United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q10-Q
(Mark(Mark One)
☑ | Quarterly Report UNDER |
For the quarterly period ended September 30, 20172018
OR
☐ | Transition |
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’sRegistrant’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,filer, an accelerated filer, a non-accelerated filer or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,”company” and “emerging growth 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 | ☑ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use to the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of October 31, 2017, 8,777,9882018, 8,817,988 shares of Common Stock of the issuer were outstanding.
Intelligent Systems Corporation
Index
Form 10-Q10-Q
Page
Page | ||
Part I | Financial Information | |
Item 1 | Financial Statements | |
| Consolidated Balance Sheets at September 30, | 3 |
| Consolidated Statements of Operations for the three and nine months ended September 30, | 4 |
| Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, | 4 |
| Consolidated Statements of Cash Flows for the nine months ended September 30, | 5 |
| Notes to Consolidated Financial Statements | 6 |
Item 2 |
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Item 4 | Controls and Procedures |
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Part II | Other Information | |
Item 6 | Exhibits |
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Signatures | ||
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Part I Financial Information
Item 1. Financial Statements
Intelligent Systems Corporation
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
As of | September 30, 2017 | December 31, 2016 | September 30, 2018 | December 31, 2017 | ||||||||||||
(unaudited) | (audited) | (unaudited) | (audited) | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash | $ | 16,458 | $ | 17,724 | $ | 17,350 | $ | 14,024 | ||||||||
Marketable securities | 442 | 418 | 410 | 438 | ||||||||||||
Accounts receivable, net | 1,733 | 1,329 | 3,019 | 1,208 | ||||||||||||
Notes and interest receivable, current portion | 1 | -- | 580 | 16 | ||||||||||||
Other current assets | 994 | 1,160 | 1,124 | 2,373 | ||||||||||||
Total current assets | 19,628 | 20,631 | 22,483 | 18,059 | ||||||||||||
Investments | 1,034 | 1,272 | 760 | 1,035 | ||||||||||||
Notes and interest receivable, net of current portion | 750 | -- | 1,742 | 1,250 | ||||||||||||
Property and equipment, at cost less accumulated depreciation | 894 | 700 | 1,496 | 1,262 | ||||||||||||
Other long-term assets | 159 | 101 | 246 | 173 | ||||||||||||
Total assets | $ | 22,465 | $ | 22,704 | $ | 26,727 | $ | 21,779 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 192 | $ | 301 | $ | 269 | $ | 321 | ||||||||
Deferred revenue, current portion | 1,137 | 1,474 | 923 | 853 | ||||||||||||
Accrued payroll | 592 | 515 | 1,319 | 595 | ||||||||||||
Accrued expenses | 99 | 43 | 71 | 98 | ||||||||||||
Other current liabilities | 289 | 1,338 | 749 | 408 | ||||||||||||
Total current liabilities | 2,309 | 3,671 | 3,331 | 2,275 | ||||||||||||
Deferred revenue, net of current portion | 33 | 85 | 67 | 51 | ||||||||||||
Other long-term liabilities | 18 | 18 | ||||||||||||||
Intelligent Systems Corporation stockholders’ equity: | ||||||||||||||||
Common stock, $0.01 par value, 20,000,000 shares authorized, 8,777,988 and 8,743,299 issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 88 | 87 | ||||||||||||||
Intelligent Systems Corporation stockholders’ equity: | ||||||||||||||||
Common stock, $0.01 par value, 20,000,000 shares authorized, 8,797,988 and 8,777,988 issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 88 | 88 | ||||||||||||||
Additional paid-in capital | 14,864 | 17,864 | 14,955 | 14,877 | ||||||||||||
Accumulated other comprehensive loss | (128 | ) | (163 | ) | (162 | ) | (143 | ) | ||||||||
Accumulated income | 5,281 | 4,158 | 8,448 | 4,631 | ||||||||||||
Total Intelligent Systems Corporation stockholders’ equity | 20,105 | 21,946 | ||||||||||||||
Noncontrolling interest | -- | (3,016 | ) | |||||||||||||
Total stockholders’ equity | 20,105 | 18,930 | ||||||||||||||
Total Intelligent Systems Corporation stockholders’ equity | 23,329 | 19,453 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 22,465 | $ | 22,704 | $ | 26,727 | $ | 21,779 |
The accompanying notes are an integral part of these consolidated financial statements.
