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Previous: BOVIE MEDICAL CORP, 10QSB, EX-27, 2000-08-14 |
Next: INTEGRAL VISION INC, 10-Q, EX-10.9, 2000-08-14 |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly period ended June 30, 2000. |
 |
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 |
48335 | ||||
| (Address of principal executive offices) | (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 NO
The number of shares outstanding of the registrant’s Common Stock, no par value, stated value $.20 per share, as of July 31, 2000 was 9,029,901.
1
PART I
FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
Integral Vision, Inc. and Subsidiary
| June 30, | December 31, | ||||||||||
| 2000 | 1999 | ||||||||||
| (Unaudited) | |||||||||||
| (in thousands) | |||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS | |||||||||||
| Cash | $ | 410 | $ | 391 | |||||||
| Accounts receivable, less allowance of $738,000 | |||||||||||
| ($820,000 in 1999) | 1,530 | 3,883 | |||||||||
| Inventories | 1,960 | 1,995 | |||||||||
| Costs and estimated earnings in excess of billings on incomplete contracts | 64 | 284 | |||||||||
| Current maturities of note receivable from sale of the Welding Controls division | 2,808 | 1,716 | |||||||||
| Other current assets | 272 | 309 | |||||||||
| TOTAL CURRENT ASSETS | 7,044 | 8,578 | |||||||||
| PROPERTY, PLANT AND EQUIPMENT | |||||||||||
| Land and land improvements | 363 | 363 | |||||||||
| Building and building improvements | 3,735 | 3,740 | |||||||||
| Production and engineering equipment | 2,668 | 2,669 | |||||||||
| Furniture and fixtures | 872 | 872 | |||||||||
| Vehicles | 139 | 145 | |||||||||
| Computer equipment | 2,740 | 2,762 | |||||||||
| 10,517 | 10,551 | ||||||||||
| Less accumulated depreciation | (6,692 | ) | (6,289 | ) | |||||||
| 3,825 | 4,262 | ||||||||||
| OTHER ASSETS | |||||||||||
| Capitalized computer software development costs, less accumulated amortization | 3,856 | 4,327 | |||||||||
| Patents, less accumulated amortization | 264 | 259 | |||||||||
| Note receivable from sale of Welding Controls division, less unamortized discount and | |||||||||||
| current maturities | — | 1,563 | |||||||||
| Other | 54 | 69 | |||||||||
| 4,174 | 6,218 | ||||||||||
| $ | 15,043 | $ | 19,058 | ||||||||
See notes to consolidated financial statements.
2
CONSOLIDATED BALANCE SHEETS – Continued
Integral Vision, Inc. and Subsidiary
| June 30, | December 31, | |||||||||
| 2000 | 1999 | |||||||||
| (Unaudited) | ||||||||||
| (in thousands) | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
| CURRENT LIABILITIES | ||||||||||
| Note payable | $ | 140 | $ | — | ||||||
| Accounts payable | 718 | 1,546 | ||||||||
| Employee compensation | 350 | 300 | ||||||||
| Accrued and other liabilities | 639 | 887 | ||||||||
| Current maturities of long term debt | 38 | 35 | ||||||||
| TOTAL CURRENT LIABILITIES | 1,885 | 2,768 | ||||||||
| LONG-TERM DEBT, less current maturities | 1,943 | 1,965 | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||||
| Common stock, without par value, stated value $.20 per share; 15,000,000 shares | ||||||||||
| authorized; 9,029,901 shares issued and outstanding | 1,806 | 1,805 | ||||||||
| Additional paid-in capital | 31,195 | 31,187 | ||||||||
| Retained-earnings deficit | (21,036 | ) | (18,103 | ) | ||||||
| Notes receivable from officers | (626 | ) | (602 | ) | ||||||
| Accumulated translation adjustment | (124 | ) | 38 | |||||||
| Total Stockholders’ Equity | 11,215 | 14,325 | ||||||||
| $ | 15,043 | $ | 19,058 | |||||||
See notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
Integral Vision, Inc. and Subsidiary
| Three Months Ended June 30, | ||||||||||
| 2000 | 1999 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands, except per share data) | ||||||||||
| Net revenues | $ | 1,785 | $ | 2,409 | ||||||
| Direct costs of sales | 1,917 | 2,574 | ||||||||
| Gross margin | (132 | ) | (165 | ) | ||||||
| Other costs and expenses: | ||||||||||
| Marketing | 611 | 682 | ||||||||
