INTELLIGENT SYSTEMS CORP (Form: 10-Q, Received: 05/15/2015 12:42:45)

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑

Quarterly Report UNDER Section 13 or 15( d ) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2015

☐

Transition Report UNDER Section 13 or 15( d ) of the Securities Exchange Act of 1934

For the transition period from _________ to ____________

Commission file number 1-9330

INTELLIGENT SYSTEMS CORPORATION

(Exact name of registrant as specified in its charter)

Georgia	58-1964787
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)


4355 Shackleford Road, Norcross, Georgia	30093
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (770) 381-2900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicated by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐(Do not check if a smaller reporting company)	Smaller reporting company ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of April 30, 2015, 8,958,028 shares of Common Stock of the issuer were outstanding.

Intelligent Systems Corporation

Index

Form 10-Q

Page

Part I		Financial Information

	Item 1	Financial Statements
		Consolidated Balance Sheets at March 31, 2015 and December 31, 2014	3
		Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014	4
		Consolidated Statements of Comprehensive Income for the three months ended March 31, 2015 and 2014	5
		Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014	6
		Notes to Consolidated Financial Statements	7
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 4	Controls and Procedures	15

Part II		Other Information

	Item 6	Exhibits	15

		Signatures	16


	Ex. 2.1	Stock Purchase Agreement between CRC Industries, Inc. and Intelligent Systems Corporation dated March 31, 2015 (Incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K dated March 31, 2015).
	Ex. 10.1	Thirteenth Modification to Loan Documents by and among Intelligent Systems Corporation and Fidelity Bank dated March 31, 2015, filed herewith.
	Ex. 10.2	Lease Agreement by and between Intelligent Systems Corporation and ISC Properties, LLC dated April 1, 2015, filed herewith.
	Ex. 31.1	Section 302 Certification of Chief Executive Officer
	Ex. 31.2	Section 302 Certification of Chief Financial Officer
	Ex. 32.1	Section 906 Certification of Chief Executive Officer and Chief Financial Officer
	Ex.101.INS**	XBRL Instance
	Ex.101.SCH**	XBRL Taxonomy Extension Schema
	Ex.101.CAL**	XBRL Taxonomy Extension Calculation
	Ex 101.DEF**	XBRL Taxonomy Extension Definitions
	Ex.101.LAB**	XBRL Taxonomy Extension Labels
	Ex.101.PRE**	XBRL Taxonomy Extension Presentation

XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Page 2

Part I Financial Information

Item 1. Financial Statements

Intelligent Systems Corporation

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

As of	March 31, 2015			December 31, 2014
ASSETS	(unaudited)			(audited)
Current assets:
Cash	$	20,750		$	2,624
Marketable securities		465			463
Accounts receivable, net		448			501
Other current assets		210			338
Restricted cash, current portion		900			--
Assets from discontinued operations		--			3,012
Total current assets		22,773			6,938
Investments		1,629			1,605
Property and equipment, at cost less accumulated depreciation		555			581
Restricted cash, noncurrent portion		2,200			--
Other long-term assets		78			81
Total assets	$	27,235		$	9,205

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	126		$	90
Deferred revenue, current portion		607			610
Accrued payroll		519			582
Accrued expenses		31			24
Other current liabilities		274			274
Liabilities from discontinued operations		800			838
Total current liabilities		2,357			2,418
Deferred revenue, net of current portion		225			191
Other long-term liabilities		--			18
Intelligent Systems Corporation stockholders’ equity:
Common stock, $0.01 par value, 20,000,000 shares authorized, 8,958,028 issued and outstanding at March 31, 2015 and December 31, 2014		90			90
Additional paid-in capital		21,541			21,537
Accumulated other comprehensive loss		(113	)		(110	)
Retained earnings (deficit)		5,546			(12,750	)
Total Intelligent Systems Corporation stockholders’ equity		27,064			8,767
Noncontrolling interest		(2,411	)		(2,189	)
Total stockholders’ equity		24,653			6,578
Total liabilities and stockholders’ equity	$	27,235		$	9,205

The accompanying notes are an integral part of these consolidated financial statements.

Page 3

Intelligent Systems Corporation

CONSOLIDATED STATEMENTS OF OPERATIONS

( unaudited, in thousands, except share and per share amounts)

	Three Months Ended March 31 ,
	201 5			201 4 (restated)
Revenue
Products	$	136		$	113
Services		933			993
Total net revenue		1,069			1,106
Cost of revenue
Products		59			58
Services		547			437
Total cost of revenue		606			495
Expenses
Marketing		71			79
General and administrative		367			332
Research and development		694			787
Loss from operations		(669	)		(587	)
Other income		2			6
Loss from continuing operations before income taxes		(667	)		(581	)
Income taxes		3			--
Loss from continuing operations		(670	)		(581	)
Gain on sale of discontinued operations, net of taxes		18,746			--
Loss from discontinued operations, net of taxes		(3	)		(181	)
Net income (loss)		18,073			(762	)
Net loss attributable to noncontrolling interest		223			176
Net income (loss) attributable to Intelligent Systems Corporation	$	18,296		$	(586	)
Earnings (loss) per share attributable to Intelligent Systems Corporation:
Basic
Continuing operations	$	(0.05	)	$	(0.05	)
Discontinued operations		2.09			(0.02	)
Earnings (loss) per share	$	2.04		$	(0.07	)
Diluted
Continuing operations	$	(0.05	)	$	(0.05	)
Discontinued operations		2.08			(0.02	)
Earnings (loss) per share	$	2.03		$	(0.07	)
Basic weighted average common shares outstanding		8,958,028			8,958,028
Diluted weighted average common shares outstanding		9,029,273			8,953,028
Net income (loss) attributable to Intelligent Systems Corporation:
Loss from continuing operations	$	(447	)	$	(405	)
Income (loss) from discontinued operations		18,743			(181	)
Net income (loss) attributable to Intelligent Systems Corporation	$	18,296		$	(586	)

The accompanying notes are an integral part of these consolidated financial statements.

Page 4

Intelligent Systems Corporation

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited, in thousands)

	Three Months Ended March 31 ,
	2015			2014
Net income (loss)	$	18,073		$	(762	)
Other comprehensive income (loss):
Foreign currency translation adjustments		(4	)		(5	)
Unrealized gain on available-for-sale marketable securities		2			16
Total comprehensive income (loss)		18,071			(751	)
Comprehensive loss attributable to noncontrolling interest		222			176
Comprehensive income (loss) attributable to Intelligent Systems Corporation	$	18,293		$	(575	)

The accompanying notes are an integral part of these consolidated financial statements.

