United States Securities And Exchange Commission
Washington, D.C. 20549

FORM 10-K



| |  | [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 1999.                     
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For 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. Employer Identification Number)
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|38700 Grand River Avenue,
Farmington Hills, Michigan
(Address of principal executive offices) |  | 48335
(Zip Code)                                  

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

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, No Par Value, Stated Value $.20 Per Share
(Title of Class)

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 and (2) has been subject to the filing
requirements for at least the past 90 days. YES XNO___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 29, 2000:

Common Stock, No Par Value, Stated Value $.20 Per Share  $30,447,505

The number of shares outstanding on each of the issuers classes of common
stock, as of February 29, 2000:

Common Stock, No Par Value, Stated Value $.20 Per Share  9,024,901

Documents Incorporated By Reference:Portions of the proxy statement for the
annual shareholders meeting to be held May 24, 2000 are incorporated by
reference into Part III.

1



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Part I

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. 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
applications for the Companys products include optical inspection
systems and general purpose vision software and applications thereof
(collectively 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 and
applications development software used to ensure product quality by
monitoring and controlling the manufacturing process.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Machine vision has become a necessity for manufacturers who need to
meet the increasing demand for high quality products and to improve
production efficiency. Replacing other forms of inspection,
Integral vision systems automatically gauge, identify and 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 or 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 to automatically adjust the certain
process attributes.
|
| |  | Target markets for our turnkey systems include the small display,
optical disc, print, and packaging industries. Our applications
development software, Common VisionBlox, 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

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 12
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                                                                                                                                                                                                                                                                                                                                                            

2



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| |  | 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.                                                                                                                                     

InteliCheck



| |  | The InteliCheck product line monitors the consistency of label
printing, at the printing stage itself, or as the printed labels are
being applied to product packaging. Consisting of a CPU, optical
head and optional industrial cabinet, InteliCheck operates on-line
to control print quality objectively and accurately.                                                                                                                                            
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | InteliCheck monitors print quality for the screen, offset, pad
printing and hot foil stamping technologies. Once an operator has
completed the required production set up for a label, the vision
system is trained to recognize the label print and registration
using good sample labels. InteliCheck inspects each label as it is
produced and can reject the label print quality and the quality of
application if either fail to meet manufacturing specifications.
|
| |  | InteliCheck can detect typographical, batch/lot coding, color, or
other label defects and can reject any label that is torn, creased
or misaligned. This system is available for both color and
monochrome label inspection of flat or oval products, or with a
specially designed optical head for the inspection of cylindrical
products.                                                                                                                             

Common VisionBlox



| |  | In 1999, Integral Vision joined forces with Stemmer Imaging to bring
to the market Common VisionBlox. This product is a combination of
Integral Visions VisionBlox and Stemmer Imagings Common Vision
Concept.                                                                                                                                                                                                                                                              
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Common VisionBlox is a set of configurable software tools that can
be used to develop powerful machine vision applications.
Software-based vision algorithms can attain processing speeds that
are comparable to or better than those of dedicated vision
processing hardware. Common VisionBlox establishes a software
platform for machine vision applications. These tools offer the
speed, accuracy and reliability that comes only from extensive
integration experience.

Small Display Inspection



| |  | Integral Vision has over five years of experience in the display
industry, with over 300 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
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3



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| |  | annoyance and reduce product value. Functional defects are flaws
that cause the device to be inoperable or have a significant effect
on functionality.                                                                                                                                                                                                        
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In addition to our LCI Professional, we have recently begun
delivering systems capable of inspecting LCOS (Liquid Crystal on
Silicon) and other microdisplay 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.

Other



| |  | The InCase M2000 is a powerful, configurable, automatic inspection
system designed to monitor the in case bottle filling process.
The system is designed to accommodate multiple check stations
connected to a single processor, enabling cartons to be inspected
before and after the filling process, if required. The InCase
system does not require product specific operator set-up, meaning no
lost production time when different products are being inspected.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 technology incorporated in its products
give 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 17 patents and has applied for 7
more. There can be no assurance that patents applied for will be
granted, 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.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 $3.1
million, $3.5 million, and $1.3 million for the years ended December
31, 1999, 1998, and 1997, respectively. The Companys current
product development efforts are primarily directed to Small Display
Inspection products, enhancement and expansion of the InteliCheck
product line and application software development tools for vision
for use as part of Common VisionBlox.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4



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Marketing



| |  | The Company generally markets its vision products to end users, but
the Company has had success in 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 such as Common VisionBlox. Although sales are made
worldwide, the Companys strongest presence is maintained in the US
(through Company employees), Europe (through employees of Integral
Vision, LTD and a relationship with Stemmer Imaging GmbH for Common
VisionBlox), and Asia (through a combination of representatives and
of Company employees). Company sales employees are compensated by a
combination of salary and commission.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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,
InteliCheck, Small Display Inspection, and the Companys 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 54%, 70% and 29% of
the Companys net sales in 1999, 1998 and 1997. 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 notes 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. During the year ended December 31, 1999 sales
to Globe and Machines Dubuit represented 36% of sales. Amounts due
from these customers amounted to 40% of the respective outstanding
trade receivable balance at December 31, 1999.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Backlog



| |  | As of December 31, 1999, the Company had an order backlog of
approximately $783,000 compared to $574,000 at December 31, 1998.
Management expects that the Company will ship products representing
this entire backlog in 2000.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Environmental Factors



| |  | The costs to the Company of complying with federal, state and local
provisions regulating protection of the environment are not
material.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------

5



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Employees



| |  | As of February 29, 2000, the Company had approximately 89 permanent
employees, as compared to 107 at February 28, 1999 and 127 at
February 28, 1998. None of the Companys employees are represented
by a labor union.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 2. Properties



| |  | Manufacturing, engineering and administrative functions of Integral
Vision are performed at an approximately 50,000 square foot facility
owned by the Company in Farmington Hills, Michigan. In addition,
Integral Vision LTD leases a 5,000 square foot facility in Bedford,
England for sales and administrative functions.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 3. Legal Proceedings



| |  | The Company is not currently involved in any material litigation.
| |  | -----------------------------------------------------------------

ITEM 4. Submission of Matters to a Vote of Security Holders



| |  | None.
| |  | -----

Part II

ITEM 5. Market for Registrants Common Equity and Related Stockholder Matters



| |  | The Companys common stock is traded on the over-the-counter market
(NASDAQ) as a National Market Issue under the symbol INVI. As of
February 29, 2000, there were approximately 4,500 stockholders of
the Company including individual participants in security position
listings.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 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 29,
2000 was $4.813 per share.                                                       

|     |  |        |       |        |  |         |       |        |  |   |       |  |  |   |       | 
|---- |  | ------ | ----- | ------ |  | ------- | ----- | ------ |  | - | ----- |  |  | - | ----- | 
|     |  | 1999  
|     |  |       
|     |  | Mar 31 |       | Jun 30 |  | Sept 30 |       | Dec 31
|     |  |        |       |        |  |         |       |       
|High |  | $      | 2.688 |        |  | $       | 3.250 |        |  | $ | 2.688 |  |  | $ | 2.250 | 
|    
|    
|    
|    
|Low  |  |        | 1.125 |        |  |         | 1.500 |        |  |   | 1.063 |  |  |   | 1.031 | 
|     |  |       

|     |  |      |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|     |  | 1998
|     |  |     
|High |  | $    | 5.500 |  |  | $ | 3.500 |  |  | $ | 2.500 |  |  | $ | 1.813 | 
|    
|    
|    
|    
|Low  |  |      | 1.938 |  |  |   | 1.500 |  |  |   | 1.563 |  |  |   | 0.875 | 
|     |  |     



| |  | 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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6



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ITEM 6. Selected Financial Data

|                                                   |                                 |   |        |                                       |   |      |         |            |   |            |        |            |   |            |        |      |   |   |         |       |   | 
|-------------------------------------------------- | ------------------------------- | - | ------ | ------------------------------------- | - | ---- | ------- | ---------- | - | ---------- | ------ | ---------- | - | ---------- | ------ | ---- | - | - | ------- | ----- | - | 
|                                                   |                                 |   |        | Year ended December 31               
|                                                   |                                 |   |        |                                      
|                                                   |                                 |   |        | 1999                                  |   | 1998 |         | 1997       |   | 1996       |        | 1995      
|                                                   |                                 |   |        |                                      
|                                                   |                                 |   |        |                                       |   |      |         | (restated) |   | (restated) |        | (restated) |   | (restated)
|                                                   |                                 |   |        |                                      
|                                                   |                                 |   |        | (in thousands, except per share data)
|                                                   |                                 |   |        |                                      
|Net revenues                                       |                                 | $ | 10,743 |                                       |   | $    | 9,434   |            |   | $          | 15,955 |            |   | $          | 13,618 |      |   | $ | 16,428  |      
|                                                  
|                                                  
|                                                  
|                                                  
|Gross margin                                       |                                 |   | (105   | )(a)                                  |   |      | 1,265   | (c)(d)     |   |            | 4,313  | (d)        |   |            | 798    |      |   |   | 653     |      
|                                                  
|                                                  
|                                                  
|                                                  
|Loss from continuing operations                    |                                 |   | (5,671 | )                                     |   |      | (11,203 | )(e)       |   |            | (1,663 | )          |   |            | (4,792 | )    |   |   | (8,640  | )(f) 
|                                                  
|                                                  
|                                                  
|                                                  
|Income (loss) from discontinued
operations(g)      |                                 |   | 1,030  |                                       |   |      | 19      |            |   |            | 1,519  |            |   |            | 2,813  |      |   |   | (2,943  | )    
|                                                  
|                                                  
|                                                  
|                                                  
|Gain on disposal of Welding division               |                                 |   | 8,749  |                                      
|                                                  
|                                                  
|                                                  
|                                                  
|Extraordinary charge from early
retirement of debt |                                 |   | (583   | )                                    
|                                                  
|                                                  
|                                                  
|                                                  
|Net income (loss)                                  |                                 |   | 3,525  | (b)                                   |   |      | (11,184 | )(e)       |   |            | (144   | )          |   |            | (1,979 | )    |   |   | (11,583 | )(f) 
|                                                  
|                                                  
|                                                  
|                                                  
|Basic and diluted earnings (loss)                 
|                                                  
|                                                  
|                                                  
|                                                  
|per share:                                        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Continuing operations           |   |        | (.63                                  | ) |      |         | (1.24      | ) |            |        | (.19       | ) |            |        | (.54 | ) |   |         | (.99  | )
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Discontinued Welding operations |   |        | .11                                   |   |      |         |            |   |            |        | .17        |   |            |        | .32  |   |   |         | (.34  | )
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Gain on disposal of Welding    
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | division                        |   |        | .97                                   |  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Extraordinary charge            |   |        | (.06                                  | )
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Net income (loss)               |   | $      | .39                                   |   |      | $       | (1.24      | ) |            | $      | (.02       | ) |            | $      | (.22 | ) |   | $       | (1.33 | )
|                                                   |                                 |   |        |                                       |   |      |         |            |   |            |        |            |   |            |        |      |   |   |         |       |   | 
|Weighted average shares                            |                                 |   | 9,025  |                                       |   |      | 9,025   |            |   |            | 8,897  |            |   |            | 8,820  |      |   |   | 8,692   |      
|                                                   |                                 |   |        |                                       |   |      |         |            |   |            |        |            |   |            |        |      |   |   |         |       |   | 

|                                         |  |                |        |            |  |            |        |            |  |            |        |  |  |   |        |  |  |   |        | 
|---------------------------------------- |  | -------------- | ------ | ---------- |  | ---------- | ------ | ---------- |  | ---------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                         |  | At December 31
|                                         |  |               
|                                         |  | 1999           |        | 1998       |  | 1997       |        | 1996       |  | 1995      
|                                         |  |               
|                                         |  |                |        | (restated) |  | (restated) |        | (restated) |  | (restated)
|                                         |  |               
|                                         |  | (in thousands)
|                                         |  |               
|Working capital                          |  | $              | 5,810  |            |  | $          | 2,641  |            |  | $          | 3,478  |  |  | $ | 17,041 |  |  | $ | 18,676 | 
|                                        
|                                        
|                                        
|                                        
|Total assets                             |  |                | 19,058 |            |  |            | 34,320 |            |  |            | 48,521 |  |  |   | 45,246 |  |  |   | 41,103 | 
|                                        
|                                        
|                                        
|                                        
|Long-term debt
including current portion |  |                | 2,000  |            |  |            | 20,123 |            |  |            | 22,592 |  |  |   | 19,784 |  |  |   | 14,437 | 
|                                        
|                                        
|                                        
|                                        
|Stockholders equity                     |  |                | 14,325 |            |  |            | 10,861 |            |  |            | 22,003 |  |  |   | 21,302 |  |  |   | 22,767 | 