| General and administrative | 473 | 216 | ||||||||
| Engineering and development: | ||||||||||
| Expenditures | 857 | 1,099 | ||||||||
| Allocated to capitalized software and direct cost of sales | (182 | ) | (170 | ) | ||||||
| Net engineering and development expenses | 675 | 929 | ||||||||
| Total costs and expenses | 1,759 | 1,827 | ||||||||
| Operating loss | (1,891 | ) | (1,992 | ) | ||||||
| Interest income | 85 | |||||||||
| Interest expense | (48 | ) | (237 | ) | ||||||
| Loss from continuing operations before income taxes | (1,854 | ) | (2,229 | ) | ||||||
| Provision (credit) for income taxes | — | (700 | ) | |||||||
| Loss from continuing operations | (1,854 | ) | (1,529 | ) | ||||||
| Income from discontinued Welding Controls operations | 136 | |||||||||
| Gain on disposal of discontinued Welding Controls division, less | ||||||||||
| applicable income taxes | 5,526 | |||||||||
| Extraordinary charge for early retirement of debt, less applicable | ||||||||||
| income tax credits | (583 | ) | ||||||||
| Net income (loss) | $ | (1,854 | ) | $ | 3,550 | |||||
| Basic and diluted earnings per share: | ||||||||||
| Continuing operations | $ | (.21 | ) | $ | (.17 | ) | ||||
| Discontinued operations | .01 | |||||||||
| Disposal of division | .61 | |||||||||
| Extraordinary charge | (.06 | ) | ||||||||
| Net income (loss) | $ | (.21 | ) | $ | .39 | |||||
| Weighted average number of shares of common stock and | ||||||||||
| common stock equivalents, where applicable | 9,026 | 9,025 | ||||||||
See notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF OPERATIONS
Integral Vision, Inc. and Subsidiary
| Six Months Ended June 30, | ||||||||||
| 2000 | 1999 | |||||||||
| (Unaudited) | ||||||||||
| (In thousands, except per share data) | ||||||||||
| Net revenues | $ | 3,749 | $ | 4,107 | ||||||
| Direct costs of sales | 3,302 | 4,577 | ||||||||
| Gross margin | 447 | (470 | ) | |||||||
| Other costs and expenses: | ||||||||||
| Marketing | 1,185 | 1,251 | ||||||||
| General and administrative | 917 | 543 | ||||||||
| Engineering and development: | ||||||||||
| Expenditures | 1,765 | 2,279 | ||||||||
| Allocated to capitalized software and direct cost of sales | (410 | ) | (509 | ) | ||||||
| Net engineering and development expenses | 1,355 | 1,770 | ||||||||
| Total costs and expenses | 3,457 | 3,564 | ||||||||
| Operating loss | (3,010 | ) | (4,034 | ) | ||||||
| Interest income | 171 | |||||||||
| Interest expense | (94 | ) | (482 | ) | ||||||
| Loss from continuing operations before income taxes | (2,933 | ) | (4,516 | ) | ||||||
| Provision (credit) for income taxes | (700 | ) | ||||||||
| Loss from continuing operations | (2,933 | ) | (3,816 | ) | ||||||
| Income from discontinued Welding Controls operations | 1,030 | |||||||||
| Gain on disposal of discontinued Welding Controls division, less applicable | ||||||||||
| income taxes | 5,526 | |||||||||
| Extraordinary charge for early retirement of debt, less applicable income tax credits | (583 | ) | ||||||||
| Net income (loss) | $ | (2,933 | ) | $ | 2,157 | |||||
| Basic and diluted earnings per share: | ||||||||||
| Continuing operations | $ | (.32 | ) | $ | (.42 | ) | ||||
| Discontinued operations | .11 | |||||||||
| Disposal of division | .61 | |||||||||
| Extraordinary charge | (.06 | ) | ||||||||
| Net income (loss) | $ | (.32 | ) | $ | .24 | |||||
| Weighted average number of shares of common stock and common stock equivalents, | ||||||||||
| where applicable | 9,025 | 9,025 | ||||||||
See notes to consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Integral Vision, Inc. and Subsidiary
| Six Months Ended June 30, | |||||||||||
| 2000 | 1999 (restated) |
||||||||||
| (Unaudited) | |||||||||||
| (In thousands) | |||||||||||
| Operating Activities | |||||||||||
| Net income (loss) | $ | (2,933 | ) | $ | 2,157 | ||||||
| Income from discontinued operations | (1,030 | ) | |||||||||
| Gain on sale of Welding Controls division | (5,526 | ) | |||||||||