Page 5

Intelligent Systems Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	Three Months Ended March 31 ,
CASH PROVIDED BY (USED FOR):	2015			2014

OPERATING ACTIVITIES :
Net income (loss)	$	18,073		$	(762	)
Loss (income) from discontinued operations		(18,743	)		181
Net loss from continuing operations		(670	)		(581	)
Adjustments to reconcile net loss from continuing operations to net cash used for operating activities:
Depreciation and amortization		36			32
Stock-based compensation expense		4			21
Equity in (income) loss of affiliate company		6			(5	)
Changes in operating assets and liabilities:
Accounts receivable		53			31
Other current assets		128			27
Other long term assets		3			11
Accounts payable		36			42
Accrued payroll		(63	)		(27	)
Deferred revenue, current portion		(3	)		(131	)
Accrued expenses		7			104
Other current liabilities		--			(87	)
Deferred revenue, net of current portion		34			(25	)
Other long-term liabilities		(18	)		--
Net cash used for operating activities		(447	)		(588	)

INVESTING ACTIVITIES:
Purchases of property and equipment		(10	)		(63	)
Long-term investment		(30	)		--
Net cash used for investing activities		(40	)		(63	)

Net cash provided by operating activities from discontinued operations		415			169
Net cash provided by (used for) investing activities from discontinued operations		18,202			(23	)
Net cash provided by discontinued operations		18,617			146

Effects of exchange rate changes on cash		(4	)		(5	)
Net increase (decrease) in cash		18,126			(510	)
Cash at beginning of period		2,624			3,433
Cash at end of period	$	20,750		$	2,923

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes	$	--		$	13

The accompanying notes are an integral part of these Consolidated Financial Statements.

Page 6

Intelligent Systems Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Throughout this report, the terms “we”, “us”, “ours”, “ISC” and “company” refer to Intelligent Systems Corporation, including its wholly-owned and majority-owned subsidiaries. The unaudited Consolidated Financial Statements presented in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States applicable to interim financial statements. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of ISC management, these Consolidated Financial Statements contain all adjustments (which comprise only normal and recurring accruals) necessary to present fairly the financial position and results of operations as of and for the three month periods ended March 31, 2015 and 2014. The interim results for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with our Consolidated Financial Statements and notes thereto for the fiscal year ended December 31, 2014, as filed in our Annual Report on Form 10-K/A.

Sale of Subsidiary; Discontinued Operations – On March 31, 2015, we and CRC Industries, Inc., a Pennsylvania corporation (“CRC”), entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) whereby we sold all of the issued and outstanding stock of our wholly owned subsidiary, ChemFree Corporation (“ChemFree”), to CRC (the “ChemFree Sale”). The purchase price for the all-cash sale was $21,600,000, subject to customary post-closing adjustments, including a working capital adjustment. The company retained all net cash of ChemFree as of the closing date. In the quarter ended March 31, 2015, the company recorded a gain on the sale of ChemFree of $18,746,000 and has retroactively classified the ChemFree operations as discontinued operations in all periods presented. The company intends to apply operating loss and capital loss carryforwards against the gain of sale and presently expects to incur an alternative minimum tax liability of approximately $181,000 on the transaction, which amount is included in liabilities of discontinued operations as of March 31, 2015. At the closing, a total of $3,300,000 of the purchase price was placed in escrow for purposes of securing our obligations to indemnify CRC and to refund a portion of the purchase price if ChemFree’s actual working capital amount on the closing date is less than the agreed upon target set forth in the Stock Purchase Agreement. Based on the initial post-closing working capital determination, we have accrued $200,000 for a working capital adjustment, which amount is reflected in the gain on sale calculation at March 31, 2015. We anticipate that once the working capital adjustment becomes final and binding, an amount equal to $1,100,000 less the final working capital adjustment will be released from escrow to the company in May 2015, assuming the absence of any outstanding claims for indemnification under the Stock Purchase Agreement. As of March 31, 2015, $900,000 of the escrow funds is shown as Restricted Cash – Current Portion (reflecting the escrow of $1,100,000 less the estimated $200,000 working capital adjustment) and the remaining escrow balance of $2,200,000, which will remain in escrow until September 30, 2016, is shown as Restricted Cash – Noncurrent Portion.

The following condensed financial information is provided for the ChemFree discontinued operations for the periods shown:

	Three Months Ended March 31 ,
(unaudited, in thousands)	2015			2014
Net sales	$	2,902		$	2,564
Operating loss		(3	)		(179	)
Net income (loss) before income taxes		6			(169	)
Income taxes		9			12
Net loss from discontinued operations	$	(3	)	$	(181	)

Page 7

The major components of the assets and liabilities of discontinued operations presented separately on the balance sheet are as follows:

(in thousands, unaudited)	March 31, 2015		December 31, 2014
Major classes of assets included as part of discontinued operations:
Accounts receivable	$	--	$	1,276
Inventories		--		1,042
Property, plant & equipment		--		488
Other assets		--		206
Total assets of discontinued operations	$	--	$	3,012

Major classes of liabilities included as part of discontinued operations:
Accounts payable	$	88	$	190
Accrued payroll		--		152
Other current liabilities		712		284
Other liabilities		--		212
Total liabilities of discontinued operations	$	800	$	838

Stock - based Compensation – At March 31, 2015, we have two stock-based compensation plans in effect. We record compensation cost related to unvested stock awards by recognizing the unamortized grant date fair value on a straight line basis over the vesting periods of each award. We have estimated forfeiture rates based on our historical experience. Stock option compensation expense for the three month periods ended March 31, 2015 and 2014 has been recognized as a component of general and administrative expenses in the accompanying Consolidated Financial Statements. We recorded $4,000 and $21,000 of stock-based compensation expense in the quarters ended March 31, 2015 and 2014, respectively.

As of March 31, 2015, there is $13,000 of unrecognized compensation cost related to stock options. No options were granted during the three months ended March 31, 2015. The following table summarizes options as of March 31, 2015:

# of Shares

Wgt Avg

Exercise Price

Wgt Avg Remaining Contractual Life

in Years

Aggregate

Intrinsic

Value

Outstanding at March 31, 2015

274,500

1.72

5.8

334,092

Vested and exercisable at March 31, 2015

250,000

1.76

5.4

296,437

The estimated fair value of options granted is calculated using the Black-Scholes option pricing model with assumptions as previously disclosed in our 2014 Form 10-K/A.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the company’s closing stock price on the last trading day of the first quarter of 2015 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 March 31, 2015. The amount of aggregate intrinsic value will change based on the market value of the company’s stock.

Fair Value of Financial Instruments - The carrying value of cash, marketable securities, accounts receivable, 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.

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, marketable securities and trade accounts. Our available cash is held in accounts managed by third-party financial institutions. Cash may exceed the Federal Deposit Insurance Corporation, or FDIC, insurance limits. While we monitor cash balances on a regular basis and adjust the balances as appropriate, these balances could be impacted if the underlying financial institutions fail. To date, we have experienced no loss or lack of access to our cash; however, we can provide no assurances that access to our cash will not be impacted by adverse conditions in the financial markets.

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Fair Value Measurements - In determining fair value, the company uses quoted market prices in active markets. GAAP establishes a fair value measurement framework, provides a single definition of fair value, and requires expanded disclosure summarizing fair value measurements. GAAP emphasizes that fair value is a market-based measurement, not an entity specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing an asset or liability.

GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable input be used when available. Observable inputs are based on data obtained from sources independent of the company that market participants would use in pricing the asset or liability. Unobservable inputs are inputs that reflect the company’s assumptions about the estimates market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The hierarchy is measured in three levels based on the reliability of inputs:

• Level 1

Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.

• Level 2

Valuations based on quoted prices in less active, dealer or broker markets. Fair values are primarily obtained from third party pricing services for identical or comparable assets or liabilities.

• Level 3

Valuations derived from other valuation methodologies, including pricing models, discounted cash flow models and similar techniques, and not based on market, exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections that are not observable in the market and significant professional judgment is needed in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Our available-for-sale investments are classified within level 1 of the valuation hierarchy.