---

|(a) |  | In 1999, we charged-off inventory of $1.5 million resulting
from a review of the marketability of inventory related to a
previously discontinued product line.    
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | Includes an $8.7 million after tax gain on disposal of the
Welding Controls division and a $583,000 charge, net of tax credit,
for the early retirement of debt.  
|   
|   
|   
|   
|(c) |  | In 1998, we charged-off inventory of $1.4 million as a result
of our decision to no longer pursue the sale of certain products for
the audio CD market.           
|   
|   
|   
|   
|(d) |  | Net revenues included $1.5 million from the sale of patent
technology in both 1997 and 1998 which resulted in lower direct cost
of sales as a percentage of sales.
|   
|   
|   
|   
|(e) |  | Includes a $4.2 million write-off of capitalized software
development costs.                                                                                      
|   
|   
|   
|   
|(f) |  | Includes a $2.4 million charge for excess warranty costs.                                                                                                         
|   
|   
|   
|   
|(g) |  | See Note C to Notes to Consolidated Financial Statements.                                                                                                       

7



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| |  | 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. 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. 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 and general purpose vision software. Optical inspection
equipment is principally sold to end users and suppliers of CD-R and
DVD disc manufacturing equipment. General-purpose vision software
is sold into numerous applications in a wide variety of industries.
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 which 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; 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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8



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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
|                                                                                    |  |                                         |                                                            |   |      |      
|                                                                                    |  |                                         |                                                            |   |      | 1999  |        | 1998 |      | 1997                  
|                                                                                    |  |                                         |                                                            |   |      |      
|                                                                                    |  |                                         |                                                            |   |      |       |        |      |      | (restated)             |       | (restated)
|                                                                                    |  |                                         |                                                            |   |      |      
|Net revenues                                                                        |  |                                         | 100.0                                                      | % |      |       | 100.0  | %    |      |                        | 100.0 | %         
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Direct cost of sales (a)                                                            |  |                                         | 86.8                                                       |   |      |       | 71.7   |      |      |                        | 73.0  |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Specific inventory adjustment (b) (c)                                               |  |                                         | 14.2                                                       |   |      |       | 14.9   |     
|                                                                                    |  |                                         |                                                            |   |      |       |        |      |      |                        |       |            |      |       |   | 
|                                                                                    |  | Gross margin                            |                                                            |   | (1.0 | )     |        |      | 13.4 |                        |       |            | 27.0 |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Other costs and expenses:                                                          
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |  | Marketing                               |                                                            |   | 22.9 |       |        |      | 25.6 |                        |       |            | 17.5 |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |  | General and administrative              |                                                            |   | 12.2 |       |        |      | 14.9 |                        |       |            | 8.3  |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |  | Engineering and development:           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |  |                                         | Expenditures                                               |   |      | 39.0  |        |      |      | 51.6                   |       |            |      | 52.1  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |  |                                         | Allocated to capitalized software and direct
cost of sales |   |      | (10.3 | )      |      |      | (14.6                  | )     |            |      | (44.1 | )
|                                                                                    |  |                                         |                                                            |   |      |       |        |      |      |                        |       |            |      |       |   | 
|                                                                                    |  |                                         | Net engineering and development expenses                   |   |      | 28.7  |        |      |      | 37.0                   |       |            |      | 8.0   |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |  | Product restructuring and other charges |                                                            |   |      |       |        |      | 45.0 |                        |      
|                                                                                    |  |                                         |                                                            |   |      |       |        |      |      |                        |       |            |      |       |   | 
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |  |                                         | Total other costs and expenses                             |   |      | 63.8  |        |      |      | 122.5                  |       |            |      | 33.8  |  
|                                                                                    |  |                                         |                                                            |   |      |       |        |      |      |                        |       |            |      |       |   | 
|Loss from operations                                                                |  |                                         | (64.8                                                      | ) |      |       | (109.1 | )    |      |                        | (6.8  | )         
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Other income                                                                        |  |                                         | 13.5                                                      
|Interest income                                                                     |  |                                         | 3.5                                                       
|Interest expense                                                                    |  |                                         | (5.0                                                       | ) |      |       | (9.7   | )    |      |                        | (6.6  | )         
|                                                                                    |  |                                         |                                                            |   |      |       |        |      |      |                        |       |            |      |       |   | 
|Loss from continuing operations before income taxes                                 |  |                                         | (52.8                                                      | ) |      |       | (118.8 | )    |      |                        | (13.4 | )         
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Provision (credit) for income taxes                                                 |  |                                         |                                                            |   |      |       |        |      |      |                        | (2.9  | )         
|                                                                                    |  |                                         |                                                            |   |      |       |        |      |      |                        |       |            |      |       |   | 
|Loss from continuing operations                                                     |  |                                         | (52.8                                                      | ) |      |       | (118.8 | )    |      |                        | (10.5 | )         
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Income from discontinued welding operations, less
applicable income taxes           |  |                                         | 9.6                                                        |   |      |       | 0.2    |      |      |                        | 9.5   |           
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Gain on disposal of discontinued Welding division, less
applicable income taxes     |  |                                         | 81.4                                                      
|Extraordinary charge for early retirement of debt less
applicable income tax credit |  |                                         | (5.4                                                       | )
|                                                                                    |  |                                         |                                                            |   |      |       |        |      |      |                        |       |            |      |       |   | 
|Net income (loss)                                                                   |  |                                         | 32.8                                                       | % |      |       | (118.6 | )%   |      |                        | (1.0  | )%        
|                                                                                    |  |                                         |                                                            |   |      |       |        |      |      |                        |       |            |      |       |   | 



---

|(a) |  | Net revenues included $1.5 million from the sale of patent technology in
both 1997 and 1998 which resulted in lower direct cost of sales as a percentage
of sales.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | In 1999, we charged-off inventory of $1.5 million resulting from a review
of the marketability of inventory related to a previously discontinued product
line.    
|   
|   
|   
|   
|(c) |  | In 1998, we charged-off inventory of $1.4 million as a result of our
decision to no longer pursue the sale of certain products for the audio CD
market.           

9



---



Year Ended December 31, 1999, compared to the
year ended December 31, 1998



| |  | Net revenues increased $1.3 million (13.9%) from $9.4 million in
1998 to $10.7 million in 1999. The increase resulted primarily from
a recovery in optical inspection system revenues as the Companys
Series 2000 product lines became established in the field.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Direct costs of sales increased to $10.8 million in 1999 from $8.2
million in 1998 or as a percentage of sales to 101% from 86.6%. The
direct costs of sales for 1999 includes 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. The direct costs of sales for 1998 includes an inventory
charge-off resulting from our decision to no longer sell inspection
systems for the audio CD market. Additionally, in 1998, revenues of
$1.5 million from the sale of patent technology was included in net
revenue which resulted in a lower direct cost of sales as a
percentage of sales. Exclusive of the aforementioned adjustments,
direct costs of sales as a percentage of sales would have been 86.8%
in 1999 compared to 86.1% in 1998. This is the result of lower
margins in the CD-R inspection portion of the optical disc
inspection product line.
|
| |  | Marketing expense stayed relatively constant in dollar terms, but
decreased as a percentage of net revenues from 25.6% to 22.9%. This
resulted principally from the fixed nature of these expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | General and administrative expenses decreased to $1.3 million from
$1.4 million and as a percentage of net revenues from 14.9% to
12.2%. This resulted primarily from a reduction in the overall G&A
structure after the sale of the Welding Controls division.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Product development expenses decreased to $3.1 million from $3.5
million and as a percentage of net revenues from 37.0% to 28.7%.
Development of the Series 2000 product line was substantially
completed in early 1999, resulting in a significant reduction in
product development expenditures. The savings were partially,
though not completely, offset by increased product development
expenditures for the Small Display Inspection Systems product line
and the InteliCheck product line.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Other income of $1.5 million and interest income of $374,000
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 $539,000 from $915,000 and as a percentage
of net revenues to 5.0% from 9.7%. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | An 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

10



---



Year Ended December 31, 1998, compared to the
year ended December 31, 1997



| |  | Net revenues decreased $6.5 million (40.9%) from $16.0 million in
1997 to $9.4 million in 1998. Fifty percent of the decrease
resulted from decreased sales of optical inspection products as the
Company phased out its iNSPECt product line which is marketed
primarily to compact disc manufacturers and introduced its Omni
product line used by CD-R and DVD manufacturers. The remainder of
the decrease resulted from decreased orders for the Companys
turnkey systems, principally those used in the cellular telephone
industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Direct costs of sales decreased to $8.2 million from $11.6 million
but as a percentage of sales increased to 86.6% from 73.0%. The
decrease in the dollar amounts resulted principally from the
decrease in sales. The percentage increase resulted from inventory
related to the iNSPECt product line that was charged-off in the
first quarter of 1998. Without this inventory charge-off, direct
cost of sales as a percentage of sales would have decreased by 1.3%
as a result of cost reductions during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Marketing expense stayed relatively constant in dollar terms, but
increased as a percentage of net revenues from 17.5% to 25.6%. This
resulted principally from the fixed nature of these expenses.
Although cost savings were achieved in some areas, additional costs
were incurred to introduce the new Omni product line and to continue
the marketing of VisionBlox software and VisionBlox applications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | General and administrative expense increased to $1.4 million from
$1.3 million and as a percentage of net revenues from 8.3% to 14.9%.
The dollar amount increases resulted from additional legal expenses
and provision for uncollectable accounts receivable during the year.
The increases in these expenditures were each related to issues
specific to the 1998 year. The percentage increase resulted from
the dollar increase factors combined with the fixed nature of these
expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Net engineering and development expense increased to $3.5 million
from $1.3 million and as a percentage of net revenues from 8.0% to
37.0%. Actual spending related to this expense category decreased
from $8.3 million to $4.9 million because of personnel and other
cost reductions early in the year. The net increase resulted from
fewer projects that were eligible for capitalization during the
year. Additionally, development efforts related to the new Omni
product line resulted in a higher dollar level of net expense. The
percentage increase came from the reduced levels of net revenues and
the fact that fewer projects were eligible for capitalization in
1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | During the first quarter of 1998, in response to the financial
conditions that arose due to heavy investments necessary to complete
certain projects under development and unexpected low levels of
orders and sales, management terminated 15% of the Companys
employees with combined salaries totaling 20% of total compensation.
As these terminations severely constrained resources available for
product support, it was followed by an extensive review of product
offerings. This review determined that the Company would
concentrate its efforts going forward towards products for the
inspection of CD-R and DVD discs and products based on VisionBlox
technology. Other products, including those related to compact disc
production, and certain other products that were selling poorly or
at low margins or which were no longer supportable in the software
configurations in use were identified for phase out or abandonment.
These products had unamortized software development costs totaling
$4.2 million that was charged to operations. In addition, reserves
were established totaling $1.4 million to reduce the cost of
inventory related to these products to estimated realizable value.