| Extraordinary charge for early retirement of debt | 583 | ||||||||||
| Loss from continuing operations | (2,933 | ) | (3,816 | ) | |||||||
| Adjustments to reconcile net loss from continuing operations to net cash provided by | |||||||||||
| operating activities: | |||||||||||
| Depreciation and amortization | 1,309 | 813 | |||||||||
| Changes in operating assets and liabilities of continuing operations: | |||||||||||
| Accounts receivable | 2,353 | 466 | |||||||||
| Inventories | 35 | 1,018 | |||||||||
| Prepaid and other | 233 | 112 | |||||||||
| Accounts payable and other current liabilities | (982 | ) | 1,840 | ||||||||
| Net Cash Provided By Operating Activities | 15 | 433 | |||||||||
| Investing Activities | |||||||||||
| Proceeds from sale of Welding Controls division, net of note receivable | 22,394 | ||||||||||
| Payment received on note receivable | 531 | ||||||||||
| Disposal (purchase) of property and equipment | (69 | ) | 174 | ||||||||
| Investment in capitalized software | (372 | ) | (606 | ) | |||||||
| Other | (54 | ) | 364 | ||||||||
| Net Cash Provided By Investing Activities | 36 | 22,326 | |||||||||
| Financing Activities | |||||||||||
| Repayments of mortgage note payable | (19 | ) | |||||||||
| Proceeds from (repayments of) revolving line of credit and other obligations | 140 | (19,171 | ) | ||||||||
| Proceeds from sale of common stock | 9 | ||||||||||
| Net Cash Provided by (Used In) Financing Activities | 130 | (19,171 | ) | ||||||||
| Effect of Exchange Rate Changes | (162 | ) | (224 | ) | |||||||
| Increase in Cash | 19 | 3,364 | |||||||||
| Cash at Beginning of Period | 391 | 566 | |||||||||
| Cash at End of Period | $ | 410 | $ | 3,930 | |||||||
See notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Integral Vision, Inc. and Subsidiary
June 30, 2000
(Unaudited)
Note A – 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. 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, 1999. |
| Operating results for the three and six month periods ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. Certain other amounts in the consolidated financial statements have been reclassified to conform with the current presentation. |
Note B – Sale of the Welding Division
| 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. The interest bearing portion of the note, approximately $1.9 million, carries an interest rate approximating prime plus 1% and requires 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 matures on February 15, 2001. Additionally, in connection with the sale, Integral Vision entered into an agreement to provide certain services to the purchaser for a fee totaling $1.5 million, all of which was paid in cash. These services 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 results of operations for this segment have been reported separately as discontinued operations in the Consolidated Statements of Operations for the prior periods presented. |
| Three Months Ended | Six Months Ended | |||||||
| June 30, 1999 | June 30, 1999 | |||||||
| (unaudited) | ||||||||
| (in thousands) | ||||||||
| Net revenues | $ | 5,275 | $ | 12,403 | ||||
| Costs and expenses | 5,139 | 11,373 | ||||||
| Net income from discontinued operations | $ | 136 | $ | 1,030 | ||||
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Integral Vision, Inc. and Subsidiary
Note C – Comprehensive Income
| The components of comprehensive income (loss) for the three and six months ended June 30, 2000 and 1999 are as follows: |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2000 | 1999 | 2000 | 1999 | |||||||||||||
| (unaudited, in thousands) | ||||||||||||||||
| Net income (loss) | $ | (1,854 | ) | $ | 3,550 | $ | (2,933 | ) | $ | 2,157 | ||||||
| Translation adjustments | (104 | ) | (212 | ) | (162 | ) | (224 | ) | ||||||||
| $ | (1,958 | ) | $ | 3,338 | $ | (3,095 | ) | $ | 1,933 | |||||||
| The components of accumulated comprehensive income (loss) at June 30, 2000 and December 31, 1999 are as follows: |
| June 30, | December 31, | |||||||