The fair value of equity method and cost method investments has not been determined as it was impracticable to do so due to the fact that the investee companies are relatively small, early stage private companies for which there is no comparable valuation data available without unreasonable time and expense.

6.	Inventories – Following the sale of our former subsidiary, ChemFree, we no longer have any inventory.

Concentration of Revenue – In the three month periods ended March 31, 2015 and 2014, the two largest customers in each period represented an aggregate of 45 percent and 40 percent, of consolidated revenue from continuing operations. However, they were not the same two customers in both periods. Most of our customers have multi-year contracts with recurring minimum revenue as well as professional services fees that vary by period depending on their business needs.

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Commitments and Contingencies – Please refer to Note 8 to our Consolidated Financial Statements included in our 2014 Form 10-K/A for a description of our commitments and contingencies in addition to those disclosed herein. Effective April 1, 2015, we entered into a new lease for our U.S. operations. Accordingly, our future minimum lease payments for offices and data centers expiring at various dates through March 31, 2018 are as follows:

Year ended December 31,
(in thousands)
2015 (April 1 – December 31)	$	179
2016		198
2017		158
2018		34
Total minimum lease payments	$	569

In the ordinary course of business, from time to time we may be involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations.

Industry Segment – Following the sale of our ChemFree subsidiary, management considers our remaining subsidiaries, consisting of CoreCard and its affiliate companies, to be one operating segment. Historically, we have described this industry segment as Information Technology Products and Services but as our company and the financial software and services industries have evolved, we now consider the financial transaction solutions and services (“FinTech”) industry segment to be more appropriate.

10.

Income Taxes – We recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are recognized, net of a valuation allowance, for the estimated future tax effects of deductible temporary differences and tax credit carry-forwards. A valuation allowance against deferred tax assets is recorded when, and if, based upon available evidence, it is more likely than not that some or all deferred tax assets will not be realized.

There were no unrecognized tax benefits at March 31, 2015 and December 31, 2014. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. There were no accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the periods presented. We have determined we have no uncertain tax positions.

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. 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 2011.

11.	Reclassification – Certain prior year numbers related to the ChemFree subsidiary have been reclassified to conform to the current year presentation.

12.

Recent Accounting Pronouncements – In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-8, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . This guidance states that the disposal of a component of an entity is to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The pronouncement also requires additional disclosures regarding individually significant disposals of components that do not meet the criteria to be recognized as a discontinued operations as well as additional and expanded disclosures. ASU 2014-8 was effective for periods after December 15, 2014 and accordingly, we have prepared the Consolidated Financial Statements presented herein in accordance with this ASU.

We have considered all other recently issued accounting pronouncements and do not believe the adoption of such pronouncements will have a material impact on our Consolidated Financial Statements.

Page 10

13.

Subsequent Event – On April 22, 2015, we commenced a modified “Dutch” auction style tender offer to purchase for cash shares of our common stock for an aggregate purchase price of no more than $5 million. The tender offer expires May 19, 2015, unless extended. Depending upon the number of shares tendered and the purchase price per share, we could use up to $5 million of our cash and reduce the number of shares outstanding by as much as 1.96 million shares (approximately 21.9%) during the quarter ended June 30, 2015. We have e valuated subsequent events through the date when these financial statements were issued and, except as disclosed above or elsewhere in this Form 10-Q, we are not aware of any other significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on our Consolidated Financial Statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition to historical information, this Form 10-Q may contain forward-looking statements relating to ISC. All statements, trend analyses and other information 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 “anticipate”, “believe”, “plan”, “estimate”, “expect”, and “intend”, 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 including those factors described below under “Factors That May Affect Future Operations”, and that actual results may differ materially from those contemplated by such forward-looking statements. ISC undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results.

For purposes of this discussion and analysis, we are assuming and relying upon the reader’s familiarity with the information contained in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Form 10-K/A for the year ended December 31, 2014 as filed with the Securities and Exchange Commission.

Overview

The results reported reflect the effect of the sale of ChemFree subsidiary on March 31, 2015, as explained in more detail in Note 2 to the Consolidated Financial Statements. We have retroactively classified the ChemFree operations as discontinued operations in all periods presented. Our consolidated continuing operations consist primarily of the CoreCard Software subsidiary and its affiliate companies in Romania and India, as well as the corporate office which provides significant administrative, human resources and executive management support to CoreCard. Since the ChemFree subsidiary was our largest and most profitable operating company, our reported results for continuing operations will reflect significantly lower revenue and operating losses in the near-term.

CoreCard provides technology solutions and processing services to the financial services market, commonly referred to as the FinTech industry. We derive our product revenue from licensing our comprehensive suite of financial transaction management software to accounts receivable businesses, financial institutions, retailers and processors to manage their credit and debit cards, prepaid cards, private label cards, fleet cards, loyalty programs, and accounts receivable and small loan transactions. Our service revenue consists of fees for software customization, maintenance and support for licensed software products as well as fees for processing services that we provide to companies that prefer to outsource their financial transaction processing functions rather than license our software for in-house operations.

We have frequently recognized consolidated operating losses on a quarterly and annual basis and are likely to do so in the foreseeable future. CoreCard may report operating profits on an irregular basis and its results vary in part depending on the size and number of software licenses recognized in a particular period and the level of expenses incurred to support existing customers and development and sales activities. A significant portion of CoreCard’s expense is related to personnel, including approximately 200 employees located in India and Romania. In addition, CoreCard is now offering processing services as an alternative for customers who prefer to outsource this function instead of licensing our software and running the application in-house. There are a number of uncertainties related to a new line of business. We are likely to incur losses in the near future for the processing business because contract revenue is spread out over multi-year contracts while we are currently investing in the infrastructure, resources and processes to support this new processing business. In addition, we have certain corporate office expenses associated with being a public company that impact our operating results.

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Our revenue fluctuates from period to period and our results are not necessarily indicative of the results to be expected in future periods. It is difficult to predict the level of consolidated revenue on a quarterly or annual basis for a number of reasons, including the following:

●

Software license revenue in a given period may consist of a relatively small number of contracts and contract values can vary considerably depending on the software product and scope of the license sold. Consequently, even minor delays in delivery under a software contract (which may be out of our control) could have a significant and unpredictable impact on the consolidated revenue that we recognize in a given quarterly or annual period.

●	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 or contract performance, but which may affect the amount, timing and characterization of our deferred and/or recognized revenue.

●	Customers typically require our professional services to modify or enhance their CoreCard software implementation based on their specific business strategy and operational requirements, which vary from customer to customer and period to period.

●	The timing of new processing customer implementations is often dependent on third party approvals or processes which are typically not under our direct control.

The recent sale of the ChemFree operations has resulted in significant cash balances. Presently we intend to use up to $5 million to repurchase shares of our common stock pursuant to a modified “Dutch” auction tender initiated on April 22, 2015. We intend to use the additional proceeds to support the domestic and international operations associated with our CoreCard business and to expand our operations in the FinTech industry through financing the growth of CoreCard and, if appropriate opportunities become available, through acquisitions of businesses in this industry.

Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements and the notes to Consolidated Financial Statements presented in this quarterly report. The results for 2014 have been reclassified to reflect the former ChemFree subsidiary as a discontinued operation.