11



---





| |  | The charges related to inventory ($1.4 million) were recorded as
part of direct cost of sales and the charges related to software
development costs ($4.2 million) were reflected as product
restructuring charges with other costs and expenses in the
Consolidated Statements of Operations in the first quarter of 1998.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Interest expense decreased to $915,000 from $1.1 million and
increased as a percentage of net revenues from 6.6% to 9.7%. This
increase as a percentage of net revenues is primarily attributable
to the decreased revenues.                                                                                               

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, 1999. 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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                   |                              |   |        |      |                                      |   |        |     |        |   |        |      |        |   |        |      |            |   |            |      |            |   |            |      |            |   |       |      |   |   |        |       |   |  | 
|-------------------------------------------------- | ---------------------------- | - | ------ | ---- | ------------------------------------ | - | ------ | --- | ------ | - | ------ | ---- | ------ | - | ------ | ---- | ---------- | - | ---------- | ---- | ---------- | - | ---------- | ---- | ---------- | - | ----- | ---- | - | - | ------ | ----- | - |  | 
|                                                   |                              |   |        |      | Quarter Ended                       
|                                                   |                              |   |        |      |                                     
|                                                   |                              |   |        |      |                                      |   |        |     | 1999   |   |        |      |        |   |        |      |            |   | 1998      
|                                                   |                              |   |        |      |                                     
|                                                   |                              |   |        |      | Dec 31                               |   | Sep 30 |     | Jun 30 |   | Mar 31 |      | Dec 31 |   | Sep 30 |      | Jun 30     |   | Mar 31    
|                                                   |                              |   |        |      |                                     
|                                                   |                              |   |        |      |                                      |   |        |     |        |   |        |      |        |   |        |      | (restated) |   | (restated) |      | (restated) |   | (restated) |      | (restated)
|                                                   |                              |   |        |      |                                     
|                                                   |                              |   |        |      | (in thousands except per share data)
|                                                   |                              |   |        |      |                                     
|Net revenues                                       |                              | $ | 2,661  |      |                                      | $ | 3,975  |     |        | $ | 2,409  |      |        | $ | 1,698  |      |            | $ | 1,746      |      |            | $ | 2,529      |      |            | $ | 3,565 |      |   | $ | 1,594  |      
|                                                  
|                                                  
|                                                  
|                                                  
|Gross margin                                       |                              |   | (992   | )    |                                      |   | 1,357  |     |        |   | (165   | )    |        |   | (305   | )    |            |   | 370        |      |            |   | 466        |      |            |   | 2,169 |      |   |   | (1,740 | )    
|                                                  
|                                                  
|                                                  
|                                                  
|Income (loss) from continuing
operations           |                              |   | (1,879 | )    |                                      |   | 24     |     |        |   | (1,529 | )    |        |   | (2,287 | )    |            |   | (1,983     | )    |            |   | (1,343     | )    |            |   | 161   |      |   |   | (8,038 | )    
|                                                  
|                                                  
|                                                  
|                                                  
|Income (loss) from discontinued
operations         |                              |   |        |      |                                      |   |        |     |        |   | 136    |      |        |   | 894    |      |            |   | 1,682      |      |            |   | 287        |      |            |   | (59   | )    |   |   | (1,891 | )    
|                                                  
|                                                  
|                                                  
|                                                  
|Gain on disposal of Welding
division               |                              |   | 2,103  |      |                                      |   | 1,120  |     |        |   | 5,526  |     
|                                                  
|                                                  
|                                                  
|                                                  
|Extraordinary charge from early
retirement of debt |                              |   |        |      |                                      |   |        |     |        |   | (583   | )   
|                                                  
|                                                  
|                                                  
|                                                  
|Net income (loss)                                  |                              |   | 224    |      |                                      |   | 1,144  |     |        |   | 3,550  |      |        |   | (1,393 | )    |            |   | (301       | )    |            |   | (1,056     | )    |            |   | 102   |      |   |   | (9,929 | )    
|                                                   |                              |   |        |      |                                      |   |        |     |        |   |        |      |        |   |        |      |            |   |            |      |            |   |            |      |            |   |       |      |   |   |        |       |   |  | 
|Basic and diluted earnings
(loss) per share:      
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Continuing operations        |   |        | (.21 | )                                    |   |        |     |        |   |        | (.17 | )      |   |        | (.25 | )          |   |            | (.22 | )          |   |            | (.15 | )          |   |       | .02  |   |   |        | (.89  | )
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Discontinued welding        
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | operations                   |   |        |      |                                      |   |        |     |        |   |        | .01  |        |   |        | .10  |            |   |            | .19  |            |   |            | .03  |            |   |       | (.01 | ) |   |        | (.21  | )
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Disposal of Welding division |   |        | .23  |                                      |   |        | .12 |        |   |        | .61  |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Extraordinary charge         |   |        |      |                                      |   |        |     |        |   |        | (.06 | )     
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Net income (loss)*           |   | $      | .02  |                                      |   | $      | .12 |        |   | $      | .39  |        |   | $      | (.15 | )          |   | $          | (.03 | )          |   | $          | (.12 | )          |   | $     | .01  |   |   | $      | (1.10 | )
|                                                   |                              |   |        |      |                                      |   |        |     |        |   |        |      |        |   |        |      |            |   |            |      |            |   |            |      |            |   |       |      |   |   |        |       |   | 



|* |  | 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.                                                                                                                                                                                                                          

12



---



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



| |  | 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. 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 management personnel, facilities and software. The
Company used the cash received upon execution of these two
agreements to retire substantially all of the outstanding debt at
June 30, 1999 (see Notes C and E of the Consolidated Financial
Statements  Part II  ITEM 8).
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating activities for 1999 used cash of approximately $2.6
million primarily due to the Companys loss from continuing
operations of $5.7 million. The cash used in operating activities
was offset by a net decrease in certain working capital items.
Inventory levels decreased due to a $1.5 million write-off of
specific inventory. In addition, the Company also purchased much of
the inventory for a job as the orders came in versus stocking the
parts, which resulted in a lower level of inventory. Conversely,
cash was used to fund an increase in accounts receivable which was
attributable to the increased sales activity by the Company in 1999.                                                                                                        
|
| |  | In addition to the sale of the Welding Controls division, the
Companys investing activities included a $1.4 million investment in
capitalized software development in 1999. Software is an integral
part of the Companys business as it is included with nearly all of
the Companys product offerings; therefore, investments in
capitalized software development in the future will continue to be
significant.                                                                                                                                                                                                                                                                                                                                                            
|
| |  | In addition to the retirement of all outstanding debt at June 30,
1999, the Companys financing activities included securing a
mortgage note payable for $2.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Management believes that its current financial resources, together
with cash generated from operations, will be adequate to meet cash
needs through 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13



---





| |  | 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 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, 1999, the Company had no
open positions.

ITEM 8. Financial Statements and Supplementary Data



| |  | Financial statements and quarterly results of operations are
submitted in separate sections of this report.
| |  | -----------------------------------------------------------------------------------------------------------

ITEM 9. Changes in and Disagreements with Accountants and Financial Disclosure



| |  | Change in Registrants Certifying Accountant was previously reported
on Form 8-K filed December 20, 1999.
| |  | ---------------------------------------------------------------------------------------------------------

Part III

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, 1999), with
respect to directors and executive officers of the Company, is
incorporated herein by reference.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ITEM 11. Executive Compensation



| |  | The information contained in the Integral Vision, Inc. proxy
statement (to be filed within 120 days of December 31, 1999), with
respect to directors and executive officers of the Company, is
incorporated herein by reference.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 1999), with
respect to directors and executive officers of the Company, is
incorporated herein by reference.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, 1999), with
respect to directors and executive officers of the Company, is
incorporated herein by reference.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14



---



PART IV

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.

|        |  |                                                                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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).                                                                          
|       
|       
|       
|       
|4.1     |  | Note and Warrant Purchase Agreement (filed as Exhibit 4.1 to the
registrants 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 registrants Form 8-K dated July 15, 1997, SEC
file 0-12728, and incorporated herein by reference).                                                              
|       
|       
|       
|       
|10.1    |  | 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).                            
|       
|       
|       
|       
|10.2    |  | 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).                                                                              
|       
|       
|       
|       
|10.3    |  | Integral Vision, Inc. Employee Stock Option Plan (filed as Exhibit 10.5
to the registrants Form 10-Q for the quarter ended September 30, 1995,
SEC file 0-12728, and incorporated herein by reference).                                                         
|       
|       
|       
|       
|10.4    |  | Form of Confidentiality and Non-Compete Agreement Between the Registrant
and its Employees (filed as Exhibit 10.4 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 from 10-Q for the quarter ended June 30, 1999 and
incorporated herein by reference).                                                                            
|       
|       
|       
|       
|10.16*  |  | 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).
|       
|       
|       
|       
|10.32   |  | Asset Purchase Agreement between the Registrant and Weltronic (filed as
exhibit to the registrants Preliminary Schedule 14A  Rule 14A-101 dated
May 6, 1999 and incorporated herein by reference).                                                             
|       
|       
|       
|       
|10.33   |  | Post Closing Adjustment and Settlement Agreement between Integral
Vision, Inc. and Weltronic/Technitron, Inc. dated December 29, 1999.                                                                                                                           
|       
|       
|       
|       
|21      |  | Subsidiary of the registrant.                                                                                                                                                                                                                                    
|       
|       
|       
|       
|23.1    |  | Consent of Ernst & Young, LLP, independent auditors.                                                                                                                                                                                                             
|       
|       
|       
|       
|23.2    |  | Consent of Moore Stephens Doeren Mayhew, independent auditors.                                                                                                                                                                                                   
|       
|       
|       
|       
|(b)     |  | The Company filed a report with the commission on December 20, 1999 on
Form 8-K reporting a change in our certifying accountant under ITEM 9.                                                                                                                    
|       
|       
|       
|       
|(c)     |  | Exhibits  The response to this portion of ITEM 14 is submitted as a
separate section of this report.                                                                                                                                                            
|       
|       
|       
|       
|(d)     |  | Financial statement schedules  The response to this portion of ITEM 14
is submitted as a separate section of this report.                                                                                                                                       



|* |  | 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.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15



---



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 22, 2000
                          
       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
_________________________________
Max A. Coon               |  | Vice Chairman, Secretary and Director                           
|                                                                           
|/S/ VINCENT SHUNSKY
_________________________________
Vincent Shunsky       |  | Treasurer and Director
(Acting Chief Financial Officer)         
|                                                                           
|/S/ WILLIAM B. WALLACE
_________________________________
William B. Wallace |  | Director                                                        
|                                                                           
|/S/ STEPHAN SHARF
_________________________________
Stephan Sharf           |  | Director                                                        

16



---



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, 1999

INTEGRAL VISION, INC.

Farmington Hills, MI

17



---



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 Independent Auditors                                                               
| |  |  | ---------------------------------------------------------------------------------------------
|
| |  |  | Consolidated Balance Sheets-December 31, 1999 and 1998                                       
|
| |  |  | Consolidated Statements of Operations-Years ended December 31,
1999, 1998 and 1997           
|
| |  |  | Consolidated Statements of Stockholders Equity-Years ended
December 31, 1999, 1998, and 1997
|
| |  |  | Consolidated Statements of Cash Flows-Years ended December 31,
1999, 1998 and 1997           
|
| |  |  | Notes to Consolidated Financial Statements-December 31, 1999                                 



| |  | (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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18



---



Report of Independent Auditors

To the Board of Directors and Stockholders
Integral Vision, Inc.
Farmington Hills, MI

We have audited the accompanying consolidated balance sheet of
Integral Vision,
Inc. and subsidiary as of December 31, 1999, and the related consolidated
statements of operations, stockholders equity and cash flows for the year then
ended. In connection with our audit of the consolidated financial
statements, we also have audited the financial statement schedule as
listed in the accompanying index at ITEM 14(a). These consolidated
financial statements and the financial statement schedule are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements and the financial
statement schedule based on our audit. The consolidated financial
statements and the financial statement schedule of Integral Vision, Inc. for the years ended December 31,
1998 and 1997, before they were restated for the matter discussed in
Note C to the financial statements, were audited by other auditors
whose reports, dated February 23, 1999 and February 25, 1998,
included an explanatory paragraph due to an uncertainty as to the
company's ability to continue as a going concern.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 audit provides a reasonable basis
for our opinion.

