10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2011

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____________ to _____________

INTEGRAL VISION, INC.

(Exact name of registrant as specified in its charter)

Michigan	0-12728	38-2191935
(State or other jurisdiction	(Commission	(I.R.S. Employer
of incorporation or organization)	File Number)	Identification No.)

49113 Wixom Tech Drive, Wixom, Michigan 48393

(Address of principal executive offices) (Zip Code)

(248) 668-9230

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ  Yes ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

þ  Yes ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer (Do not check if a smaller reporting company)	o	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨  Yes þ  No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

35,675,409 shares of common stock as of September 16, 2011.

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
	¨	Yes	¨	No

INTEGRAL VISION, INC.

FORM 10-Q Report

June 30, 2011

TABLE OF CONTENTS

PART I.     FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010	3
		Condensed Statements of Operations (unaudited) for the three months and the six months ended June 30, 2011 and 2010	4
		Statement of Stockholders’ Deficit (unaudited)	6
		Condensed Statements of Cash Flows (unaudited) for the six months ended June 30, 2011 and 2010	7
		Notes to Condensed Financial Statements (unaudited)	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	32
PART II.       OTHER INFORMATION
	Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	32
	Item 3.	Defaults Upon Senior Securities	33
	Item 6.	Exhibits	33
		Signatures	36

2

Condensed Balance Sheets

Integral Vision, Inc.

	June 30			December 31,
	2011			2010
	(Unaudited)
	(in thousands)
Assets
Current assets
Cash	$	2		$	23
Accounts receivable		86			49
Accounts receivable employees		61			-
Inventories		224			213
Other current assets		70			93
Total current assets		443			378
Property and equipment
Building improvements		4			4
Production and engineering equipment		357			357
Furniture and fixtures		80			80
Computer equipment		201			201
Marketing/demonstration equipment		139			139
		781			781
Less accumulated depreciation		713			670
Net property and equipment		68			111
Other assets - net of accumulated amortization of $1,586,000 for 2011 and $1,583,000 for 2010		42			43
		42			43
Total assets	$	553		$	532
Liabilities and Stockholders' Deficit
Current liabilities
Notes payable ($760,900 in default in 2011. See Note C.)	$	851		$	1,056
Notes payable to related parties and directors ($4,426,098 in default in 2011. See Note C.)		4,715			7,522
Loans payable		11			-
Accounts payable		344			221
Customer deposits		39			-
Accrued compensation and related costs		420			318
Accrued interest ($121,139 of interest is due on notes in default in 2011. See Note C.)		233			273
Accrued warrants for interest		30			81
Accrued interest related parties and directors ($826,846 of interest is due on notes in default in 2011. See Note C.)		1,677			1,051
Accrued product warranty		55			87
Accrued sales commissions		48			48
Accrued professional services		74			79
Other accrued liabilities		6			18
Deferred revenue		438			346
Total current liabilities		8,941			11,100
Long-term debt
Notes payable		295			-
Notes payable related parties and directors (See Note D)		3,481			-
Total liabilities		12,717			11,100
Commitments and contingencies (Note C and H)
Stockholders' deficit
Preferred stock, 400,000 shares authorized; none issued		-			-
Common stock, without par value; 90,000,000 shares authorized; 35,675,409 shares issued and outstanding (35,675,409 in 2010)		54,022			54,020
Accumulated deficit		(66,186	)		(64,588	)
Total stockholders' deficit		(12,164	)		(10,568	)
Total liabilities and stockholders' deficit	$	553		$	532

The accompanying notes are an integral part of these financial statements.

3

Condensed Statements of Operations (Unaudited)

Integral Vision, Inc.

	Three Months Ended June 30,
	2011			2010
	(In thousands, except per share data)
Revenues:
Net product sales	$	34		$	240
Costs of sales:
Costs of sales for products		47			93
Depreciation and amortization		4			6
Total costs of sales		51			99
Gross margin		(17	)		141
Other costs and expenses:
Marketing		81			122
General and administrative		264			417
Engineering and development		176			229
Total other costs and expenses		521			768
Operating loss		(538	)		(627	)
Troubled debt restructuring gain		72			-
Interest expense		(25	)		(26	)
Interest expense related parties and directors		(254	)		(148	)
Loss from operations before income taxes		(745	)		(801	)
Income taxes		-			-
Net loss	$	(745	)	$	(801	)
Basic and diluted loss per share	$	(0.02	)	$	(0.02	)
Weighted average number of shares outstanding of common stock and common stock equivalents, where applicable		35,675			34,978

The accompanying notes are an integral part of these financial statements.

4

Condensed Statements of Operations (Unaudited)

Integral Vision, Inc.

	Six Months Ended June 30,
	2011			2010
	(In thousands, except per share data)
Revenues:
Net product sales	$	42		$	770
Costs of sales:
Costs of sales for products		50			292
Depreciation and amortization		8			8
Total costs of sales		58			300
Gross margin		(16	)		470
Other costs and expenses:
Marketing		169			236
General and administrative		533			663
Engineering and development		340			412
Total other costs and expenses		1,042			1,311
Operating loss		(1,058	)		(841	)
Other income		-			2
Troubled debt restructuring gain		72			-
Interest expense		(76	)		(33	)
Interest expense related parties and directors		(536	)		(385	)
Loss from operations before income taxes		(1,598	)		(1,257	)
Income taxes		-			-
Net loss	$	(1,598	)	$	(1,257	)
Basic and diluted loss per share	$	(0.04	)	$	(0.04	)
Weighted average number of shares outstanding of common stock and  common stock equivalents, where applicable		35,675			32,995

The accompanying notes are an integral part of these financial statements.

5

Statements of Stockholders’ Deficit (Unaudited)

Integral Vision, Inc.

	Number of Common Shares Outstanding		Common Stock		Preferred Stock		Accumulated Deficit			Total
	(in thousands, except number of common shares outstanding)
Balances at January 1, 2011		35,675,409	$	54,020	$	-	$	(64,588	)	$	(10,568	)
Net loss for the period								(1,598	)	$	(1,598	)
Issuance of warrants for settlement of interest on Class 2 Notes (See Note C )		-		2		-		-			2
Balances at June 30, 2011		35,675,409	$	54,022	$	-	$	(66,186	)	$	(12,164	)

The accompanying notes are an integral part of these financial statements.

6

Condensed Statements of Cash Flows (Unaudited)

Integral Vision, Inc.

	Six Months Ended June 30
	2011			2010
	(in thousands)
Cash Flows From Operating Activities:
Net loss	$	(1,598	)	$	(1,257	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		44			44
Amortization		6			16
Gain on sale of equipment		-			(2	)
Warrants issued in settlement of interest		-			4
Warrants issued in settlement of interest to related parties		2			28
Share-based compensation		-			174
Troubled debt restructuring gain		72			-
Issuance of Class 3 Notes in settlement of interest		-			11
Issuance of Class 3 Notes in settlement of interest to related parties		-			165
Changes in operating assets and liabilities:
Accounts receivable		(37	)		(64	)
Accounts receivable employees		(61	)		-
Inventories		(11	)		(32	)
Other current assets		23			22
Accounts payable and other current liabilities		104			69
Accrued interest		535			185
Customer deposits		39			58
Deferred revenue		92			122
Net cash used in operating activities		(790	)		(457	)
Cash Flows Provided By (Used In) Investing Activities:
Proceeds from sale of equipment		-			2
Purchase of equipment		-			(7	)
Additional patent expenditures		(5	)		(5	)
Net cash used in investing activities		(5	)		(10	)
Cash Flows Provided By (Used In) Financing Activities:
Proceeds from sale of Class 2 Notes		90			-
Proceeds from sale of Class 2 Notes to related parties		674			370
Proceeds from sale of Class 3 Notes to related parties		-			85
Proceeds from loans payable		10			-
Proceeds from loans payable officers		10			-
Payments for loans payable officers		(10	)
Proceeds from exercise of stock warrants		-			2
Net cash provided by financing activities		774			457
(Decrease) in cash		(21	)		(10	)
Cash at beginning of  period		23			28
Cash at end of period	$	2		$	18
Supplemental cash flows information:
Interest paid	$	-		$	14

The accompanying notes are an integral part of these financial statements.

7

Notes to Condensed Financial Statements

The condensed financial statements in this report have been prepared by Integral Vision, Inc. (the “Company”) without audit, pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America for annual financial statements.  These statements should be read in conjunction with the financial statements and notes for the year ended December 31, 2010, included in our Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2011.

The condensed financial statements in this report include all adjustments, consisting of only normal, recurring adjustments, that, in the opinion of management, are necessary for the fair presentation of results for these interim periods and in order to make the condensed financial statements not misleading.

The results of operations for the three-month and six-month periods ended June 30, 2011 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2011.

Note A – Nature of Business

Integral Vision, Inc. develops, manufactures, and markets flat panel display inspection systems to ensure product quality in the display manufacturing process.  We primarily inspect Microdisplays and small flat panel displays, though the technology used is scalable to allow inspection of full screen displays and components.  Our customers and potential customers are primarily large companies with significant investment in the manufacture of displays.  Nearly all of our sales originate in the United States, Asia, or Europe.  Our products are generally sold as capital goods.  Depending on the application, display inspection systems have an indefinite life and are more likely to require replacement due to possible technological obsolescence than from physical wear.