Revenue – Total revenue from continuing operations in the three month period ended March 31, 2015 was $1,069,000, three percent lower than total revenue in the first quarter of 2014.

●

Revenue from products , which includes software license fees (and, in some cases monthly support fees when the license and support fees are bundled) was $136,000 in the three month period ended March 31, 2015, compared to $113,000 in the three months ended March 31, 2014. The increase reflects growth in the number of accounts covered by certain software licenses.

●

Revenue from service s was $933,000 in the first quarter of 2015 compared to $993,000 in the first quarter of 2014. Revenue from transaction processing services and professional services were both higher in the first quarter of 2015 as compared to the first quarter of 2014 due to an increase in the number of customers and accounts on file and more revenue was generated from professional services due to an increase in the number and value of professional services contracts completed during the first quarter of 2015. In the first quarter of 2015, total maintenance revenue from annual contracts for technical and software support was lower than in the first quarter of 2014 due to the expiration of a contract in the second quarter of 2014; however maintenance revenue associated with the current installed base of customers was higher than in the first quarter of 2014. We expect that processing services will continue to grow as CoreCard’s customer base increases; however, the time required to implement new customer programs has proven longer than anticipated due to delays in third party integration and approval processes. It is not possible to predict with any accuracy the number and value of professional services contracts that CoreCard’s customers will require in a given period. Customers typically request our professional services to modify or enhance their CoreCard software implementation based on their specific business strategy and operational requirements, which vary from customer to customer and period to period.

Cost of Revenue – Total cost of revenue was 57 percent and 45 percent of total revenue in the three month period ended March 31, 2015 and 2014, respectively.

●

Cost of product revenue as a percent of product revenue was 43 percent and 51 percent in the periods ended March 31, 2015 and 2014, respectively but essentially the same absolute dollar cost in both periods.

●

Cost of service revenue as a percentage of total service revenue was 59 percent in the first quarter of 2015 compared to 44 percent in the first quarter of 2014. Cost of service revenue includes three components: costs to provide annual maintenance and support services to our installed base of licensed customers, costs to provide professional services, and costs to provide our financial transaction processing services. The cost and gross margins on such services vary considerably depending on the customer mix, customer requirements and project complexity as well as the mix of our U.S. and offshore employees working on the various aspects of services provided. In addition, we continue to devote the resources necessary to support our developing processing business, including direct costs for regulatory compliance, infrastructure, network certifications, and customer support and currently expect these costs to continue to outpace processing revenue for the foreseeable future.

Page 12

Operating Expenses – In the three month period ended March 31, 2015, total operating expenses from continuing operations were six percent lower than in the comparable period in 2014. Marketing expenses were lower by $8,000 and General and Administrative expenses were higher by $35,000, due to a number of changes between periods, none of which are individually material. Research and development expenses were $93,000 (12 percent) lower in the first quarter of 2015 compared to the same period last year, mainly due to more technical personnel expenses being charged to direct cost of services for maintenance, professional services and processing.

Gain on Sale of Discontinued Operations – As explained in more detail in Note 2 to the Consolidated Financial Statements, we recorded a gain of $18,746,000 on the sale of our ChemFree subsidiary in the first quarter of 2015.

Liquidity and Capital Resources

Our cash balance at March 31, 2015 was $20.8 million compared to $2.6 million at December 31, 2014. The principal source of cash during the period was the sale of the ChemFree subsidiary which generated cash proceeds of $18.2 million on the closing of the transaction. In addition, a total of $3.3 million of the sale price was placed in escrow for purposes of securing our obligations to indemnify the buyer and to refund a portion of the purchase price if ChemFree’s actual working capital amount on the closing date is less than the agreed upon target working capital. As of March 31, 2015, $1.1 million of the escrow funds (less an estimated working capital adjustment of $200,000) is recorded as Restricted Cash - Current Portion and will be released in the second quarter of 2015. The remaining escrow balance of $2.2 million will remain in escrow until September 30, 2016 and is recorded as Restricted Cash – Noncurrent Portion as of March 31, 2015.

During the three months ended March 31, 2014, continuing operations used $447,000 cash for operations. In the current quarter, discontinued operations generated $415,000 from operating activities, in addition to the proceeds from the sale of ChemFree discussed above.

As explained in Note 13 to the Consolidated Financial Statements, on April 22, 2015, we initiated a modified “Dutch” auction tender offer to purchase for cash shares of our common stock for an aggregate purchase price of up to $5.0 million, which will be financed by a portion of the proceeds from the ChemFree sale. We expect to have sufficient liquidity from cash on hand as well as projected customer payments at CoreCard to support our operations and capital equipment purchases in the foreseeable future.

We renewed our line of credit in June 2014 with a maximum principal availability of $1.25 million based on qualified receivables; however, we have not borrowed under the bank line of credit in the past five years and do not expect to do so in the foreseeable future. The line of credit expires June 30, 2016, subject to the bank renewing the line for an additional period.

We expect to use cash in excess of what is required for our current CoreCard operations for opportunities we believe will expand our CoreCard and FinTech business, although there can be no assurance that appropriate opportunities will arise.

Off-Balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, liquidity or results of operations.

Page 13

Critical Accounting Policies and Estimates

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 intangibles, valuation of investments and accrued expenses to be critical policies due to the estimation processes involved in each. Management discusses its estimates and judgments with the Audit Committee of the Board of Directors. For a detailed description on the application of these and other accounting policies, see Note 1 to the Consolidated Financial Statements contained in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2014. Reference is also made to the discussion of the application of these critical accounting policies and estimates contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K/A for 2014. During the three month period ended March 31, 2015, there were no significant or material changes in the application of critical accounting policies that would require an update to the information provided in the Form 10-K/A for 2014.

Factors That May Affect Future Operations

Future operations 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 certainty. Any trend or delay that affects our CoreCard subsidiary could have a negative impact on our consolidated results of operations or cash requirements on a quarterly or annual basis. In addition, the carrying value of our investments is impacted by a number of factors which are generally beyond our control since we are typically a non-control shareholder in a private company with limited liquidity.

Among the numerous factors that may affect our consolidated results of operations or financial condition are the following:

●

As an alternative to licensing its software, CoreCard is now offering processing services running on the CoreCard software system. There are numerous risks associated with entering any new line of business and if CoreCard fails to manage the risks associated with its processing operations, it could have a negative impact on our business.

●	Stricter regulations and reluctance by financial institutions to act as sponsor banks for prospective customers (such as issuers and processors of credit and prepaid cards) could negatively impact the processing services business and increase CoreCard’s losses and cash requirements.

●	Delays in software development projects could cause our customers to delay implementations or delay payments, which would increase our costs and reduce our revenue.

●	Our CoreCard subsidiary could fail 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.

●

CoreCard’s processing business is impacted, directly or indirectly, by more regulations than its licensed software business. If the company fails to provide services that comply with (or allow its customers to comply with) applicable regulations or processing standards, it could be subject to financial or other penalties that could negatively impact its business.

●	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.

●

CoreCard 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.

●

Increasing and changing government regulations in the United States and foreign countries related to such issues as data privacy, financial and credit transactions could require changes to our products and services which would increase our costs and could affect our existing customer relationships or prevent us from getting new customers.

●	Delays in anticipated customer payments for any reason would increase our cash requirements and possibly our losses.

●	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).

●	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.