In our opinion, the 1999 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, 1999 and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule for
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.

/s/ Moore Stephens Doeren Mayhew

Troy, Michigan
February 23, 2000

19



---



Consolidated Balance Sheets
Integral Vision, Inc. and Subsidiary

|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |         |   |  |  |  |  |  | 
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------ | - | ---------------------------------------- | ------- | -------------- | ----- | ---------- | ------- | - |  |  |  |  |  | 
|                                                 |                                                                                                                                      |   |                                          |         | December 31   
|                                                 |                                                                                                                                      |   |                                          |         |               
|                                                 |                                                                                                                                      |   |                                          |         | 1999           |       | 1998      
|                                                 |                                                                                                                                      |   |                                          |         |                |       | (restated)
|                                                 |                                                                                                                                      |   |                                          |         |                |       |           
|                                                 |                                                                                                                                      |   |                                          |         | (in thousands)
|Assets                                          
|                                                
|                                                
|                                                
|                                                
|Current Assets                                  
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash                                                                                                                                 |   | $                                        | 391     |                |       | $          | 566     |   |  |  |  | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Accounts receivable, less allowance of $820,000 ($400,000 in 1998)                                                                   |   |                                          | 3,883   |                |       |            | 2,838   |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Inventories  Note A                                                                                                                 |   |                                          | 1,995   |                |       |            | 4,176   |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Costs and estimated earnings in excess of billings on incomplete contracts
- Note D                                                  |   |                                          | 284     |                |       |            | 199     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Current maturities of notes from sale of Welding division  Note C                                                                   |   |                                          | 1,716   |               
|                                                
|                                                
|                                                
|                                                
|                                                 | Other current assets                                                                                                                 |   |                                          | 309     |                |       |            | 533     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Current assets of discontinued operations  Note C                                                                                   |   |                                          |         |                |       |            | 10,843  |  
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        
|Total current assets                             |                                                                                                                                      |   | 8,578                                    |         |                |       | 19,155     |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        
|                                                
|                                                
|                                                
|                                                
|Property and equipment                          
|                                                
|                                                
|                                                
|                                                
|                                                 | Land and improvements                                                                                                                |   |                                          | 363     |                |       |            | 363     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Building and building improvements                                                                                                   |   |                                          | 3,740   |                |       |            | 3,732   |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Production and engineering equipment                                                                                                 |   |                                          | 2,669   |                |       |            | 2,605   |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Furniture and fixtures                                                                                                               |   |                                          | 872     |                |       |            | 847     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Vehicles                                                                                                                             |   |                                          | 145     |                |       |            | 254     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Computer equipment                                                                                                                   |   |                                          | 2,762   |                |       |            | 2,845   |  
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        
|                                                 |                                                                                                                                      |   | 10,551                                   |         |                |       | 10,646     |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Less accumulated depreciation                                                                                                        |   |                                          | 6,289   |                |       |            | 6,086   |  
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        
|                                                 |                                                                                                                                      |   | 4,262                                    |         |                |       | 4,560      |        
|                                                
|                                                
|                                                
|                                                
|Other assets                                    
|                                                
|                                                
|                                                
|                                                
|                                                 | Capitalized computer software development costs,
less accumulated amortization  Note A                                              |   |                                          | 4,327   |                |       |            | 4,353   |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Patents, less accumulated amortization                                                                                               |   |                                          | 259     |                |       |            | 351     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Note from sale of Welding division, less unamortized                                                                                 |   |                                          |         |               
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                                      |   | discount and current maturities  Note C |         |                | 1,563 |           
|                                                
|                                                
|                                                
|                                                
|                                                 | Other                                                                                                                                |   |                                          | 69      |                |       |            | 467     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Noncurrent assets of discontinued operations  Note C                                                                                |   |                                          |         |                |       |            | 5,434   |  
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        
|                                                 |                                                                                                                                      |   | 6,218                                    |         |                |       | 10,605     |        
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        
|                                                 |                                                                                                                                      | $ | 19,058                                   |         |                | $     | 34,320     |         |   |  |  | 
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        
|Liabilities and Stockholders Equity            
|                                                
|                                                
|                                                
|                                                
|Current liabilities                             
|                                                
|                                                
|                                                
|                                                
|                                                 | Accounts payable                                                                                                                     |   | $                                        | 1,546   |                |       | $          | 1,801   |   |  |  |  | 
|                                                
|                                                
|                                                
|                                                
|                                                 | Employee compensation                                                                                                                |   |                                          | 300     |                |       |            | 489     |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Accrued and other liabilities                                                                                                        |   |                                          | 887     |                |       |            | 1,046   |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Current maturities of long-term debt                                                                                                 |   |                                          | 35      |                |       |            | 13,178  |  
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        
|Total current liabilities                        |                                                                                                                                      |   | 2,768                                    |         |                |       | 16,514     |        
|                                                
|                                                
|                                                
|                                                
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        
|                                                
|                                                
|                                                
|                                                
|Long-term debt, less current maturities  Note E |                                                                                                                                      |   | 1,965                                    |         |                |       | 6,945      |        
|                                                
|                                                
|                                                
|                                                
|Stockholders equity Notes G and I             
|                                                
|                                                
|                                                
|                                                
|                                                 | Common stock, without par value, stated value $.20 per share;
15,000,000, shares authorized; 9,024,901 shares
issued and outstanding |   |                                          | 1,805   |                |       |            | 1,805   |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Additional paid-in capital                                                                                                           |   |                                          | 31,187  |                |       |            | 31,187  |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Retained-earnings deficit                                                                                                            |   |                                          | (18,103 | )              |       |            | (21,628 | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Notes receivable from officers                                                                                                       |   |                                          | (602    | )              |       |            | (580    | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Accumulated translation adjustment  Note A                                                                                          |   |                                          | 38      |                |       |            | 77      |  
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        
|Total stockholders equity                       |                                                                                                                                      |   | 14,325                                   |         |                |       | 10,861     |        
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        
|                                                 |                                                                                                                                      | $ | 19,058                                   |         |                | $     | 34,320     |         |   |  |  | 
|                                                 |                                                                                                                                      |   |                                          |         |                |       |            |        

See accompanying notes

20



---



Consolidated Statements of OperationsIntegral Vision, Inc. and Subsidiary

|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |       |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ----------------------- | ------------------------------------------------------------------- | ----- | ------------------------------------- | ------ | ---------- | ----- | ---------- | ------ | ------ | ----- | - | ------ | -
|                                                                                                                                                                                               |                                 |                         |                                                                     |       | Year ended December 31               
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                      
|                                                                                                                                                                                               |                                 |                         |                                                                     |       | 1999                                  |        | 1998       |       | 1997      
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        | (restated) |       | (restated)
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |           
|                                                                                                                                                                                               |                                 |                         |                                                                     |       | (in thousands, except per share data)
|Net revenues                                                                                                                                                                                   |                                 | $                       | 10,743                                                              |       |                                       | $      | 9,434      |       |            | $      | 15,955 |      
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Direct costs of sales                                                                                                                                                                          |                                 |                         | 10,848                                                              |       |                                       |        | 8,169      |       |            |        | 11,642 |      
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      
|Gross margin  Note A                                                                                                                                                                          |                                 |                         | (105                                                                | )     |                                       |        | 1,265      |       |            |        | 4,313  |      
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Other costs and expenses:                                                                                                                                                                     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Marketing                       |                         |                                                                     | 2,464 |                                       |        |            | 2,419 |            |        |        | 2,788 |  
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | General and administrative      |                         |                                                                     | 1,306 |                                       |        |            | 1,410 |            |        |        | 1,319 |  
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Engineering and development:   
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               |                                 |                         | Expenditures                                                        |       |                                       | 4,190  |            |       |            | 4,868  |        |       |   | 8,325  |  
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               |                                 |                         | Allocated to capitalized software and
direct cost of sales  Note A |       |                                       | (1,109 | )          |       |            | (1,375 | )      |       |   | (7,041 | )
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      
|                                                                                                                                                                                               |                                 |                         | Net Expense                                                         |       |                                       | 3,081  |            |       |            | 3,493  |        |       |   | 1,284  |  
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Product restructuring and       |                         |                                                                     |       |                                       |        |            |       |           
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               |                                 | other charges   Note B |                                                                     |       |                                       |        |            |       | 4,231      |       
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      
|                                                                                                                                                                                               |                                 |                         | 6,851                                                               |       |                                       |        | 11,553     |       |            |        | 5,391  |      
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      
|Loss from operations                                                                                                                                                                           |                                 |                         | (6,956                                                              | )     |                                       |        | (10,288    | )     |            |        | (1,078 | )    
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Other income  Note C                                                                                                                                                                          |                                 |                         | 1,450                                                               |      
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Interest income  Note C                                                                                                                                                                       |                                 |                         | 374                                                                 |      
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Interest expense  Note E                                                                                                                                                                      |                                 |                         | (539                                                                | )     |                                       |        | (915       | )     |            |        | (1,054 | )    
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      
|Loss from continuing operations before income
taxes                                                                                                                                            |                                 |                         | (5,671                                                              | )     |                                       |        | (11,203    | )     |            |        | (2,132 | )    
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Provision (credit) for income taxes  Note F                                                                                                                                                   |                                 |                         |                                                                     |       |                                       |        |            |       |            |        | (469   | )    
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      
|Loss from continuing operations                                                                                                                                                                |                                 |                         | (5,671                                                              | )     |                                       |        | (11,203    | )     |            |        | (1,663 | )    
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Income from discontinued welding operations, less
applicable income    taxes of $-0- and $-0-, and
$507 for the years ended December 31,     1999, 1998 and 1997
respectively   Notes C and F |                                 |                         | 1,030                                                               |       |                                       |        | 19         |       |            |        | 1,519  |      
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Gain on disposal of Welding division, less
applicable income taxes of     $300 - Note C                                                                                                        |                                 |                         | 8,749                                                               |      
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Extraordinary charge for early retirement of debt
less applicable income     tax credit of $200   Note E                                                                                      |                                 |                         | (583                                                                | )    
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      
|Net income (loss)                                                                                                                                                                              |                                 | $                       | 3,525                                                               |       |                                       | $      | (11,184    | )     |            | $      | (144   | )    
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      
|Basic and diluted earnings per share:                                                                                                                                                         
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Continuing operations           |                         | $                                                                   | (.63  | )                                     |        | $          | (1.24 | )          |        | $      | (.19  | )
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Discontinued Welding operations |                         |                                                                     | .11   |                                       |        |            |       |            |        |        | .17   |  
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Disposal of Welding division    |                         |                                                                     | .97   |                                      
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               | Extraordinary charge            |                         |                                                                     | (.06  | )                                    
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      
|                                                                                                                                                                                               | Net income (loss)               |                         | $                                                                   | .39   |                                       |        | $          | (1.24 | )          |        | $      | (.02  | )
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      
|Weighted average number of shares of common
stock and common stock equivalents outstanding                                                                                                     |                                 |                         | 9,025                                                               |       |                                       |        | 9,025      |       |            |        | 8,897  |      
|                                                                                                                                                                                               |                                 |                         |                                                                     |       |                                       |        |            |       |            |        |        |      