| 2000 | 1999 | |||||||
| (unaudited) | ||||||||
| (in thousands) | ||||||||
| Accumulated translation adjustments | $ | (124 | ) | $ | 38 | |||
Note D – Inventories
| Inventories are stated at the lower of first-in, first-out cost or market, and the major classes of inventories at the dates indicated were as follows: |
| June 30, | December 31, | |||||||
| 2000 | 1999 | |||||||
| (Unaudited) | ||||||||
| (in thousands) | ||||||||
| Raw materials | $ | 1,615 | $ | 1,502 | ||||
| Work-in-process | 226 | 218 | ||||||
| Finished goods | 119 | 275 | ||||||
| $ | 1,960 | $ | 1,995 | |||||
Note E – Costs and Estimated Earnings in Excess of Billings on Incomplete Contracts
| Revenues on long-term contracts are recognized using the percentage of completion method. The effects of changes to estimated total contract costs are recognized in the period determined and losses, if any, are recognized fully when identified. Costs incurred and 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. |
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Integral Vision, Inc. and Subsidiary
Note E – Costs and Estimated Earnings in Excess of Billings on Incomplete Contracts — Continued
| Activity on long-term contracts is summarized as follows: |
| June 30, | December 31, | |||||||
| 2000 | 1999 | |||||||
| (unaudited) | ||||||||
| (in thousands) | ||||||||
| Contract costs to date | $ | 84 | $ | 500 | ||||
| Estimated contract earnings | 208 | 863 | ||||||
| 292 | 1,363 | |||||||
| Less billings to date | 228 | 1,079 | ||||||
| Costs and estimated earnings in excess of billings on incomplete contracts | $ | 64 | $ | 284 | ||||
Note F – Earnings Per Share
| The following table sets forth the computation of basic and diluted earnings per share: |
| Three Months Ended | Six Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2000 | 1999 | 2000 | 1999 | ||||||||||||||
| (unaudited) | |||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||
| Numerator for basic and diluted earnings per share – income (loss) available to common stockholders | |||||||||||||||||
| Loss from continuing operations | $ | (1,854 | ) | $ | (1,529 | ) | $ | (2,933 | ) | $ | (3,816 | ) | |||||
| Income from discontinued Welding operations | 136 | 1,030 | |||||||||||||||
| Gain on disposal of Welding Controls division | 5,526 | 5,526 | |||||||||||||||
| Extraordinary charge | (583 | ) | (583 | ) | |||||||||||||
| Net income (loss) | $ | (1,854 | ) | $ | 3,550 | $ | (2,933 | ) | $ | 2,157 | |||||||
| *there was no effect of dilutive securities, see below | |||||||||||||||||
| Denominator for basic and diluted earnings per share – weighted average shares | 9,026 | 9,025 | 9,025 | 9,025 | |||||||||||||
| *there was no effect of dilutive securities, see below | |||||||||||||||||
| BASIC AND DILUTED EARNINGS PER SHARE: | |||||||||||||||||
| Continuing operations | $ | (.21 | ) | $ | (.17 | ) | $ | (.32 | ) | $ | (.42 | ) | |||||
| Discontinued Welding operations | .01 | .11 | |||||||||||||||
| Disposal of division | .61 | .61 | |||||||||||||||
| Extraordinary charge | (.06 | ) | (.06 | ) | |||||||||||||
| Net income (loss) | $ | (.21 | ) | $ | .39 | $ | (.32 | ) | $ | .24 | |||||||
| * | 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 G. |
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Integral Vision, Inc. and Subsidiary
Note G – Stock Options and Warrants
| At June 30, 2000, there were options outstanding to purchase 1,007,700 shares of common stock at prices ranging from $1.07 to $9.25 per share and warrants outstanding to purchase 1,400,000 shares at $6.86 per share. |
Note H – Operations by Geographic Area
| The following presents information by geographic area: |
| June 30, 2000 | December 31, | ||||||||
| (unaudited) | 1999 | ||||||||
| (in thousands) | |||||||||
| Identifiable assets: | |||||||||
| United States | $ | 16,479 | $ | 21,556 | |||||
| United Kingdom | 2,399 | 1,337 | |||||||
| Eliminations | (3,835 | ) | (3,835 | ) | |||||
| $ | 15,043 | $ | 19,058 | ||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||