●	Our long-term future capital needs are uncertain and depend on a number of factors; additional capital may not be available on acceptable terms, if at all.

●	Other general economic and political conditions could cause customers to delay or cancel purchases.

Page 14

Item 4. Controls and Procedures

As of the end of the period covered by this report, the company carried out an evaluation, under the supervision and with the participation of the company’s management, including the company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the company’s disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company’s disclosure controls and procedures are effective. There were no significant changes in the company’s internal control over financial reporting or in other factors identified in connection with this evaluation that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

Part II. OTHER INFORMATION

Item 6. Exhibits

The following exhibits are filed or furnished with this report:

2.1

Purchase Agreement between CRC Industries, Inc. and Intelligent Systems Corporation dated March 31, 2015 (Incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K dated March 31, 2015)

3.1

Amended and Restated Articles of Incorporation of the Registrant dated May 4, 2011 (Incorporated by reference to Exhibit 3.(1) to the Registrant’s Form 10-Q for the period ended March 31, 2011)

3.2

Bylaws of the Registrant dated December 7, 2007. (Incorporated by reference to Exhibit 3.2 of the Registrant’s Form 8-K dated December 7, 2007.)

10.1

Thirteenth Modification to Loan Documents by and among Intelligent Systems Corporation and Fidelity Bank dated March 31, 2015, filed herewith.

10.2

Lease Agreement by and between Intelligent Systems Corporation and ISC Properties, LLC dated April 1, 2015, filed herewith.

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer and Chief Financial Officer furnished as required by Section 906 of the
Sarbanes-Oxley Act of 2002.

101.INS**

XBRL Instance

101.SCH**

XBRL Taxonomy Extension Schema

101.CAL**

XBRL Taxonomy Extension Calculation

101.DEF**

XBRL Taxonomy Extension Definitions

101.LAB**

XBRL Taxonomy Extension Labels

101.PRE**

XBRL Taxonomy Extension Presentation

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Page 15

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

	INTELLIGENT SYSTEMS CORPORATION
	Registrant

Date: May 15, 2015	By : /s/ J. Leland Strange
	J. Leland Strange
	Chief Executive Officer, President

Date: May 15, 2015	By : /s/ Bonnie L. Herron
	Bonnie L. Herron
	Chief Financial Officer

Page 16

Exhibit Index

Exhibit No.		Descriptions
2.1		Purchase Agreement between CRC Industries, Inc. and Intelligent Systems Corporation dated March 31, 2015 (Incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K dated March 31, 2015)

3 .1		Amended and Restated Articles of Incorporation of the Registrant dated May 4, 2011 (Incorporated by reference to Exhibit 3.(1) to the Registrant’s Form 10-Q for the period ended March 31, 2011)

3.2		Bylaws of the Registrant dated December 7, 2007. (Incorporated by reference to Exhibit 3.2 of the Registrant’s Form 8-K dated December 7, 2007.)

10.1		Thirteenth Modification to Loan Documents by and among Intelligent Systems Corporation and Fidelity Bank dated March 31, 2015, filed herewith.

10.2		Lease Agreement by and between Intelligent Systems Corporation and ISC Properties, LLC dated April 1, 2015, filed herewith

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer and Chief Financial Officer furnished as required by Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	**	XBRL Instance

101.SCH	**	XBRL Taxonomy Extension Schema

101.CAL	**	XBRL Taxonomy Extension Calculations

101.DEF	**	XBRL Taxonomy Extension Definitions

101.LAB	**	XBRL Taxonomy Extension Labels

101.PRE	**	XBRL Taxonomy Extension Presentation

Page 17

Exhibit 10.1

THIRTEENTH MODIFICATION TO LOAN DOCUMENTS

THIS T HIRTEENTH MODIFICATION TO LOAN DOCUMENTS (herein the “ Modification” ) is made and entered into as of this _31st___ day of March, 2015, by and among Intelligent Systems Corporation, a Georgia corporation (herein the “ Borrower” ), Corecard Software, Inc. , a Delaware corporation (“ Corecard ”), and Chemfree Corporation , a Georgia corporation (“ ChemFree ,” and together with Corecard collectively referred to herein as the “ Guarantors ”), and Fidelity Bank, a Georgia state chartered bank (f/k/a Fidelity National Bank) (herein the “ Lender” ).

RECITALS :

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

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

(a)

Security Agreement from Borrower in favor of Lender dated of even date with the Note (herein the “ Security Agreement” );

(b)

Loan Agreement by and between Borrower and Lender dated of even date with the Note (herein the “ Loan Agreement” );

(c)

Financing Statement filed in Gwinnett County, Georgia records, File no. 067-2003-010805 (herein the “ Borrower Financing Statement ”).

(d)

Negative Pledge Agreement by and between Borrower and Lender dated of even date with the Note (herein the “ Negative Pledge Agreement” );

(e)

Assignment of Policy as Collateral Security from Borrower in favor of Lender dated of even date with the Note (herein the “ Life Insurance Assignment” ); and

(f)

Subordination Agreements from Borrower and certain of the Guarantors in favor of Lender dated of even date with the Note (herein “ Subordination Agreements” ).

The Security Agreement, the Loan Agreement, the Borrower Financing Statement, the Negative Pledge Agreement, the Life Insurance Assignment and the Subordination Agreements are collectively referred to herein as the “ Loan Documents” .

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

WHEREAS, in order to secure their obligations under the terms of the Guaranties, each of the Guarantors executed in favor of Lender certain Security Agreements dated October 1, 2003 (herein the “ Guarantor Security Agreements ”), which Guarantor Security Agreements are further evidenced by a Financing Statement filed in Gwinnett County, Georgia Records File No. 067-2003-010805 and that certain Financing Statement filed with the Delaware Department of State under Filing No. 20032749870 (herein collectively the “ Guarantor Financing Statements ”) (the Guaranties, the Guarantor Security Agreements and the Guarantor Financing Statements are herein collectively referred to as the “ Guaranty Documents ”).

WHEREAS, Lender, Borrower and the Guarantors entered into that certain First Modification of Loan Documents dated as of September 1, 2004 for the purpose of extending the Maturity Date of the Loan on the Note from September 1, 2004 to September 1, 2005 (all references to the Loan, Note, Loan Documents and Guaranty shall be as amended by the aforesaid First Modification of Loan Documents).

WHEREAS, Lender, Borrower and the Guarantors entered into that certain Second Modification of Loan Documents dated as of September 1, 2005 for the purpose of extending the Maturity Date of the Loan on the Note from September 1, 2005 to September 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).

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 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).

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 1, 2006 to December 1, 2006, and Borrower, Guarantors and Lender entered into that certain Fourth Modification of Loan Documents dated on or about August 9, 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).

WHEREAS, Lender, Borrower and the Guarantors entered into that certain Fifth Modification of Loan Documents dated as of December 1, 2006 for the purpose of extending the Maturity Date of the Loan on the Note from December 1, 2006 to December 1, 2007 (all references to the Loan, Note, Loan Documents and Guaranty shall be as amended by the aforesaid Fifth Modification of Loan Documents).

WHEREAS, Lender, Borrower and the Guarantors entered into that certain Sixth Modification of Loan Documents dated as of December 1, 2007 for the purpose of extending the Maturity Date of the Loan on the Note from December 1, 2007 to December 1, 2008 (all references to the Loan, Note, Loan Documents and Guaranty shall be as amended by the aforesaid Sixth Modification of Loan Documents).

