ITEM 1. Business
General
On June 30, 1999, the Company sold the assets of its Welding Controls division. As a result of the sale, the Company changed its name to Integral Vision, Inc. “Integral Vision” (or the “Company”), formerly known as Medar, Inc., is a Michigan corporation incorporated in 1978. Integral Vision 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 inspection systems (“machine vision products”). 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.
Sales of machine vision products are effected through Integral Vision and through Integral Vision LTD., a wholly owned subsidiary of the Company, located in Bedford, England.
Overview
Integral Vision is a supplier of machine vision systems used to ensure product quality during the manufacturing process.
Machine vision has become a necessity for manufacturers who need to continually improve production efficiency to meet the increasing demand for high quality products. The Company’s vision systems automatically identify, gauge or inspect parts with speed and accuracy. Quantitative information about each part is evaluated to check for functional or cosmetic defects. Our systems can be configured to statistically monitor the production process and send data to other equipment in the manufacturing cell. Such data could be used, for example, by a diverter to send defective parts to a reject bin, or by process controllers to automatically adjust process variables.
Target markets for our turnkey systems include the small flat panel display and optical disc industries. Applications development software, such as our Industrial Vision Controller (IVC) technology, can be applied to an extensive array of applications in industries that run the gamut from aerospace to medical to textiles, and everything in between.
Products
Small Flat Panel Display Inspection
Integral Vision has over six years of experience in the display industry, with over 400 systems installed worldwide. Our initial product, LCI-Professional, is used for inspection of LCD Displays as components or final assemblies. Applications include cell phones, car radios, pagers, electronic organizers and hand-held video games. Integral Vision’s display inspection systems are designed to detect two classes of defects: cosmetic and functional. Cosmetic defects do not affect the functionality of the display, but they cause user annoyance and reduce product value. Functional defects are flaws that cause the device to be inoperable or have a significant effect on functionality.
We have recently begun delivering our SharpEye microdisplay inspection systems capable of inspecting OLED (Organic Light Emitting Diode), LCOS (Liquid Crystal on Silicon), MEMS-DLP (MicroElectroMechanical Systems) and color LCD (Liquid Crystal Display) devices. These technologies are applied to consumer products such as camcorders, rear projection computer monitors, digital still cameras, HDTV, projectors, video headsets and video telephones.
Optical Disc Inspection
Compact disc inspection is considered an integral part of the replication process. Product quality has become an ever-growing concern among disc manufacturers during the evolution from CDs to DVDs and recordable media. Integral Vision has been serving the
inspection needs of the optical disc inspection industry for over 13 years. During this time, we have seen many changes in the industry, including smaller in-line systems, faster production speeds, multiple inspections and many different disc formats. We have addressed these issues and much more with the introduction of our Series 2000 family of products.
The Series 2000 is the latest generation of Integral Vision’s optical disc inspection products. The series features systems designed for all stages of the production process, including replication, printing and packaging. We have upgraded our electronic and optical components, designing products with reliability, low maintenance and ease of use in mind. The Series 2000 family of products includes the OMNI, CDiD, CDiP, and CDiA.
Omni is the base inspection scanner system for all disc formats, consisting of a CPU, monitor, keyboard, optics and software. Users can add optical inspection channels to customize the OMNI to inspect the DVD, recordable and rewritable media. The OMNI is intended for easy integration into any replication line.
CDiD safeguards against mixed product by verifying disc orientation codes during any stage of the production process. The system performs optical character verification (OCV), bar code reading, Show & Go or any combination of the above.
CDiP is designed for monitoring the consistency of printed labels on optical discs. CDiP controls print quality in screen, offset and pad printing technologies.
CDiA is designed for use on the in-feed of an automatic sleeving machine. The system provides rotational information to guarantee all discs are packaged in the exact same manner.
Production and Suppliers
The Company’s production process consists principally of assembling standard electrical, electronic and optical components and hardware subassemblies purchased from suppliers into finished products. When proprietary circuit boards are needed, the Company generally contracts for outside vendors to build the boards based on internal company designs.
The Company generally does not rely on a single source for parts and subassemblies, although certain components and subassemblies included in the Company’s products may only be obtained from a limited number of suppliers. Management believes alternative sources or designs could be developed for any of the components used in its products thereby mitigating any exposure to product interruption from shortages of parts or limited suppliers.
Intellectual Property
Management believes that the technology incorporated in its products gives it advantages over its competitors and prospective competitors. Protection of technology is attempted through a combination of patents, applied for patents, confidentiality agreements and trade secrets. The Company presently has 20 patents. There can be no assurance that that the Company will have the resources to defend its patents or that patents the Company holds will be considered valid if challenged. In addition, it is possible that some patents will be rendered worthless as the result of technological obsolescence.
Marketing
The Company generally markets its vision products to end users, but the Company has had success integrating its products with OEM’s in certain circumstances. More recently, the Company has begun to use distributors for its application software development tools for vision. Although sales are made worldwide, the Company’s strongest presence is maintained in the US (through Company employees), and in Europe and Asia (through a combination of representatives and Company employees). Company sales employees are compensated by a combination of salary and commission.
Product Development
The market for Machine Vision is characterized by rapid and continuous technological development and product innovation. The Company believes that continued and timely development of new products and enhancements to existing products is necessary to maintain its competitive position. Accordingly, the Company devotes a significant portion of its personnel and financial resources to product development programs and seeks to maintain close relationships with customers to remain responsive to their needs. The Company’s net engineering and development cost amounted to $1.6 million, $2.7 million, and $3.1 million for the years ended December 31, 2001, 2000, and 1999, respectively. The Company’s current product development efforts are primarily directed to Small Display Inspection products.
Environmental Factors
The costs to the Company of complying with federal, state and local provisions regulating protection of the environment are not material.