See accompanying notes

21



---



Consolidated Statements of Stockholders EquityIntegral Vision, Inc. and Subsidiary

|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |         |       |         |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|----------------------------- | -------------------------- | -------------------- | ---------------------- | -- | -------------- | - | ------- | --- | ---------- | - | -------- | ------- | ----------- | ----------- | ----- | --- | - | - | -- | --- | - | - | ------ | ------- | ----- | ------- | - |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|                              |                            |                      |                        |    |                |   |         |     | Additional |   | Retained |         |             | Accumulated
|                              |                            |                      |                        |    | Common         |   | Paid-In |     | Earnings   |   | Officer  |         | Translation |             |      
|                              |                            |                      |                        |    | Stock          |   | Capital |     | (Deficit)  |   | Notes    |         | Adjustment  |             | Total
|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |      
|                              |                            |                      |                        |    | (in thousands)
|Balances at January 1, 1997   |                            | $                    | 1,771                  |    |                | $ | 29,767  |     |            | $ | (10,300  | )       |             | $           | (483  | )   |   | $ | 64 |     |   | $ | 20,819 |         |       |         |   |  |  |  |  | 
|                             
|                             
|                             
|                             
|                              | Net loss for the year      |                      |                        |    |                |   |         |     |            |   |          | (144    | )           |             |       |     |   |   |    |     |   |   |        | (144    | )    
|                             
|                             
|                             
|                             
|                              | Translation adjustments    |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    | (57 | ) |   |        | (57     | )    
|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |        
|                              |                            |                      | Comprehensive loss     |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |         |       | (201    | )
|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |        
|                              | Issuance of 150,000 shares |                      |                        | 30 |                |   |         | 720 |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        | 750     |      
|                             
|                             
|                             
|                             
|                              | Exercise of options to     |                      |                        | 4  |                |   |         | 98  |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        | 102     |      
|                             
|                             
|                             
|                             
|                              |                            |                      | purchase 22,500 shares
|                             
|                             
|                             
|                             
|                              | Issuance of stock warrants |                      |                        |    |                |   |         | 602 |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        | 602     |      
|                             
|                             
|                             
|                             
|                              | Loans to Officers          |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       | (69 | ) |   |    |     |   |   |        | (69     | )    
|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |        
|Balances at December 31, 1997 |                            |                      | 1,805                  |    |                |   | 31,187  |     |            |   | (10,444  | )       |             |             | (552  | )   |   |   | 7  |     |   |   | 22,003 |        
|                             
|                             
|                             
|                             
|                              | Net loss for the year      |                      |                        |    |                |   |         |     |            |   |          | (11,184 | )           |             |       |     |   |   |    |     |   |   |        | (11,184 | )    
|                             
|                             
|                             
|                             
|                              | Translation adjustments    |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    | 70  |   |   |        | 70      |      
|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |        
|                              |                            |                      | Comprehensive loss     |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |         |       | (11,114 | )
|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |        
|                              | Loans to Officers          |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       | (28 | ) |   |    |     |   |   |        | (28     | )    
|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |        
|Balances at December 31, 1998 |                            |                      | 1,805                  |    |                |   | 31,187  |     |            |   | (21,628  | )       |             |             | (580  | )   |   |   | 77 |     |   |   | 10,861 |        
|                             
|                             
|                             
|                             
|                              | Net income for the year    |                      |                        |    |                |   |         |     |            |   |          | 3,525   |             |             |       |     |   |   |    |     |   |   |        | 3,525   |      
|                             
|                             
|                             
|                             
|                              | Translation adjustments    |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    | (39 | ) |   |        | (39     | )    
|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |        
|                              |                            | Comprehensive income |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |         | 3,486 |        
|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |        
|                              | Loans to Officers          |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       | (22 | ) |   |    |     |   |   |        | (22     | )    
|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |        
|Balance at December 31, 1999  |                            | $                    | 1,805                  |    |                | $ | 31,187  |     |            | $ | (18,103  | )       |             | $           | (602  | )   |   | $ | 38 |     |   | $ | 14,325 |         |       |         |   |  |  |  |  |  |  |  |  |  |  |  |  | 
|                              |                            |                      |                        |    |                |   |         |     |            |   |          |         |             |             |       |     |   |   |    |     |   |   |        |        

See accompanying notes.

22



---



Consolidated Statements of Cash FlowsIntegral Vision, Inc. and Subsidiary

|                                                                                                       |                                                                       |                                                |         |                        |        |            |         |            |       |   |         |       |      |   |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------- | ---------------------------------------------- | ------- | ---------------------- | ------ | ---------- | ------- | ---------- | ----- | - | ------- | ----- | ---- | - |  |  |  |  |  |  |  | 
|                                                                                                       |                                                                       |                                                |         | Year Ended December 31
|                                                                                                       |                                                                       |                                                |         |                       
|                                                                                                       |                                                                       |                                                |         | 1999                   |        | 1998       |         | 1997      
|                                                                                                       |                                                                       |                                                |         |                        |        | (restated) |         | (restated)
|                                                                                                       |                                                                       |                                                |         |                        |        |            |         |           
|                                                                                                       |                                                                       |                                                |         | (in thousands)        
|Operating Activities
Net income (loss)                                                                 |                                                                       | $                                              | 3,525   |                        |        | $          | (11,184 | )          |       | $ | (144    | )     |      |   |  |  |  |  |  | 
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Income from discontinued operations                                                                    |                                                                       |                                                | (1,030  | )                      |        |            | (19     | )          |       |   | (1,519  | )    
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Gain on sale of welding division                                                                       |                                                                       |                                                | (8,749  | )                     
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Extraordinary charge for early retirement of debt                                                      |                                                                       |                                                | 583     |                       
|                                                                                                       |                                                                       |                                                |         |                        |        |            |         |            |       |   |         |      
|Loss from continuing operations                                                                        |                                                                       |                                                | (5,671  | )                      |        |            | (11,203 | )          |       |   | (1,663  | )    
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Adjustments to reconcile net loss from continuing operations
to net cash used in operating activities:
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Depreciation and amortization                                         |                                                |         | 2,374                  |        |            |         | 2,374      |       |   |         | 3,276 |     
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Restructuring charges                                                 |                                                |         |                        |        |            |         | 4,231      |      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       | Changes in operating assets and liabilities of continuing
operations:
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       |                                                                       | Accounts receivable                            |         |                        | (1,045 | )          |         |            | 1,444 |   |         |       | (508 | )
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       |                                                                       | Inventories                                    |         |                        | 2,181  |            |         |            | 2,104 |   |         |       | 779  |  
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       |                                                                       | Prepaid and other                              |         |                        | 117    |            |         |            | 313   |   |         |       | (929 | )
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       |                                                                       | Accounts payable and other current liabilities |         |                        | (603   | )          |         |            | (590  | ) |         |       | (234 | )
|                                                                                                       |                                                                       |                                                |         |                        |        |            |         |            |       |   |         |      
|Net cash provided by (used in) operating activities                                                    |                                                                       |                                                | (2,647  | )                      |        |            | (1,327  | )          |       |   | 721     |      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       |                                                                       |                                                |         |                       
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Investing Activities

Proceeds from sale of Welding division                                           |                                                                       |                                                | 22,394  |                       
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Increase in property and equipment                                                                     |                                                                       |                                                | (290    | )                      |        |            | (251    | )          |       |   | (128    | )    
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Investment in capitalized software                                                                     |                                                                       |                                                | (1,410  | )                      |        |            | (1,283  | )          |       |   | (4,644  | )    
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Other                                                                                                  |                                                                       |                                                | 265     |                        |        |            | 124     |            |       |   | (45     | )    
|                                                                                                       |                                                                       |                                                |         |                        |        |            |         |            |       |   |         |      
|Net cash provided by (used in) investing activities                                                    |                                                                       |                                                | 20,959  |                        |        |            | (1,410  | )          |       |   | (4,817  | )    
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                       |                                                                       |                                                |         |                       
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Financing Activities
Repayments of revolving line of credit and other
obligations                      |                                                                       |                                                | (20,448 | )                      |        |            | (19,664 | )          |       |   | (34,085 | )    
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Proceeds from draws on revolving line of credit                                                        |                                                                       |                                                |         |                        |        |            | 22,066  |            |       |   | 37,400  |      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Proceeds from mortgage note payable                                                                    |                                                                       |                                                | 2,000   |                       
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Proceeds from exercise of stock options                                                                |                                                                       |                                                |         |                        |        |            |         |            |       |   | 102     |      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Proceeds from sale of common stock                                                                     |                                                                       |                                                |         |                        |        |            |         |            |       |   | 750     |      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Proceeds from issuance of stock warrants                                                               |                                                                       |                                                |         |                        |        |            |         |            |       |   | 602     |      
|                                                                                                       |                                                                       |                                                |         |                        |        |            |         |            |       |   |         |      
|Net cash provided by (used in) financing activities                                                    |                                                                       |                                                | (18,448 | )                      |        |            | 2,402   |            |       |   | 4,769   |      
|                                                                                                       |                                                                       |                                                |         |                        |        |            |         |            |       |   |         |      
|Effect of exchange rate changes                                                                        |                                                                       |                                                | (39     | )                      |        |            | 70      |            |       |   | (57     | )    
|                                                                                                       |                                                                       |                                                |         |                        |        |            |         |            |       |   |         |      
|Increase (decrease) in cash                                                                            |                                                                       |                                                | (175    | )                      |        |            | (265    | )          |       |   | 616     |      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|                                                                                                      
|Cash at beginning of year                                                                              |                                                                       |                                                | 566     |                        |        |            | 831     |            |       |   | 215     |      
|                                                                                                       |                                                                       |                                                |         |                        |        |            |         |            |       |   |         |      
|Cash at end of year                                                                                    |                                                                       | $                                              | 391     |                        |        | $          | 566     |            |       | $ | 831     |       |      |   |  |  |  |  |  | 
|                                                                                                       |                                                                       |                                                |         |                        |        |            |         |            |       |   |         |      

See accompanying notes.

23



---



Notes to Consolidated Financial Statements
Integral Vision, Inc. and Subsidiary

Note A  Significant Accounting Policies

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.

Inventories

|                                                                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Inventories are stated at the lower of first-in, first-out cost or
market, and at December 31 consisted of the following (net of
obsolescence reserve of $2,100,000 in 1999 and $300,000 in 1998):

|                |  |                |       |      |  |   |       |  |  |  |  | 
|--------------- |  | -------------- | ----- | ---- |  | - | ----- |  |  |  |  | 
|                |  | 1999           |       | 1998
|                |  |                |       |     
|                |  | (in thousands)
|Raw materials   |  | $              | 1,502 |      |  | $ | 3,587 |  |  |  |  | 
|               
|               
|               
|               
|Work in process |  |                | 218   |      |  |   | 260   | 
|               
|               
|               
|               
|Finished goods  |  |                | 275   |      |  |   | 329   | 
|                |  |                |       |      |  |   |       | 
|                |  | $              | 1,995 |      |  | $ | 4,176 |  |  |  |  | 
|                |  |                |       |      |  |   |       | 

24



---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|In 1999, $1.5 million was charged to direct costs of sales to set up an
additional obsolescence reserve as a result of the review of the marketability of
remaining inventory related to a previously discontinued product line.
In 1998, management decided to no longer sell inspection systems for
the audio CD market, as a result $1.4 million was charged to direct
costs of sales to write-off the inventory related to the discontinued
product line. A reconciliation of gross margin as reported to gross
margin from operations is presented in the table below.

|                                                       |  |                |        |      |  |      |       |  |  |   |        | 
|------------------------------------------------------ |  | -------------- | ------ | ---- |  | ---- | ----- |  |  | - | ------ | 
|                                                       |  | 1999           |        | 1998 |  | 1997
|                                                       |  |                |        |      |  |     
|                                                       |  | (in thousands)
|Net revenues                                           |  | $              | 10,734 |      |  | $    | 9,434 |  |  | $ | 15,955 | 
|                                                      
|                                                      
|                                                      
|                                                      
|Gross margin as reported                               |  |                | (105   | )    |  |      | 1,265 |  |  |   | 4,313  | 
|                                                      
|                                                      
|                                                      
|                                                      
|Adjustments to reconcile gross
margin from operations:
|                                                      
|                                                      
|                                                      
|                                                      
|Specific inventory adjustments                         |  |                | 1,525  |      |  |      | 1,402 | 
|                                                       |  |                |        |      |  |      |       |  |  |   |        | 
|Gross margin from operations                           |  | $              | 1,420  |      |  | $    | 2,667 |  |  | $ | 4,313  | 
|                                                       |  |                |        |      |  |      |       |  |  |   |        | 

Property and Equipment

|                                                                                                                                                                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Property and equipment is stated on the basis of cost. Equipment
capitalized under lease agreements and the related accumulated
amortization is included in property and equipment. Expenditures for
normal repairs and maintenance are charged to operations as incurred.

|                                                                                                                                                                                                                                                    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Depreciation, including amortization of assets recorded under capital
lease obligations, 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).