WHEREAS, Lender filed (i) a continuation statement in the UCC Records of Gwinnett County, Georgia under File No. 067-2008-003877 on April 15, 2008, which continuation statement continued in full force and effect both the Borrower Financing Statement and the Guarantor Financing Statement of record naming Borrower, QS Technologies, Inc. and Chemfree Corporation as debtors, and (ii) a continuation statement in the UCC Records of the Secretary of State of Delaware under File No. 20081731866 on May 20, 2008, which continuation statement continued in full force and effect both the Guarantor Financing Statement of record Visaer, Inc. and Corecard Software, Inc. as debtors.

WHEREAS, Lender, Borrower and the Guarantors entered into that certain Seventh Modification of Loan Documents dated as of December 1, 2008 for the purpose of extending the Maturity Date of the Loan on the Note from December 1, 2008 to June 30, 2009 (all references to the Loan, Note, Loan Documents and Guaranty shall be as amended by the aforesaid Seventh Modification of Loan Documents).

WHEREAS, Lender, Borrower and the Guarantors entered into that certain Eighth Modification of Loan Documents dated as of June 26, 2009 for the purpose of extending the Maturity Date of the Loan on the Note from June 30, 2009 to June 30, 2010 and to provide for certain other modifications with respect to the Loan (all references to the Loan, Note, Loan Documents and Guaranty shall be as amended by the aforesaid Eighth Modification of Loan Documents).

WHEREAS, Lender, Borrower and the Guarantors entered into that certain Ninth Modification of Loan Documents dated as of June 28, 2010 for the purpose of extending the Maturity Date of the Loan on the Note from June 30, 2010 to June 30, 2011 and to provide for certain other modifications with respect to the Loan (all references to the Loan, Note, Loan Documents and Guaranty shall be as amended by the aforesaid Ninth Modification of Loan Documents).

WHEREAS, Lender, Borrower and the Guarantors entered into that certain Tenth Modification of Loan Documents dated as of June 30, 2011 for the purpose of extending the Maturity Date of the Loan on the Note from June 30, 2011 to June 30, 2012 and to provide for certain other modifications with respect to the Loan (all references to the Loan, Note, Loan Documents and Guaranty shall be as amended by the aforesaid Ninth Modification of Loan Documents).

WHEREAS, Lender, Borrower and the Guarantors entered into that certain Eleventh Modification of Loan Documents dated as of June 29, 2012 for the purpose of extending the Maturity Date of the Loan on the Note from June 30, 2012 to June 30, 2014 and to provide for certain other modifications with respect to the Loan (all references to the Loan, Note, Loan Documents and Guaranty shall be as amended by the aforesaid Eleventh Modification of Loan Documents).

WHEREAS, Lender filed a continuation statement in the UCC Records of Gwinnett County, Georgia under File No. 067-2013-002407 on April 11, 2013, which continuation statement continued in full force and effect the Borrower Financing Statement of record naming Borrower as debtor.

WHEREAS, Lender, Borrower and the Guarantors entered into that certain Twelfth Modification of Loan Documents dated as of June 27, 2014 for the purpose of extending the Maturity Date of the Loan on the Note from June 30, 2014 to June 30, 2016 and to provide for certain other modifications with respect to the Loan (all references to the Loan, Note, Loan Documents and Guaranty shall be as amended by the aforesaid Twelfth Modification of Loan Documents).

WHEREAS, Borrower and CRC Industries, Inc., a Pennsylvania corporation (“ CRC ”), intend to enter into a Stock Purchase Agreement on or about March 31, 2015 whereby Borrower will sell all of the issued and outstanding stock of ChemFree to CRC (the “ ChemFree Sale ”).

WHEREAS, it is a condition to closing of the ChemFree Sale that the Lender release ChemFree from all liability in connection with the Loan, the Loan Documents and the Guaranty Documents.

WHEREAS, Borrower has requested and Lender has agreed so to release ChemFree from all liability in connection with the Loan, the Loan Documents and the Guaranty Documents, and Borrower, Guarantors and Lender desire to enter into this Modification in order to provide for such release and to modify and ratify certain terms and provisions of the Note, the Loan Documents and the Guaranty Documents as more particularly set forth herein.

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

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

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

3. Release of ChemFree . Effective upon the consummation of the ChemFree Sale, the Lender, on behalf of itself, and its parent, subsidiaries and affiliates (collectively the “ Lender Parties ”), hereby fully and forever releases, acquits, discharges, disclaims, renounces, and covenants not to sue for, any and all claims, including any liens, demands, damages, or causes of action of whatever nature, in law or in equity, statutory, common law or otherwise (all of the foregoing collectively “ Claims ”), that the Lender and/or any of the Lender Parties had, has or could have had, that are related to or based in whole or in part on any liability or any other obligation, known and realized or unknown and not realized, against ChemFree, that are related to or based in whole or in part on the Loan (as heretofore increased, decreased and/or otherwise modified from time to time), the Loan Documents (as heretofore modified from time to time), the Guaranty Documents (as heretofore modified from time to time) or otherwise.

4. Modifications to Loan Agreement . Effective upon the execution of this Amendment, the assets of ChemFree shall hereinafter not be used or applicable towards the calculation of the Borrower Base under the terms of the Loan Agreement.

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

6. No Defenses . Borrower and Corecard 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 Corecard.

7. Ratification . Except for the release of ChemFree provided herein and 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 Corecard and shall remain in full force and effect. The Borrower and Corecard hereby specifically acknowledge and consent to the release of ChemFree as herein provided.

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

9. Further Assurances . The Lender agrees to cooperate fully with Borrower and ChemFree and to execute any and all supplemental documents and to take all additional reasonable actions that may be necessary and appropriate to give full force and effect to the release of ChemFree provided in this Modification.

10. Authority . Each of the Lender, Borrower and Guarantors represents and warrants for itself that it has the authority to enter into this Modification and to bind all parties that may claim through it.

11. No Assignment by Lender . The Lender represents and warrants that it has not assigned the Loan, any of the Loan Documents, any of the Guaranty Documents, or any Claim.

12. Governing Law . This Modification shall be governed by and interpreted according to the substantive laws of the State of Georgia.

13. Modification of Guarantor Financing Statement . The Lender, as secured party of record under the Guarantor Financing Statement filed in Gwinnett County, Georgia, authorizes Borrower to file or cause to be filed a UCC Financing Statement Amendment substantially in the form attached hereto as Exhibit A, in order to delete ChemFree as a debtor under the Guarantor Financing Statement filed in Gwinnett County, Georgia, and to file any other financing statement amendments or other documents that may be necessary to effect the release of ChemFree from all obligations to the Lender as provided herein.