Intelligent Systems Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue | ||||||||||||||||
Services | $ | 5,286 | $ | 1,851 | $ | 13,757 | $ | 6,543 | ||||||||
Products | 129 | − | 289 | 90 | ||||||||||||
Total net revenue | 5,415 | 1,851 | 14,046 | 6,633 | ||||||||||||
Cost of revenue | ||||||||||||||||
Services | 2,323 | 808 | 5,972 | 2,950 | ||||||||||||
Products | − | − | 136 | 87 | ||||||||||||
Total cost of revenue | 2,323 | 808 | 6,108 | 3,037 | ||||||||||||
Expenses | ||||||||||||||||
Marketing | 85 | 64 | 240 | 212 | ||||||||||||
General and administrative | 466 | 343 | 1,357 | 1,221 | ||||||||||||
Research and development | 805 | 1,132 | 2,467 | 2,961 | ||||||||||||
Income (loss) from operations | 1,736 | (496 | ) | 3,874 | (798 | ) | ||||||||||
Other income | 245 | 1,868 | 128 | 1,842 | ||||||||||||
Income before Income taxes | 1,981 | 1,372 | 4,002 | 1,044 | ||||||||||||
Income taxes | 115 | − | 185 | 20 | ||||||||||||
Net income | $ | 1,866 | $ | 1,372 | $ | 3,817 | $ | 1,024 | ||||||||
Earnings per share attributable to Intelligent Systems Corporation: | ||||||||||||||||
Basic | $ | 0.21 | $ | 0.16 | $ | 0.43 | $ | 0.12 | ||||||||
Diluted | $ | 0.21 | $ | 0.15 | $ | 0.43 | $ | 0.12 | ||||||||
Basic weighted average common shares outstanding | 8,797,988 | 8,777,988 | 8,789,099 | 8,762,571 | ||||||||||||
Diluted weighted average common shares outstanding | 8,976,415 | 8,894,864 | 8,943,652 | 8,883,241 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited, in thousands) |
Three Months Ended | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income | $ | 1,866 | $ | 1,372 | $ | 3,817 | $ | 1,024 | ||||||||
Other comprehensive income: | ||||||||||||||||
Foreign currency translation adjustments | (11 | ) | − | 4 | (14 | ) | ||||||||||
Unrealized gain on available-for-sale marketable securities | (11 | ) | 6 | (23 | ) | 27 | ||||||||||
Total comprehensive income | $ | 1,844 | $ | 1,378 | $ | 3,798 | $ | 1,037 |
The accompanying notes are an integral part of these consolidated financial statements.
Intelligent Systems Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine Months Ended Sept. 30, | ||||||||
CASH PROVIDED BY (USED FOR): | 2018 | 2017 | ||||||
OPERATING ACTIVITIES: | ||||||||
Net income | $ | 3,817 | $ | 1,024 | ||||
Adjustments to reconcile net income from continuing operations to net cash used for operating activities: | ||||||||
Depreciation and amortization | 429 | 238 | ||||||
Stock-based compensation expense | 44 | 39 | ||||||
Gain on sale of long-term investment | − | (1,838 | ) | |||||
Non-cash investment expense | 255 | 93 | ||||||
Non-cash interest income | (37 | ) | − | |||||
Equity in loss of affiliate company | 25 | 50 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (1,811 | ) | (404 | ) | ||||
Other current assets | 1,249 | 142 | ||||||
Interest receivable | 16 | − | ||||||
Other long-term assets | (73 | ) | (58 | ) | ||||
Accounts payable | (52 | ) | (109 | ) | ||||
Accrued payroll | 724 | 77 | ||||||
Deferred revenue, current portion | 70 | (214 | ) | |||||
Accrued expenses | (27 | ) | 56 | |||||
Other current liabilities | 341 | (49 | ) | |||||
Deferred revenue, net of current portion | 16 | (52 | ) | |||||
Net cash provided by (used for) operating activities | 4,986 | (1,005 | ) | |||||
INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (663 | ) | (432 | ) | ||||
Advances of notes receivable | (1,035 | ) | (751 | ) | ||||
Proceeds from sale of long-term investment | − | 1,936 | ||||||
Purchase of long-term investment | − | (1,000 | ) | |||||
Net cash used for investing activities | (1,698 | ) | (247 | ) | ||||
FINANCING ACTIVITIES: | ||||||||
Sale of capital stock pursuant to exercise of option | 34 | − | ||||||
Net cash provided by financing activities | 34 | − | ||||||
Effects of exchange rate changes on cash | 4 | (14 | ) | |||||
Net increase (decrease) in cash | 3,326 | (1,266 | ) | |||||
Cash at beginning of period | 14,024 | 17,724 | ||||||
Cash at end of period | $ | 17,350 | $ | 16,458 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for income taxes | $ | − | $ | 20 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
Intelligent Systems Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share amounts)
Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | ||||||||||||||||
Products | $ | 179 | $ | 518 | $ | 683 | $ | 896 | ||||||||
Services | 1,689 | 2,131 | 6,073 | 4,948 | ||||||||||||
Total net revenue | 1,868 | 2,649 | 6,756 | 5,844 | ||||||||||||
Cost of revenue | ||||||||||||||||
Products | 55 | 449 | 258 | 571 | ||||||||||||
Services | 757 | 976 | 2,803 | 2,342 | ||||||||||||
Total cost of revenue | 812 | 1,425 | 3,061 | 2,913 | ||||||||||||
Expenses | ||||||||||||||||
Marketing | 64 | 80 | 212 | 274 | ||||||||||||
General and administrative | 343 | 376 | 1,221 | 1,315 | ||||||||||||
Research and development | 1,132 | 637 | 2,961 | 1,893 | ||||||||||||
Income (loss) from operations | (483 | ) | 131 | (699 | ) | (551 | ) | |||||||||