Competition
The Company experiences competition in all areas in which it operates. Competition is strongest in the optical disc market where the Company’s optical inspection systems compete with equipment from Dr. Schenk GmbH and Basler GmbH. Competition for Common VisionBlox, Small Display Inspection, and general vision application work comes from numerous niche producers, each providing competition within a particular product line. Cognex Corp. competes either directly or indirectly via systems integrators in some of the Company’s product lines, except optical disc inspection products.
Export Sales
Sales outside of the United States accounted for 46%, 61% and 54% of the Company’s net sales in 2001, 2000 and 1999. Management expects that such sales will continue to represent a significant percentage of its net sales. Most of the Company’s export billings are denominated in US dollars. Billings in the UK and Japan are generally in pound sterling and yen, respectively. On occasion other export billings are denominated in the currency of the customer’s country.
See Note J to the Consolidated Financial Statements Part II - ITEM 8 for details of geographic area information.
Major Customers
The nature of the Company’s product offerings may produce sales to one or a small number of customers in excess of 10% of total sales in any one year. It is possible that the specific customers reaching this threshold may change from year to year. Loss of any one of these customers could have a material impact on the Company’s result of operations. For the year ended December 31, 2001 the Company did not have sales to a single customer that exceeded 10% of total sales.
Backlog
As of December 31, 2001, the Company had an order backlog of approximately $251,000 compared to $566,000 at December 31, 2000. Management expects that the Company will ship products representing this entire backlog in 2002.
Employees
As of February 28, 2002, the Company had approximately 18 permanent employees, as compared to 67 at February 28, 2001 and 89 at February 28, 2000. None of the Company’s employees are represented by a labor union.
ITEM 2.
ITEM 2. Properties
Manufacturing, engineering and administrative functions of Integral Vision are performed at an approximately 5,000 square foot facility leased by the Company in Farmington Hills, Michigan. In addition, Integral Vision LTD leases a 1,000 square foot facility in Bedford, England for sales and administrative functions.
ITEM 3.
ITEM 3. Legal Proceedings
The Company is not currently involved in any material litigation.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
Part II
ITEM 5.
ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters
The Company’s common stock is traded on the Over the Counter Bulletin Board (OTCBB) under the symbol INVI. As of February 28, 2002, there were approximately 4,500 stockholders of the Company including individual participants in security position listings.
The Company’s common stock was moved to the Over the Counter Bulletin Board (OTCBB) effective with its delisting from The Nasdaq SmallCap Market with the open of business August 16, 2001. The Company was informed by Nasdaq that the delisting was decided by the Nasdaq Listing Qualifications panel which approved the Nasdaq’s staff decision to delist the stock due to its failing to maintain a minimum bid price of $1.00 for 30 consecutive trading days as required by Marketplace Rule 4450(a)(5) for continued listing.
Information on the current quotes on the stock, which will continue to use the ticker symbol INVI, are available at the OTCBB’s website, www.otcbb.com and most financial information portals, such as that provided at http://finance.yahoo.com or http://quote.bloomberg.com. Integral Vision will continue to provide information through filings with the Securities and Exchange Commission (SEC) as required for continued listing on the OTCBB. These filings can be found at the SEC’s website at www.sec.gov.
The table below shows the high and low sales prices for the Company’s common stock for each quarter in the past two years. The closing sales price for the Company’s common stock on February 28, 2002 was $0.26 per share.
The market for securities of small market-capitalization companies has been highly volatile in recent years, often for reasons unrelated to a company’s results of operations. Management believes that factors such as quarterly fluctuations in financial results, failure of new products to develop as expected, sales of common stock by existing shareholders, and substantial product orders may contribute to the volatility of the price of the Company’s common stock. General economic trends such as recessionary cycles and changing interest rates may also adversely affect the market price of the Company’s common stock. No cash dividends on common stock have been paid during any period.
ITEM 6.
ITEM 6. Selected Financial Data
(g)
In 2001, Management made a change in estimate that resulted in a $1.9 million charge to direct costs of sales to write down inventory and capitalized software to estimated net realizable values. The amount of the charge applicable to inventory was $540,000 with the remaining $1.3 million applicable to capitalized software.
(h)
See Note B to “Notes to Consolidated Financial Statements.”
The above selected financial data should be read in conjunction with Consolidated Financial Statements, including the notes thereto (Part II - ITEM 8) and Management’s Discussion and Analysis of Financial Condition and Results of Operations (Part II - ITEM 7). The Company has never paid a dividend and does not anticipate doing so in the foreseeable future. The Company expects to retain earnings to finance the expansion and its development of business.
ITEM 7.
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
On June 30, 1999, the Company sold the assets of its Welding Controls division. As a result of the sale, the Company changed its name to Integral Vision, Inc. Integral Vision develops, manufactures and markets microprocessor-based process monitoring and control products for use in industrial manufacturing environments. The Company’s revenues are primarily derived from the sale of optical inspection equipment. Optical inspection equipment is principally sold to end users and suppliers of small flat panel display and optical disc manufacturing equipment. Except for the historical information contained herein, the matters discussed in this document are forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Such factors and uncertainties include, but are not limited to: the impact of the level of the Company’s indebtedness; the Company’s ability to obtain the cash needed to allow it to continue as a going concern; general economic conditions and conditions in the specific industries in which the Company has significant customers; price fluctuations in the materials purchased by the Company for assembly into final products; competitive conditions in the Company’s markets and the effect of competitive products and pricing; and technological development by the Company, its customers and its competition. As a result, the Company’s results may fluctuate. Additional information concerning risk factors that could cause actual results to differ materially from those projected in the forward-looking statements is contained in the Company’s filings with the Securities and Exchange Commission. These forward-looking statements represent the Company’s best estimates as of the date of this document. The Company assumes no obligation to update such estimates except as required by the rules and regulations of the Securities and Exchange Commission.