| June 30, | June 30, | |||||||||||||||||
| 2000 | 1999 | 2000 | 1999 | |||||||||||||||
| (unaudited, in thousands) | ||||||||||||||||||
| Net revenues from unaffiliated customers: | ||||||||||||||||||
| United States | $ | 886 | $ | 1,672 | $ | 1,727 | $ | 3,049 | ||||||||||
| United Kingdom | 899 | 737 | 2,022 | 1,058 | ||||||||||||||
| $ | 1,785 | $ | 2,409 | $ | 3,749 | $ | 4,107 | |||||||||||
| Earnings (loss) from continuing operations before income taxes: | ||||||||||||||||||
| United States | $ | (1,774 | ) | $ | (1,968 | ) | $ | (3,036 | ) | $ | (3,829 | ) | ||||||
| United Kingdom | (80 | ) | (261 | ) | 103 | (687 | ) | |||||||||||
| $ | (1,854 | ) | $ | (2,229 | ) | $ | (2,933 | ) | $ | (4,516 | ) | |||||||
| Depreciation and amortization expense: | ||||||||||||||||||
| United States | $ | 527 | $ | 125 | $ | 1,114 | $ | 627 | ||||||||||
| United Kingdom | 95 | 93 | 195 | 186 | ||||||||||||||
| $ | 622 | $ | 218 | $ | 1,309 | $ | 813 | |||||||||||
| Capital expenditures: | ||||||||||||||||||
| United States | $ | 12 | $ | — | $ | 37 | $ | 121 | ||||||||||
| United Kingdom | 32 | 31 | 32 | 34 | ||||||||||||||
| $ | 44 | $ | 31 | $ | 69 | $ | 155 | |||||||||||
| Net revenues by geographic area: | ||||||||||||||||||
| North America* | $ | 643 | $ | 1,352 | $ | 1,324 | $ | 2,441 | ||||||||||
| Europe | 916 | 733 | 2,022 | 1,058 | ||||||||||||||
| Asia | 226 | 324 | 403 | 608 | ||||||||||||||
| $ | 1,785 | $ | 2,409 | $ | 3,749 | $ | 4,107 | |||||||||||
| * | Geographic areas that are considered individually material (more than 10% of net revenues), all others are included in North America and in total are considered immaterial. |
10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Integral Vision, Inc. and Subsidiary
June 30, 2000
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared to June 30, 1999
Net revenues from continuing operations decreased $624,000 to $1.8 million in the second quarter of 2000 from $2.4 million in the second quarter of 1999. The decrease is primarily attributable to a lack of demand for the Company’s OMNI inspection system. An increase in sales of the Company’s liquid crystal inspection(LCI) and disc identification/print inspection(CDiD/CDiP) products partially offset the decline in OMNI sales.
Direct costs of sales decreased to $1.9 million or approximately 107% of sales in the second quarter of 2000 compared to $2.6 million or approximately 107% of sales in the second quarter of 1999. In 2000, management made a change in estimate, primarily related to inventory, that resulted in a $326,000 charge to direct costs of sales. The Company is in the process of liquidating the inventory related to previously discontinued product lines, however, due to disappointing results of the inventory liquidation effort to this point, management decided that a change in estimate was necessary. In 2000, were it not for this charge, the gross margin as a percentage of sales would have been 89.1%. 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. The gross margin in 1999 was negative primarily because the sales volume was not sufficient to cover the fixed charges, depreciation, and amortization, included in direct cost of sales.
Marketing costs were comparable between the periods as the Company continued marketing on a basis similar to the past. Relationships with distribution and marketing partners are not expected to dramatically affect this expense category.
The general and administrative amounts reported in 2000 were 119% higher than the amounts reported in 1999 primarily due to the fact that a portion of the G&A was allocated to the Welding Controls division in 1999. The actual expenditures in this category decreased in 2000 compared to 1999.
Engineering and development expenses have decreased in the 2000 quarter following reductions in resources allocated to this function compared to 1999. The completion of several development projects was the primary reason for the resource reduction.