Other income (loss) | 1,868 | 37 | 1,842 | (606 | ) | |||||||||||
Income (loss) before Income taxes | 1,385 | 168 | 1,143 | (1,157 | ) | |||||||||||
Income taxes | -- | -- | 20 | (3 | ) | |||||||||||
Net income (loss) | 1,385 | 168 | 1,123 | (1,154 | ) | |||||||||||
Net (income) loss attributable to noncontrolling interest | -- | (45 | ) | -- | 122 | |||||||||||
Net income (loss) attributable to Intelligent Systems Corporation | $ | 1,385 | $ | 123 | $ | 1,123 | $ | (1,032 | ) | |||||||
Earnings (loss) per share attributable to Intelligent Systems Corporation: | ||||||||||||||||
Basic | $ | 0.16 | $ | 0.01 | $ | 0.13 | $ | (0.12 | ) | |||||||
Diluted | $ | 0.16 | $ | 0.01 | $ | 0.13 | $ | (0.12 | ) | |||||||
Basic weighted average common shares outstanding | 8,777,988 | 8,731,299 | 8,762,571 | 8,731,299 | ||||||||||||
Diluted weighted average common shares outstanding | 8,894,864 | 8,868,692 | 8,883,241 | 8,731,299 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)(unaudited)
Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income (loss) | $ | 1,385 | $ | 168 | $ | 1,123 | $ | (1,154 | ) | |||||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustments | -- | (7 | ) | (14 | ) | (6 | ) | |||||||||
Unrealized gain on available-for-sale marketable securities | 6 | 13 | 27 | 35 | ||||||||||||
Total comprehensive income (loss) | 1,391 | $ | 174 | 1,136 | (1,125 | ) | ||||||||||
Comprehensive loss attributable to noncontrolling interest | -- | (45 | ) | -- | 122 | |||||||||||
Comprehensive income (loss) attributable to Intelligent Systems Corporation | $ | 1,391 | $ | 129 | $ | 1,136 | $ | (1,003 | ) |
The accompanying notes are an integral part of these Consolidated Financial Statements.
Intelligent Systems Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine Months Ended September 30, | ||||||||
CASH PROVIDED BY (USED FOR): | 2017 | 2016 | ||||||
OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | 1,123 | $ | (1,154 | ) | |||
Adjustments to reconcile net loss from continuing operations to net cash used for operating activities: | ||||||||
Depreciation and amortization | 238 | 198 | ||||||
Stock-based compensation expense | 39 | 17 | ||||||
Gain on sale of long-term investment | (1,838 | ) | -- | |||||
Non-cash investment expense | 93 | 750 | ||||||
Equity in loss of affiliate company | 50 | 32 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (404 | ) | 110 | |||||
Other current assets | 166 | (465 | ) | |||||
Other long-term assets | (58 | ) | (40 | ) | ||||
Accounts payable | (109 | ) | 144 | |||||
Accrued payroll | 77 | 83 | ||||||
Deferred revenue, current portion | (337 | ) | (384 | ) | ||||
Accrued expenses | 56 | 6 | ||||||
Other current liabilities | (49 | ) | 45 | |||||
Deferred revenue, net of current portion | (52 | ) | (106 | ) | ||||
Net cash used for operating activities | (1,005 | ) | (764 | ) | ||||
INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (432 | ) | (172 | ) | ||||
Advances of note and interest receivable | (751 | ) | -- | |||||
Proceeds from sale of long-term investment | 1,936 | 2,248 | ||||||
Purchase of long-term investment | (1,000 | ) | -- | |||||
Net cash provided by (used for) investing activities | (247 | ) | 2,076 | |||||
FINANCING Activities: | ||||||||
Distribution of dividend to stockholders | -- | (3,056 | ) | |||||
Sale of capital stock pursuant to exercise of option | -- | 14 | ||||||
Net cash used for financing activities | -- | (3,042 | ) | |||||
Net cash used for operating activities of discontinued operations | -- | (120 | ) | |||||
Effects of exchange rate changes on cash | (14 | ) | (6 | ) | ||||
Net decrease in cash | (1,266 | ) | (1,856 | ) | ||||
Cash at beginning of period | 17,724 | 18,059 | ||||||
Cash at end of period | $ | 16,458 | $ | 16,203 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for income taxes | $ | 20 | $ | 120 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
Intelligent Systems Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. | Basis of Presentation–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 |
There have been no material changes in the Company’s significant accounting policies, other than the adoption of accounting pronouncement ASU 2014-09, Revenue from Contracts with Customers (Topic 606), in the first quarter of 2018 as described in Note 2, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
As a result of the implementation of Topic 606, certain revenue, and the associated cost of revenue, in the comparative periods, previously aggregated as product revenue has been reviewed and reclassified, based upon its performance obligations, from product revenue to service revenue. The impact to our fiscal quarters and the year ended December 31, 2017 was as follows:
Three Months Ended | Twelve Months Ended | |||||||||||||||||||
(in thousands) | Dec. 31, 2017 | Sept. 30 2017 | June 30, 2017 | Mar. 31, 2017 | Dec. 31, 2017 | |||||||||||||||
Revenue | ||||||||||||||||||||
Services | $ | 166 | $ | 162 | $ | 159 | $ | 149 | $ | 636 | ||||||||||