Results of Operations
The following table sets forth for the periods indicated certain items from the Company’s Statements of Operations as a percentage of net revenues. The impact of inflation for the periods presented was not significant.
Year Ended December 31, 2001, compared to the year ended December 31, 2000
Net revenues decreased $3.3 million (55.8%) to $2.6 million in 2001 from $6.0 million in 2000. The decrease resulted primarily from decreased sales of the Company’s liquid crystal inspection (LCI) and disc identification/print inspection (CDiD/CDiP) products.
Direct costs of sales decreased $1.1 million (16.9%) to $5.4 million in 2001 from $6.5 million in 2000. Direct costs of sales as a percentage of sales increased to 205% in 2001 compared to 109% in 2000. Management periodically performs an analysis of the net realizable value of capitalized software costs. Based on current market conditions and the direction of the Company, Management determined that capitalized software development costs exceeded the estimated net realizable value of amounts capitalized and a write-down was necessary. For the year ended December 31, 2001, $1.3 million of additional amortization is included in costs of sales as a result of these analyses. Additionally, as a result of the analyses, direct costs of sales includes a $540,000 charge for the write-down of inventory. In 2000, management made a change in estimate, primarily related to inventory, that resulted in a $666,000 charge to direct costs of sales. The Company was in the process of liquidating the inventory related to previously discontinued product lines, however, due to disappointing results of the inventory liquidation effort, management decided that a change in estimate was necessary. Exclusive of the aforementioned adjustments, direct costs of sales as a percentage of sales would have been 134% in 2001 compared to 97.8% in 2000. The gross margin in both periods was negatively impacted by the low sales volume as the fixed charges, depreciation and amortization, included in costs of sales make up a significant portion of the total costs of sales.
Marketing costs decreased 33.5%, or $782,000, to $1.6 million in 2001 compared to $2.3 million in 2000. This decrease is primarily attributable to workforce reductions resulting from the implementation of a cost reduction plan by Management in late 2000. The plan also called for workforce reductions in both the general and administrative department and the engineering department, as evidenced by the figures below.
General and administrative costs decreased 1.7%, or $30,000, to $1.7 million in 2001 compared to $1.7 million in 2000. Messrs. Charles Drake and Mark Doede each have loans from the Company. In August 2001, the Compensation Committee of the Company’s Board of Directors resolved to forgive $100,000 of the outstanding balance on each of their loans from the Company, which resulted in a $200,000 charge to compensation expense. Additionally, Mr. Charles Drake was provided with 400,000 shares of unregistered stock of the Company, subject to certain sale restrictions. An additional $56,000 of compensation expense was charged to general and administrative expense in 2001 as a result of the issuance of these shares. General and administrative costs for 2001 also includes a $109,000 charge for bad debts as certain of the Company’s debtors’ financial conditions have worsened over the last several months. Exclusive of these non-recurring charges, general and administrative costs decreased 22.8% or $395,000 in 2001.
Engineering and development expenditures decreased 41.5%, or $1.4 million, to $1.9 million in 2001 compared to $3.3 million in 2000.
On June 30, 1999, the Company completed an agreement to sell substantially all the assets of its Welding Controls division for $25.7 million, net of costs of the sale, for cash, the assumption of certain liabilities, and a subordinated note (WTC note). The interest bearing portion of the note, approximately $1.9 million, carried an interest rate approximating prime plus 1% and required quarterly payments beginning on February 15, 2000, with a February 15, 2001 maturity date. The non-interest bearing portion of the note, $1.5 million, was discounted using an imputed interest rate of 9% and matured on February 15, 2001.
In January 2001, the Company sold 19.9% of the $1.7 million then outstanding under the note agreement to third party investors in exchange for consideration of $300,000. In May 2001, the Company completed a transaction whereby it repurchased the portion of the note previously sold to the investors and then sold the entire note receivable, which had an outstanding balance of $1.1 million at April 30, 2001, to a third party for $750,000. The
Company recognized a loss on sale of the note receivable of $441,000 in the quarter ended March 31, 2001.
Interest income decreased $251,000 to $96,000 in 2001 compared to $347,000 in 2000. This decrease is primarily attributable to the sale of the Company’s note receivable in May 2001 and the receipt of principal payments on the outstanding balance of the note throughout the year.
Interest expense was $172,000 in 2001 compared to $177,000 in 2000. Interest expense decreased due to the fact that the Company’s mortgages were paid in full when the sale of its building closed on July 27, 2001 (see Note D to consolidated financial statements). Additionally, the Company used proceeds from the sale of its note receivable in May 2001 (see Note B to consolidated financial statements) to pay in full its revolving line of credit at which time that agreement was terminated. However, these decreases were offset by additional interest expense attributable to the debentures that were sold in 2001 (see Note I to consolidated financial statements).
On July 27, 2001, the Company completed a transaction to sell the building it currently occupies in Farmington Hills, MI for $2.45 million, at which time the existing mortgages were retired. The Company continues to occupy a portion of the building under a five-year lease agreement with the new owner. Net proceeds from the sale was approximately $200,000 of which $186,000 was used to prepay nine months of rent, a requirement of the lease agreement. In 2001, the Company recognized a loss on the transaction of approximately $22,000, which is included in other income.
On August 24, 2001, the Company completed the sale of certain of its packaging applications software and most of the fixed assets of its subsidiary, Integral Vision Ltd., to n.v. DIMACO, s.a. for $500,000 in cash and future royalties. Included in the transaction was the sale of the worldwide exclusive rights to Integral Vision’s “Full Bottle Inspection System” (FBIS), a product that performs certain inspections on bottles at the end of a filling line. Integral Vision will receive a royalty on each FBIS sold for the next three years. The proceeds from the transaction were used primarily to fund current operations and to pay down existing trade payables.
