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FOR IMMEDIATE RELEASE
For further information, call
Bonnie Herron, Intelligent Systems
       770/564-5504

bherron@intelsys.com

INTELLIGENT SYSTEMS ANNOUNCES THIRD QUARTER 2006 RESULTS
*** Conference Call Today at 11 AM EST ***

 Norcross, GA – November 14, 2006 – Intelligent Systems Corporation [AMEX:INS; www.intelsys.com] announced today the financial results for its third quarter and year-to-date periods ended September 30, 2006.  Net income for the three month period ended September 30, 2006 was $7.0 million compared to a net loss of $(1.2) million in the comparable period in 2005.  For the third quarter of 2006, earnings were $1.57 per basic share ($1.52 per diluted share) compared with a loss of $(0.26) per basic and diluted share in the third quarter of 2005.

For the year-to-date period ended September 30, 2006, the Company reported net income of $5.8 million compared to a net loss of $(682,000) in the nine-month period ended September 30, 2005. 

The current year results were bolstered by two previously disclosed transactions that were effective during the quarter ended September 30, 2006.  On July 31, 2006, the Company sold the business of its QS Technologies’ subsidiary which resulted in a net gain on the sale of $4.9 million.  A second transaction, the sale of the Company’s interest in privately held Horizon Software International, Inc. in August 2006 resulted in an investment gain of $2.6 million.

J. Leland Strange, president and chief executive officer of Intelligent Systems, said, “Our results for the quarter demonstrate the value we are building in our businesses over time.  In addition to the positive earnings impact of the QS and Horizon sales, the transactions strengthened our financial condition with aggregate transaction proceeds of $4.8 million cash and notes and interest receivable of $4.3 million, and resulted in an increase in our shareholders’ equity to $7.8 million at September 30, 2006.  Our current subsidiaries also demonstrated improved results of operations and year-to-year growth in revenue.”   

As a result of the sale of the QS Technologies’ business and in conformity with applicable accounting standards, the Company classified the QS business as Discontinued Operations and the financial results for prior periods have been reclassified to conform to this presentation for all periods presented.  The financial results reported for the Company’s Continuing Operations for the three and nine-month periods ended September 30, 2006 and 2005 include the consolidated results of its remaining three subsidiaries: VISaer, Inc., CoreCard Software, Inc. and ChemFree Corporation.

Revenue from continuing operations was $3.5 million and $11.9 million, respectively, in the three and nine month periods ended September 30, 2006, an increase of 31 percent and 30 percent respectively compared to the same periods in 2005.  The growth in revenue in the three month period ended September 30, 2006 is due primarily to an increase in the volume of domestic shipments at the ChemFree subsidiary. In the nine-month period ended September 30, 2006, in addition to increased sales volume at the ChemFree subsidiary, the Company’s revenue reflects the contribution of $1.8 million in professional services revenue at the VISaer subsidiary related to a single multi-year software contract that had been deferred in prior periods.  The Company’s loss from operations declined by 36 percent and 27 percent, respectively, in the three and nine-month periods of 2006 as compared to the same periods in 2005.

As previously disclosed, the Company submitted a plan, which was accepted by AMEX on July 27, 2006, outlining its plan to achieve compliance with the continued listing standards of the American Stock Exchange (AMEX) within an 18 month period.  As of September 30, 2006, the Company believes its shareholders’ equity meets the continued listing standard.  AMEX regulations require two consecutive quarters of compliance with the applicable standards before a determination will be made by AMEX as to whether the Company has regained compliance with continued listing standards.    

The Company will hold a conference call today at 11 AM EST.  Investors may join the conference call by telephoning (877) 226-7144 at least 5 minutes before the scheduled time. An audio transcript of the conference call will be available on the Company’s website at www.intelsys.com by end of the day today and will be available for 12 months. 

 

About Intelligent Systems Corporation

 For over thirty years, Intelligent Systems Corporation [AMEX: INS] has identified, created, operated and grown early stage technology companies.  The Company has operations and investments in the information technology and industrial products industries.  The Company’s consolidated subsidiaries include VISaer, Inc. (www.visaer.com), CoreCard Software, Inc. (www.corecard.com), (both software companies) and ChemFree Corporation (www.chemfree.com) (an industrial products company).  Further information is available on the company’s website at www.intelsys.com, or by calling the company at 770/381-2900.