Products | (166 | ) | (162 | ) | (159 | ) | (149 | ) | (636 | ) | ||||||||||
Total net revenue | − | − | − | − | − | |||||||||||||||
Cost of Revenue | ||||||||||||||||||||
Services | 62 | 51 | 50 | 46 | 209 | |||||||||||||||
Products | (62 | ) | (51 | ) | (50 | ) | (46 | ) | (209 | ) | ||||||||||
Total cost of revenue | − | − | − | − | − | |||||||||||||||
Net Income | $ | − | $ | − | $ | − | $ | − | $ | − |
2. |
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Accounting Pronouncements Adopted:
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The Company adopted ASU 2014-09 in the first quarter of 2018 using the full retrospective approach. Because the Company's primary source of revenues is from monthly transaction processing services and software maintenance and support services which are recognized monthly as incurred, as well as professional services which are performance obligation based, the impact on its consolidated financial statements is not material. For the three and nine months ended September 30, 2017, the company restated approximately $17,000 and $123,000, respectively, in revenue and $4,000 and $24,000, respectively, in cost of revenue for a net $13,000 and $99,000, respectively, restatement to retained earnings.
Recent Accounting Pronouncements Not Yet Adopted:
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) related to the accounting for leases. This pronouncement requires lessees to record most leases on their balance sheet, while expense recognition on the income statement remains similar to current lease accounting guidance. The guidance also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. Under the new guidance, lease classification as either a finance lease or an operating lease will determine how lease-related revenue and expense are recognized. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. As of September 30, 2018, the Company’s total lease commitments are approximately $1,346,000. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.
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.
3. |
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In the quarter ended June 30, 2017, we recorded an impairment charge of $90,000 to reduce the carrying value of our minority equity ownership in an investee company, a privately-held technology company in the FinTech industry. During the quarter ended June 30, 2017, the investee closed on a Series A preferred stock financing with higher preference to our Series Seed preferred stock which resulted in substantial dilution to our investment. Subsequently, in the quarter ended December 31, 2017, the investee sold its intellectual property and is winding down its operations. As such, we feltrecorded an additional impairment charge of $10,000 to fully write-down our minority equity ownership in the investee company to zero. Given the operational and contractual wind-down costs of the investee coupled with the Series A preferred stock preference to our Series Seed preferred stock, we believe a ninety percentfull write-down was warranted. CoreCard remains in an ongoing contractual business relationship with the company through the wind-down period pursuant to a Processing Agreement and anticipates receiving liquidated damages as contractually allowed per the Processing Agreement. CoreCard has recognized moreprocessing services revenue from the investee company greater than our investment in processing services revenue.investment.
In the quarter ended September 30, 2017, the remaining cash held in escrow from the sale of one of our investee companies to Cisco, Inc. in the fourth quarter of 2015, was released. Since we had no reasonable way to estimate the amount of escrow, if any, to be released to us at the initial time of the sale, no provision was previously recorded in the financial statements. We received cash of $372,000, which was recognized as a gain in the third quarter of 2017.
In the quarter ended September 30, 2017, we sold shares in a tender offer for stock of one of our investee companies, a privately-held technology company in the FinTech industry. We sold approximately ninety-one percent of our shares. We recognized a gain of $1,466,000 over our carrying value of $98,000. We retained a small equity stake in the investee and CoreCard remains in an ongoing business relationship with the company pursuant to a Processing Agreement previously entered into by the parties.
| Notes Receivable – |
Additionally, on March 16, 2018, we advanced $250,000, on June 13, 2018, we advanced $225,000, and on September 25, 2018, we advanced $75,000 on three separate simple Promissory Notes to the aforementioned identity and professional services company. Each note bears interest at the rate of 6.0 percent annually with the maturity date six months from the date of funding the Note. On September 16, 2018, we extended the maturity date on the first of these Promissory Notes an additional six months to March 16, 2019.