Also included with the transaction was a manufacturing agreement whereby DIMACO will manufacture products for Integral Vision’s Optical Disc and Display Inspection customers in Europe.
Under the terms of the sale, most of Integral Vision Ltd.’s personnel and costs transferred to DIMACO. However, Integral Vision Ltd. maintained sales and service staff to support its Optical Disc and Display Inspection customers in Europe.
In 2001, the Company recognized a gain on the transaction of approximately $114,000, which is included in other income, primarily attributable to the software included in the sale.
Year Ended December 31, 2000, compared to the year ended December 31, 1999
Net revenues decreased $4.7 million (44.3%) to $6.0 million in 2000 from $10.7 million in 1999. The decrease is primarily attributable to a lack of demand for the Company’s OMNI inspection system. In 2000, the Company’s ability to sell into the overseas market was hampered by the strength of the U.S. Dollar versus the German Mark, as the Company has major competitors based in Germany. The average exchange rate of the U.S. Dollar to the German Mark increased approximately 16% in 2000 versus 1999. The Company was unable to lower its price enough to compete. In the U.S., manufacturers and replicators in the disc market spent very little to increase capacity in 2000 for a variety of reasons including increased electronic distribution (versus disc media) of music and computer software and the relocation of manufacturing operations to Asia. However, the Company did experience a modest increase in sales of its liquid crystal inspection (LCI) and disc identification/print inspection (CDiD/CDiP) products which partially offset the decline in OMNI sales.
Direct costs of sales decreased to $6.5 million in 2000 from $10.8 million in 1999 and increased as a percentage of sales to 109% from 101%. In 2000, Management made a change in estimate, primarily related to inventory, that resulted in a $666,000 charge to direct costs of sales. The Company was in the process of liquidating the inventory related to previously discontinued product lines, however, due to disappointing results of the inventory liquidation effort, Management decided that a change in estimate was necessary. The direct costs of sales for 1999 included an inventory charge-off of $1.5 million resulting from a review of the marketability of remaining inventory related to a previously discontinued product line. Exclusive of the aforementioned adjustments, direct costs of sales as a percentage of sales would have been 97.8% in 2000 compared to 86.8% in 1999. The gross margin in 2000 was positively affected by a change in product mix as sales of our LCI and CDiD/CDiP products have less material cost than that of the OMNI systems. However, the gross margin in both periods was negatively affected by low sales volumes as fixed charges, depreciation, and amortization made up a significant portion of the costs of sales.
Marketing expense decreased slightly in dollar terms, but increased as a percentage of net revenues from 22.9% to 39.2%. The increase as a percentage of net revenues was primarily attributable to the decreased sales volume.
General and administrative expenses increased to $1.7 million from $1.3 million and as a percentage of net revenues from 12.2% to 29.1%. This was primarily due to the fact that a portion of the G&A was allocated to the Welding Controls division in 1999. The actual general and administrative expenditures decreased in 2000 compared to 1999.
Product development expenses decreased to $2.7 million from $3.1 million and increased as a percentage of net revenues from 28.7% to 45.2%. The reduction in development expenditures was primarily the result of the Company’s decision to focus its resources on a few specific projects in 2000.
In 1999, other income of $1.5 million and interest income of $374,000 ($347,000 in 2000) resulted from the sale of the Welding Controls division to Weltronic (WTC). The other income represents fees paid for services provided by Integral Vision for WTC during the transition period. These services included management services, use of facilities and software usage. The interest income represents the interest on the note receivable from WTC.
Interest expense decreased to $177,000 from $539,000 and as a percentage of net revenues to 3.0% from 5.0%. The decrease is a result of the pay-off of substantially all debt at June 30, 1999 using the proceeds from the sale of the Welding Controls division.
In 1999, the gain on disposal of the Welding division of $8.7 million, net of tax, resulted from the sale of substantially all of the assets of the Welding Controls division on June 30, 1999.
In 1999, the extraordinary charge of $583,000, net of tax credit, was a result of charges related to the early retirement of debt. These charges included unaccreted value assigned to warrants and unamortized discounts. The Company used proceeds from the sale of the Welding Controls division to pay-off substantially all outstanding debt on June 30, 1999.
Quarterly Information
The following table sets forth Consolidated Statements of Operations data for each of the eight quarters in the two-year period ended December 31, 2001. The unaudited quarterly information has been prepared on the same basis as the annual information and, in management’s opinion, includes all adjustments necessary for a fair presentation of the information for the quarters presented.
[Additional columns below]
[Continued from above table, first column(s) repeated]
*
The sum of the quarterly net income per share amounts may not equal the annual amounts reported. Net income per share is computed independently for each quarter and the full year and is based on the respective weighted average common shares outstanding.
See MD&A for additional discussion
Seasonality and Quarterly Fluctuations
The Company’s revenues and operating results have varied substantially from quarter to quarter. Net revenues and earnings are typically lower in the first and fourth quarters. The most significant factors affecting these fluctuations are the seasonal buying patterns of the Company’s customers. The end users of the Company’s optical inspection products typically add manufacturing capacity in the second and third quarters in anticipation of higher production requirements in the fourth quarter. The Company expects its net revenues and earnings to continue to fluctuate from quarter to quarter.
Liquidity and Capital Resources
Operating activities for 2001 used cash of approximately $1.9 million primarily due to the Company’s loss from continuing operations of $7.7 million. The cash used in operating activities was partially offset by a net decrease of $2.1 million in certain working capital items. Decreases in accounts receivable and inventory were the primary reasons for the net decrease in certain working capital items.
