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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 September 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)

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 October 31, 2000 was 9,029,901.

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PART I

FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS
Integral Vision, Inc. and Subsidiary

      See notes to consolidated financial statements.

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CONSOLIDATED BALANCE SHEETS - Continued
Integral Vision, Inc. and Subsidiary

      See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS
Integral Vision, Inc. and Subsidiary

      See notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF OPERATIONS
Integral Vision, Inc. and Subsidiary

See notes to consolidated financial statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Integral Vision, Inc. and Subsidiary

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Integral Vision, Inc. and Subsidiary
September 30, 2000
(Unaudited)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Integral Vision, Inc. and Subsidiary

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Integral Vision, Inc. and Subsidiary

•

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Integral Vision, Inc. and Subsidiary

•

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.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Integral Vision, Inc. and Subsidiary
September 30, 2000

RESULTS OF OPERATIONS

Three Months Ended September 30, 2000 Compared to September 30, 1999

Net revenues from continuing operations decreased $2.4 million to $1.5 million in the third quarter of 2000 from $4.0 million in the third 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 disc identification/print inspection (CDiD/CDiP) products was partially offset by a decrease in sales of the Company’s liquid crystal inspection(LCI) product.

Costs of sales decreased to $1.6 million or approximately 104% of sales in the third quarter of 2000 compared to $2.6 million or approximately 65.9% of sales in the third quarter of 1999. The gross margin in 2000 was negative primarily because the sales volume was not sufficient to cover the fixed charges, depreciation, and amortization, included in costs 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 69% higher than the amounts reported in 1999. This was primarily due to the fact that, in 1999, general and administrative expenses were partially offset by $225,000 of costs recovered as part of the transition services agreement related to the sale of the Welding Controls division. Exclusive of this cost recovery, actual general and administrative expenditures decreased in 2000 compared to 1999.

Engineering and development expenditures 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.

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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 fourth 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.

Nine Months Ended September 30, 2000 Compared to September 30, 1999

Net revenues from continuing operations decreased $2.8 million to $5.3 million compared to $8.1 million in last year’s comparable nine-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.

Costs of sales decreased to $4.9 million or approximately 92.8% of sales in 2000 compared to $7.2 million or approximately 89% 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 costs of sales as a percentage of sales would have been 86.6%. 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 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 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. This was primarily due to the fact that a portion of the G&A was allocated to the Welding Controls division in 1999. Additionally, in 1999 the general and administrative expenses were partially offset by $225,000 of costs recovered as part of the transition services agreement related to the sale of the Welding Controls division. The actual general and administrative expenditures decreased in 2000 compared to 1999.

Engineering and development expenditures have decreased in 2000 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.

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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 fourth 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 used $512,000 in cash for the nine-months. The operating loss and a reduction in accounts payable were partially offset by a reduction in accounts receivable.

Investing activities included the receipt of the first three 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 September 30, 2000, the Company could borrow up to $192,000 under its line of credit, of which $22,000 was available.

The Company’s current resources include the receipt of payments on the outstanding note receivable, the line of credit, and cash provided by operating activities. Additionally, the Company believes the value of its patented technologies could provide additional resources for the Company if needed. The Company expects that its current resources coupled with the ability to monetize the value of certain of its patented technologies will be sufficient to support our cash flow needs over the next twelve months.

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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 September 30, 2000, the Company had no open positions.

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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
		None
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).

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PART II
OTHER INFORMATION (Continued)

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PART II
OTHER INFORMATION (Continued)

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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.

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