginning in 2010. Depending on factors such as contract terms, customer
implementation and testing schedule, and extent of customization or configuration required, the
timing of revenue recognition on software contracts is not generally predictable by us with any
degree of certainty and may lead to considerable fluctuation in revenue and profitability, which in
turn affects our consolidated revenue and profit or loss.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">CoreCard has developed proprietary software applications based on its core financial transaction
processing platform (CoreENGINE&#153;) to address the unique requirements of customers and program
managers that issue or process:
</DIV>

<DIV style="margin-top: 10pt">
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    <TD><DIV style="text-align: justify">Credit/Debit Cards &#151; involving revolving or non-revolving credit issued to consumer or
business accounts (with or without a physical card) that typically involve interest, fees,
settlement, collections, etc. Within this market, CoreCard offers software specifically
tailored to handle private label cards, network branded (i.e. MasterCard or VISA) bank cards,
fleet cards, short-term consumer loans and revolving accounts receivable.</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">Prepaid Cards &#151; involving pre-loaded funds drawn down for purchase or cash withdrawal
typically involving a variety of fees but no interest. Numerous examples exist including gift
cards, loyalty/reward cards, health benefit cards, payroll and benefits disbursement,
healthcare cards, government assistance payments, and transit cards.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">CoreCard&#146;s software solutions allow financial institutions and commercial customers to optimize
their card account management systems, improve customer retention, lower operating costs and create
greater market differentiation. For example, CoreCard&#146;s feature-rich, browser-based financial
transaction processing software allows customers to automate, streamline and optimize business
processes associated with the set-up, administration, management and settlement of credit, prepaid
and loan accounts, to process transactions, and to generate reports and statements for these
accounts. In addition, because CoreCard&#146;s products are designed to run on low cost, scalable
PC-based servers, rather than expensive legacy mainframe computers, customers benefit from a lower
overall cost-of-ownership and scalability by simply adding additional servers as their card volume
grows. CoreCard&#146;s product functionality includes embedded multi-lingual, multi-currency support,
a web-based interface, real-time processing, complex rules-based authorizations, account
hierarchies, and robust fee libraries, features that support customer-defined pricing and payment
terms and allow CoreCard customers to create new and innovative card programs to differentiate
themselves in the marketplace and improve customer retention.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We believe CoreCard is unique among software companies because it offers a full array of card and
account management software solutions, all available either for in-house license, outsourced
processing (Software as a Service or SaaS) or Platform as a Service (PaaS), at the customer&#146;s
option. CoreCard also provides customers with a unique option to license the same CoreCard
software that is used in the processing environment and transfer it in-house for customer
controlled processing at a later date.
</DIV>

<DIV style="margin-top: 10pt">
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    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>License</U> &#151; Typically CoreCard sells a software license to customers who then run
CoreCard&#146;s software system, configured for their unique requirements, at a customer controlled
location.</DIV></TD>
</TR>

</TABLE>
</DIV>

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

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

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    <TD><DIV style="text-align: justify"><U>SaaS</U> &#151; Recently CoreCard has expanded the ways customers can access or deploy its
software and now offers a boutique processing service that allows customers to outsource their
processing requirements to CoreCard. CoreCard manages all aspects of the processing functions
using its proprietary software configured for each processing customer in a Software as a
Service (&#147;SaaS&#148;) model.</DIV></TD>
</TR>

<TR style="font-size: 8pt">
    <TD>&nbsp;</TD>
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    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><DIV style="text-align: justify"><U>PaaS</U> &#151; For customers who prefer greater customization and control of the processing
environment, CoreCard offers its software, uniquely customized for the customer, hosted by
CoreCard on customer owned equipment at the CoreCard data center, in a Platform as a Service
(&#147;PaaS&#148;) offering.</DIV></TD>
</TR>