In 2001, the Company invested $384,000 in the development of software for its small flat panel display inspection systems. Additionally, the Company’s investing activities included the following:
1.
The January 2001 sale of 19.9% of the $1.7 million then outstanding on the note receivable that resulted from the sale of the Welding Controls division to third party investors in exchange for consideration of $300,000. The Company also received $439,000 in principal payments on the portion of the note receivable that was not sold. In May 2001, the Company completed a transaction whereby it repurchased the portion of the note previously sold to the investors and then sold the entire note receivable, which had an outstanding balance of $1.1 million at April 30, 2001, to a third party for $750,000.
2.
On July 27, 2001, the Company completed a transaction to sell the building it currently occupies in Farmington Hills, MI for $2.45 million, at which time the existing mortgages were retired. The Company continues to occupy a portion of the building under a five-year lease agreement with the new owner. Net proceeds from the sale was approximately $200,000 of which $186,000 was used to prepay nine months of rent, a requirement of the lease agreement. The Company recognized a loss on the transaction of approximately $22,000, which is included in other income.
3.
On August 24, 2001, the Company completed the sale of certain of its packaging applications software and most of the fixed assets of its subsidiary, Integral Vision Ltd., to n.v. DIMACO, s.a. for $500,000 in cash and future royalties. Included in the transaction was the sale of the worldwide exclusive rights to Integral Vision’s “Full Bottle Inspection System” (FBIS), a product that performs certain inspections on bottles at the end of a filling line. Integral Vision will receive a royalty on each FBIS sold for the next three years. The proceeds from the transaction were used primarily to fund current operations and to pay down existing trade payables.
Also included with the transaction was a manufacturing agreement whereby DIMACO will manufacture products for Integral Vision’s Optical Disc and Display Inspection customers in Europe.
Under the terms of the sale, most of Integral Vision Ltd.’s personnel and costs transferred to DIMACO. However, Integral Vision Ltd. maintained sales and service staff to support its Optical Disc and Display Inspection customers in Europe.
In 2001, the Company recognized a gain on the transaction of approximately $114,000, which is included in other income, primarily attributable to the software included in the sale.
The Company’s financing activities included $2.0 million paid to retire its outstanding mortgage notes payable at the closing on the sale of the building. The Company used proceeds from the sale of its note receivable in May 2001 to pay in full its revolving line of credit at which time that agreement was terminated. The Company generated cash in the period through the placement of $510,000 of its senior subordinated debentures.
The Company’s current resources include only anticipated cash provided by operating activities. This resource will not be sufficient to support the Company’s cash flow needs over the next twelve months. The expected cash shortfall over the next twelve months is approximately $740,000. In March 2001, the Company’s board of directors approved the issuance of up to $1.5 million of senior subordinated debentures (see Note D to consolidated financial statements), which could provide additional financing to the Company. Management plans to secure approximately $540,000 through additional sales of its debentures in 2002, of which $500,000 had been secured as of February 28, 2002. In February 2002, the Company’s chairman, Charles J. Drake, invested $350,000 in the Company’s debentures. An additional $150,000 in debentures were placed with outside investors subsequent to December 31, 2001. Management’s plans to obtain the additional cash needed to enable the Company to continue as a going concern, include the sale of certain of its patented technologies, as well as pursuing possible joint ventures and other strategic alliances. Additional financing may or may not be available through banks. There can be no assurance that Management will be able to successfully execute
these plans before the Company has exhausted all of its resources. These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern.
Impact of Inflation
The amounts presented in the financial statements do not provide for the effect of inflation on the Company’s operations or its financial position. Amounts shown for property, plant and equipment and for costs and expenses reflect historical cost and do not necessarily represent replacement cost or charges to operations based on replacement cost. The Company’s operations together with other sources are intended to provide funds to replace property, plant and equipment as necessary. Net income would be lower than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Recently Issued Accounting Standards
In June 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that all business combinations initiated after June 30, 2001 are to be accounted for using the purchase method and specifies the criteria for the recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives are to no longer be amortized but rather be tested at least annually for impairment. SFAS No. 142 also requires that intangible assets with definite useful lives will continue to be amortized over their respective useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (which supersedes SFAS No. 121). The Company adopted the provisions of SFAS No. 141 immediately and will adopt SFAS No. 142 effective January 1, 2002. There was no material impact resulting from the application of SFAS No. 141 and the Company does not believe that there will be a material impact resulting from the application of SFAS No. 142.
In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, effective for fiscal years beginning after December 15, 2001. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 also extends the reporting requirements to report separately as discontinued operations, components of an entity that have either been disposed of or classified as held-for-sale. The Company will adopt the provisions of SFAS No. 144 effective January 1, 2002 and does not expect that such adoption will have a significant effect on the Company’s results of operations or financial position.
ITEM 7a.
ITEM 7a. Quantitative and Qualitative Disclosures about Market Risks
The Company is exposed to market risk stemming from changes in foreign exchange rates, interest rates and prices of inventory purchased for assembly into finished products. Changes in these factors could cause fluctuations in earnings and cash flows. In the normal course of business, exposure to interest rates is managed by fixing the interest rates on the Company’s long-term debt whenever possible. The Company does not generally enter into long-term purchase contracts but instead purchases inventory to fill specific sales contracts thereby minimizing risks with respect to inventory price fluctuations.
Foreign Exchange Rates - The Company’s location outside the US is in the United Kingdom. This is a sales office with net non-current assets that are not significant. On a consolidated basis the Company denominates sales in the following currencies:
In management’s opinion, as the currencies of Western Europe and the UK are generally stable, there is no significant exposure to losses due to currency fluctuations. However, because the Yen has not been stable over the past several years, the Company does enter into forward sales contracts equal to the future amount of Yen to be received at the time the order is accepted. These hedging transactions are on an order by order basis and at no time are they speculative in nature. At December 31, 2001, the Company had no open positions.