Capitalized Computer Software Development Costs

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Computer software development costs are capitalized after the
establishment of technological feasibility of the related technology.
These costs are amortized following general release of products based
on current and estimated future revenue for each product with an annual
minimum equal to the straight-line amortization over the remaining
estimated economic life of the product (not to exceed 5 years).
Management continually reviews the net realizable value of capitalized
software costs. At the time that a determination is made that
capitalized software amounts exceed the estimated net realizable value
of amounts capitalized, any amounts in excess of the estimated
realizable amounts are written off. (See Note B.)
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Amortization of the capitalized costs amounted to $1,182,000,
$1,420,000, and $2,678,000 in 1999, 1998 and 1997, respectively. Total
accumulated amortization at December 31, 1999 and 1998, was $3,886,000
and $2,704,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Patents

|                                                                                                                                                                                                                                                                                                                                               
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Patents are stated at cost less accumulated amortization of $515,000
and $369,000 at December 31, 1999 and 1998, respectively. Amortization
of the patents amounted to $146,000, $120,000 and $100,000 in 1999,
1998, and 1997, respectively. These costs are amortized on a
straight-line basis over the estimated useful lives of the assets.

25



---



Revenue Recognition

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Revenues are recorded at the time services are performed or when
products are shipped, except for long-term 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 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.

Income Taxes

|                                                                                                                                                                                                                                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Deferred income taxes are provided when necessary to recognize the
effect of temporary differences between financial and income tax
accounting related principally to contract revenues, depreciation and
capitalized computer software development costs.

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.

Reclassifications

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

Note B  Restructuring of Operations

|                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Early in the second quarter of 1998, Management completed an evaluation
of competitive conditions and product offerings in vision. A charge of
$5,633,000 was recorded as of March 31, 1998 to give effect to the
impairment of assets identified in this review. The charge consisted of
$4,231,000 related to capitalized software development costs and
$1,402,000 related to inventory (included in direct costs of sales).

Note C  Discontinued Operations

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                        

26



---



|                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                             
|                                                                                                                                                                                             
|                                                                                                                                                                                             
|                                                                                                                                                                                             
|The results of operations for this segment have been reported
separately as discontinued operations in the Consolidated Statements of
Operations for the current and prior periods presented.

|                             |  |                |        |      |  |      |        |  |  |   |        |  |  |  |  | 
|---------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  |  |  | 
|                             |  | 1999           |        | 1998 |  | 1997
|                             |  |                |        |      |  |     
|                             |  | (in thousands)
|Net revenues                 |  | $              | 12,403 |      |  | $    | 25,379 |  |  | $ | 24,569 |  |  |  |  | 
|                            
|                            
|                            
|                            
|Costs and expenses           |  |                | 11,373 |      |  |      | 25,360 |  |  |   | 22,543 | 
|                             |  |                |        |      |  |      |        |  |  |   |        | 
|Income before
income taxes   |  |                | 1,030  |      |  |      | 19     |  |  |   | 2,026  | 
|                            
|                            
|                            
|                            
|Income tax expense           |  |                |       |      |  |      |       |  |  |   | 507    | 
|                             |  |                |        |      |  |      |        |  |  |   |        | 
|Net income                   |  |                |        |      |  |      |        |  |  |   |        |  |  |  |  | 
|                            
|                            
|                            
|                            
|from discontinued
operations |  | $              | 1,030  |      |  | $    | 19     |  |  | $ | 1,519  | 
|                             |  |                |        |      |  |      |        |  |  |   |        | 

|                                                                               
|-------------------------------------------------------------------------------
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Net assets of the discontinued operations at December 31, 1998 were as
follows:

|                                                  |                    |   |                |        | 
|------------------------------------------------- | ------------------ | - | -------------- | ------ | 
|                                                  |                    |   | 1998          
|                                                  |                    |   |               
|                                                  |                    |   | (in thousands)
|Current assets                                    |                    | $ | 15,082         |       
|                                                 
|                                                 
|                                                 
|                                                 
|Current liabilities                               |                    |   | (4,239         | )     
|                                                  |                    |   |                |       
|                                                  | Net current assets |   |                | 10,843 | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Property and equipment                            |                    |   | 3,928          |       
|                                                 
|                                                 
|                                                 
|                                                 
|Intangibles and other                             |                    |   | 2,760          |       
|                                                 
|                                                 
|                                                 
|                                                 
|Non-current liabilities                           |                    |   | (1,254         | )     
|                                                  |                    |   |                |       
|Net non-current assets of discontinued operations |                    |   | 5,434          |       
|                                                  |                    |   |                |       
|Total net assets of discontinued operations       |                    | $ | 16,277         |       
|                                                  |                    |   |                |       

Note D  Costs and Estimated Earnings in Excess of Billings on Incomplete Contracts

|                                                                                                                    
|--------------------------------------------------------------------------------------------------------------------
|Costs and estimated earnings in excess of billings on incomplete
contracts at December 31 are summarized as follows:

|                                                                           |  |                |       |      |  |   |     | 
|-------------------------------------------------------------------------- |  | -------------- | ----- | ---- |  | - | --- | 
|                                                                           |  | 1999           |       | 1998
|                                                                           |  |                |       |     
|                                                                           |  | (in thousands)
|Contract costs to date                                                     |  | $              | 500   |      |  | $ | 263 | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Estimated contract earnings                                                |  |                | 863   |      |  |   | 491 | 
|                                                                           |  |                |       |      |  |   |     | 
|                                                                           |  |                | 1,363 |      |  |   | 754 | 
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Less billings to date                                                      |  |                | 1,079 |      |  |   | 555 | 
|                                                                           |  |                |       |      |  |   |     | 
|Costs and estimated earnings in excess
of billings on incomplete contracts |  | $              | 284   |      |  | $ | 199 | 
|                                                                           |  |                |       |      |  |   |     | 

|                                                                                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------
|The Company anticipates that substantially all of the costs incurred on
long-term contracts at December 31, 1999, will be billed and collected
in 2000.

27



---



Note E  Long-Term Debt and Other Financing Arrangements

|                                                        
|--------------------------------------------------------
|Long-term debt at December 31 consists of the following:

|                                |                                                                                    |   |                |  |      |   |        |       | 
|------------------------------- | ---------------------------------------------------------------------------------- | - | -------------- |  | ---- | - | ------ | ----- | 
|                                |                                                                                    |   | 1999           |  | 1998
|                                |                                                                                    |   |                |  |     
|                                |                                                                                    |   | (in thousands)
|Mortgage note payable, 8.9%     |                                                                                    | $ | 2,000          |  |      | $ |       |      
|                               
|                               
|                               
|                               
|Revolving note payable to bank  |                                                                                    |   |                |  |      |   | 10,000 |      
|                               
|                               
|                               
|                               
|Term notes payable to bank      |                                                                                    |   |                |  |      |   | 3,214  |      
|                               
|                               
|                               
|                               
|Subordinated debentures, 12.95%
|                               
|                               
|                               
|                               
|                                | (Net of $417,000 ($510,000 in 1997) unaccreted value
assigned to related warrants) |   |                |  |      |   |        | 6,583 | 
|                               
|                               
|                               
|                               
|Other                           |                                                                                    |   |                |  |      |   | 326    |      
|                                |                                                                                    |   |                |  |      |   |        |      
|                                |                                                                                    |   | 2,000          |  |      |   | 20,123 |      
|                               
|                               
|                               
|                               
|Less current maturities         |                                                                                    |   | 35             |  |      |   | 13,178 |      
|                                |                                                                                    |   |                |  |      |   |        |      
|                                |                                                                                    | $ | 1,965          |  |      | $ | 6,945  |      
|                                |                                                                                    |   |                |  |      |   |        |      

|                                                                                                                                                                                                                                                                                                                                                                
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The Company used cash received as a result of the sale of the Welding
Controls division to retire substantially all outstanding debt at June
30, 1999 (see Note C). An extraordinary charge of $583,000, net of tax
credit, resulted from this early retirement of debt. These charges
included unaccreted value assigned to warrants and unamortized
discounts.
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|Maturities of long-term debt are $41,000 in 2001; $45,000 in 2002;
$49,000 in 2003; $54,000 in 2004; $1,776,000 thereafter.                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                
|Interest paid approximates interest expensed for the years presented.                                                                                                                                                                                                                                                                                           

Note F  Income Taxes

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The Company establishes valuation allowances in accordance with the
provisions of FASB Statement No. 109, Accounting for Income Taxes.
The Company continually reviews realizability of deferred tax assets
and recognizes these benefits only as reassessment indicates that it is
more likely than not that the benefits will be realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|As of December 31, 1999, the Company has cumulative net operating loss
carryforwards approximating $23,100,000 (expiring: $7,457,000 in 2010,
$3,889,000 in 2011, $6,404,000 in 2012, and $5,350,000 in 2018) for tax
purposes available to reduce taxable income of future periods and
unused investment, alternative minimum tax, and research and
development tax credits approximating $1,197,000 which expire through
2013. For financial reporting purposes, the net operating losses and
credits have been offset against net deferred tax liabilities based
upon their expected amortization during the loss carryforward period.
The remaining valuation allowance is necessary due to the uncertainty
of future income estimates. The valuation allowance decreased
$1,143,000 in 1999 and increased $3,883,000 in 1998 and decreased
$55,000 in 1997.