In the quarter ended March 31, 2018, we entered into a Convertible Loan Agreement with a private limited India based company in the FinTech industry. We committed to lend up to $435,000 with an initial advance of $235,000. The loan bears interest at the rate of 5.0 percent annually with the maturity date on the third anniversary of funding of such Promissory Note. We are entitled to convert the principal on the initial note for up to ten percent ownership of shares of the company.
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As of September 30, 2017,2018, there is $90,000$91,000 of unrecognized compensation cost related to stock options. DuringNo options were granted during the quarter ended September 30, 2017, an aggregate of 5,000 options were granted to a new independent member of our board of directors pursuant to the 2011 Non-Employee Director Option Plan (Director Plan). Pursuant to the terms of the Director Plan, the options were granted at fair value on the date of the grant. During the three and nine months ended September 30, 2017, 6,000 options and 18,000 options, respectively, expired unexercised, net of cancellation.2018. During the nine months ended September 30, 2017, 60,0002018, 20,000 options were exercised.exercised and 4,000 options expired unexercised. The following table summarizes options as of September 30, 2017:2018:
# of Shares | Wgt Avg Exercise Price | Wgt Avg Remaining Contractual Life in Years | Aggregate Value | |||||||||||||
Outstanding at September 30, 2017 | 243,500 | $ | 2.17 | 5.2 | $ | 405,160 | ||||||||||
Vested and exercisable at September 30, 2017 | 206,500 | $ | 1.87 | 4.5 | $ | 403,880 |
# of Shares | Wgt. Avg. Exercise Price | Wgt. Avg. Remaining Contractual Life in Years | Aggregate Value | |||||||||||||
Outstanding at September 30, 2018 | 227,500 | $ | 2.47 | 4.9 | $ | 1,843,765 | ||||||||||
Vested and exercisable at September 30, 2018 | 199,000 | $ | 2.03 | 4.3 | $ | 1,700,110 |
The estimated fair value of options granted is calculated using the Black-Scholes option pricing model with assumptions as previously disclosed in our 20162017 Form 10-K.
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the company’scompany’s closing stock price on the last trading day of the third quarter of 20172018 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 September 30, 2017.2018. 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, notes receivable, accounts payable and certain other financial instruments (such as 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, trade accounts and trade accounts.notes receivable. 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.
| 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 marketable securities are available-for-sale investments and are classified within Level 1 of the valuation hierarchy.
The fair value of equity method and cost method investments has not been determined asas it was impracticable to do so due to the fact thatsince the investee companies are relatively small, early stage private companies for which there is no comparable valuation data available without unreasonable time and expense.
| Concentration of Revenue – The following table indicates the percentage of consolidated revenue represented by each customer that represented more than 10 percent of consolidated revenue in the three and nine month periods ended September 30, |
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
Customer A | 15.4 | % | 10.5 | % | 10.1 | % | 15.2 | % | 3.4% | 15.4% | 5.8% | 10.1% | ||||||||||||||||||||
Customer B | 14.3 | % | 7.3 | % | 11.6 | % | 4.6 | % | 3.8% | 14.3% | 4.5% | 11.6% | ||||||||||||||||||||
Customer C | 13.1 | % | 8.0 | % | 11.8 | % | 10.4 | % | 7.0% | 13.1% | 7.1% | 11.8% | ||||||||||||||||||||
Customer D | 7.3 | % | 43.4 | % | 27.4 | % | 27.8 | % | 17.0% | 7.3% | 17.4% | 27.4% | ||||||||||||||||||||
Customer E | 37.5% | −% | 35.3% | −% |
| Commitments and Contingencies – Please refer to Note |
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As a result of the recapitalization of CoreCard, we recorded the following adjustments to our shareholders’ equity to eliminate the minority interest component. There was no impact on the statement of operations for the three and nine months ended September 30, 2017.
As of | As of | |||||||||||
(in thousands) | December 31, 2016 | Adjustments | January 1, 2017 | |||||||||
Intelligent Systems Corporation stockholders’ equity: | ||||||||||||
Common stock | $ | 87 | $ | -- | $ | 87 | ||||||
Additional paid-in capital | 17,864 | (3,038 | ) | 14,826 | ||||||||
Accumulated other comprehensive loss | (163 | ) | 22 | (141 | ) | |||||||
Accumulated income | 4,158 | -- | 4,158 | |||||||||
Total Intelligent Systems Corporation stockholders’ equity | 21,946 | (3,016 | ) | 18,930 | ||||||||
Noncontrolling interest | (3,016 | ) | 3,016 | -- | ||||||||
Total stockholders’ equity | $ | 18,930 | $ | -- | $ | 18,930 |
Year ended December 31, (in thousands) | ||||
2018 (October 1 – December 31) | $ | 120 | ||
2019 | 478 | |||
2020 | 462 | |||
2021 | 242 | |||
2022 | 44 | |||
Total minimum lease payments | $ | 1,346 |
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 September 30, 20172018 and December 31, 2016.2017. 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 2013.