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
Financial statements and quarterly results of operations are submitted in separate sections of this report.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants and Financial Disclosure
None
Part III
ITEM 10.
ITEM 10. Directors and Executive Officers of the Registrant
The information contained in the Integral Vision, Inc. proxy statement (to be filed within 120 days of December 31, 2001), with respect to directors and executive officers of the Company, is incorporated herein by reference.
ITEM 11.
ITEM 11. Executive Compensation
The information contained in the Integral Vision, Inc. proxy statement (to be filed within 120 days of December 31, 2001), with respect to directors and executive officers of the Company, is incorporated herein by reference.
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the Integral Vision, Inc. proxy statement (to be filed within 120 days of December 31, 2001), with respect to directors and executive officers of the Company, is incorporated herein by reference.
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions
The information contained in the Integral Vision, Inc. proxy statement (to be filed within 120 days of December 31, 2001), with respect to directors and executive officers of the Company, is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) and (2)
The response to this portion of ITEM 14 is submitted as a separate section of this report.
(3)
Listing of exhibits.
*
The Company has been granted confidential treatment with respect to certain portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date:
March 29, 2002
INTEGRAL VISION, INC.
By: /S/ CHARLES J. DRAKE
Charles J. Drake, Chairman of the Board
(Principal Executive Officer)
By: /S/ VINCENT SHUNSKY
Vincent Shunsky, Treasurer and Director
(Acting Chief Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/S/ CHARLES J. DRAKE Charles J. Drake
Chairman of the Board (Principal Executive Officer) and Director
/S/ MAX A. COON
Vice Chairman, Secretary and Director
Max A. Coon
/S/ VINCENT SHUNSKY
Vincent Shunsky
Treasurer and Director (Acting Chief Financial Officer)
/S/ WILLIAM B. WALLACE
Director
William B. Wallace
/S/ CRAIG A. BLACK
Director
Craig A. Black
/S/ SAMUEL O. MALLORY
Director
Samuel O. Mallory
Annual Report on Form 10K
ITEM 14(a)(1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedules
Certain Exhibits
Financial Statement Schedules
Year Ended December 31, 2001
INTEGRAL VISION, INC.
Farmington Hills, MI
Form 10-K - ITEM 14(a)(1) and (2)
Integral Vision, Inc. and Subsidiary
List of Financial Statements and Financial Statement Schedules
(a)(1)
The following consolidated financial statements of Integral Vision, Inc. and subsidiary are included in ITEM 8:
Report of Moore Stephens Doeren Mayhew, Independent Auditors Consolidated Balance Sheets-December 31, 2001 and 2000 Consolidated Statements of Operations-Years ended December 31, 2001, 2000 and 1999 Consolidated Statements of Stockholders’ Equity (Deficit) -Years ended December 31, 2001, 2000, and 1999 Consolidated Statements of Cash Flows-Years ended December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements-December 31, 2001
(2)
The following Consolidated Financial Statement schedule of Integral Vision, Inc. and subsidiary is submitted herewith:
Schedule II
Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
Report of Independent Auditors
To the Board of Directors and Stockholders
Integral Vision, Inc.
Farmington Hills, MI
We have audited the accompanying consolidated balance sheets of Integral Vision, Inc. and subsidiary as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2001. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules for 2001, 2000 and 1999 as listed in the accompanying index at ITEM 14(a). These consolidated financial statements and the financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Integral Vision, Inc. and subsidiary as of December 31, 2001 and 2000 and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule for 2001, 2000 and 1999, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements and the financial statement schedule have been prepared assuming that the Company will continue as a going concern. As discussed in Note P to the consolidated financial statements, the Company is suffering recurring losses from operations and its difficulties in generating sufficient cash flow to meet its obligations raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note P. The consolidated financial statements and the financial statement schedule do not include any adjustments that might result from the outcome of this uncertainty.
/S/ Moore Stephens Doeren Mayhew
Troy, Michigan
March 19, 2002
Consolidated Balance Sheets
Integral Vision, Inc. and Subsidiary
See accompanying notes
Consolidated Statements of Operations
Integral Vision, Inc. and Subsidiary
See accompanying notes
Consolidated Statements of Stockholders’ Equity (Deficit)
Integral Vision, Inc. and Subsidiary
See accompanying notes
Consolidated Statements of Cash Flows
Integral Vision, Inc. and Subsidiary
See accompanying notes
Notes to Consolidated Financial Statements
Integral Vision, Inc. and Subsidiary
Note A - Significant Accounting Policies
Nature of Business
On June 30, 1999, the Company sold the assets of its Welding Controls division. As a result of the sale, the Company changed its name to Integral Vision, Inc. “Integral Vision” (or the “Company”), formerly known as Medar, Inc., is a Michigan corporation incorporated in 1978. Integral Vision 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 inspection (“machine vision products”). 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.
Sales of machine vision products are effected through Integral Vision and through Integral Vision LTD., a wholly owned subsidiary of the Company, located in Bedford, England.
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.
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.
Accounts Receivable
Trade accounts receivable primarily represent amounts due from equipment manufacturers and end-users in North America, Asia and Europe.
Major Customers
The nature of the Company’s product offerings may produce sales to one or a small number of customers in excess of 10% of total sales in any one year. It is possible that the specific customers reaching this threshold may change from year to year. Loss of any one of these customers could have a material impact on the Company’s result of operations. For the year ended December 31, 2001 the Company did not have sales to a single customer that exceeded 10% of total sales. For the year ended December 31, 2000, sales to Machines Dubuit, Hanky America and Protronix Ltd represented 33% of consolidated sales. Amounts due from these customers represented 40% of the respective outstanding trade receivable balance at December 31, 2000.