28



---



|                                                                                                                                                                                                                                                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Companys deferred tax
liabilities and assets as of December 31 are as follows:

|                                            |                                                            |   |                |       |      |   |        |       | 
|------------------------------------------- | ---------------------------------------------------------- | - | -------------- | ----- | ---- | - | ------ | ----- | 
|                                            |                                                            |   | 1999           |       | 1998
|                                            |                                                            |   |                |       |     
|                                            |                                                            |   | (in thousands)
|Deferred tax liabilities:                  
|                                           
|                                           
|                                           
|                                           
|                                            | Deductible software development costs, net of
amortization |   | $              | 1,471 |      |   | $      | 1,808 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Tax over book depreciation                                 |   |                | 664   |      |   |        | 498   | 
|                                           
|                                           
|                                           
|                                           
|                                            | Percentage of completion                                   |   |                | 293   |      |   |        | 508   | 
|                                            |                                                            |   |                |       |      |   |        |      
|Total deferred tax liabilities              |                                                            |   | 2,428          |       |      |   | 2,814  |      
|                                           
|                                           
|                                           
|                                           
|Deferred tax assets:                       
|                                           
|                                           
|                                           
|                                           
|                                            | Net operating loss carryforwards                           |   |                | 7,854 |      |   |        | 9,489 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Credit carry forwards                                      |   |                | 1,197 |      |   |        | 1,097 | 
|                                           
|                                           
|                                           
|                                           
|                                            | Reserve for warranty                                       |   |                | 27    |      |   |        | 61    | 
|                                           
|                                           
|                                           
|                                           
|                                            | Bad debt reserve                                           |   |                | 279   |      |   |        | 136   | 
|                                           
|                                           
|                                           
|                                           
|                                            | Other                                                      |   |                | 100   |      |   |        | 203   | 
|                                            |                                                            |   |                |       |      |   |        |      
|Total deferred tax assets                   |                                                            |   | 9,457          |       |      |   | 10,986 |      
|                                           
|                                           
|                                           
|                                           
|Valuation allowance for deferred tax assets |                                                            |   | 7,029          |       |      |   | 8,172  |      
|                                            |                                                            |   |                |       |      |   |        |      
|Net deferred tax assets                     |                                                            |   | 2,428          |       |      |   | 2,814  |      
|                                            |                                                            |   |                |       |      |   |        |      
|Net deferred tax                            |                                                            | $ | 0              |       |      | $ | 0      |      
|                                            |                                                            |   |                |       |      |   |        |      

|                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------
|The reconciliation of income taxes computed at the U.S. federal statutory tax rates to income
tax expense (credit) is as follows:

|                                                                      |  |                |        |      |  |      |        |   |  |   |      |  
|--------------------------------------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | - |  | - | ---- | -
|                                                                      |  | 1999           |        | 1998 |  | 1997
|                                                                      |  |                |        |      |  |     
|                                                                      |  | (in thousands)
|Tax provision (credit) at U.S. statutory rates                        |  | $              | 1,199  |      |  | $    | (3,802 | ) |  | $ | (56  | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Tax provision included in income from
discontinued welding operations |  |                |        |      |  |      |        |   |  |   | (507 | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Change in valuation allowance                                         |  |                | (1,143 | )    |  |      | 3,883  |   |  |   | (55  | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Nondeductible expenses                                                |  |                | 30     |      |  |      | 38     |   |  |   | 43   |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Other                                                                 |  |                | (86    | )    |  |      | (119   | ) |  |   | 86   |  
|                                                                      |  |                |        |      |  |      |        |   |  |   |      |  
|                                                                      |  | $              | 0      |      |  | $    | 0      |   |  | $ | (469 | )
|                                                                      |  |                |        |      |  |      |        |   |  |   |      |  

|                                                        
|--------------------------------------------------------
|There were no income tax payments in 1999, 1998 or 1997.

29



---



Note G  Earnings per Share

|                                                                                       
|---------------------------------------------------------------------------------------
|The following table sets forth the computation of basic and diluted
earnings per share:

|                                                       |                                             |  |                                       |        |      |  |       |         |   |  |       |        |  
|------------------------------------------------------ | ------------------------------------------- |  | ------------------------------------- | ------ | ---- |  | ----- | ------- | - |  | ----- | ------ | -
|                                                       |                                             |  | 1999                                  |        | 1998 |  | 1997 
|                                                       |                                             |  |                                       |        |      |  |      
|                                                       |                                             |  | (in thousands, except per share data)
|Numerator for basic and diluted earnings per share -  
|                                                      
|                                                      
|                                                      
|                                                      
|Income(loss) available to common stockholders         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Loss from continuing operations             |  | $                                     | (5,671 | )    |  | $     | (11,203 | ) |  | $     | (1,663 | )
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Income from discontinued Welding operations |  |                                       | 1,030  |      |  |       | 19      |   |  |       | 1,519  |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Gain on disposal of Welding division        |  |                                       | 8,749  |     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Extraordinary charge                        |  |                                       | (583   | )   
|                                                       |                                             |  |                                       |        |      |  |       |         |   |  |       |       
|                                                       | Net Income (loss)                           |  | $                                     | 3,525  |      |  | $     | (11,184 | ) |  | $     | (144   | )
|                                                      
|                                                      
|                                                      
|                                                      
|*there was no effect of dilutive securities see below 
|                                                      
|                                                      
|                                                      
|                                                      
|Denominator for basic and diluted earnings per share -
|                                                      
|                                                      
|                                                      
|                                                      
|weighted average shares                                |                                             |  | 9,025                                 |        |      |  | 9,025 |         |   |  | 8,897 |       
|                                                       |                                             |  |                                       |        |      |  |       |         |   |  |       |       
|*there was no effect of dilutive securities see below 
|                                                      
|                                                      
|                                                      
|                                                      
|Basic and diluted earnings per share:                 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Continuing operations                       |  | $                                     | (0.63  | )    |  | $     | (1.24   | ) |  | $     | (0.19  | )
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Discontinued Welding operations             |  |                                       | 0.11   |      |  |       |         |   |  |       | 0.17   |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Disposal of Welding division                |  |                                       | 0.97   |     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Extraordinary charge                        |  |                                       | (0.06  | )   
|                                                       |                                             |  |                                       |        |      |  |       |         |   |  |       |       
|                                                       | Net income (loss)                           |  | $                                     | 0.39   |      |  | $     | (1.24   | ) |  | $     | (0.02  | )
|                                                       |                                             |  |                                       |        |      |  |       |         |   |  |       |       

|                                                                                                                                                                                                                                                         
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.

30



---



Note H  Employee Savings Plan

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The Company has an Employee Savings Plan covering substantially all
United States employees. The Company contributes $.20 to the Plan for
every dollar contributed by the employees up to 6% of their
compensation. The Plan also provides for discretionary contributions by
the Company as determined annually by the Board of Directors. Company
contributions charged to operations under the Plan were $30,000,
$30,000, and $37,000 for the years ended December 31, 1999, 1998 and
1997, respectively.

Note I  Stock Options and Warrants

|                                                                               
|-------------------------------------------------------------------------------
|A summary of the status of the Option Plans at December 31, 1999 is as
follows:

|                        |           |  |                |   |              |  |               |   |           |  |     |     |  |  |     |     | 
|----------------------- | --------- |  | -------------- | - | ------------ |  | ------------- | - | --------- |  | --- | --- |  |  | --- | --- | 
|                        |           |  |                |   |              |  | Non-Qualified
|                        |           |  | Qualified ISO  |   | Stock Option
|                        |           |  | Plan           |   | Plan         |  | 1999 Plan     |   | 1995 Plan
|                        |           |  |                |   |              |  |               |   |          
|                        |           |  | (in thousands)
|Options outstanding     |           |  | 171            |   |              |  | 14            |   |           |  | 400 |     |  |  | 492 |    
|                       
|                       
|                       
|                       
|Options exercisable     |           |  | 171            |   |              |  | 14            |   |           |  | 0   |     |  |  | 286 |    
|                       
|                       
|                       
|                       
|Options granted during:
|                       
|                       
|                       
|                       
|                        | 1999      |  |                | 0 |              |  |               | 0 |           |  |     | 400 |  |  |     | 206 | 
|                       
|                       
|                       
|                       
|                        | 1998      |  |                | 0 |              |  |               | 0 |           |  |     | 0   |  |  |     | 0   | 
|                       
|                       
|                       
|                       
|                        | 1997      |  |                | 0 |              |  |               | 0 |           |  |     | 0   |  |  |     | 267 | 
|                       
|                       
|                       
|                       
|                        | 1996      |  |                | 0 |              |  |               | 0 |           |  |     | 0   |  |  |     | 132 | 
|                       
|                       
|                       
|                       
|                        | 1995      |  |                |   |              |  |               |   |           |  |     | 0   |  |  |     | 211 | 
|                       
|                       
|                       
|                       
|Options available       |           |  |                |   |              |  |               |   |           |  | 0   |    
|                       
|                       
|                       
|                       
|                        | For Grant |  |                | 0 |              |  |               | 0 |           |  |     | 100 |  |  |     | 8   | 
|                        |           |  |                |   |              |  |               |   |           |  |     |     |  |  |     |    

|                                                                                                                                                                                                                                                              
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Option grants are approved by the Compensation Committee of the Board
of Directors. 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:

|                                       |                            |  |                                 |   |                |  |        |  |                |          |        |  |                |  |     |   |          |   |      |  |  |  |          |   |  |   |      |  | 
|-------------------------------------- | -------------------------- |  | ------------------------------- | - | -------------- |  | ------ |  | -------------- | -------- | ------ |  | -------------- |  | --- | - | -------- | - | ---- |  |  |  | -------- | - |  | - | ---- |  | 
|                                       |                            |  | 1999                            |   | 1998           |  | 1997  
|                                       |                            |  |                                 |   |                |  |       
|                                       |                            |  |                                 |   |                |  |        |  |                | Weighted |        |  |                |  |     |   | Weighted |   |      |  |  |  | Weighted
|                                       |                            |  |                                 |   |                |  |        |  |                | Average  |        |  |                |  |     |   | Average  |   |      |  |  |  | Average 
|                                       |                            |  | Shares                          |   | Exercise Price |  | Shares |  | Exercise Price |          | Shares |  | Exercise Price
|                                       |                            |  |                                 |   |                |  |        |  |                |          |        |  |               
|                                       |                            |  | (number of shares in thousands)
|Outstanding at beginning of year       |                            |  | 597                             |   |                |  |        |  |                | $        | 5.48   |  |                |  | 662 |   |          | $ | 5.64 |  |  |  | 589      |   |  | $ | 5.87 | 
|                                      
|                                      
|                                      
|                                      
|Granted                                |                            |  | 606                             |   |                |  |        |  |                |          | 1.07   |  |                |  | 0   |   |          |   | 0    |  |  |  | 267      |   |  |   | 5.20 | 
|                                      
|                                      
|                                      
|                                      
|Exercised                              |                            |  | 0                               |   |                |  |        |  |                |          | 0      |  |                |  | 0   |   |          |   | 0    |  |  |  | (23      | ) |  |   | 4.57 | 
|                                      
|                                      
|                                      
|                                      
|Canceled                               |                            |  | (126                            | ) |                |  |        |  |                |          | 6.10   |  |                |  | (65 | ) |          |   | 5.74 |  |  |  | (171     | ) |  |   | 5.88 | 
|                                       |                            |  |                                 |   |                |  |        |  |                |          |        |  |                |  |     |   |          |   |      |  |  |  |          |   |  |   |      | 
|Outstanding at end of year             |                            |  | 1,077                           |   |                |  |        |  |                |          | 3.02   |  |                |  | 597 |   |          |   | 5.48 |  |  |  | 662      |   |  |   | 5.64 | 
|                                      
|                                      
|                                      
|                                      
|                                       | ($1.07 to $9.25 per share)
|                                       |                            |  |                                 |   |                |  |        |  |                |          |        |  |                |  |     |   |          |   |      |  |  |  |          |   |  |   |      | 
|Exercisable ($1.07 to $9.25 per share) |                            |  | 471                             |   |                |  |        |  |                | $        | 5.54   |  |                |  | 597 |   |          | $ | 5.48 |  |  |  | 396      |   |  | $ | 5.93 | 
|                                       |                            |  |                                 |   |                |  |        |  |                |          |        |  |                |  |     |   |          |   |      |  |  |  |          |   |  |   |      | 