</TABLE>
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">CoreCard has set up its data processing center and disaster recovery site at secure third party
locations and has received a certification of compliance with the Payment Card Industry (PCI)&nbsp;Data
Security Standards, an important step in ensuring protection of all consumer data handled by the
CoreCard processing system.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">CoreCard&#146;s principal target markets include accounts receivable businesses, prepaid cards issuers,
retail and private-label issuers, small third-party processors, and small and mid-size financial
institutions 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 U.S. banks. CoreCard competes with larger and more established software
suppliers, and a number of software solution providers that offer more limited functional modules.
CoreCard also competes with third-party card processors that allow potential prospects to outsource
their account transaction processing rather than acquire software to manage their transactions
in-house. 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 our boutique processing will be an
attractive alternative particularly for small, prepaid card issuers or other companies entering new
credit or prepaid markets that may not have the technology expertise to run the software in-house
initially. Under the Core Processing option, customers will contract with CoreCard to provide them
with processing services for their accounts using CoreCard software configured to the customer&#146;s
preferences, with a built-in option to license the same software and bring it in-house when and if
the customer decides to become its own processor in the future.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">CoreCard&#146;s principal software platform and modules include CoreENGINE&#153;, CoreISSUE&#153;, CoreFRAUD&#153;, CoreCOLLECT&#153;,
CoreSALES&#153; and CoreACQUIRE&#153;. Using the same base transaction processing called CoreENGINE, the CoreCard application modules have been further
enhanced to meet the specific requirements of different market segments; for instance, CoreISSUE is available in different
versions tailored to the requirements for issuing Prepaid cards, Fleet cards, Bank cards or Private Label cards/accounts. In addition,
CoreCard configures and/or customizes its base modules with additional or specific functionality to meet each customer&#146;s requirements.
Through 2009, CoreCard has focused its extensive development and limited sales activities on establishing a growing base of reference customers in
its target markets. In 2008, the company added new fleet and prepaid card customers to its reference base and in 2009 added additional private label
customers as well as its first international and processing customers. The company has <U>developed a comprehensive initial </U><strike>focused on completing
its </strike>suite of products<U>&nbsp;</U><strike>&nbsp;</strike><U>and has sold such products to customers in the Prepaid, Fleet, Private Label and Credit markets. As is typical of most software companies,
CoreCard expects to continually enhance and upgrade its existing software solutions and to develop additional modules to meet changing customer and market
requirements. To date, CoreCard has focused on </U><strike>and</strike> building <U>a solid base of customers as well as </U>the infrastructure and processes to be able to scale the business
successfully<U>. Historically, most of the company&#146;s software sales have resulted from prospects contacting CoreCard based on an online search, although the company plans
to </U><strike> before</strike> devot<U>e</U><strike>ing</strike><U> more</U> extensive resources to sales and marketing<U> activities.</U><strike>.</strike> <strike>The company expects to continually enhance and upgrade its existing software solutions
to meet changing customer and market requirements</strike>.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">Typically, CoreCard licenses its software products for a one-time license fee or, in the case of
its prepaid card software offering, for an initial set-up charge and a monthly fee based on number
of accounts processed. It provides maintenance and support services under annual contracts, as
well as professional services for customization, implementation, testing and training activities.
Processing customers pay an implementation and setup fee and monthly service fees and typically
enter into contracts with terms of three or more years. CoreCard sells its products directly to
customers in the U.S. but may work with a small number of resellers and third parties in
international markets to identify, sell and support targeted opportunities.
</DIV>

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

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

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<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">CoreCard does not need governmental approval for its products and services. However, CoreCard&#146;s
software products are used by customers to manage and process various credit, debit and prepaid
card programs and there are a number of federal and state
regulations governing the issuance of and the processing of financial transactions associated with
such cards. CoreCard&#146;s customers are required to comply with such regulations and, to the extent
that customers depend on their licensed CoreCard software to manage and process their card
accounts, the CoreCard<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> software features and functionality must allow customers to comply with the
various governmental regulations. CoreCard continually evaluates applicable regulations and
regularly upgrades and enhances its software to help its customers meet their obligations to comply
with current and anticipated governmental regulations. As a part of CoreCard&#146;s CoreProcessing
services, CoreCard is responsible for providing processing services, including data and network
security, in compliance with all applicable governmental regulations. Depending on the extent of
changes in new governmental regulations, CoreCard may from time to time incur additional costs to
modify its software to be compliant. CoreCard has no costs related to compliance with
environmental laws.
</DIV>

<DIV align="justify" style="font-size: 10pt; margin-top: 10pt">We believe that the uncertainty and turmoil in the financial services sector of the domestic U.S.
marketplace had a negative impact on buying decisions for potential customers in 2009. The
situation has impacted and may continue to impact the willingness of banks and network associations
(such as MasterCard or VISA) to approve new customer programs which could lower demand for our
product and service offerings in the near-term.
</DIV>

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



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

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