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. The interest bearing portion of the note, approximately $1.9 million, carries an interest rate approximating prime plus 1% and requires 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 matures on February 15, 2001. Additionally, in connection with the sale, Integral Vision entered into an agreement to provide certain services to the purchaser for a fee totaling $1.5 million, all of which was paid in cash. These services included use of the Company’s personnel, facilities, and software.
11
Item 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Continued
Integral Vision, Inc. and Subsidiary
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 the additional gain recorded.
Six Months Ended June 30, 2000 Compared to June 30, 1999
Net revenues from continuing operations decreased $358,000 to $3.7 million compared to $4.1 million in last year’s comparable six-month period. The decrease is primarily attributable to a lack of demand for the Company’s OMNI inspection system. An increase in sales of the Company’s liquid crystal inspection(LCI) and disc identification/print inspection(CDiD/CDiP) products partially offset the decline in OMNI sales.
Direct costs of sales decreased to $3.3 million or approximately 88.1% of sales in 2000 compared to $4.6 million or approximately 111% of sales in last year’s comparable period. In 2000, management made a change in estimate, primarily related to inventory, that resulted in a $326,000 charge to direct costs of sales. The Company is in the process of liquidating the inventory related to previously discontinued product lines, however, due to disappointing results of the inventory liquidation effort to this point, management decided that a change in estimate was necessary. In 2000, were it not for this charge, the gross margin as a percentage of sales would have been 79.4%. 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. The gross margin in 1999 was negative primarily because the sales volume was not sufficient to cover the fixed charges, depreciation, and amortization, included in direct cost of sales.
Marketing costs were comparable between the periods as the Company continued marketing on a basis similar to the past. Relationships with distribution and marketing partners are not expected to dramatically affect this expense category.
The general and administrative amounts reported in 2000 were 68.9% higher than the amounts reported in 1999 primarily due to the fact that a portion of the G&A was allocated to the Welding Controls division in 1999. The actual expenditures in this category decreased in 2000 compared to 1999.
Engineering and development expenses have decreased in the 2000 quarter following reductions in resources allocated to this function compared to 1999. The completion of several development projects was the primary reason for the resource reduction.
12
Item 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Continued
Integral Vision, Inc. and Subsidiary
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. The interest bearing portion of the note, approximately $1.9 million, carries an interest rate approximating prime plus 1% and requires 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 matures on February 15, 2001. Additionally, in connection with the sale, Integral Vision entered into an agreement to provide certain services to the purchaser for a fee totaling $1.5 million, all of which was paid in cash. These services 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 the additional gain recorded.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $15,000 in cash for the six-months. The reduction in accounts receivable was offset by the operating loss and a reduction in accounts payable.
Investing activities included the receipt of the first two payments due on the note receivable that resulted from the sale of the welding controls division, which were partially offset by investments in software development.
In the second quarter of 2000, the Company secured a revolving line of credit from National City Bank under which it could borrow up to $1.0 million on certain eligible accounts receivable. At June 30, 2000, the Company could borrow up to $360,000 under its line of credit, of which $220,000 was available.
It is expected that the Company’s current resources, including the receipt of payments on the outstanding note receivable, the line of credit, and cash provided by operating activities, will be sufficient to support our cash flow needs over the next twelve months.
13
Item 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – Continued
Integral Vision, Inc. and Subsidiary
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:
| • Japanese Yen • Pound Sterling • French Francs • Euros |
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 the 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 June 30, 2000, the Company had no open positions.