31



---



|                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------
|Additional information regarding the range of exercise prices and
weighted average remaining life of options outstanding at December 31,
1999 follows:

| |                 |  |             |                                 |                |  |             |          |  |  |  |     |  | 
| | --------------- |  | ----------- | ------------------------------- | -------------- |  | ----------- | -------- |  |  |  | --- |  | 
| |                 |  |             |                                 |                |  |             | Weighted
| | Range of        |  | Number      |                                 | Average        |  | Number     
| | Exercise Prices |  | Outstanding |                                 | Remaining Life |  | Exercisable
| |                 |  |             |                                 |                |  |             |          |  |  |  |    
| |                 |  |             |                                 |                |  |            
| |                 |  |             | (number of shares in thousands)
| | $1.07 to 1.75   |  |             | 611                             |                |  |             | 9.7      |  |  |  | 5   | 
|
|
|
|
| | 4.00 to 4.88    |  |             | 190                             |                |  |             | 4.3      |  |  |  | 190 | 
|
|
|
|
| | 5.00 to 5.63    |  |             | 110                             |                |  |             | 7.6      |  |  |  | 110 | 
|
|
|
|
| | 6.00 to 6.25    |  |             | 118                             |                |  |             | 4.6      |  |  |  | 118 | 
|
|
|
|
| | 8.25 to 9.25    |  |             | 48                              |                |  |             | 5.3      |  |  |  | 48  | 
|
| | $1.07 to 9.25   |  |             | 1,077                           |                |  |             | 7.8      |  |  |  | 471 | 
|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 models
required to be used by FASB Statement No. 123, Accounting for
Stock-Based Compensation, 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.                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|For purposes of proforma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. After
adjusting for the proforma effect of stock compensation, the net
income in 1999
is estimated to be $2,998,000 ($.33 per share), and the net loss in 1998 and 1997 was estimated to be $11,532,000
($1.28 per share), and $470,000 ($.05 per share),
respectively. In 1999 the assumptions used in determining the proforma
disclosure was a risk free interest rate of 6.00%, no dividend yields,
 .85 market price volatility, and 7.8-year weighted average life of
options. These proforma results reflect only stock options granted in
1995 through 1999 (no options were issued during 1998) and may not be
comparable with the results of applying the fair market value
methodology to all stock options granted prior to the initial adoption
of this statement.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|In connection with the private placement of $7.0 million of debentures
in 1997, which were retired in 1999, the company issued warrants for the
purchase of 1,400,000 Integral Vision common shares at $6.86 per share
all of which were outstanding at December 31, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Note J  Lease Commitments and Contingencies

|                                                                                                                                                                                                                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The Company and its subsidiary use equipment and office space under
long-term operating lease agreements requiring rental payments
approximating $78,000 in 2000, $83,000 in 2001 and $80,000 in 2002 and
$74,000 in 2003. Rent expense charged to operations approximated
$65,000, $60,000, and $57,000 in 1999, 1998 and 1997, respectively.

Note K  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

32



---



|                                                                                                                                                
|------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|                                                                                                                                                
|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 line of business, vision-based inspection
products. The following presents information by geographic area.        

|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |        |        | 
|--------------------------------------------------------------- | ------------------------------------- | -------------- | ------ | ---------------------- | ----- | ---- | ------- | ------ | ----- | - | ------ | ------ | ------ | 
|                                                                |                                       |                |        | Year Ended December 31
|                                                                |                                       |                |        |                       
|                                                                |                                       |                |        | 1999                   |       | 1998 |         | 1997  
|                                                                |                                       |                |        |                        |       |      |         |       
|                                                                |                                       |                |        | (in thousands)        
|Net revenues from unaffiliated customers:                      
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                       | United States  |        | $                      | 7,589 |      |         | $      | 6,773 |   |        | $      | 14,995 | 
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                |                                       | United Kingdom |        |                        | 3,154 |      |         |        | 2,661 |   |        |        | 960    | 
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       
|                                                                |                                       | $              | 10,743 |                        |       | $    | 9,434   |        |       | $ | 15,955 |       
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       
|Earnings (loss) from continuing operations
before income taxes:
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | United States                         |                | $      | (4,686                 | )     |      | $       | (5,740 | )     |   | $      | 100    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | United Kingdom                        |                |        | (985                   | )     |      |         | (1,232 | )     |   |        | (2,232 | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Restructuring charges                 |                |        |                        |       |      |         | (4,231 | )    
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       
|                                                                |                                       | $              | (5,671 | )                      |       | $    | (11,203 | )      |       | $ | (2,132 | )     
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       
|Identifiable assets:                                           
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | United States                         |                | $      | 21,556                 |       |      | $       | 20,270 |       |   | $      | 27,722 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | United Kingdom                        |                |        | 1,337                  |       |      |         | 1,608  |       |   |        | 4,471  |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Eliminations                          |                |        | (3,835                 | )     |      |         | (3,835 | )     |   |        | (3,835 | )     
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Net assets of discontinued
operations |                |        |                        |       |      |         | 16,277 |       |   |        | 20,163 |       
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       
|                                                                |                                       | $              | 19,058 |                        |       | $    | 34,320  |        |       | $ | 48,521 |       
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       
|Capital expenditures:                                          
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | United States                         |                | $      | 245                    |       |      | $       | 212    |       |   | $      | 104    |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | United Kingdom                        |                |        | 45                     |       |      |         | 39     |       |   |        | 24     |       
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       
|                                                                |                                       | $              | 290    |                        |       | $    | 251     |        |       | $ | 128    |       
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       
|Depreciation and amortization expense:                         
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | United States                         |                | $      | 1,997                  |       |      | $       | 2,004  |       |   | $      | 2,794  |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | United Kingdom                        |                |        | 377                    |       |      |         | 370    |       |   |        | 482    |       
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       
|                                                                |                                       | $              | 2,374  |                        |       | $    | 2,374   |        |       | $ | 3,276  |       
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       
|Net revenues by geographic area:                               
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | North America*                        |                | $      | 4,912                  |       |      | $       | 2,815  |       |   | $      | 11,300 |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Europe                                |                |        | 3,154                  |       |      |         | 3,361  |       |   |        | 4,030  |       
|                                                               
|                                                               
|                                                               
|                                                               
|                                                                | Asia                                  |                |        | 2,677                  |       |      |         | 3,258  |       |   |        | 625    |       
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       
|                                                                |                                       | $              | 10,743 |                        |       | $    | 9,434   |        |       | $ | 15,955 |       
|                                                                |                                       |                |        |                        |       |      |         |        |       |   |        |       

|                                                                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* Countries that are considered individually material (more than 10% of
net revenues) all others are included in North America and in total are
considered immaterial

33



---



Schedule II  Valuation And Qualifying Accounts

Integral Vision, Inc. And Subsidiary

(in thousands)

|                              |                                  |              |       |            |  |            |           |            |  |            |   |  |  |   |       |       |     |   |       |       |  |  |  |  |  |  |  |  | 
|----------------------------- | -------------------------------- | ------------ | ----- | ---------- |  | ---------- | --------- | ---------- |  | ---------- | - |  |  | - | ----- | ----- | --- | - | ----- | ----- |  |  |  |  |  |  |  |  | 
|Column A                      |                                  | Column B     |       | Column C   |  | Column D   |           | Column E  
|                              |                                  |              |       |            |  |            |           |           
|                              |                                  |              |       |            |  |            | Additions
|                              |                                  |              |       |            |  |            |          
|                              |                                  |              |       | Charged To |  | Charged To |           |            |  |           
|                              |                                  | Balance At   |       | Costs      |  | Other      |           |            |  | Balance At
|                              |                                  | Beginning Of |       | And        |  | Accounts-  |           | Deductions |  | End       
|Description                   |                                  | Period       |       | Expenses   |  | Describe   |           | Describe   |  | Of Period 
|                              |                                  |              |       |            |  |            |           |            |  |           
|Year ended December 31, 1999:
|                             
|                             
|                             
|                             
|                              | Accounts receivable allowance    |              | $     | 400        |  |            | $         | 516        |  |            | $ |  |  |   | $     | 96    | (3) |   | $     | 820   | 
|                             
|                             
|                             
|                             
|                              | Inventory obsolescence reserve   |              |       | 300        |  |            |           | 1,800      |  |            |   |  |  |   |       |       |     |   |       | 2,100 | 
|                             
|                             
|                             
|                             
|                              | Deferred tax valuation allowance |              |       | 8,172      |  |            |           |            |  |            |   |  |  |   |       | 1,143 | (2) |   |       | 7,029 | 
|                              |                                  |              |       |            |  |            |           |            |  |            |   |  |  |   |       |       |     |   |       |      
|                              |                                  | $            | 8,872 |            |  | $          | 2,316     |            |  | $          |   |  |  | $ | 1,239 |       |     | $ | 9,949 |      
|                              |                                  |              |       |            |  |            |           |            |  |            |   |  |  |   |       |       |     |   |       |      
|Year ended December 31, 1998:
|                             
|                             
|                             
|                             
|                              | Accounts receivable allowance    |              | $     | 400        |  |            | $         | 162        |  |            |   |  |  |   | $     | 162   | (3) |   | $     | 400   |  |  |  |  |  |  |  |  | 
|                             
|                             
|                             
|                             
|                              | Inventory obsolescence reserve   |              |       | 210        |  |            |           | 1,530      |  |            |   |  |  |   |       | 1,440 | (1) |   |       | 300   | 
|                             
|                             
|                             
|                             
|                              | Deferred tax valuation allowance |              |       | 4,289      |  |            |           | 3,883      |  |            |   |  |  |   |       |       |     |   |       | 8,172 | 
|                              |                                  |              |       |            |  |            |           |            |  |            |   |  |  |   |       |       |     |   |       |      
|                              |                                  | $            | 4,899 |            |  | $          | 5,575     |            |  |            |   |  |  | $ | 1,602 |       |     | $ | 8,872 |       |  |  |  |  |  |  |  | 
|                              |                                  |              |       |            |  |            |           |            |  |            |   |  |  |   |       |       |     |   |       |      
|Year ended December 31, 1997:
|                             
|                             
|                             
|                             
|                              | Accounts receivable allowance    |              | $     | 400        |  |            | $         | 120        |  |            |   |  |  |   | $     | 120   | (3) |   | $     | 400   |  |  |  |  |  |  |  |  | 
|                             
|                             
|                             
|                             
|                              | Inventory obsolescence reserve   |              |       | 156        |  |            |           | 622        |  |            |   |  |  |   |       | 568   | (1) |   |       | 210   | 
|                             
|                             
|                             
|                             
|                              | Deferred tax valuation allowance |              |       | 4,344      |  |            |           |            |  |            |   |  |  |   |       | 55    | (2) |   |       | 4,289 | 
|                              |                                  |              |       |            |  |            |           |            |  |            |   |  |  |   |       |       |     |   |       |      
|                              |                                  | $            | 4,900 |            |  | $          | 742       |            |  |            |   |  |  | $ | 743   |       |     | $ | 4,899 |       |  |  |  |  |  |  |  | 
|                              |                                  |              |       |            |  |            |           |            |  |            |   |  |  |   |       |       |     |   |       |      

|                                                                                                                       
|-----------------------------------------------------------------------------------------------------------------------
|1) Write-off obsolete inventory
2) Net change in deferred tax valuation allowance
3) Net accounts receivable write-offs

34



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Exhibits to Form 10K

Integral Vision, Inc.

Year Ended December 31, 1999

Commission File Number 0-12728

______________________________________

35



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|        |  |                                                                                                                                        |  |  |  | 
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit |  | Exhibit Index Description                                                                                                             
|Number  |  |                                                                                                                                       
|10.33   |  | Post Closing Adjustment and Settlement Agreement between Integral Vision, Inc.
and Weltronic/Technitron, Inc. dated December 29, 1999.
|       
|       
|       
|       
|21      |  | Subsidiary of the Registrant                                                                                                          
|       
|       
|       
|       
|23.1    |  | Consent of Ernst & Young, LLP, independent auditors.                                                                                  
|       
|       
|       
|       
|23.2    |  | Consent of Moore Stephens Doeren Mayhew, independent auditors.                                                                        
|       
|       
|       
|       
|27      |  | Financial Data Schedule