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

(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

(SIGNATURE PAGE TO THIRTEENTH MODIFICATION TO LOAN DOCUMENTS TO FOLLOW)

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

	BORROWER : INTELLIGENT SYSTEMS CORPORATION, a Georgia corporation

	By:	/s/ J. Leland Strange
	Title:	President
	Attest:	/s/ Bonnie L. Herron
	Title:	CFO

	[CORPORATE SEAL]

	GUARANTORS: CORECARD SOFTWARE, INC., a Delaware corporation

	By:	/s/ J. Leland Strange
	Title:	President
	Attest:	/s/ Bonnie L. Herron
	Title:	CFO

	[CORPORATE SEAL]

	CHEMFREE CORPORATION , a Georgia corporation

	By:	/s/ Francis A. Marks
	Title:	President
	Attest:	/s/ Bonnie L. Herron
	Title:	CFO

	[CORPORATE SEAL]

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


	By:	/s/ Raymond Zavacki
	Title:	Vice President

	(BANK SEAL)

Exhibit 10.2

LEASE AGREEMENT

PARTIES

This Lease Agreement, made this 1 ^st day of April 1, 2015, by and between ISC PROPERTIES, LLC, hereinafter referred to as “Landlord”; and INTELLIGENT SYSTEMS CORPORATION hereinafter referred to as “Tenant”;

WITNESSETH:

1.01 Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the property hereinafter referred to as the LEASED PREMISES, described as: 14,059 sq. ft. of office and warehouse that is shown on Exhibit A and that is located at 4355 Shackleford Road, Norcross, Georgia 30093, Gwinnett County, Georgia.

TERM

2.01 TO HAVE AND TO HOLD said Leased Premises for a term of thirty (36) months, commencing on April 1, 2015 upon the following terms, conditions, and covenants:

RENTAL

3.01 As rental for the Leased Premises, Tenant agrees to pay to Landlord, the sum of ONE HUNDRED THIRTY SEVEN THOUSAND NINE HUNDRED FOUR DOLLARS AND NO/100 DOLLARS ($137,904.00) per year, payable in monthly installments each in the amount of $11,492.00, on or before the first day of each calendar month together with any other additional rental as hereinafter set forth through March 31, 2018 (which amount may be amended by mutual consent from time to time to incorporate changes in the space leased, square footage or other factors). The amount set forth above includes payment by Tenant to Landlord for services listed on Exhibit A. If the lease shall commence on any date other than the first day of a calendar month, or end on any date, other than the last day of a calendar month, rent for such month shall be prorated.

USE OF PREMISES

4.01 The Leased Premises may be used and occupied only for offices and warehouse storage and for no other purpose or purposes, without Landlord’s prior written consent. Tenant shall promptly comply at its sole expense with all laws, ordinances, orders, and regulations affecting the Leased Premises and their cleanliness, safety, occupation and use. Tenant shall not do or permit anything to be done in or about the Leased Premises, or bring or keep anything in the Leased Premises that will in any way increase the fire insurance upon the Building. Tenant will not perform any act or carry on any practices that may injure the Building or be a nuisance or menace to tenants of adjoining premises. Tenant shall not cause, maintain or permit any outside storage on or about the Leased Premises, including pallets or other refuse. The rear loading areas of the Tenant’s unit must be clean and unobstructed.

UTILITIES

5.01 Landlord shall not be liable in the event of any interruption in the supply of any utilities. Tenant agrees that it will not install any equipment which will exceed or overload the capacity of any utility facilities and that if any equipment installed by Tenant shall require additional utility facilities, the same shall be installed by Tenant at Tenant’s expense in accordance with plans and specifications approved in writing by Landlord. Landlord shall pay for ordinary and reasonable use of internet, electricity, gas.

ACCEPTANCE OF PREMISES

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

ALTERATIONS, MECHANICS’ LIENS

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

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

7.03 Tenant shall install equipment, and personal property as may be necessary and convenient for its operation. Such furniture, equipment, and personal property may be removed at any time during Tenant’s tenancy or within a reasonable time thereafter, and shall not be considered part of the Leased Premises. Removal of the same shall not damage or deface the Leased Premises, and if the Leased Premises shall be so damaged, Tenant shall repair such damage at its own expense.

7.04 Tenant shall return the Leased Premises on the termination of this Lease in the same condition as when rented to Tenant, reasonable wear and tear only excepted. Tenant shall keep the Leased Premises, the Building and property in which the Leased Premises are situated free from any liens arising out of any work performed for, materials furnished to, or obligations incurred by Tenant. All such work, provided for above, shall be done at such times and in such manner as Landlord may from time to time designate. Tenant shall give Landlord written notice five (5) days prior to employing any laborer or contractor to perform work resulting in an alteration of the Leased Premises so that Landlord may post a notice of non-responsibility.

WASTE AND QUIET CONDUCT

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

FIRE INSURANCE, HAZARDS

9.01 No use shall be made or permitted to be made of the Leased Premises, nor acts done which might increase the existing rate of insurance upon the Building or cause the cancellation of any insurance policy covering the Building, or any part thereof, nor shall Tenant sell, or permit to be kept, used or sold, in or about the Leased Premises, any article which may be prohibited by the Standard form of fire insurance policies. Tenant shall, at its sole cost and expense, comply with any and all requirement pertaining to the Leased Premises, of any insurance organization or company, necessary for the maintenance of reasonable fire and public liability insurance, covering the Leased Premises, Building and appurtenances. Tenant agrees to pay to Landlord as additional rent, any increase in premiums on policies which may be carried and loss of rent caused by fire and the perils normally included in extended coverage above the rates presently being paid by the Landlord as of the date hereof.

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

LIABILITY INSURANCE

10.01 Tenant, at its own expense, shall provide and keep in force with companies acceptable to Landlord public liability insurance for the benefit of Landlord and Tenant jointly against liability for bodily injury and property damage in the amount of not less than One Million Dollars ($1,000,000.00) in respect to injuries to or death of more than one person in any one occurrence, in the amount of not less than Five Hundred Thousand Dollars ($500,000.00) in respect to injuries to or death of any one person, and in the amount of not less than One Hundred Thousand Dollars ($100,000.00) per occurrence in respect to damage to property, such limits to be for any greater amounts as may be reasonably indicated by circumstances from time to time existing. Tenant shall furnish Landlord with a certificate of such policy (which certificate shall contain the insurer’s waiver of subrogation rights exercisable against the Landlord) within thirty (30) days of the commencement date of this Lease and whenever required shall satisfy Landlord that such policy is in full force and effect. Such policy shall name Landlord as an additional insured and shall be primary and non-contributing with any insurance carried by Landlord. The policy shall further provide that it shall not be cancelled or altered without twenty (20) days prior written notice to Landlord. Tenant acknowledges that Landlord will not carry any insurance on any of Tenant’s property, possessions, inventory, business, employees, agents or visitors.

INDEMNIFICATION BY TENANT

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

of Tenant under this section arising by reason of any occurrence taking place during the term of this Lease shall survive any termination of this Lease.

WAIVER OF CLAIMS

12.01 Tenant, as a material part of the consideration to be rendered to Landlord, hereby waives all claims against Landlord for damages to goods, wares and merchandise in, upon or about the Leased Premises and for injury to Tenant, its agents, employees, invitees, or third persons in or about the Leased Premises from any cause arising at any time, other than the negligence of Landlord, its agents and employees.

REPAIRS

13.01 Landlord shall, at Landlord’s expense, keep and maintain in good repair and working order and promptly make repairs to and perform maintenance upon and replace as needed: 1) the structural elements of the Leased Premises, including without limitation, all permanent exterior and interior walls, floors and ceilings, roof, concealed plumbing, stairways, concealed electrical systems and telephone cable and pest control service; 2) mechanical (including HVAC), electrical, plumbing and fire/life safety systems serving the Leased Premises; 3) the Common Areas; 4) exterior windows of the Leased Premises, reasonable wear and tear excepted.