Note B - Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires us 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 year.  Actual results could differ from those estimates.

Inventories

Inventories are stated at the lower of first-in, first-out (“FIFO”) cost or market.  Cost is computed using currently adjusted standards which approximates actual costs on a FIFO basis.  We assess the recoverability of all inventory to determine whether adjustments for impairment are required.  At June 30, 2011 and December 31, 2010, inventories consisted of the following amounts (net of an obsolescence allowance of $30,000 at June 30, 2011 and $15,000 at December 31, 2010):

8

	2011		2010
	(in thousands)
Raw materials	$	67	$	80
Finished goods		157		133
	$	224	$	213

We periodically perform an analysis of our inventory to determine if its cost exceeds estimated net realizable value.  Over the last several years, given the market conditions and the direction of the Company, we discontinued certain product lines and attempted to liquidate the remaining inventory related to those product lines.

Property and Equipment

Property and equipment are stated on the basis of cost. Inventory transferred to engineering equipment and/or marketing and demonstration equipment is transferred at historical cost.  Expenditures for normal repairs and maintenance are charged to operations as incurred.

Depreciation is computed by the straight-line method based on the estimated useful lives of the assets (building improvements: over 5 years; production and engineering equipment: over 3 to 10 years; furniture and fixtures: over 5 to 10 years; computer equipment: over 3 to 10 years; and marketing and demonstration equipment: over 3 to 5 years).

Stockholder’s Equity

On March 17, 2010, the Board of Directors changed the stated value of our common stock from $0.20 to “no stated value”.  As a result, we reclassified $47,528,000 of additional paid in capital to common stock.

As of June 30, 2011, we have 90,000,000 authorized shares of common stock of which 35,675,409 shares are issued and outstanding.  24,243,549 shares of common stock are commited to the holders of outstanding warrants, 23,233,132 shares of common stock are commited to the holders of Class 3 Convertible Notes, and 6,160,000 shares of common stock are commited to the holders of stock options.  We also have commitments to issue warrants that can be exercised for a combined total of 10,656,498  of our common shares.  We have not issued these warrants and will not issue them until the shareholders authorize sufficient shares to cover their potential exercise. Our total commitment for shares of common stock is  99,968,588 shares as of  June 30, 2011.  Based on the foregoing, we are in default of our commitment to some of the holders of warrants earned against their Class 2 Notes to reserve adequate authorized shares of common stock for our outstanding commitments and would be in default of our commitment to deliver warrants on request if the holders requested their earned but unissued warrants before sufficient shares were authorized.  The Board of Directors has authorized proposing a reverse stock split to the shareholders which, if approved, would resolve this issue .

Deferred Revenue

Deferred revenue represents amounts periodically invoiced for sales orders in excess of amounts recognized as revenues. Deferred revenue was $438,186 at June 30, 2011 and $346,000 at December 31, 2010.

Fair Value of Financial Instruments

Our financial instruments are cash and cash equivalents, accounts receivable, accounts payable, notes payable, and long-term debt. The recorded values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values based on their short-term nature. The recorded values of notes payable and long-term debt approximate their fair values, as interest approximates market rates.

9

Revenue Recognition

We recognize revenue in accordance with ASC 605 “Revenue Recognition”, Staff Accounting Bulletin No. 101 (“SAB 101”), and Staff Accounting Bulletin No. 104 (“SAB 104”) “Revenue Recognition in Financial Statements”. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

We recognize revenue at the time of shipment for product sales where the customer’s acceptance criteria can be demonstrated as met prior to shipment and where title transfers on shipment.  We recognize revenue at the time of final acceptance at the customer site when title does not transfer on shipment or if acceptance criteria at the customer site are substantially different than acceptance criteria for shipment.  We recognize revenue for product sales with no specific customer acceptance criteria, including spare parts, on shipment.  Revenue from service contracts is recognized over the term of the contract.  Revenue is reported net of sales commissions which were $1,000 and $6,738 for the three-month periods ended March 31, 2011 and 2010, respectively, and $1,000 and $67,894 for the six-month periods ended June 30, 2011 and 2010, respectively.

Supplemental Disclosure of Non-cash Investing and Financing Activities

During 2010, we exchanged $170,000 of Class 2 Notes for $170,000 of Class 3 Notes.

During 2010, we issued $176,308 of Class 3 Notes in settlement of interest.

During the six-month period ending June 30, 2011, we issued approximately $2,000 of warrants in settlement of interest.

Common Stock Options

We account for our share-based compensation plans according to the provisions of ASC Topic 718 “Stock Compensation”. Accordingly, compensation costs attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date, and expensed over the expected vesting period.  ASC Topic 718 “Stock Compensation” requires excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid.

Reclassifications

Certain amounts have been reclassified in prior periods’ statements to conform to the current period’s presentation.

Contingencies and Litigation

We make an assessment of the probability of an adverse judgment resulting from current and threatened litigation. We accrue the cost of an adverse judgment if, in our estimation, an adverse settlement is probable and management can reasonably estimate the ultimate cost of such litigation.  We had no such accruals at June 30, 2011 and December 31, 2010.

10

Recently Issued Accounting Standards

ASU 2010-17

Accounting Standards Update (“ASU”) 2010-17, “Revenue Recognition – Milestone Method,” provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a study or achieving a specific result from the research or development efforts. An entity often recognizes these milestone payments as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method. The amendments in ASU 2010-17 are effective on a prospective basis for milestones achieved in fiscal years, and interimperiods within those years, beginning on or after June 15, 2010. We adopted the guidance in ASU 2010-17 and there was no effect on our financial position, results of operations, or cash flows.

Note C - Long-Term Debt and Other Financing Arrangements

2011 Activity (Values for warrants are determined using the Black Scholes Option Pricing Model)

As of January 1, 2011, we had $3,624,172 of outstanding Class 2 Notes and 5,898,780 unissued warrants valued at $29,615. These Class 2 Notes are working capital notes secured by accounts receivable, inventory, and intellectual property and have been issued primarily to certain shareholders that are directors or beneficially own more than five percent of the outstanding shares of common stock of the Company (see  Note D – Related Party Transactions). The Notes bear interest at 10%, payable at maturity of the note and earn warrants at the rate of five warrants per year per dollar invested. The warrants have an exercise price ranging from $0.10 to $0.25  per share of our common stock.  The holder can elect to forgo warrants and earn an additional 2% interest.

During the quarter ended March 31, 2011, we issued $420,000 of Class 2 Notes.  We also issued 49,315 warrants valued at $533.  During the quarter ended June 30, 2011, we issued $344,000 of Class 2 Notes. $160,000 of these Class 2 Notes and their associated interest have the right, through December 5, 2011 and subject to certain restrictions, to be converted into Class 3 Notes.   See the transactions detailed in Note D – Related Party Transactions for a description of the restrictions.  These Class 3 Notes would mature on July 1, 2013, earn 8% interest, and would be convertible at $0.10 per share. We also issued 280,274 warrants valued at $1,088.  We had 10,656,498 accrued warrants that were earned but not issued as of June 30, 2011, valued at $30,510.  The value of these unissued warrants is reflected in the balance sheet as a liability as “Accrued Warrants for Interest”.

As of June 30, 2011, $331,500 of the Class 2 Notes were earning 10% interest and accruing warrants, $318,366 of the Class 2 Notes were earning default interest of 14% and accruing warrants, $3,738,306 of the Class 2 Notes were earning interest at 12% and do not earn warrants.

As of June 30, 2011, $318,366 of the Class 2 Notes were past due and in default. $3,775,806 of Class 2 Notes are due July 1, 2013 (see the next paragraph for details of this transaction).  $80,000 of Class 2 Notes were due June 30, 2011.  $10,000 of Class 2 Notes were due August 3, 2011.  $204,000 of Class 2 Notes are due December 23, 2011.  See Note J – Subsequent Events for recent activity associated with the maturity of Class 2 Notes.

11

On May 4, 2011, $1,781,112 of Class 2 Notes ceased accruing warrants and began accruing an additional 2% interest; on May 12, 2011, $1,794,694 of Class 2 Notes ceased accruing warrants and began accruing an additional 2% interest; on May 17, 2011, all of these notes had their due dates extended to July 1, 2013, and waived any default interest payments due retroactively from September 30, 2010 through May 17, 2011.  This was accounted for in accordance with ASC 470-60 as a troubled debt restructuring and resulted in a gain of $72,000.  For more information on the circumstances surrounding these transactions, please see Note D – Related Party Transactions.

