INTEGRAL VISION INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly period ended June 30, 2003.

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period
from to .

Commission File Number 0-12728

INTEGRAL VISION, INC.
(Exact name of registrant as specified in its charter)


Michigan (State or other jurisdiction of incorporation or organization)		38-2191935 (I.R.S. Employee Identification Number)

38700 Grand River Avenue, Farmington Hills, Michigan (Address of principal executive offices)		48335 (Zip Code)

Registrant’s telephone number, including area code: (248) 471-2660

Former name, former address and former fiscal year, if changed since last report:
Not Applicable

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 the filing requirements for the past 90 days.


YES	ü	NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES NO ü

The number of shares outstanding of the registrant’s Common Stock, no par value, stated value $.20 per share, as of July 31, 2003 was 9,429,901.

TABLE OF CONTENTS


Part I — Financial Information
	Item 1. Financial Statements
		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statement of Stockholders’ Deficit
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Disclosure Controls and Procedures
Part II — Other Information
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Certification of Chief Executive Officer
Certification of Chief Financial Officer
906 Certification
906 Certification

INTEGRAL VISION, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q


			PAGE

Part I — Financial Information
	Item 1. Financial Statements
		Consolidated Balance Sheets		3
		Consolidated Statements of Operations		5
		Consolidated Statement of Stockholders’ Deficit		7
		Consolidated Statements of Cash Flows		8
		Notes to Consolidated Financial Statements		9
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
	Item 3. Quantitative and Qualitative Disclosures about Market Risk			26
	Item 4. Disclosure Controls and Procedures			26
Part II — Other Information
	Item 1. Legal Proceedings			27
	Item 2. Changes in Securities and Use of Proceeds			27
	Item 3. Defaults Upon Senior Securities			27
	Item 4. Submission of Matters to a Vote of Security Holders			28
	Item 5. Other Information			28
	Item 6. Exhibits and Reports on Form 8-K			28
Signatures				30
Certifications				31

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

INTEGRAL VISION, INC. AND SUBSIDIARY
Consolidated Balance Sheets


		June 30,			December 31,
		2003			2002

		(Unaudited)
		(in thousands)
ASSETS
CURRENT ASSETS
	Cash	$	25		$	81
	Accounts receivable, less allowance of $166,000 ($170,000 in 2002)		93			153
	Inventories — Note A		125			328
	Note Receivable — Note G		—			30
	Other current assets		12			51

TOTAL CURRENT ASSETS			255			643
PROPERTY, PLANT AND EQUIPMENT
	Leasehold Improvements		43			43
	Production and engineering equipment		153			153
	Furniture and fixtures		73			73
	Vehicles		18			18
	Computer equipment		205			203

			492			490
	Less accumulated depreciation		(447	)		(431	)

			45			59
OTHER ASSETS
	Capitalized computer software development costs, less accumulated amortization of $7,398,000 ($7,301,000 in 2002) — Note A		419			516
	Patents, less accumulated amortization of $405,000 ($382,000 in 2002) — Note A		68			90

			487			606

		$	787		$	1,308

See notes to consolidated financial statements.

INTEGRAL VISION, INC. AND SUBSIDIARY
Consolidated Balance Sheets — Continued


		June 30,			December 31,
		2003			2002

		(Unaudited)
		(in thousands)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
	Notes payable — Notes C & G	$	1,092		$	967
	Accounts payable		485			678
	Accrued compensation and related costs — Note G		326			331
	Accrued state income taxes — Note B		201			204
	Accrued interest — Note C		255			170
	Other accrued liabilities		92			95
	Customer deposits		—			204
	Current maturities of long-term debt — Note C		257			—

TOTAL CURRENT LIABILITIES			2,708			2,649
LONG-TERM DEBT, less current maturities and O.I.D. — Note C			1,111			962

TOTAL LIABILITIES			3,819			3,611
STOCKHOLDERS’ DEFICIT
	Common stock, without par value, stated value $.20 per share; 25,000,000 shares authorized; 9,429,901 shares issued and outstanding		1,886			1,886
	Additional paid-in capital		31,497			31,376
	Accumulated deficit		(36,415	)		(35,565	)

Total Stockholders’ Deficit			(3,032	)		(2,303	)

		$	787		$	1,308

See notes to consolidated financial statements.

INTEGRAL VISION, INC. AND SUBSIDIARY
Consolidated Statements of Operations


		Three Months Ended June 30,
		2003			2002

		(Unaudited)
		(In thousands, except per share data)
Net revenues		$	128		$	503
Costs of sales:
	Direct costs of sales		43			256
	Depreciation and amortization		66			89

Total costs of sales			109			345

Gross margin			19			158
Other costs and expenses:
	Marketing		60			160
	General and administrative		221			393
	Engineering and development		174			204

Total other costs and expenses			455			757

Operating loss			(436	)		(599	)
Other income			22			13
Interest expense — Note C			(84	)		(56	)
Foreign currency translation loss — Note L			—			(208	)

Loss from operations before income taxes			(498	)		(850	)
Provision(benefit) for income taxes			—			—

Net loss		$	(498	)	$	(850	)

Basic and diluted earnings per share:
	Net loss	$	(0.05	)	$	(0.09	)

Weighted average number of shares of common stock and common stock equivalents, where applicable			9,430			9,430

See notes to consolidated financial statements.