Inventories
Management periodically performs an analysis of the Company’s inventory to determine if its cost exceeds estimated net realizable value. Over the last several years, given the market conditions and the direction of the Company, Management discontinued certain product lines and attempted to liquidate the remaining inventory related to those product lines. Due to disappointing results of the inventory liquidation effort, Management decided that a change in estimate was necessary. The charge to direct costs of sales to write the inventory down to estimated net realizable value was $540,000 in 2001, $666,000 in 2000, and $1.5 million in 1999. Also included in direct costs of sales were non-cash charges for depreciation, amortization and net realizable value write downs related to capitalized software totalling $2.9 million, $1.9 million and $1.4 million in 2001, 2000, and 1999, respectively. A reconciliation of gross margin as reported to gross margin from operations is presented in the table below.
Capitalized Computer Software Development Costs
Property and Equipment
Property and equipment is stated on the basis of cost. Expenditures for normal repairs and maintenance are charged to operations as incurred.
Depreciation is computed by the straight-line method based on the estimated useful lives of the assets (buildings-40 years, other property and equipment-3 to 10 years).
Patents
Revenue Recognition
Revenues are recorded at the time services are performed or when products are shipped, except for long-term contracts. Contracts whose duration overlap an accounting quarter reporting period, are non-repetitive and exceed $100,000 are accounted for under the percentage-of-completion accounting method. The effects of changes to estimated total contract costs are recognized in the year determined and losses, if any, are fully recognized when identified. Costs and estimated earnings recognized in excess of amounts billed are classified under current assets as costs and estimated earnings in excess of billings on incomplete contracts. Long-term contracts include a relatively high percentage of engineering costs and are generally less than one year in duration.
Advertising
Advertising costs are expensed as incurred. The amounts were not material for all years presented.
Income Taxes
The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.”
Fair Value Disclosure
The carrying amounts of certain financial instruments such as cash, accounts receivable, notes receivable, accounts payable and long-term debt approximate their fair values. The fair value of the long-term financial instruments is estimated using discounted cash flow analysis and the Company’s current incremental borrowing rates for similar types of arrangements.
Comprehensive Income
The Company displays comprehensive income in the Consolidated Statements of Stockholders’ Equity (Deficit). At December 31, 2001 and 2000, accumulated other comprehensive income (loss) consisted of unrealized income (loss) resulting from foreign currency translation adjustments.
Stock Options
The Company has elected to follow APB No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for its employee stock options
because, in management’s opinion, the alternative fair value provided for under FASB Statement No. 123, “Accounting for Stock-Based Compensation,” requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Reclassifications
Certain amounts have been reclassified in prior periods’ presentations to conform to the current year’s presentation.
Recently Issued Accounting Standards
In June 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that all business combinations initiated after June 30, 2001 are to be accounted for using the purchase method and specifies the criteria for the recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives are to no longer be amortized but rather be tested at least annually for impairment. SFAS No. 142 also requires that intangible assets with definite useful lives will continue to be amortized over their respective useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (which supersedes SFAS No. 121). The Company adopted the provisions of SFAS No. 141 immediately and will adopt SFAS No. 142 effective January 1, 2002. There was no material impact resulting from the application of SFAS No. 141 and the Company does not believe that there will be a material impact resulting from the application of SFAS No. 142.
In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, effective for fiscal years beginning after December 15, 2001. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 also extends the reporting requirements to report separately as discontinued operations, components of an entity that have either been disposed of or classified as held-for-sale. The Company will adopt the provisions of SFAS No. 144 effective January 1, 2002 and does not expect that such adoption will have a significant effect on the Company’s results of operations or financial position.
Note B - Discontinued Operations
These services, which were substantially concluded in 1999, included use of the Company’s personnel, facilities and software.
During the quarter ended December 31, 1999, the Company resolved certain post closing adjustments with the purchaser of the former Welding Controls division which produced the additional gain of $2.1 million recognized in the quarter. Part of the resolution with the purchaser included an agreement to pay amounts that previously had been contingent on shipments to a certain customer. This accounted for approximately $1.5 million of this additional gain recorded.
The acquiring company also assumed a liability to Square D in the amount of $1.8 million in accordance with the purchase agreement. This liability resulted from the settlement of patent litigation in 1994. The settlement required payments of $300,000 per year for ten years. In the event the acquiring company fails to make the required payments, Integral Vision may be obligated for those amounts due.
The results of operations for this segment have been reported separately as discontinued operations in the Consolidated Statements of Operations for the two prior periods presented.
Note C - Costs and Estimated Earnings in Excess of Billings on Incomplete Contracts
Contracts whose duration overlap an accounting quarter reporting period, are non-repetitive and exceed $100,000 are accounted for under the percentage-of-completion accounting method.
Costs and estimated earnings in excess of billings on incomplete contracts at December 31 are summarized as follows:
Note D - Long-Term Debt and Other Financing Arrangements
Note E - Income Taxes
The reconciliation of income taxes computed at the U.S. federal statutory tax rates to income tax expense (credit) is as follows:
Note F - Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
Warrants and options outstanding were not included in the computation of diluted earnings per share because the inclusion of these options would have an antidilutive effect. For additional disclosures regarding stock options and warrants see Note I.
Note G - Employee Savings Plan
Note H - Lease Commitments and Contingencies
Note I - Stock Options and Warrants
The Compensation Committee of the Board of Directors approves option grants. The option price is the market price on the date of the grant, and vesting generally occurs after one year and the expiration occurs ten years from the date of the grant.