As of January 1, 2011, we had $4,953,633 of outstanding Class 3 Notes. Of these, $3,671,642 bear interest at 8% and $1,281,989 bear interest at 12%, payable January 1st and July 1st of each year. The Notes are secured by our intellectual property and have been issued primarily to certain shareholders that are directors or beneficially own more than five percent of the outstanding shares of common stock of the Company (see Note D – Related Party Transactions).  Also, $3,671,642 of the Notes are convertible into the Company’s common stock at $0.25 per share, and $1,281,989 of the Notes are convertible into the Company’s stock at $0.15 per share.  No new Class 3 Notes were issued during the six-month period ended June 30, 2011.  As of June 30, 2011, all but $85,000 of the Class 3 Notes are in default.  See Note J – Subsequent Events for recent activity associated with the maturity of Class 3 Notes.

The Company is in default under the terms of the Fifth Amended and Restated Note and Warrant Purchase Agreement (the “Agreement”), because as of June 30, 2011 it failed to make full payment of principal and interest on $318,366 of Class 2 Notes and $4,868,633 of Class 3 Notes that were past their maturity dates.  As of June 30, 2011, the outstanding unpaid interest on the defaulted Class 2 Notes and Class 3 Notes was $90,102 and $862,882 respectively.

The Class 2 and Class 3 Notes are secured by the Company’s intellectual property pursuant to a Collateral Assignment of Proprietary Rights and Security Agreement (the “Collateral Assignment”), and the Class 2 Notes are also secured by the Company’s accounts receivable and inventory pursuant to a Security Agreement (the “Security Agreement”).

The Class 2 and Class 3 Notes in default accrue interest at their default interest rates, which are equal to their respective interest rates plus an additional 4%. As such, $318,366 of Class 2 Notes are currently accruing interest at the default rate of 14%. Also, $3,671,643 of Class 3 Notes are currently accruing interest at the default rate of 12% and $1,196,989 of Class 3 Notes are currently accruing interest at the default rate of 16%.

Pursuant to the Collateral Assignment and the Security Agreement, the Class 2 and Class 3 Note holders (or the collateral agent acting on their behalf) have the right to foreclose on the collateral covered by such agreements, and exercise any of several remedies provided in such agreements, including taking possession of such collateral and selling such collateral.  See Note J– Subsequent Events for recent activity associated with the Class 2 and Class 3 Notes.

The Company is in discussions with certain note holders about curing or waiving the remaining defaults.  Certain note holders have continued to purchase new notes to provide additional funding to the Company after the default.  See Note J – Subsequent Events for information on note activity since June 30, 2011.

12

The following table summarizes Class 2 Note activity for the three-month and six-month periods ended June 30, 2011:

	Notes Issued for Cash		Class 3 Notes Issued for Class 2 Note Payment		Cash Redemption		Notes Issued for Interest Payment		Class 2 Note Balance		Warrants Issued for Interest
Balance December 31, 2010	$	-	$	-	$	-	$	-	$	3,624,172	$	-
Quarter Ended March 31, 2011		420,000		-		-		-		420,000		533
Quarter Ended June 30, 2011		344,000		-				-		344,000		1,146
Balance June 30, 2011, 2011	$	764,000	$	-	$	-	$	-	$	4,388,172	$	1,679

The following table summarizes Class 3 Note activity for the three-month and six-month periods ended June 30, 2011:

	Notes Issued For Cash		Exchange of Class 2 Note and Related Interest		Cash Redemption		Notes Issued For Interest		Class 3 Note Balance
Balance December 31, 2010	$	-	$	-	$	-	$	-	$	4,953,633
Quarter Ended March 31, 2011		-		-		-		-		-
Quarter Ended June 30, 2010		-		-		-		-		-
Balance June 30, 2011	$	-	$	-	$	-	$	-	$	4,953,633

During the quarter ended March 31, 2011, we received unsecured, non-interest bearing loans of $10,000 from certain officers of the Company. The loans do not have repayment terms but are intended to be short term.  During the quarter ended June 30, 2011, these loans were repaid.

During the quarter ended March 31, 2011, we received an unsecured, non-interest bearing loan of $10,000 from a current Note Holder. The loan does not have repayment terms but is considered to be short term.  There was no activity on this loan during the quarter ended June 30, 2011.

2010 Activity (Values for warrants are determined using the Black Scholes Option Pricing Model)

As of January 1, 2010, we had $2,855,112 of outstanding Class 2 Notes. The Class 2 Notes are working capital notes secured by accounts receivable, inventory, and intellectual property and have been issued primarily to certain shareholders that are directors or beneficially own more than five percent of the outstanding shares of common stock of the Company (see  Note D – Related Party Transactions).  The Notes bear interest at 10%, payable at maturity of the note and earn warrants at the rate of five warrants per year per dollar invested. The warrants have an exercise price of $0.15 per share of our common stock.  The holder can elect to forgo warrants and earn an additional 2% interest.  All notes are presently earning 10% interest and receiving warrants, except for $475,000 which are earning interest at 12%.  During the quarter ended March 31, 2010, we issued $370,000 of Class 2 Notes and we paid $170,000 of Class 2 Notes by issuing Class 3 Notes.  We also issued 3,700,363 warrants valued at $32,843.  During the quarter ended September 30, 2010, we issued $435,600 of new Class 2 Notes and we paid $50,950 to retire a Class 2 Note. We also issued 8,509,560 warrants valued at $104,936.  During the quarter ended December 31, 2010, we issued $391,784 of new Class 2 Notes and we paid $207,374 to retire Class 2 Notes.  We had 5,898,780 accrued warrants that were earned but not issued as of December 31, 2010, valued at $29,615.  See Note J – Subsequent Events for recent activity associated with the maturity of Class 2 Notes.

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As of January 1, 2010, we had $4,522,000 of outstanding Class 3 Notes. Of these, $3,671,642 bear interest at 8% and $850,861 bear interest at 12%, payable January 1st and July 1st of each year. The Notes are secured by our intellectual property and have been issued primarily to certain shareholders that are directors or beneficially own more than five percent of the outstanding shares of common stock of the Company (see Note C – Long-Term Debt and Other Financing).  Also, $3,671,642 of the Notes are convertible into the Company’s common stock at $0.25 per share, and $850,681 of the Notes are convertible into the Company’s stock at $0.15 per share.  During the quarter ended March 31, 2010, we issued $176,308 of Class 3 Notes bearing 12% interest and convertible at $0.15 per share for the payment of interest, and $170,000 of Class 3 Notes bearing 12% interest and convertible at $0.15 per share for the payment of Class 2 Notes.  During the quarter ended June 30, 2010, we issued $85,000 of Class 3 Notes bearing 12% interest and convertible at $0.15 per share for cash which mature on July 1, 2011. All other Class 3 Notes matured on October 1, 2010, and are currently in default.  No new Class 3 Notes were issued during the quarter ended December 31, 2010.  See Note J – Subsequent Events for recent activity associated with the maturity of Class 3 Notes.

The Company is in default under the terms of the Fifth Amended and Restated Note and Warrant Purchase Agreement (the “Agreement”), because it failed to make full payment of principal and interest on certain Class 2 and Class 3 Notes on their respective maturity dates.

The Class 2 and Class 3 Notes are secured by the Company’s intellectual property pursuant to a Collateral Assignment of Proprietary Rights and Security Agreement (the “Collateral Assignment”), and the Class 2 Notes are also secured by the Company’s accounts receivable and inventory pursuant to a Security Agreement (the “Security Agreement”).

During 2010, the Class 2 and Class 3 Notes started accruing interest at their default interest rates, which is equal to their respective interest rates plus an additional 4%.

Pursuant to the Collateral Assignment and the Security Agreement, the Class 2 and Class 3 Note holders (or the collateral agent acting on their behalf) have the right to foreclose on the collateral covered by such agreements, and exercise any of several remedies provided in such agreements, including taking possession of such collateral and selling such collateral.  See Note J – Subsequent Events for recent activity associated with the Class 2 and Class 3 Notes.

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The following table summarizes Class 2 Note activity for the year ended December 31, 2010:

	Notes Issued for Cash		Class 3 Notes Issued for Class 2 Note Payment			Cash Redemption			Notes Issued for Interest Payment		Class 2 Note Balance		Warrants Issued for Interest
Balance January 1, 2010	$	-	$	-		$	-		$	-	$	2,855,112	$	-
Quarter Ended March 31, 2010		370,000		(170,000	)		-			-		200,000		32,843
Quarter Ended June 30, 2010		-		-						-		-		-
Quarter Ended September 30, 2010		435,600		-			(50,950	)		-		384,650		104,936
Quarter Ended December 31, 2010		391,784		-			(207,374	)		-		184,410		-
Balance December 31, 2010	$	1,197,384	$	(170,000	)	$	(258,324	)	$	-	$	3,624,172	$	137,779

The following table summarizes Class 3 Note activity for the year ended December 31, 2010:

	Notes Issued For Cash		Exchange of Class 2 Note and Related Interest		Cash Redemption		Notes Issued For Interest		Class 3 Note Balance
Balance January 1, 2010	$	-	$	-	$	-	$	-	$	4,522,325
Quarter Ended March 31, 2010		-		170,000		-		176,308		346,308
Quarter Ended June 30, 2010		85,000		-		-		-		85,000
Quarter Ended September 30, 2010		-		-		-		-		-
Quarter Ended December 31, 2010		-		-		-		-		-
Balance December 31, 2010	$	85,000	$	170,000	$	-	$	176,308	$	4,953,633

A summary of the Company’s debt obligations is as follows as of June 30, 2011 and December 31, 2010:

	2011		2010
	(in thousands)
Short Term Notes Payable:
Class 2 Notes	$	612	$	3,624
Class 3 Notes		4,954		4,954
Net Short Term Notes Payable	$	5,566	$	8,578
Long Term Notes Payable:
Class 2 Notes	$	3,776	$	-
Class 3 Notes		-		-
Net Long Term Notes Payable	$	3,776	$	-
Total	$	9,342	$	8,578

There are no long-term maturities of debt due in 2011 or 2012.  $3,775,806 of long-term debt matures July 1, 2013.