In addition to historical information, this news release may contain forward-looking statements relating to Intelligent Systems and its subsidiary and affiliated companies. These statements include all statements that are not statements of historical fact regarding the intent, belief or expectations of Intelligent Systems and its management with respect to, among other things, results of operations, product plans, and financial condition.  The words "may," "will," "anticipate," "believe," "intend," "expect," "estimate," "plan," "strategy" and similar expressions are intended to identify forward-looking statements.  Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those contemplated by such forward-looking statements. The Company does not undertake to update or revise any forward-looking statements whether as a result of new developments or otherwise.  Among the factors that could cause actual results to differ materially from those indicated by such forward-looking statements are delays in product development, undetected software errors, competitive pressures, changes in customers’ requirements or financial condition, market acceptance of products and services, changes in financial markets, changes in the performance, financial condition or valuation of affiliate companies, the risks associated with investments in privately-held early stage companies, the impact of events such as rising gas prices that could impact the aviation industry, the price of certain plastics components and the company’s other worldwide market opportunities, other geopolitical or military actions, and general economic conditions, particularly those that cause businesses to delay or cancel purchase decisions.

 CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

Three Months Ended 9/30,

Nine Months Ended 9/30,

 

2006

2005

2006

2005

Revenue

 

 

 

 

   Products

 $ 2,464

$ 1,541

$ 6,656

$ 5,856

   Services

996

1,093

5,233

3,276

    Total revenue

3,460

2,634

11,889

9,132

    Total cost of sales

1,605

1,336

5,798

4,418

Expenses

 

 

 

 

    Marketing

545

397

1,577

1,375

    General & administrative

868

827

2,833

2,360

    Research & development

1,390

1,562

4,279

4,539

Loss from operations

(948)

(1,488)

(2,598)

(3,560)

    Interest income (expense), net

(7)

1

(68)

20

    Investment income (loss), net

2,638a

(48)

2,645a

1,908

    Equity in earnings of affiliate companies

188

358

351

393

    Other income (loss), net

(45)

(21)

(8)

(1)

Income (loss) from  continuing operations before tax

1,826

(1,198)

322

(1,240)

Income tax

-- 

1

--

4

Income (loss) from continuing operations

1,826

(1,199)

322

(1,244)

Income from discontinued operations

317

41

600

562

Gain on sale of discontinued operations

4,873b

-- 

4,873b

-- 

Net income (loss)

$ 7,016

$ (1,158)

$ 5,795

$ (682)

Income (loss) per share - continuing  operations:

 

 

 

 

Basic

$0.41

$(0.27)

$0.07

$(0.28)

Diluted

$0.40

$(0.27)

$0.07

$(0.28)

Income per share - discontinued operations:

 

 

 

 

Basic

$1.16

$0.01

$1.22

$0.13

Diluted

$1.12

$0.01

$1.18

$0.13

Income (loss) per share:

 

 

 

 

Basic

$1.57

$(0.26)

$1.29

$(0.15)

Diluted

$1.52

$(0.26)

$1.25

$(0.15)

Basic weighted average shares outstanding

4,478,971

4,478,971

4,478,971

4,478,971

Diluted weighted average shares outstanding

4,615,619

4,478,971

4,620,552

4,478,971

  1. Includes gain of $2.6 million on sale of Horizon Software interest.
  2. Gain of $4.9 million on sale of QS Technologies business.

 

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

 

September 30,
2006

December 31,
2005

 

 

ASSETS

(unaudited)

 

 

 

Current assets:

 

 

 

  Cash

$  2,994

$      378

 

  Accounts receivable, net

2,413

1,827

 

  Notes and interest receivable, current portion

3,316

-- 

 

  Inventories

838

 770

 

  Other current assets

625

355

 

    Total current assets

10,186

3,330

 

Long-term investments

1,299

4,571

 

Notes receivable, net of current portion

957

-- 

 

 

Property and equipment, at cost less accumulated depreciation

1,136

940

 

 

Goodwill, net

2,047

2,047

 

 

Other intangibles, net

402

532

 

 

Other assets, net

28

17

 

 

Total assets

$ 16,055

$ 11,437

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

  Short-term borrowings

$       --

$      100

 

 

  Accounts payable

1,244

847

 

 

  Deferred revenue

2,780

4,779

 

 

  Accrued payroll

827

1,092

 

 

  Accrued expenses and other current liabilities

1,476

849

 

 

    Total current liabilities

6,327

7,667

 

 

Other long-term liabilities

428

248

 

 

Minority interest

1,516

1,516

 

Total stockholders’ equity

7,784

2,006

 

 

Total liabilities and stockholders’ equity

$ 16,055

$ 11,437

 

             

 

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