11. |
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Share Repurchase Program:
On November 6, 2018, the Board of Directors authorized a share repurchase program to purchase up to $5,000,000 of common stock. The program has no expiration date, but it may be suspended or discontinued at any time. We have not repurchased any shares under this program through November 8, 2018.
Item 2. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
In addition to historical information, this Form 10-Q10-Q may contain forward-looking statements relating to ISC.ISC. All statements, trend analysesanalyses 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-lookingstatements. 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’sreader’s familiarity with the information contained in Item 7.7. Management’s Discussion and Analysisof Financial Condition and Results of Operations,, in the Form 10-K10-K for thethe year ended December 31, 20162017 as filed with the Securities and Exchange Commission.
Overview
Our consolidated operations consist of our 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.
We provide technology solutions and processing services to the financial services market, commonly referred to as the FinTech industry. We offerOur service revenue consists of fees for software maintenance and support for licensed software products, fees for processing services as an alternativethat we provide to companies that outsource their financial transaction processing functions to us, and professional services primarily for customers who prefersoftware customizations provided to outsource this function instead of licensing our softwareboth license and running the application in-house.processing customers. 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 maintenance and support for licensed software products, fees for processing services that we provide to companies that outsource their financial transaction processing functions to us, and professional services primarily for software customizations provided to both license and processing customers.
We have frequently recognized consolidated operating losses on a quarterly and annual basis and are likely to do so in the foreseeable future. We may report operating profits on an irregular basis and ourOur results vary in part depending on the size and number of software licenses recognized as well the value and number of professional services contracts recognized in a particular periodperiod. As an example, for the three and nine months ended September 30, 2018, we reported revenue greater than the level of expenses incurredprevious year due, in part, to supportrevenue associated with professional services provided to both a new license customer, with a long-term commitment, and to an existing customers and development and sales activities. A significant portionglobal license customer for customizations of our expense is relatedbase product offering as well as the recognition of license add-on tiers for multiple customers all of which positively impacted our consolidated results. We anticipate software license revenue from the aforementioned new license customer in future quarters. As we continue to personnel, including approximately 280 employees located in India and Romania. We are likelygrow our Processing Services business, we continue to incur losses ingain economies of scale on the near future because revenue for processing services is spread out over multi-year contracts whileinvestments we are currently investinghave made in the infrastructure, resources, processes and software features developed over the past number of years to support this developinggrowing side of our business. We are adding new processing customers at a faster pace than we are adding new license customers, resulting in steady growth in the processing revenue stream with the third quarter of 2018 growing 16 percent and 22 percent, respectively, over the second quarter and first quarter of 2018. The infrastructure of our multi customer environment is scalable for the future. A significant portion of our expenses is related to personnel, including approximately 385 employees located in India and Romania. In the fourth quarter of 2017, we opened a second office near Mumbai, India, to enable us to attract additional talent required for our software development and testing. In addition, we have certain corporate office expenses associated with being a public company that impact our operating results.
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. |
We continue to maintain a strong cash position. In the latter part of December 2017, and in the first quarter of 2018, we purchased additional hardware and software for a new customer in anticipation of a new contract, which was executed in October 2018. During the third quarter of 2018, the customer reimbursed us for the equipment purchases as part of a Bill of Sale executed in the third quarter. This reimbursement, along with cash provided from operating activities, strengthened our cash position further. We intend to use cash balances 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.
Revenue – Total revenue from continuing operations in the three and nine month periods ended September 30, 20172018 was $1,868,000$5,415,000 and $6,756,000,$14,046,000, respectively, which represents a decreaseincreases of 29193 percent for the quarter and an increase of 16112 percent on a year-to-date basis compared to the respective periods in 2016.2017.
● | Revenue from |
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Cost of Revenue– Total cost of revenue was 43 percent and 45 percent of total revenue, respectively, in the three month and nine month periods ended September 30, 2017 compared to 54 percent and 50 percent of total revenue in the corresponding periods in 2016.
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Cost of Revenue – Total cost of revenue was 43 percent of total revenue in both the three and nine month periods ended September 30, 2018 compared to 44 percent and 46 percent of total revenue in the corresponding periods of 2017.