See Note J – Subsequent Events for recent activity associated with Class 2 and Class 3 Notes.

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Note D - Related Party Transactions

The portion of debt described in Note C above that has been issued to Directors and to certain shareholders that own more than five percent (5%) of the outstanding shares of common stock of the Company is disclosed in the table below.

	Greater than 5% shareholder					Director
	John Hunter		John R. Kiely, III.			Max A. Coon			Total
Outstanding balance as of December 31, 2010
Class 2 Notes	$	1,781,112	$	1,229,695	1	$	125,000	3
Class 3 Notes	$	1,490,167	$	2,541,427	2	$	354,504	4
Total	$	3,271,279	$	3,771,122		$	479,504		$	7,521,905
Aggregate amount of transactions (See “Related Party Transaction Detail” below)
2011	$	-	$	674,000		$	-
2010	$	-	$	-		$	-
Outstanding balance as of June 30,2011
Class 2 Notes	$	1,781,112	$	1,903,695	1	$	125,000	3
Class 3 Notes	$	1,490,167	$	2,541,427	2	$	354,504	4
Total	$	3,271,279	$	4,445,122		$	479,504		$	8,195,905
Amount of principal paid during period
2011	$	-	$	-		$	-
2010	$	-	$	-		$	-
Amount of interest paid during six month period ending June 30
Cash 2011	$	-	$	-		$	-		$	-
Notes issued in payment of interest 2011	$	-	$	-		$	-
Value of warrants issued 2011	$	-	$	969		$	-
Total 2011	$	-	$	969		$	-		$	969
Cash 2010	$	2,000	$	-		$	-
Notes issued in payment of interest 2010	$	60,106	$	90,568	5	$	14,291	7
Value of warrants issued 2010	$	10,923	$	14,985	6	$	1,008
Total 2010	$	73,029	$	105,553		$	15,299		$	193,881
Accrued interest at June 30
Cash 2011	$	761,935	$	792,280	8	$	122,332	10
Value of warrants accrued not issued 2011	$	12,575	$	10,148	9	$	2,079
Total 2011	$	774,510	$	802,428		$	124,411		$	1,701,349
Cash 2010	$	377,162	$	321,859	11	$	60,420	13
Value of warrants accrued not issued 2010	$	67,938	$	3,278	12	$	-
Total 2010	$	445,100	$	325,137		$	60,420		$	830,657

 

1) Includes $100,750 of Class 2 Notes held solely by Michael Kiely, brother of John R. Kiely, III, and $28,250 of Class 2 Notes held by Maria P. Kiely, sister in law of John R. Kiely, III.

2) Includes $1,190,194 of Class 3 Notes held solely by Michael Kiely, brother of John R. Kiely, III, and $29,389 of Class 3 Notes held by Maria P. Kiely, sister in law of John R. Kiely, III.

3) Includes $125,000 Class 2 Notes held by Charlevoix Drive Properties Ltd. of which Max A. Coon is the principal partner.

4) Includes $158,580 of Class 3 Notes held by Charlevoix Drive Properties, Ltd. of which Max A. Coon is the principal partner and $56,343 of Class 3 Notes held by Max Andrew Coon, grandson of Max A. Coon.

5) Includes $36,089 of Class 3 Notes issued to Michael Kiely, brother of John R. Kiely, III, and $1,139 of Class 3 Notes issued to Maria Kiely, sister-in-law of John R. Kiely, III.

6) Includes $1,652 of interest expense for accrued not issued warrants for Michael Kiely, brother of John R. Kiely, III, and $934 of interest expense for accrued and unissued warrants for Maria Kiely, sister-in-law of John R. Kiely, III.

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7) Includes $2,248 of Class 3 Notes issued to Max Andrew Coon, grandson of Max A. Coon.

8) Includes $257,112 of interest due to Michael Kiely, brother of John R. Kiely, III, and $13,363 of interest due to Maria Kiely, sister-in-law of John R. Kiely.

9) Includes $898 of interest associated with accrued and unissued warrants due to Michael Kiely, brother of John R. Kiely, III, and $296 of interest associated with accrued and unissued warrants due to Maria Kiely, sister-in-law of John R. Kiely, III.

10) Includes $27,326 of interest due to Charlevoix Drive Properties, Ltd. of  which Max A. Coon is the principal partner and $9,561 of interest due to Max Andrew Coon, grandson of Max A. Coon.

11) Includes $74,432 of interest due to Michael Kiely, brother of John R. Kiely, III, and $6,757 of interest due to Maria Kiely, sister-in-law to John R. Kiely, III.

12) Includes $843 of interest expense for accrued and unissued warrants for Michael Kiely, brother of John R. Kiely, III, and $278 of interest expense for accrued and unissued warrants for Maria Kiely, sister-in-law of John R. Kiely, III.

13) Includes $52,268 of interest due to Charlevoix Drive Properties, Ltd. or which Max A. Coon is the principal partner and $2,344 of interest due to Max Andrew Coon, grandson of Max A. Coon.

Total interest expense for the period ended June 30, 2011 was $612,454 of which $504,750 and $31,735 were for greater than 5% shareholders and directors, respectively.  Interest expense for the period ended June 30, 2010 was $418,000 of which $364,724 and $21,102 were for greater than 5% shareholders and directors, respectively.

Related Party Transaction Detail

The Company did not have sufficient cash to meet its obligations in April of 2011 and sold Class 2 Notes to a related party to help meet its obligations.  On April 19, 2011, John R. Kiely, III with his brother Michael Kiely as co-trustee, purchased a $40,000 Class 2 Note.  This Class 2 Note matured on May 31, 2011, and earns interest at 12%.  On April 20, 2011, John R. Kiely, III purchased a $50,000 Class 2 Note.  This Class 2 Note matured on May 31, 2011 and earns interest at 12%.

On May 4, 2011, John Hunter elected to cease accruing warrants on all $1,656,112 of his Class 2 Notes.  On May 12, John R. Kiely, III, his brother Michael Kiely, and his sister-in-law Maria Kiely elected to cease accruing warrants on a total of $1,903,695 of Class 2 Notes and to begin receiving an additional 2% interest per the terms of the Agreement.  The affect on the Company of this election is to reduce the rate at which warrants are earned by Class 2 Notes.

In order to rationalize the specified orders on outstanding Class 2 Notes and to encourage additional notes to be purchased, on May 17, 2011,  John R. Kiely, III, his brother and sister-in-law Michael Kiely and Maria Kiely respectively, and John Hunter modified all $3,559,807 of their outstanding Class 2 Notes as follows:

1) The due dates were extended to July 1, 2013.

2) The specified orders securing the notes were amended to be 40% of all payments received for inspection systems or related contracts (a) above $6 million from May 1, 2011 through January 1, 2012, (b) above $6.5 million from May 1 2011 through February 1, 2012, and (c) increased in like manner by $500,000 each month thereafter until the notes and interest are paid in full.  Down payments are exempted from the calculation until a subsequent payment is received against the order and sales commissions up to 15% are exempted from the calculation if paid to outside companies.

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3) Retroactively waived the right to receive payments not yet received from previously specified orders.

4) Waived any Default Interest Payments due on amended notes from September 30, 2010 through May 17, 2011.

The Company did not have sufficient cash to meet its obligations in May of 2011 and sold Class 2 Notes to a related party to help meet its obligations.  On May 25, 2011, John R. Kiely, III purchased $160,000 of Class 2 Notes maturing on December 23, 2011, earning interest at 10%, and earning warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note, warrants accruing during the first 90 days were issued immediately.  These 197,260 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.  Mr. Kiely elected in advance to cease warrant accrual on November 23, 2011.  Per the terms of the note, Mr. Kiely has the right to exchange all or any part of the Class 2 Note and its associated interest or the funds received in payment of the note and its interest for a Class 3 Note maturing July 1, 2013, earning interest at 8% per annum, and convertible into the Company’s common stock at $0.10 per share.  This exchange right expires on the earlier of December 5, 2011 or ten days after the Class 2 Note is repaid and is not effective until five days after Mr. Kiely elects in writing to cease accruing warrants or five days after the Class 2 Note is repaid.