14
PART II
OTHER INFORMATION
| Item 1. | Legal Proceedings | |
| None | ||
| Item 2. | Changes in Securities | |
| None | ||
| Item 3. | Defaults Upon Senior Securities | |
| None | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | |
| The annual meeting of shareholders was held on May 24, 2000. The matters voted upon were the election of directors and other business, which may come before the meeting (of which there was none). The results of votes were as follows: | ||
| Election of directors: |
| For | Withheld | |||||||
|
|
||||||||
| Max A. Coon | 8,584,353 | 94,833 | ||||||
| Charles J. Drake | 8,588,353 | 90,833 | ||||||
| Stephan Sharf | 8,612,053 | 67,133 | ||||||
| Vincent Shunsky | 8,592,353 | 86,833 | ||||||
| William B. Wallace | 8,616,053 | 63,133 | ||||||
| Item 5. | Other Information | |
| None | ||
| Item 6. | Exhibits and reports on Form 8-K | |
| (a) | Exhibits | |
| Exhibit Number |
Description of Document | |
|
|
||
| 3.1 | Articles of Incorporation, as amended (filed as Exhibit 3.1 to the registrant’s Form 10-K for the year ended December 31, 1995, SEC file 0-12728, and incorporated herein by reference). | |
| 3.2 | Bylaws of the Registrant, as amended (filed as Exhibit 3.2 to the registrant’s Form 10-K for the year ended December 31, 1994, SEC file 0-12728, and incorporated herein by reference). |
15
PART II
OTHER INFORMATION (Continued)
| 4.1 | Note and Warrant Purchase Agreement (filed as Exhibit 4.1 to the registrant’s Form 8-K dated July 15, 1997, SEC file 0-12728, and incorporated herein by reference). | |
| 4.3 | Form of Integral Vision, Inc. Common Stock Purchase Warrant Certificate (filed as Exhibit 4.3 to registrant’s Form 8-K dated July 15, 1997, SEC file 0-12728, and incorporated herein by reference). | |
| 10.1 | Incentive Stock Option Plan of the Registrant as amended (filed as Exhibit 10.4 to the registrant’s Form S-1 Registration Statement effective July 2, 1985, SEC File 2-98085, and incorporated herein by reference). | |
| 10.2 | Second Incentive Stock Option Plan (filed as Exhibit 10.2 to the registrant’s Form 10-K for the year ended December 31, 1992, SEC File 0-12728, and incorporated herein by reference). | |
| 10.3 | Amendment to Integral Vision, Inc. Incentive Stock Option Plan dated May 10, 1993 (filed as Exhibit 10.3 to the registrant’s Form 10-K for the year ended December 31, 1993, SEC File 0-12728, and incorporated herein by reference). | |
| 10.4 | Non-qualified Stock Option Plan (filed as Exhibit 10.3 to the registrant’s Form 10-K for the year ended December 31, 1992, SEC File 0-12728, and incorporated herein by reference). | |
| 10.5 | Integral Vision, Inc. 1999 Employee Stock Option Plan (filed as Exhibit 10.5 to the registrant’s Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference). | |
| 10.6* | Patent License Agreement dated October 4, 1995 by and between Integral Vision, Inc. and Square D Company (filed as Exhibit 10.24 to the registrant’s Form 10-Q for the quarter ended September 30, 1995, SEC File 0-12728, and incorporated herein by reference). | |
| 10.7 | Asset Purchase Agreement between Medar, Inc. and Weltronic (filed as exhibit to the registrant’s Preliminary Schedule 14A – Rule 14A-101 dated May 6, 1999 and incorporated herein by reference). | |
| 10.8 | Post Closing Adjustment and Settlement Agreement between Integral Vision, Inc. and Weltronic/Technitron, Inc. (filed as exhibit 10.33 to the registrant’s Form 10-K for the year ended December 31, 1999, SEC file 0-12728, and incorporated herein by reference). | |
| 10.9** | Loan agreement between National City Bank and Integral Vision, Inc. dated May 16, 2000. | |
| 27** | Financial Data Schedule | |
| (b) | There were no reports on Form 8-K filed in the quarter ended June 30, 2000. |
| * | 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. |
| ** | Filed herewith |
16
SIGNATURES
Pursuant to the requirements 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.
| INTEGRAL VISION, INC. | ||
|
| ||
| Date: August 14, 2000 | /S/ CHARLES J. DRAKE | |
|
|
||
| Charles J. Drake, Chief Executive | ||
| Officer and Chairman of the | ||
| Board (Principal Executive | ||
| Officer) | ||
|
| ||
| Date: August 14, 2000 | /S/ VINCENT SHUNSKY | |
|
|
||
| Vincent Shunsky, Acting Chief | ||
| Financial Officer, Treasurer and | ||
| Director (Principal Financial and | ||
| Accounting Officer) |
17
Exhibit Index
| Exhibit No. | Description | |
| 10.9 | Loan agreement between National City Bank and Integral Vision, Inc. dated May 16, 2000. | |
| 27 | Financial Data Schedule | |
|
|