Note 3 - Option Agreement

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Other Income and Other Expense Disclosure [Text Block]

3. OPTION AGREEMENT

On

March

20,

2012,

Intelligent Systems Corporation entered into an Option Agreement (the “Option Agreement”) with Central National Bank, a national banking association (“CNB”). The Option Agreement grants to CNB the option to acquire from ISC the number of shares of stock in the company’s CoreCard Software subsidiary equal to

five

percent of ISC’s equity ownership in CoreCard. At the end of

2016,

ISC increased its ownership of CoreCard from approximately

96

percent on a fully diluted basis to

100

percent. The number of shares covered by the option

may

be increased, up to

ten

percent based on achievement of certain volumes of prepaid cards issued by CNB and processed by CoreCard, as defined in the Option Agreement. The option has an exercise price of

one

million dollars for each

five

percent of ISC’s interest in CoreCard, expires on

December

31,

2017

and can be exercised at any time before it expires. Further, at any time between

September

30,

2014

and

June

30,

2017,

subject to certain earlier termination provisions, CNB

may

elect to require ISC to repurchase the option at a purchase price equal to the fair market value of the option less

one

million dollars. As of

December

31,

2016,

CNB has not requested that ISC repurchase the option. We entered into the Option Agreement in recognition of CNB’s cooperation and contribution to building CoreCard’s card processing business. During the year ended

December

31,

2012,

we recorded an expense of

$18,000

in the marketing category and carry a long-term liability of

$

18,000

at

December

31,

2016

and

2015

to recognize the financial impact of the Option Agreement.