The Company did not have sufficient cash to meet its obligations at the end of May of 2011 and defaulted on the May 31, 2011, payment of a $40,000 Class 2 Note purchased April 19, 2011, and $552 of associated interest owed to John R. Kiely, III and his brother Michael Kiely as co-trustees because it lacked the available cash to make the payments.  On the same day, the Company also defaulted on the payment of a $50,000 of Class 2 Note purchased April 20, 2011, and $674 of associated interest owed to John R. Kiely, III.  The notes began to accrue interest at the default interest rate of 14%.

The Company did not have sufficient cash to meet its obligations in June of 2011 and sold Class 2 Notes to a related party to help meet its obligations.  On June 28, 2011, John R. Kiely, III purchased $20,000 of Class 2 Notes maturing on December 23, 2011, earning interest at 10%, and earning warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note, warrants accruing during the first 90 days were issued immediately.  These 24,658 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.  Mr. Kiely elected in advance to cease warrant accrual on November 23, 2011.  On June 29, 2011, John R. Kiely, III purchased $24,000 of Class 2 Notes maturing on December 23, 2011, earning interest at 10%, and earning warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note, warrants accruing during the first 90 days were issued immediately.  These 29,589 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.  Mr. Kiely elected in advance to cease warrant accrual on November 23, 2011.

For more information on Class 2 and Class 3 notes, see Note C – Long Term Debt and Other Financing.

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Note E - Income Taxes

Income Taxes

In accordance with ASC Topic 740 “Income Taxes,” we assess our uncertain tax positions for tax years that are still open for examination.  Because of our historical significant net operating losses, we have not been subject to income tax since 1995.  There were no unrecognized tax benefits during all of the periods presented.  We classify all interest and penalties as income tax expense.  We did not have any accrued interest and penalties related to uncertain tax positions as of December 31, 2010.  We file income tax returns in the United States federal jurisdiction and various state jurisdictions.  The tax years 2007 through 2010 remain open to examination by taxing jurisdictions to which we are subject.  As of June 30, 2011, we did not have any tax examinations in process.

Deferred tax assets and liabilities are measured based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in effect when differences are expected to reverse.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit, or future deductibility is uncertain.  All deferred tax assets are fully offset by a valuation allowance because of our history of losses.

Note F – Loss per Share

The following table sets forth the computation of basic and diluted loss per share:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(Unaudited)						(Unaudited)
	(in thousands, except per share data)						(in thousands, except per share data)
Numerator for basic and diluted loss per share - loss available to common stockholders
Net loss	$	(745	)	$	(801	)	$	(1,598	)	$	(1,257	)
*there was no effect of dilutive securities, see below
Denominator for basic and diluted loss per share - weighted average shares		35,675			34,978			35,675			32,995
*there was no effect of dilutive securities, see below
Basic and diluted loss per share:
Net loss	$	(0.02	)	$	(0.02	)	$	(0.04	)	$	(0.04	)

Warrants and options outstanding were not included in the computation of diluted earnings per share because the inclusion of these instruments would have an anti-dilutive effect.  For additional disclosures regarding stock options and warrants, see Note G – Share-Based Compensation.

Note G – Share-Based Compensation

We currently have two active stock option plans: the 2004 Employee Stock Option Plan (“2004 Plan”) and the 2008 Integral Vision, Inc. Equity Incentive Plan (“2008 Plan”) (collectively the “Plans”).  The purpose of the Plans generally is to retain and attract persons of appropriate education, experience and ability to serve as our employees, to encourage a sense of proprietorship of such persons, and to stimulate an active interest in our development and financial success.

The 2004 Plan is designed to promote the interests of the Company and its shareholders by providing a means by which the Company can grant equity-based incentives to eligible employees of the Company or any Subsidiary as well as non-employee directors, consultants, or advisors who are in a position to contribute materially to the Company’s success.  The Plan permits the Compensation Committee of the Company’s Board of Directors to grant Incentive Stock Options and Non-Qualified Stock Options.  The maximum number of shares cumulatively available is 1,000,000 shares.

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The 2008 Plan is designed to promote the interests of the Company and its shareholders by providing a means by which the Company can grant equity-based incentives to eligible employees of the Company or any Subsidiary as well as non-employee directors, consultants, or advisors who are in a position to contribute materially to the Company’s success.  The Plan permits the Compensation Committee of the Company’s Board of Directors to grant Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock, and Shares.  The maximum number of shares cumulatively available is 14,000,000 plus (i) any shares that are forfeited or remain unpurchased or undistributed upon termination or expiration of the awards from the Plan or options from the 2004 Plan and (ii) any shares exchanged as full or partial payment for the exercise price of any award under the 2008 Plan.

On March 24, 2009, on the recommendation of the Compensation Committee, the Board of Directors approved amending and restating the 2008 Integral Vision, Inc. Equity Compensation Plan to provide for an additional 2,500,000 shares for awards under the Plan of which an additional 1,500,000 may be awarded over the two year period beginning March 24, 2009 to the Company’s Chief Executive Officer.  The shareholders approved the amendment and restatement at the annual shareholders meeting held May 20, 2009.  As of December 31, 2009, 2,328,000 Stock Option shares and 1,300,000 Restricted Shares have been granted from the 2008 Equity Incentive Plan leaving a balance of 3,700,000 shares available for future grants.

Effective April 19, 2010, and pending shareholder approval, the Board increased the maximum number of cumulative shares available to 14,000,000 plus (i) any shares that are forfeited or remain unpurchased or undistributed upon termination or expiration of the awards from the 2008 Plan or options from the 2004 Plan and (ii) any shares exchanged as full or partial payment for the exercise price of any award under the 2008 Plan.  As of June 30, 2011, and assuming shareholder ratification of the Board’s action, 6,572,000 shares remain which can be issued under the 2008 Plan.

The Plans are administered by the Compensation Committee of the Board of Directors (the “Committee”).  The Committee determines which eligible employees will receive awards, the timing and manner of the grant of such option awards, the exercise price of the stock options (which may not be less than market value on the date of grant) and the number of shares.  We may at any time amend or terminate the Plans, however no amendment that would impair the rights of any participant with respect to outstanding grants can be made without the participant’s prior consent.

On April 2, 2010, the Compensation Committee of the Board approved a plan to offer key employees the opportunity to surrender certain outstanding stock options in exchange for replacement options effective April 2, 2010.  The replacement options vest immediately.  The program received 100% participation.  3,301,000 options with an average exercise price of $0.24 per share of our common stock were surrendered and 3,301,000 options with an exercise price of $0.0679, the closing price of the stock on April 2, 2010, were issued as replacements.

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On May 5, 2010, the Committee removed the vesting restriction on 800,000 shares of common stock granted to certain executives because an amendment to Section 8.11 of the Fifth Amended Note and Warrant Purchase Agreement made the restriction unnecessary.

On May 5, 2010, the Committee awarded (i) 2,375,000 Incentive Stock Options from the Amended 2008 Equity Compensation Plan to various key employees and (ii) a grant of 1,342,000 shares to the Chief Executive Officer, both contingent on shareholder approval of the proposed amendment to the 2008 Equity Compensation Plan.

The Committee did not grant any options or shares to empolyees during the three months or the six months ended June 30, 2011.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model with the weighted average assumptions noted in the following table. The fair value of all awards is amortized on a straight-line basis over the requisite service periods.  The expected life of all awards granted represents the period of time that they are expected to be outstanding.  The expected life is determined using historical and other information available at the time of grant.  Expected volatilities are based on historical volatility of our common stock, and other factors.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  We use historical data to estimate pre-vesting option forfeitures.

	2011		2010
	(in thousands)
Expected Life (in years)		-		5.0
Expected volatility		-		92.3	%
Risk-free interest rate		-		2.4	%
Expected dividend yield		-		0	%
Expected forfeiture rate		-		0	%

A summary of option activity under all Plans for the six month periods ended June 30, 2011, and 2010 follows:

	2011				2010
	Shares		Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
	(number of shares in thousands)
Outstanding at January 1		6,260	$	0.06		3,785		$	0.23
Granted		0		0.00		5,676			0.06
Exercised		0		0.00		0			0.00
Expired		0		0.00		(3,301	)		0.24
Outstanding at December 31 ($.04 to $0.30 per share)		6,260	$	0.06		6,160		$	0.06
Exercisable ($.04 to $.30 per share)		6,160	$	0.06		6,096		$	0.06

A summary of the status of our nonvested shares as of June 30, 2011 and 2010, and changes during the six months ended June 30, 2011, and June 30, 2010, is presented below:

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	2011					2010
	Shares			Weighted Average Grant- Date Fair Value		Shares			Weighted Average Grant- Date Fair Value
Nonvested at January 1		64,000		$	0.04		590,000		$	0.25
Granted		0			0.00		5,676,000			0.06
Exchanged		0			0.00		(590,000	)		0.25
Vested		(64,000	)		0.04		(5,612,000	)		0.06
Nonvested at June 30		0		$	0.04		64,000		$	0.04

The following table summarizes share-based compensation expense for the three-months and six-months periods ended June 30, 2011 and 2010 related to share-based awards under ASC Topic 718 “Stock Compensation” as recorded in the Statements of Operations in the following expense categories:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(in thousands)				(in thousands)
Marketing	$	-	$	20	$	-	$	22
Engineering and Development		-		37		-		40
General and Administrative		-		110		-		112
Total share-based compensation expense	$	-	$	167	$	-	$	174

As of June 30, 2011, we had no unrecognized expense related to un-vested share-options.