● | Cost of service revenue as a percentage of total service revenue was |
● | Cost of product revenue as a percent of product revenue was zero percent and 47 percent in the three and nine month periods ended September 30, 2018, respectively, compared to zero and 96 percent in the respective periods in 2017. In the quarter ended September 30, 2018, revenue included three add-on license tier upgrade components with no associated cost resulting in zero cost of product revenue for the quarter. For the nine months ended September 30, 2018, the cost associated with the implementation of the license recognized in the first quarter of 2018 was greater than the related revenue. This is not an uncommon occurrence, as a customer’s contract profitability is recognized over the life of the contract. The future benefit of the contractual maintenance support services revenue will provide a steady revenue stream to services revenue. As such, the year-to-date cost of product revenue as a percent of product revenue is greater than standalone third quarter of 2018. Similarly, the 2017 year-to-date revenue, included a license implementation with higher direct costs as we deployed extra resources to support the implementation phase. |
Operating Expenses – In the three and nine month periods ended September 30, 2017,2018, total operating expenses from continuingconsolidated operations were 4112 percent and 26eight percent greaterless than in the comparable periodcorresponding periods in 20162017 primarily as the result of increaseddecreased research and development expenses. Research and development expenses for the three and nine months ended September 30, 2018, were $495,000 (78$327,000 (29 percent) greaterand $494,000 (17 percent), respectively, less in the third quarter of 2017 and $1,068,000 (56 percent) greater year-to-date 20172018 as compared to the same periods last year,2017, primarily due to payroll and related expenses for additional offshore technical personnel, as well as an increase in contractor fees for certain development efforts. The increase inre-allocating R&D technical staff is a direct result of the revenue increase experienced throughout 2016 into 2017, resulting in a greater need for more customized development efforts along with planned enhancements toresources from our base product offerings. Marketingoffering development efforts to customizations reflected in cost of revenue. General and administrative expenses decreased by $16,000increased $123,000 and $62,000, respectively,$136,000 for the three and nine month periods ended September 30, 20172018, respectively, compared to the corresponding periods in 2016, primarily due to less marketing initiatives in 2017. General and administrative expenses decreased $33,000 and $94,000, respectively for the three and nine month periods ended September 30, 2017 compared to the corresponding periods in 2016. The quarterly and year-to-date decreaseincrease is mainly due to lowerhigher professional fees associated with the review of a new customer contract executed in October. Marketing expenses remain relatively consistent, from a total cost standpoint, with the comparable periods in the prior year. Our client base increased in 2017 and continues to increase in 2018 with minimal marketing efforts as wellwe continue to have prospects contact us via online searches; however, we will continue to re-evaluate our marketing expenditures as fewer personnel atneeded to competitively position the corporate office.Processing Services business.
Other Income (Loss) – In the three and nine months ended September 30, 2017,2018, we recorded other income of $245,000 and $128,000, respectively, compared to other income of $1,868,000 and $1,842,000 respectively, compared to income of $37,000 and a loss of $606,000 for the comparable 20162017 periods. BothIn the quarter ended September 30, 2018, we recorded $171,000 of one-time interest income related to finance charges on the sale of equipment purchased for a new license customer as well as recognizing income earned on our cash balances. The year-to-date 2018 period is inclusive of the write-down of $250,000 on an investment, as described in more detail in Note 3 to the Consolidated Financial Statements. The quarter and year-to-date other income for 2017 periods areis primarily comprised of the gain of $1,466,000 on the sale of our investment in a privately-held technology company in the third quarter 2017, and the gain of $372,000 from funds held in escrow on an investment sale from 2015, both of which are described in more detail in Note 23 to the Consolidated Financial Statements. The year-to-date 2016 loss is primarily attributable to the write-down of $750,000 on an investment, as described in more detail in Note 2 to the Consolidated Financial Statements, offset in part by income earned on our cash balances.
Noncontrolling InterestIncome Taxes – As disclosedWe recorded $115,000 and $185,000 in Note 9 to the financial statements, effective January 1, 2017 we no longer allocate any netthree and nine month periods ended September 30, 2018, respectively, for state income (loss) to the minority interest held by former shareholders of CoreCard Software.tax expense.
Liquidity and Capital Resources
Our cash balance at September 30, 20172018 was $16,458,000$17,350,000 compared to $17,724,000$14,024,000 at December 31, 2016.2017. During the nine months ended September 30, 2018, we provided $4,986,000 of cash from operations compared to a use of cash of $1,005,000 for the comparable period in 2017. The principal source of cash during the period was driven by operating activities including higher net income and the salereceipt, net of our investmentequipment purchases, of approximately $1,745,000, plus associated finance carrying charges, for processing equipment, software and related licenses purchased on behalf of a new license customer. Such contract was executed, subsequent to the third quarter of 2018, in the form of a privately-held technology companySoftware License and Support Agreement.