13.02 Excluding normal wear and tear, Tenant shall, at Tenant’s sole expense be responsible for the cost of repairing any area damaged by Tenant’s agents, employees, invitees and visitors that is installed by or for the exclusive benefit of Tenant. All repairs and replacements shall; a) be made and performed by contractors or mechanics approved by Landlord, which consent shall not be unreasonably withheld or delayed and b) be at least equal in quality, value and utility to the original work installation.

13.03 Tenant shall promptly report in writing to Landlord any defective condition known to it which Landlord is required to repair, and Landlord shall move with reasonable diligence to repair such item. Failure to report such defects shall make Tenant responsible to Landlord for any liability incurred by Landlord by reason of such defects.

SIGNS, LANDSCAPING

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

ENTRY BY LANDLORD

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

TAXES AND INSURANCE INCREASE

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

ABANDONMENT

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

DESTRUCTION

18.01 In the event of (a) a partial destruction of the Leased Premises or the Building during the Lease term which requires repairs to either the Leased Premises or the Building, or (b) the Leased Premises or the Building being declared unsafe or unfit for occupancy by any authorized public authority for any reason other than Tenant’s act, use or occupation which declaration requires repairs to either the Leased Premises or the Building, Landlord shall forthwith make repairs, provided repairs can be made within sixty (60) days under the laws and regulations of authorized public authorities, but partial destruction (including any destruction necessary in order to make repairs required by any declaration) shall in no way annul or void this Lease, except that Tenant shall be entitled to a proportionate reduction of rent while such repairs are being made. The proportionate reduction is to be based upon the extent to which the making of repairs shall interfere with the business carried on by Tenant in the Leased Premises. In making repairs Landlord shall be obligated to replace only such glazing as shall have been damaged by fire and other damaged glazing shall be replaced by Tenant. If repairs cannot be made within sixty (60) days, Landlord may, at its option, make same within a reasonable time, this Lease continuing in full force and effect and the rent to be proportionately abated, as in this paragraph provided. In the event that Landlord does not so elect to make repairs which cannot be made within sixty (60) days, or repairs cannot be made under current laws and regulations, this Lease may be terminated at the option of either party. A total destruction (including any destruction required by any authorized public authority) of either the Leased Premises or the Building shall terminate this Lease. In the event of any dispute between Landlord and Tenant relative to the provisions of this paragraph, they may each select an arbitrator, the two arbitrators so selected shall select a third arbitrator and the three arbitrators so selected shall hear and determine the controversy and their decision thereon shall be final and binding on both Landlord and Tenant who shall bear the cost of such arbitration equally between them. Landlord shall not be required to repair any property installed in the Leased Premises by Tenant. Tenant waives any right under applicable laws inconsistent with the terms of this paragraph and in the event of destruction agrees to accept any offer by Landlord to provide tenant with comparable space within the project in which the Premises are located on the same terms as this Lease.

ASSIGNMENT AND SUBLETTING

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

INSOLVENCY OF TENANT

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

BREACH BY TENANT

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

21.02 No such reletting of the Leased Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach provided it has not been cured. Should Landlord at any time terminate this Lease for any breach, in addition to any other remedy it may have, it may recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the Leased Premises, and including (1) all amounts that would have fallen due as rent between the time of termination of this Lease and the time of judgment, or other award, less the avails of all relettings and attornments, plus interest on the balance at the rate of eight percent (8%) per year; and (2) the worth at the time of the judgment or other award, of the amount by which the unpaid rent for the balance of the term exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; (3) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform his obligations under this Lease or which in the ordinary course of events would likely to result therefrom. “Worth” as used in this provision, is computed by discounting the total at the discount rate of the Federal Reserve Bank of Atlanta at the time of the judgment, or award, plus one percent (1%).

ATTORNEYS’ FEES/COLLECTION CHARGES

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

CONDEMNATION

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

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

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

NOTICES

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

(a) To Tenant at the Leased Premises;

(b) To Landlord, addressed to Landlord at 4355 Shackleford Road, Norcross, Georgia 30093, with a copy to such other place as Landlord may from time to time designate by notice to Tenant.

WAIVER

25.01 The waiver by Landlord of any breach of any term, covenant, or condition herein contained shall not be deemed to be a waiver of such term, covenant, or condition or any subsequent breach of the same or any other term, covenant, or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant, or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such rent.

EFFECT OF HOLDING OVER

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

SUBORDINATION

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

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

ESTOPPEL CERTIFICATE

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

PARKING

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

MORTGAGE PROTECTION

30.01 In the event of any default on the part of Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed or trust or mortgagee of a mortgage covering the Premises whose address shall have been furnished it, and shall offer such beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure.

MISCELLANEOUS PROVISIONS

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

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

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

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

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

F. Subject to paragraph 19, the terms and provisions of this Lease shall be binding upon and inure to the benefit of the heirs, executors, administrators, successors, and assigns of Landlord and Tenant.

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

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

I. This lease shall create the relationship of Lessor and Lessee between Landlord and Tenant; no estate shall pass out of Landlord; Tenant has only a usufruct, not subject to levy and/or sale and not assignable by Tenant except as provided in paragraph 19.01 hereof.

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

K. This lease shall be governed by Georgia law.

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

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

N. Tenant shall have the option, provided this Lease is then of full force and effect, and Tenant is not then in default hereunder, to renew this Lease for one additional thirty (36) month term. Such renewal shall be on the same terms and conditions herein set forth and pertaining to the original term, except that the monthly installment applicable to the option term shall be the original monthly installment increased by an annual cost of living adjustment for each year of the original term. Such renewal option may be exercised only by Tenant giving Landlord written notice not less than one hundred twenty (120) days prior to the expiration of the original term. The cost of living adjustment shall be determined based on the Consumer Price Index as published in the Wall Street Journal for each 12 month period during the original term.

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

	Signed, sealed and delivered			ISC PROPERTIES, LLC
	as to LANDLORD, in the
	presence of:
				/s/ J. Leland Strange
				BY: J. Leland Strange
				Managing Director
	/s/ Rebecca Cox
	Notary Public


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

	/s/ Bonnie L. Herron
	BY:	Bonnie L. Herron
		CFO

ATTEST:

/s/ Rebecca Cox

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, J. Leland Strange, certify that:

1.	I have reviewed this report on Form 10-Q of Intelligent Systems Corporation;

2.	Based on my knowledge, this 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 report;

3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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 report is being prepared;

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;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2015

	/s/ J. Leland Strange
	J. Leland Strange
	Chief Executive Officer and President

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Bonnie L. Herron, certify that:

I have reviewed this report on Form 10-Q of Intelligent Systems Corporation;

Based on my knowledge, this 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 report;

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2015

	/s/ Bonnie L. Herron
	Bonnie L. Herron
	Chief Financial Officer

Exhibit 32.1

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the SARBANES-OXLEY ACT OF 2002

Each of the undersigned officers of Intelligent Systems Corporation (the “Company”) hereby certifies to his or her knowledge that the Company’s report on Form 10-Q for the period ended March 31, 2015 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 15, 2015	/s/ J. Leland Strange
	J. Leland Strange
	Chief Executive Officer


	/s/ Bonnie L. Herron
	Bonnie L. Herron
	Chief Financial Officer

A signed original of this written statement required by Section 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.