Additional information regarding the range of exercise prices and weighted average remaining life of options outstanding at June 30, 2011 and 2010 is as follows:

				2011						2010
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Life		Number Exercisable		Number Outstanding		Weighted Average Remaining Life		Number Exercisable
		(number of shares in thousands)						(number of shares in thousands)
	$0.04 to $0.07		5,776		9.0		5,676		5,676		9.8		5,612
	$0.10 to $0.24		484		3.4		484		484		4.1		484
Totals			6,260		8.6		6,160		6,160		9.4		6,096

A summary of the outstanding warrants, options, and shares available upon the conversion of Class 3 Notes at June 30, 2011 and 2010 is as follows:

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			2011								2010
	Weighted Average Exercise Price		Number Outstanding		Weighted Average Remaining Life		Number Exercisable		Weighted Average Exercise Price		Number Outstanding		Weighted Average Remaining Life		Number Exercisable
	(number of shares in thousands)								(number of shares in thousands)
PIPE Warrants	$	0.001		7,000		2.21		7,000	$	0.001		7,000		3.21		7,000
Class 2 Note Warrants	$	0.161		17,244		2.63		17,244	$	0.174		8,316		3.05		8,316
Class 3 Convertible Notes	$	0.213		23,233		-		23,233	$	0.213		23,233		0.11		23,233
1995 Employee Stock Option Plan	$	0.170		184		0.46		184	$	0.170		184		1.46		184
1999 Employee Stock Option Plan	$	0.170		290		4.69		290	$	0.170		290		5.69		290
2004 Employee Stock Option Plan	$	0.067		1,000		8.77		1,000	$	0.067		1,000		9.77		1,000
2008 Equity  Compensation Plan	$	0.052		4,786		8.71		4,686	$	0.052		4,686		9.81		4,622
	$	0.151		53,737		2.10		53,637	$	0.152		44,709		2.42		44,645

Note H – Contingencies and Litigation

Product Warranties

We provide standard warranty coverage for most of our products, generally for one year from the date of customer acceptance. We record a liability for estimated warranty claims based on historical claims and other factors. We review these estimates on a regular basis and adjust the warranty reserves as actual experience differs from historical estimates or other information becomes available. This warranty liability primarily includes the anticipated cost of materials, labor and travel, and shipping necessary to repair and service the equipment.

The following table illustrates the changes in our warranty liability for the six-month period ended June 30, 2011 and 2010:

	Amount			Amount
	2011			2010
	(in thousands)
Balance as of January 1	$	87		$	108
Product warranties issued		-			2
Estimate changes for preexisting warranties		(31	)		-
Payments made		(1	)		(4	)
Balance as of June 30	$	55		$	106

Note I – Going Concern Matters

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As shown in the financial statements, we incurred losses in the first six months of 2011 and 2010 of $1,598,000 and $1,257,000, respectively.  Additionally, we incurred losses from operations in the years of 2010 and 2009 of $2.4 million and $2.7 million, respectively.  The continuing losses raise substantial doubt about our ability to continue operating as a going concern..

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We are currently working with a number of large customers who are using our technologies to evaluate their microdisplay production or are evaluating our technology for the inspection of LCD displays and components.  We expect that additional sales orders will be placed by these customers in the fourth quarter of 2011 and into 2012, provided that markets for these products continue to grow and the customers continue to have interest in our technology-assisted inspection systems.  Ultimately, our ability to continue as a going concern will be dependent on these large companies getting their emerging display technology products into high volume production and placing sales orders with us for inspection products to support that production.  However, there can be no assurance that we will be succesful in securing sales orders sufficient to continue operating as a going concern.

From November 2006 through August 25, 2011, we have used $9,719,804 of Class 2 and Class 3 Notes to fund operations.  $4,953,632 are Class 3 Notes, all of which are in default as of September 1, 2011.  $4,766,172 are Class 2 Notes,  $290,000 of which are in default as of September 1, 2011. We continue to need need to negotiate forbearance or a cure of the defaults and continue to need to raise additional funds for operations in the third quarter of 2011.  Certain note holders have continued to fund operations while their notes are in default, but the limited basis of the funding is causing us to fall behind with vendors not essential to our daily operations or production. We have $158,120 of over 90 days in accounts payable as of June 30, 2011.  We are presently negotiating potential orders that would allow us to deliver $2,000,000 to $2,500,000 of inspection systems in the fourth quarter of 2011 and throughout 2012.  Management believes there are opportuinities with other customers for additional orders that would allow us to maintain that pace through 2012. We have already raised $387,000 in operating capital in the third quarter and if these orders were to materialize we expect that we will need to raise up to an additional $500,000 of operating capital through November of 2011 to ramp up production and support and to get to the cash flow from the orders.  If the anticipated orders do not materialize, we will need to raise up to $2,500,000 to fund operations through the third quarter of 2012 and continue to defer interest and principle payments on existing debt to continue to fund operations.  These levels of required capital may be beyond the means of existing noteholders and would cause us to seek new investors, which could result in a restructuring of current positions.

For further information regarding our obligations, see Note C – Long Term Debt and Other Financing Arrangements and Note J – Subsequent Events.

The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

Note J – Subsequent Events

On July 1, 2011, we defaulted on an additional $80,000 of Class 2 Note principal and $2,016 of interest.  This brings the total of the Class 2 Notes in default to $398,366.  The amount of interest due on the Class 2 Notes in default at July 1, 2011 was $92,119.

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On July 1, 2011, we defaulted on an additional $85,000 of Class 3 Note principal and $11,355 of interest.  This brings the total of the Class 3 Notes in default to $4,953,633.  The amount of interest due on the Class 3 Notes in default at July 1, 2011 was $876,046.

On July 1, 2011, we sold an additional $40,000 of Class 2 Notes to a related party.  These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note agreement, warrants accruing in the first 90 days were issued immediately.  These 49,315 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.  The noteholder elected in advance to cease warrant accrual on November 23, 2011.

On July 5, 2011, we sold an additional $23,000 of Class 2 Notes to a related party. These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms the note agreement, warrants accruing during the first 90 days were issued immediately.  These 28,356 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.

On July 7, 2011, we sold an additional $13,000 of Class 2 Notes to a related party.  These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note agreement, warrants accruding during the first 90 days were issued immediately.  These 16,027 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.

On July 27, 2011, we sold an additional $150,000 of Class 2 Notes to a related party. These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note agreement, warrants accruing during the first 90 days were issued immediately.  These 184,932 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015. Per the terms of the note agreement, the noteholders have the right to exchange all or any part of the Class 2 Note and its associated interest or the funds received in payment of the note and its interest for a Class 3 Note maturing July 1, 2013, earning interest at 8% per annum, and convertible into the Company’s common stock at $0.10 per share.  This exchange right expires on the earlier of December 5, 2011 or ten days after the Class 2 Note is repaid and is not effective until five days after the noteholder elects to cease accruing warrants or five days after the Class 2 Note is repaid.

On July 27, 2011, we sold an additional $9,400 of Class 2 Notes to a related party earning interest at 10% and maturing on December 23, 2011, and issued 3,863 of related warrants exercisable for 4 years at $0.10 per share.

On August 3, 2011, we defaulted on an additional $10,000 of Class 2 Note principal and $246 of interest.  This brings the total of the Class 2 Notes in default to $408,366.  The amount of interest due on the defaulted Class 2 Notes at July 1, 2011 is approximately $96,856.

On August 23, 2011, we repaid $6,536 of Class 2 Notes and $70 of related interest to a related party.

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On August 23, 2011, we sold an additional $82,000 of Class 2 Notes to a related party. These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note agreement, we agreed to issue warrants accrued during the first 90 days and any additional warrants earned by this note upon shareholder approval of an increase in the authorized shares of the Company’s common stock that is sufficient to accommodate this commitment.  These 33,699 warrants will be exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.

On August 25, 2011, we sold an additional $70,000 of Class 2 Notes to a related party. These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note agreement, we agreed to issue warrants accruing during the first 90 days and any additional warrants earned by this note upon shareholder approval of an increase in the authorized shares of the Company’s common stock that is sufficient to accommodate this commitment.  These 28,767 warrants will be exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015. Per the terms of the note agreement, the noteholders have the right to exchange all or any part of these notes or the funds received for payment of these notes, including accrued interest, until the earlier of ten days after the notes are repaid or December 5, 2011, for a Class 3 Note issued by the Company paying interest at 8% per annum, convertible into shares of the Company at $0.10 per share, and due July 1, 2013.  This right becomes effective five days after the holder has ceased to accrue warrants on the note or five days after the note is repaid if the note is repaid before November 23, 2011.  The right to convert the Class 3 Note into shares of the Company will be supsended until the shareholders approve an increase in the authorized shares that is sufficient to accommodate this commitment.

On August 26, 2011 we repaid $2,390 of Class 2 Notes and $2 of related interest to a related party.

