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 September 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 September 30, 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
Third Amended Note & Warrant Purchase Agreement
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer

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	28

	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


		September 30,			December 31,
		2003			2002
		(Unaudited)

		(in thousands)
ASSETS
CURRENT ASSETS
	Cash	$	50		$	81
	Accounts receivable, less allowance of $168,000 ($170,000 in 2002)		16			153
	Inventories — Note A		121			328
	Note Receivable — Note G		—			30
	Other current assets		39			51

TOTAL CURRENT ASSETS			226			643
PROPERTY, PLANT AND EQUIPMENT
	Leasehold Improvements		43			43
	Production and engineering equipment		153			153
	Furniture and fixtures		72			73
	Vehicles		18			18
	Computer equipment		202			203

			488			490
	Less accumulated depreciation		(452	)		(431	)

			36			59
OTHER ASSETS
	Capitalized computer software development costs, less accumulated amortization of $7,447,000 ($7,301,000 in 2002) — Note A		371			516
	Patents, less accumulated amortization of $416,000 ($382,000 in 2002) — Note A		57			90

			428			606

		$	690		$	1,308

See notes to consolidated financial statements.

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


		September 30,			December 31,
		2003			2002
		(Unaudited)

		(in thousands)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
	Notes payable — Notes C & G	$	727		$	967
	Accounts payable		402			678
	Accrued compensation and related costs — Note G		289			331
	Accrued state income taxes — Note B		183			204
	Accrued interest — Note C		322			170
	Other accrued liabilities		78			95
	Customer deposits		—			204
	Current maturities of long-term debt — Note C		461			—

TOTAL CURRENT LIABILITIES			2,462			2,649
LONG-TERM DEBT, less current maturities and O.I.D. — Note C			1,603			962

TOTAL LIABILITIES			4,065			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		31,694			31,376
	Accumulated deficit		(36,955	)		(35,565	)

Total Stockholders’ Deficit			(3,375	)		(2,303	)

		$	690		$	1,308

See notes to consolidated financial statements.

INTEGRAL VISION, INC. AND SUBSIDIARY
Consolidated Statements of Operations


		Three Months Ended September 30,
		2003			2002

		(Unaudited)
		(In thousands, except per share data)
Net revenues		$	37		$	556
Costs of sales:
	Direct costs of sales		27			284
	Depreciation and amortization		65			156

Total costs of sales			92			440

Gross margin (loss)			(55	)		116
Other costs and expenses:
	Marketing		49			141
	General and administrative		202			202
	Engineering and development		153			217

Total other costs and expenses			404			560

Operating loss			(459	)		(444	)
Gain (loss) on sales of assets			(1	)		111
Interest income and other			23			30
Interest expense — Note C			(104	)		(59	)
Foreign currency translation loss — Note L			1			9

Loss from operations before income taxes			(540	)		(353	)
Provision(benefit) for income taxes			—			—

Net loss		$	(540	)	$	(353	)

Basic and diluted earnings per share:
	Net loss	$	(0.06	)	$	(0.04	)

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


		Nine Months Ended September 30,
		2003			2002

		(Unaudited)
		(In thousands, except per share data)
Net revenues		$	577		$	1,382
Costs of sales:
	Direct costs of sales		285			756
	Depreciation and amortization		197			339

Total costs of sales			482			1,095

Gross margin			95			287
Other costs and expenses:
	Marketing		158			487
	General and administrative		631			911
	Engineering and development		509			612

Total other costs and expenses			1,298			2,010

Operating loss			(1,203	)		(1,723	)
Gain (loss) on sales of assets			(1	)		129
Interest income and other			71			37
Interest expense — Note C			(258	)		(172	)
Foreign currency translation loss — Note L			1			(199	)

Loss from operations before income taxes			(1,390	)		(1,928	)
Provision(benefit) for income taxes — Note B						(90	)

Net loss		$	(1,390	)	$	(1,838	)

Basic and diluted earnings per share:
Net loss		$	(0.15	)	$	(0.19	)

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		Common		Additional Paid-		Accumulated
	Outstanding		Stock		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								(1,390	)		(1,390	)
Issuance of warrants						318					318

Balance at September 30, 2003		9,429,901	$	1,886	$	31,694	$	(36,955	)	$	(3,375	)

See notes to consolidated financial statements.

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


				Nine Months Ended September 30,
				2003			2002

				(Unaudited)
				(in thousands)
Operating Activities
	Net loss			$	(1,390	)	$	(1,838	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation			24			122
		Amortization			246			340
		(Gain) loss on sales of assets			1			(129	)
		Changes in operating assets and liabilities:
			Accounts receivable		137			(88	)
			Inventories		207			(34	)
			Prepaid and other		42			212
			Accounts payable and other current liabilities		(350	)		(147	)

Net Cash Used In Operating Activities					(1,083	)		(1,562	)

Investing Activities
	Sales (purchase) of property and equipment				(2	)		40
	Proceeds from sale of disc technology							100
	Other				(1	)		(7	)

Net Cash Used In Investing Activities					(3	)		133

Financing Activities
	Proceeds from sale of Class 2 Notes				480			550
	Repayments on Class 2 Notes				(254	)		(22	)
	Proceeds from other short term notes				32			—
	Repayments on short term notes				(102	)		—
	Proceeds from sale of Class 1 Notes, net of discount				581			493
	Proceeds from sale of warrants				318			97

Net Cash Provided By Financing Activities					1,055			1,118

Effect of Exchange Rate Changes on Cash					—			211

Decrease in Cash					(31	)		(100	)
Cash at Beginning of Period					81			125

Cash at End of Period				$	50		$	25

Supplemental cash flow disclosure:
	Interest Paid			$	40		$	35

See notes to consolidated financial statements.

INTEGRAL VISION, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 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

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