A summary of option activity under all plans follows:
Additional information regarding the range of exercise prices and weighted average remaining life of options outstanding at December 31, 2001 follows:
Note J - Operations by Geographic Area
The Company adopted Statement of Financial Accounting Standards (“SAFS”) No. 131, Disclosures about Segments of an Enterprise and Related Information, for the year ended December 31, 1998. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services, and geographic areas. Operating segments are defined as components of the enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance.
The Company is engaged in one business segment, vision-based inspection products. The following presents information by geographic area.
•
Geographic areas that are considered individually material are listed (more than 10% of net revenues), all others are included in North America and in total are considered immaterial.
Note K - Sale of Building
Note L - Sale of Technology
On August 24, 2001, the Company completed the sale of certain of its packaging applications software and most of the fixed assets of its subsidiary, Integral Vision Ltd., to n.v. DIMACO, s.a. for $500,000 in cash and future royalties. Included in the transaction was the sale of the worldwide exclusive rights to Integral Vision’s “Full Bottle Inspection System” (FBIS), a product that performs certain inspections on bottles at the end of a filling line. Integral Vision will receive a royalty on each FBIS sold for the next three years. The proceeds from the transaction were used primarily to fund current operations and to pay down existing trade payables.
Also included with the transaction was a manufacturing agreement whereby DIMACO will manufacture products for Integral Vision’s Optical Disc and Display Inspection customers in Europe.
Under the terms of the sale, most of Integral Vision Ltd.’s personnel and costs will transfer to DIMACO. However, Integral Vision Ltd. will maintain sales and service staff to support its Optical Disc and Display Inspection customers in Europe.
The approximate net book values of the assets sold were $13,000 for inventory, $97,000 for fixed assets, and $276,000 for capitalized software development costs. The Company recognized a gain on the transaction of approximately $114,000, which is included in other income, primarily attributable to the software included in the sale.
The packaging applications included in the sale accounted for approximately $518,000 of the Company’s net revenue in 2001 compared to $2.1 million in 2000.
Note M - Change in Estimate
Management has focused its development, sales and marketing efforts on the Company’s inspection systems for the small flat panel display (SFPD) industry. Industry sources indicate that this market will be substantial once fully developed. The Company has developed inspection solutions for the leading technologies used in the SFPD industry including liquid crystal on silicon (LCOS), organic light emitting diodes (OLED), liquid crystal display (LCD), and microelectromechanical systems (MEMS).
Management periodically performs an analysis of the net realizable value of capitalized software costs. Based on current market conditions and the direction of the Company, Management determined that capitalized software development costs exceeded the estimated net realizable value of amounts capitalized and a write-down was necessary. For the year ended December 31, 2001, $1.3 million of additional amortization is included in costs of sales as a result of these analyses. Additionally, as a result of the analyses, direct costs of sales includes a $540,000 charge for the write-down of inventory.
Note N - Officers’ Notes Receivable
Note O - Market for the Company’s Common Stock
The Company’s common stock was moved to the Over the Counter Bulletin Board (OTCBB) effective with its delisting from The Nasdaq SmallCap Market with the open of business August 16, 2001. The Company was informed by Nasdaq that the delisting was decided by the Nasdaq Listing Qualifications panel which approved the Nasdaq’s staff decision to delist the stock due to its failing to maintain a minimum bid price of $1.00 for 30 consecutive trading days as required by Marketplace Rule 4450(a)(5) for continued listing.
Information on the current quotes on the stock, which will continue to use the ticker symbol INVI, are available at the OTCBB’s website, www.otcbb.com and most financial information portals, such as that provided at http://finance.yahoo.com or http://quote.bloomberg.com. Integral Vision will continue to provide information through filings with the Securities and Exchange Commission (SEC) as required for continued listing on the OTCBB. These filings can be found at the SEC’s website at www.sec.gov.
Note P - Going Concern Matters
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the financial statements during the years ended December 31, 2001, 2000 and 1999, the Company incurred losses from continuing operations of $7.7 million, $7.1 million, and $5.7 million, respectively. The continuing losses, in addition to working capital deficiencies, recurring reductions in product sales, and cash flow deficiencies, among other factors, may indicate that the Company will be unable to continue as a going concern.
The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitability. The Company’s current resources include only anticipated cash provided by operating activities. This resource will not be sufficient to support the Company’s cash flow needs over the next twelve months. The expected cash shortfall over the next twelve months is approximately $740,000. In March 2001, the Company’s board of directors approved the issuance of up to $1.5 million of senior subordinated debentures (see Note D to consolidated financial statements), which could provide additional financing to the Company. Management plans to secure approximately $540,000 through additional sales of its debentures in 2002, of which $500,000 had been secured as of February 28, 2002. In February 2002, the Company’s chairman, Charles J. Drake, invested $350,000 in the Company’s debentures. An additional $150,000 in debentures were placed with outside investors subsequent to December 31, 2001. Management’s plans to obtain the additional cash needed to enable the Company to continue as a going concern, include the sale of certain of its patented technologies, as well as pursuing possible joint ventures and other strategic alliances. Additional financing may or may not be available through banks. There can be no assurance that Management will be able to successfully execute these plans before the Company has
exhausted all of its resources. These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern.
Note Q - Subsequent Events
Schedule II - Valuation And Qualifying Accounts
Integral Vision, Inc. And Subsidiary
(in thousands)
1)
Write-off obsolete inventory
2)
Net change in deferred tax valuation allowance
3)
Net accounts receivable write-offs
Exhibits to Form 10K
Integral Vision, Inc.
Year Ended December 31, 2001
Commission File Number 0-12728
Exhibit Number
Exhibit Index Description
Subsidiary of the Registrant
Consent of Moore Stephens Doeren Mayhew, independent auditors.