On August 30, 2011 we repaid $2,654 of Class 2 Notes and $158 of related interest to a related party.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward - Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, risks and uncertainties.  Generally, the words “anticipate”, “expect”, “intend”, “believe” and similar expressions identify forward-looking statements.  The information included in this Form 10-Q is as of the filing date with the Securities and Exchange Commission and future events or circumstances could differ significantly from the forward-looking statements included herein.  Accordingly, we caution readers not to place undue reliance on such statements.

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Overview

Integral Vision, Inc., a Michigan corporation (the “Company”), was incorporated in 1978.  We develop, manufacture and market flat panel display inspection systems to ensure product quality in the display manufacturing process.  We primarily inspect microdisplays and small flat panel displays, though the technology used is scalable to allow inspection of full screen displays and components.  Our products primarily use machine vision to evaluate operating displays for cosmetic and functional defects, but can also provide electrical testing if required for a given application.  Our customers and potential customers are primarily large companies with significant investments in the manufacture of displays.  Nearly all of our sales originate in the United States, Asia, or Europe.  Our products are generally sold as capital goods.  Depending on the application, display inspection systems have an indefinite life and are more likely to require replacement due to possible technological obsolescence than from physical wear.

Automated inspection has become a necessity for manufacturers who need to continually improve production efficiency to meet the increasing demand for high quality products.  Our automatic inspection systems can inspect parts at a lower cycle time and with greater repeatability than is possible with human inspectors.  While we have several large companies as customers, these customers are working with emerging display technologies.  Our success will be substantially dependant on these customers getting their emerging display technologies into high volume production.

Products

Our products are generally sold under the trade name SharpEye™.  SharpEye™ systems provide Flat Panel Display (“FPD”) inspection for reflective, emissive and transmissive display technologies.  SharpEye is designed for the detection of functional and cosmetic defects in Liquid Crystal Display (LCD) displays as well as Liquid Crystal on Silicon (LCoS), OLED, Microelectromechanical systems (MEMS), 3LCD/High Temperature Poly-Silicon (HTPS), e-paper and other emerging display technologies.  These technologies are applied to consumer products including a broad range of hand held devices, e-books, computer monitors, digital still cameras, HDTV, projectors, and video headsets.  The core technology of SharpEye™ inspection algorithms is the ability to quantize data to the level of a single display pixel.  SharpEye™ can be configured for production inspection or for display evaluation in a laboratory based on the equipment configuration selected.

Results of Operations

Three Months Ended June 30, 2011 Compared with Three Months Ended June 30, 2010

Net revenues decreased $206,000 (85.8%) to $34,000 in the second quarter of 2011 from $240,000 in the second quarter of 2010.  The decrease in net revenue was primarily attributable to a decrease in revenue from sales of our flat panel display inspection products which have a long sales cycle. We had $438,000 in deferred revenue at June 30, 2011, which could not be recognized because final acceptance had not been received from the customer.

Costs of sales decreased $48,000 (48.5%) to $51,000 (150% of sales) in the second quarter of 2011 compared to $99,000 (41.3% of sales) in the second quarter of 2010.  This was primarily due to a decrease in material costs of $75,000 as a result of the lower sales of flat panel display inspection systems and partially offset by adjustments to inventory of $10,000 and decreases in warranty reserve of $17,000.

Marketing costs decreased $41,000 (33.6%) to $81,000 in the second quarter of 2011 compared to $122,000 in the second quarter of 2010. This decrease was attributable to reduced compensation and related benefits.

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General and administrative (“G&A”) costs decreased $153,000 (36.7%) to $264,000 in the second quarter of 2011 compared to $417,000 in the second quarter of 2010. The decrease was a result of an increase in professional fees of $29,000 which were offset by decreases in personnel costs of $112,000 and decreases in other general costs of approximately $12,000.

Engineering and development expenditures decreased $53,000 (23.1%) to $176,000 in the second quarter of 2011 compared to $229,000 in the second quarter of 2010.  The decrease was primarily a result of decreases in personnel costs of $45,000 and contract engineering costs of $8,000.

There was no other income for the three months ended June 30, 2011 or for the three months ended June 30, 2010.

The three-month period ended June 30, 2011 included a gain of $72,000 classified as troubled debt restructuring due to the majority of the noteholders waiving the default interest accrued against their notes from October 1, 2010 to May 17, 2011.  There was no such gain in the 2010 period.

Interest expense increased $105,000 to $279,000 for the quarter ended June 30, 2011 compared to $174,000 for the quarter ended June 30, 2010.  The increase is primarily attributable to the issuance of additional Class 2 Notes and was partially offset by certain noteholders waiving the additional interest that resulted from the default on Class 2 and Class 3 Notes which occurred on September 30, 2010 and October 1, 2010.

Six Months Ended June 30, 2011 Compared with Six Months Ended June 30, 2010

Net revenues decreased $728,000 (94.5%) to $42,000 in the six-month period ended June 30, 2011 from $770,000 in the six-month period ended June 30, 2010.  The decrease in net revenue was primarily attributable to a decrease in revenue from sales of our flat panel display inspection products which have a long sales cycle. We had $438,000 in deferred revenue at June 30, 2011 which could not be recognized because final acceptance had not been received from the customer.

Costs of sales decreased $242,000 (80.7%) to $58,000 (138% of sales) in the six-month period ended June 30, 2011 compared to $300,000 (39% of sales) in the six-month period ended June 30, 2010.  This was primarily due to a decrease in material costs of $227,000 as a result of the lower sales of flat panel display inspection systems and a decrease of $34,000 in our accrued warranty partialy offset by adjustments to inventory of $19,000 in the 2011 period.

Marketing costs decreased $67,000 (28.4%) to $169,000 in the six-month period ended June 30, 2011 compared to $236,000 in the six-month period ended June 30, 2010. This decrease was attributable to reduced compensation and related benefits.

G&A costs decreased $130,000 (19.6%) to $533,000 in the six-month period ended June 30, 2011 compared to $663,000 in the six-month period ended June 30, 2010. The decrease was a result of decreases in personnel costs.

Engineering and development expenditures decreased $72,000 (17.5%) to $340,000 in the six-month period ended June 30, 2011 compared to $412,000 in the six-month period ended June 30, 2010. The decrease was a result of decreases in personnel costs of $60,000, travel costs of $6,000, and other costs of $6,000.

Other income for the six-month period ended June 30, 2011 was comparable to the six-month period ended June 30, 2010.

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The six-month period ended June 30, 2011 included a gain of $72,000 classified as troubled debt restructuring due to the majority of the noteholders waiving the default interest earned on their notes from October 1, 2010 to May 17, 2011.  There was no such gain in the 2010 period.

Interest expense increased $194,000 to $612,000 for the six-month period ended June 30, 2011 compared to $418,000 for the six-month period ended June 30, 2010.   The increase is primarily attributable to the issuance of additional Class 2 and Class 3 Notes and the additional interest that resulted from the default on Class 2 and Class 3 Notes which occurred on September 30, 2010 and October 1, 2010.

Liquidity and Capital Resources

Net cash used in operating activities was $790,000 for the six-month period ended June 30, 2011, compared to $457,000 for the first six months of 2010. Operating cash flow for both periods primarily reflected net losses of $1,598,000 for 2011 and $1,257,000 for 2010 adjusted for non-cash charges and changes in working capital. Working capital changes in the first six months of 2011 primarily reflected an increase in accounts receivable, both trade and employee, as a result of payments not received and loans made to employees, an increase in inventory as a result of increases in finished goods, partially offset by a decrease in other current assets as a result of timing of expense recognition.  We realized an increase in accounts payable and other current liabilities as a result of insufficient cash to make payments.  Accrued interest increased as a result of the issuance of additional debt and the default interest rate in effect on the defaulted Class 2 and Class 3 Notes.  Customer deposits increased as a result of sales orders received. Deferred revenue increased as a result of shipped systems that had not received final acceptance by the end of the period.  Working capital changes in the first six months of 2010 primarily reflected increases in accounts receivable and inventories as a result of increased sales orders and other current assets decreased as a result of normal amortization. Accounts payable and other current liabilities increased as a result of cash flow timing. Accrued interest increased as result of the issuance of additional debt and customer deposits increased as a result of customer orders being received.  Deferred revenue increased as a result of shipped systems that had not received final acceptance by the end of the period.

Our investing activities for the six-month period ended June 30, 2011 included an increase in patents of $5,000. Investing activities for the six-month period ended June 30, 2010 included an increase in patents of $5,000 and an increase in purchase equipment of $7,000 offset by $2,000 in proceeds from the sale of equipment.

The Company does not have any commitments for capital expenditures as of June 30, 2011.

Financing activities for the six-month period ended June 30, 2011 included proceeds of $764,000 from the issuance of Class 2 Notes and proceeds of $10,000 from loans payable. Our financing activities for the six-month period ended June 30, 2010 included proceeds of $370,000 from the issuance of Class 2 Notes, $85,000 from the issuance of Class 3 Notes, and proceeds of $2,000 from the exercise of warrants.  We did not pay any interest on Class 3 Notes during the six-month period ended June 30, 2011 and paid $14,000 of interest during the six-month period ended June 30, 2010.