INTEGRAL VISION, INC. AND SUBSIDIARY
Consolidated Statements of Operations


		Six Months Ended June 30,
		2003			2002

		(Unaudited)
		(In thousands, except per share data)
Net revenues		$	540		$	826
Costs of sales:
	Direct costs of sales		258			472
	Depreciation and amortization		132			183

Total costs of sales			390			655

Gross margin			150			171
Other costs and expenses:
	Marketing		109			346
	General and administrative		429			709
	Engineering and development		356			395

Total other costs and expenses			894			1,450

Operating loss			(744	)		(1,279	)
Other income			48			25
Interest expense — Note C			(154	)		(113	)
Foreign currency translation loss — Note L			—			(208	)

Loss from operations before income taxes			(850	)		(1,575	)
Provision (benefit) for income taxes — Note B			—			(90	)

Net loss		$	(850	)	$	(1,485	)

Basic and diluted earnings per share:
	Net loss	$	(0.09	)	$	(0.16	)

Weighted average number of shares of common stock and common stock equivalents, where applicable			9,430			9,430

See notes to consolidated financial statements.

INTEGRAL VISION, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders’ Deficit


		Number of
		Common
		Shares				Additional		Accumulated
		Outstanding		Common Stock		Paid-In Capital		Deficit			Total

		(in thousands, except number of common shares outstanding)
Balance At December 31, 2002			9,429,901	$	1,886	$	31,376	$	(35,565	)	$	(2,303	)
	Net loss for the period								(850	)		(850	)
	Issuance of warrants						121					121

Balance At June 30, 2003			9,429,901	$	1,886	$	31,497	$	(36,415	)	$	(3,032	)

See notes to consolidated financial statements.

INTEGRAL VISION, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows


				Six Months Ended June 30,
				2003			2002

				(Unaudited)
				(in thousands)
Operating Activities
	Net loss			$	(850	)	$	(1,485	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation			16			97
		Amortization			157			178
		Changes in operating assets and liabilities:
			Accounts receivable		60			48
			Inventories		203			155
			Prepaid and other		69			227
			Accounts payable and other current liabilities		(296	)		(320	)

Net Cash Used In Operating Activities					(641	)		(1,100	)
Investing Activities
	Purchase of property and equipment				(2	)		—
	Other				(1	)		(5	)

Net Cash Used In Investing Activities					(3	)		(5	)
Financing Activities
	Proceeds from sale of Class 2 Notes				405			250
	Repayments on Class 2 Notes				(259	)
	Proceeds from other short term notes				27
	Repayments on short term notes				(75	)
	Proceeds from sale of Class 1 Notes, net of discount				369			493
	Proceeds from sale of warrants				121			97

Net Cash Provided By Financing Activities					588			840

Effect of Exchange Rate Changes on Cash					—			211

Decrease in Cash					(56	)		(54	)
Cash at Beginning of Period					81			125

Cash at End of Period				$	25		$	71

Supplemental cash flow disclosure:
	Interest Paid			$	33		$	31

See notes to consolidated financial statements.

INTEGRAL VISION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)

Note A — Summary of Significant Accounting Policies

Nature of Business

Integral Vision, Inc. (or the “Company”) develops, manufactures and markets microprocessor-based process monitoring and control systems for use in industrial manufacturing environments. The principle application for the Company’s products is optical display inspection (“machine vision products”) used to ensure product quality during the manufacturing process. The Company’s product offerings include LCI-Professional, SharpEye and ChromaSee. The Company’s products are generally sold as capital goods. Depending on the application, machine vision systems have an indefinite life. Machine vision applications are more likely to require replacement due to possible technological obsolescence rather than physical wear.

The Company’s location outside the US is in the United Kingdom. This was a sales office with net non-current assets that are not significant. This office was closed at December 31, 2002 following the sale of the Company’s disc inspection product line (see Note F to consolidated financial statements).

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its 100% owned subsidiary: Integral Vision LTD, United Kingdom. Upon consolidation, all significant intercompany accounts and transactions are eliminated.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the consolidated financial statements and notes thereto included in Integral Vision’s Annual Report on Form 10-K for the year ended December 31, 2002.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Translation of Foreign Currencies

The financial statements of Integral Vision LTD are translated into United States dollar equivalents at exchange rates as follows: balance sheet accounts at year-end rates; income statement accounts at average exchange rates for the year. Transaction gains and losses are reflected in net earnings and are not significant.

Reclassifications

Certain amounts have been reclassified in prior periods’ presentations to conform to the current year’s presentation.

Accounts Receivable

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	x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly period ended June 30, 2003.

	o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from to .

		Integral Vision, Inc. (or the “Company”) develops, manufactures and markets microprocessor-based process monitoring and control systems for use in industrial manufacturing environments. The principle application for the Company’s products is optical display inspection (“machine vision products”) used to ensure product quality during the manufacturing process. The Company’s product offerings include LCI-Professional, SharpEye and ChromaSee. The Company’s products are generally sold as capital goods. Depending on the application, machine vision systems have an indefinite life. Machine vision applications are more likely to require replacement due to possible technological obsolescence rather than physical wear.

		The Company’s location outside the US is in the United Kingdom. This was a sales office with net non-current assets that are not significant. This office was closed at December 31, 2002 following the sale of the Company’s disc inspection product line (see Note F to consolidated financial statements).