COMMITMENTS AND CONTINGENCIES

Leases

We have noncancelable operating leases for offices and data centers expiring at various dates through

March 2025.

These operating leases are included in "Other long-term assets" on the Company's

September 30, 2020

and

December 31, 2019

Consolidated Balance Sheets and represent the Company's right to use the underlying asset for the lease term. The Company's obligation to make lease payments are included in "Other current liabilities" and "Long-term lease obligation" on the Company's

September 30, 2020

and

December 31, 2019

Consolidated Balance Sheets. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Because the rate implicit in each lease is

not

readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

Supplemental Information–Leases

Supplemental information related to our right-of-use assets and related lease liabilities is as follows:

	September 30, 2020			December 31, 2019

Right-of-use asset, net and lease liabilities (in thousands)	$	3,170		$	945
Cash paid for operating lease liabilities (in thousands)	$	754		$	563
Weighted average remaining lease term (years)		3.6			1.1
Weighted average discount rate		3.9	%		5.5	%

Maturities of our operating lease liabilities as of

September 30, 2020

is as follows:

	Operating Leases
	(In thousands)
2020	$	293
2021		977
2022		795
2023		718
2024		495
Thereafter		108
Total lease liabilities	$	3,386

Lease expense for the

three

months ended

September 30, 2020

and

2019

consisted of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Cost of Revenue	$	218	$	78	$	508	$	201
General and Administrative		52		52		157		157
Research and Development		30		18		89		55
Total	$	300	$	148	$	754	$	413

Legal Matters

On or about

July 9, 2019,

a securities class action complaint was filed in the United States District Court for the Eastern District of New York (Case

No.

1:19

-cv-

03949

) by Michael Skrzeczkoski, individually and on behalf of all others similarly situated, against the company, and certain current and former directors and officers. The complaint alleges, among other things, that certain of our press releases and SEC filings were misleading as a result of the failure to disclose alleged related party transactions affecting revenue recognition and the absence of disclosure regarding certain allegations against former director Parker H. Petit in connection with his former position with MiMedx, Inc. The complaint seeks to recover attorney's fees and costs and unspecified damages on behalf of purchasers who acquired our stock during the period from

January 23, 2019,

through

May 29, 2019,

and purportedly suffered financial harm as a result of the alleged misleading statements. On

September 26, 2019,

the Court appointed Edgardo Canez as lead plaintiff (“Lead Plaintiff”) on behalf of the putative class. On

November 18, 2019,

Lead Plaintiff, individually and on behalf of a putative class of persons or entities who purchased or otherwise acquired publicly traded Company securities from

May 23, 2014

through

May 29, 2019,

filed an amended class action complaint against the Company, and certain current and former directors and officers (the “Amended Complaint”). The Amended Complaint alleges similar allegations in violation of Sections

(b) and

(a) of the Securities Exchange Act as the previously filed complaint. The Amended Complaint seeks to recover attorney's fees and costs and unspecified damages. On

January 2, 2020,

Defendants submitted a motion to dismiss, and on

March 3, 2020,

briefing on the motion to dismiss was completed. The motion to dismiss is currently pending. We dispute these claims and intend to defend the matter vigorously. We have

not

determined the likelihood of loss to be probable nor is any potential loss estimable at this time, therefore we have

not

recorded any related liability as of

September 30, 2020.

On or about

February 14, 2020,

two

purported shareholders, derivatively and on behalf of the Company, filed substantially similar shareholder derivative actions in the Eastern District of New York against certain current and former directors and officers (the “Individual Defendants”), and the Company as a nominal defendant (together with the Individual Defendants, the “Defendants”). The complaints assert a claim against Messrs. Strange, Moise, Petit, Fuzzell and Chandler for a violation of Section

(a) of the Securities Exchange Act by issuing purportedly misleading statements in the Company's

2017

and

2018

Proxies. The complaints also assert claims against the Individual Defendants for breaches of fiduciary duty, waste of corporate assets, and unjust enrichment arising out of, among other things, purportedly undisclosed related party transactions, other relationships, and certain allegations against former director Parker H. Petit in connection with his former position with MiMedx, Inc. and other companies. The relief sought in the complaints includes changes to the Company's corporate governance procedures, unspecified damages, equitable relief, restitution and attorney's fees and costs. On

April 20, 2020,

the

two

derivative actions were consolidated and captioned, In re Intelligent Systems Corporation Stockholder Derivative Litigation, Lead Case

No.

1:20

-cv-

00832,

in the Eastern District of New York. On

June 19, 2020,

Defendants filed their motion to dismiss, and briefing was subsequently completed. After a conference held on

August 24, 2020,

the parties agreed that Defendants' motion to dismiss would be temporarily withdrawn without prejudice to refile after the conclusion of any discovery permitted by further Court order. On

September 8, 2020,

Plaintiffs moved for leave to conduct limited discovery to which Defendants' response is due

later than

December 7, 2020.

There are

other pending or threatened legal proceedings. However, 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. We accrue for unpaid legal fees for services performed to date.