The principal uses of cash during the period were advances of $250,000, $225,000 and $75,000 on three separate Promissory Notes, the funding of the final $250,000 on a Loan Agreement, and the advance of $235,000 on a Convertible Loan Agreement, all of which generated cash proceeds of $1,564,000, asare described in more detail in Note 24 to the Consolidated Financial Statements. In addition, we received $372,000 of cash held in escrow from the sale of one of our investee companies, as described in more detail in Note 2 to the Consolidated Financial Statements. The principal use of cash during the period was funding a loan of $750,000 to a privately-held identity company, as described in more detail in Note 3 to the Consolidated Financial Statements, and funding our investment of $1,000,000 in a privately-held technology company on January 4, 2017; the liability for the investment funding was included in “Other Current Liabilities” at December 31, 2016.
During the nine months ended September 30, 2017, continuing operations used $1,005,000 cash for operations of the FinTech business and corporate office. The most significant working capital changes since December 31, 2016 include a decrease in deferred revenue of $337,000 primarily due to the recognition of professional services contracts associated with customizations for a global license customer and accounts receivable increased by $404,000 as we generated milestone billings related to the same customizations along with a one-time minimum contractual guarantee billing. In addition, work-in-process (included in other current assets) decreased $177,000 as development costs associated with the aforementioned customization contracts was recognized.
We used $432,000$663,000 of cash to acquire computer equipment and related software primarily to upgradeenhance our U.S. basedexisting processing environment andin the U.S. as well for computer equipment for the technical resources added in our India office.office during 2018.
We expect to have sufficient liquidity from cash on hand as well as projected customer payments to support our operations and capital equipment purchases infor the foreseeable future. Currently wewe expect to use cash in excess of what is required for our current operations for opportunities we believe will expand our CoreCard and FinTech business, although there can be no assurance that appropriate opportunities will arise. Additionally, we may use excess cash to repurchase shares under the program authorized by our Board of Directors on November 6, 2018, to repurchase up to $5,000,000 of common stock.
Off-Balance Sheet Arrangements
We do not currently have any off-balanceoff-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, liquidity or results of operations.
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 investments and accrued costs and 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 for the fiscal year ended December 31, 2016.2017. 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 for 2016.2017. During the nine month period ended September 30, 2017,2018, there were no significant or material changes in the application of critical accounting policies, other than the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and the related reclassifications as describe further in Notes 1 and 2 to the Consolidated Financial Statements, that would require an update to the information provided in the Form 10-K for 2016.2017.
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.
Among the numerous factors that may affect our consolidated results of operations or financial condition are the following:
● | We 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. |
● | Delays in software development projects could cause our customers to postpone implementations or delay payments, which would increase our costs and reduce our revenue and cash. |
● | We 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. |
● | Weakness or instability in the global financial markets could have a negative impact due to potential customers (most of whom perform some type of financial services) delaying decisions to purchase software or initiate processing services. |
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| Increased federal and state regulations and reluctance by financial institutions to act as sponsor banks for prospective customers could increase our losses and cash requirements. |
● | Our processing business involves the processing and storage of sensitive business and personal information about our clients and their customers. Any type of security breach, attack, or misuse of data could deter clients from using our services and expose us to liability to parties whose data has been compromised, fines from regulatory authorities, and other material adverse consequences. |
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| Our processing business is impacted, directly or indirectly, by more regulations than our licensed software business. If we fail to provide services that comply with (or allow our customers to comply with) applicable regulations or processing standards, we could be subject to financial or other penalties that could negatively impact our 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. |
● | We could fail to expand our base of customers as quickly as anticipated, resulting in lower revenue and profits (or increased losses) and increased cash needs. |
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● | 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 could 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). |
● | Our 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. |
Item 4.4. 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’scompany’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 6.6. Exhibits
The following exhibits are filed or furnished with this report:
3.1 |
3.2 |
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 |
| XBRL Instance |
101.SCH** | XBRL Taxonomy Extension Schema |
101.CAL** | XBRL Taxonomy Extension Calculation |
101.DEF** | XBRL Taxonomy Extension Definitions |
| XBRL Taxonomy Extension Labels |
| 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. |
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 |
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Date: November | By: | /s/J. Leland Strange | |
J. Leland Strange Chief Executive Officer, President |
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Date: November 8, 2018 | By: |
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| /s/ Karen J. Reynolds | ||
Karen J. Reynolds | ||||
Chief Financial Officer |
Exhibit Index
Exhibit | Descriptions | |
3.1 | ||
3.2 | ||
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 | ||
| XBRL Instance | |
| XBRL Taxonomy Extension Schema | |
| XBRL Taxonomy Extension Calculations | |
| XBRL Taxonomy Extension Definitions | |
| XBRL Taxonomy Extension Labels | |
| 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. |
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