During the six-month period ended June 30, 2010, we issued $176,308 of Class 3 Notes for the payment of interest, and $170,000 of Class 3 Convertible Notes for the payment of Class 2 Notes.

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The Company is in default under the terms of the Fifth Amended and Restated Note and Warrant Purchase Agreement (the “Agreement”), because it failed to make full payment of principal and interest on certain Class 2 and Class 3 Notes on their respective maturity dates.The defaulted Class 2 and Class 3 Notes are accruing interest at their default interest rates, which is equal to their respective interest rates plus an additional 4%. The Class 2 and Class 3 Notes are secured by the Company’s intellectual property pursuant to a Collateral Assignment of Proprietary Rights and Security Agreement (the “Collateral Assignment”), and the Class 2 Notes are also secured by the Company’s accounts receivable and inventory pursuant to a Security Agreement (the “Security Agreement”). Pursuant to the Collateral Assignment and the Security Agreement, the Class 2 and Class 3 Note holders (or the collateral agent acting on their behalf) have the right to foreclose on the collateral covered by such agreements, and exercise any of several remedies provided in such agreements, including taking possession of such collateral and selling such collateral. The Company’s default under the terms of the Agreement may result in the Company’s liquidity decreasing in a material way.  In order to remedy any potential decrease in liquidity, if the existing note holders do not continue to purchase new notes to provide additional funding for operations and if we are unable to obtain acceptable terms for curing or waiving the default and obtaining new financing, we may not have sufficient cash to operate.  See Note J – Subsequent Events for information on note activity since June 30, 2011. For further discussion regarding our obligations, see Note C – Long Term Debt and Other Financing Arrangements, Note D – Related Party Transactions,  Note I – Going Concern Matters, and Note J – Subsequent Events in the notes to condensed financial statements.

Management’s Discussion of Critical Accounting Policies

Our condensed financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The accounting policies discussed below are considered by management to be the most important to an understanding of our financial statements, because their application places the most significant demands on management's judgment and estimates about the effect of matters that are inherently uncertain.  Our assumptions and estimates were based on the facts and circumstances known at June 30, 2011; future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.  These policies are also described in Note B of the Condensed Financial Statements included in this Form 10-Q.

Revenue Recognition

We recognize revenue in accordance with ASC 605 “Revenue Recognition”, Staff Accounting Bulletin No. 101 (“SAB 101”), and Staff Accounting Bulletin No. 104 (“SAB 104”) Revenue Recognition in Financial Statements. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.

We recognize revenue at the time of shipment for product sales where the customer’s acceptance criteria can be demonstrated as met prior to shipment and where title transfers on shipment.  We recognize revenue at the time of final acceptance at the customer site when title does not transfer on shipment or if acceptance criteria at the customer site are substantially different than acceptance criteria for shipment.  We recognize revenue for product sales with no specific customer acceptance criteria, including spare parts, on shipment.  Revenue from service contracts is recognized over the term of the contract.  Revenue is reported net of sales commissions.

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Inventories

Inventories are stated at the lower of standard cost, which approximates actual cost determined on a first-in, first-out basis, or market.  Inventories are recorded net of allowances for unsalable or obsolete raw materials, work-in-process and finished goods.  We evaluate on a quarterly basis the status of our inventory to ensure the amount recorded in our financial statements reflects the lower of our cost or the value we expect to receive when we sell the inventory.  This estimate is based on several factors, including the condition and salability of our inventory and the forecasted demand for the particular products incorporating these components.  Based on current backlog and expected orders, we forecast the upcoming usage of current stock.  We record reserves for obsolete and slow-moving parts ranging from 0% for active parts with sufficient forecasted demand up to 100% for excess parts with insufficient demand or obsolete parts. Amounts in work-in-process and finished goods inventory typically relate to firm orders and, therefore, are not subject to obsolescence risk.

Impairment of Long-lived Assets

We review our long-lived assets, including property, equipment and intangibles, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.  An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount of the asset.

Share Based Compensation

We account for our share based compensation plans according to the provisions of ASC 718 “Stock Based Compensation”. Accordingly, compensation costs attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date and expensed over the expected vesting period.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model.  The fair value of all awards is amortized on a straight-line basis over the requisite service periods.  The expected life of all awards granted represents the period of time that they are expected to be outstanding.  The expected life is determined using historical and other information available at the time of grant.  Expected volatilities are based on historical volatility of our common stock, and other factors.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  We use historical data to estimate pre-vesting option forfeitures.

Contingencies and Litigation

We make an assessment of the probability of an adverse judgment resulting from current and threatened litigation.  We accrue the cost of an adverse judgment if, in management’s estimation, an adverse settlement is probable and management can reasonably estimate the ultimate cost of such litigation.  We have made no such accruals as of June 30, 2011 and 2010.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

This Item 3 is not applicable to us as, pursuant to Item 305(e) of Regulation S-K, a smaller reporting company is not required to provide the information required by Item 305 of Regulation S-K.

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Item 4.  Controls and Procedures

The Company’s chief executive officer and chief financial officer have each reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report as required by Exchange Act Rules 13a-15(b) and 15d-15(b). Based on that evaluation, on June 30, 2011, the chief executive officer and chief financial officer each concluded that the Company’s current disclosure controls and procedures are effective.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting that occurred during the Company’s first six months of the fiscal year 2011 that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II.  OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

On April 25, 2011, we sold and issued $40,000 of Class 2 Notes and issued 16,438 warrants exerciseable into our common stock to Susan W. Pillsbury 1998 Revocable Trust dtd 03/13/98 for cash.  This transaction is exempt from registration under Section 4(2) of the Securities Act.  The warrants are exercisable for $0.15 per share of our common stock and expire on April 25, 2015.

On May 5, 2011, we sold and issued $10,000 of Class 2 Notes and issued 12,329 warrants exerciseable into our common stock to Ed Carney Trust for cash.  This transaction is exempt from registration under Section 4(2) of the Securities Act.  The warrants are exercisable for $0.15 per share of our common stock and expire on May 5, 2015.

On May 25, 2011, we sold and issued $160,000 of Class 2 Notes and issued 187,260 warrants exerciseable into our common stock to John R. Kiely, III for cash.  This transaction is exempt from registration under Section 4(2) of the Securities Act.  The warrants are exercisable for $0.15 per share of our common stock and expire on March 4, 2015.

On June 28, 2011, we sold and issued $20,000 of Class 2 Notes and issued 24,658 warrants exerciseable into our common stock to John R. Kiely, III for cash.  This transaction is exempt from registration under Section 4(2) of the Securities Act.  The warrants are exercisable for $0.15 per share of our common stock and expire on June 28, 2015.

On June 294, 2011, we sold and issued $24,000 of Class 2 Notes and issued 29,589 warrants exerciseable into our common stock to John R. Kiely for cash.  This transaction is exempt from registration under Section 4(2) of the Securities Act.  The warrants are exercisable for $0.15 per share of our common stock and expire on March 4, 2015.

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Item 3.  Defaults Upon Senior Securities

See Note C – Long Term Debt and Other Financing Arrangements, Note I – Going Concern Matters and Note J – Subsequent Events of our condensed financial statements in Part I of this Form 10-Q, which are incorporated by reference into this Item 3, for information on defaulted note and interest payments.

Item 6.  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 000-12728, 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 000-12728, and incorporated herein by reference).
3.3	Certificate of Designation effective April 11, 2005 and amendment to the By-Laws of the Registrant effective March 23, 2005 (filed as Exhibit 4(b) to the registrant’s Form 8-K dated April 14, 2005, SEC file 000-12728, and incorporated herein by reference).
3.4	Certificate of Amendment of Restated Articles of Incorporation, filed with the Secretary of State of the State of Michigan on May 27, 2005 (filed as Exhibit 3.4 to the registrant’s Registration Statement on Form SB-2 filed on June 9, 2005, SEC File No. 333-125669, and incorporated herein by reference).
3.5	Certificate of Amendment of Restated Articles of Incorporation, filed with the Secretary of State of the State of Michigan on April 19, 2007 (filed as Exhibit 3.5 to the registrant’s Registration Statement on Form S-1 filed on April 18, 2008, SEC file No. 333-125669, and incoprorated herein by reference).
3.6	Certificate of Amendment of Restated Articles of Incorporation, filed with the Secretary of State of the State of Michigan on May 28, 2008 (filed as Exhibit 3.6 to the registrant’s Form 10-Q for the quarter ended June 30, 2008, SEC file No. 000-12728, and incorporated herein by reference).
3.7	Certificate of Amendment of Restated Articles of Incorporation, filed with the Secretary of State of the State of Michigan on May 21, 2009 (filed as Exhibit 3.7 to the registrant’s Form 10-Q for the quarter ended September 30, 2009, SEC file No. 000-12728, and incorporated herein by reference).
4.1	Form of Fourth Amended Note and Warrant Purchase Agreement including Form of Integral Vision, Inc. Class 3 Note (filed as Exhibit 4.8 to registrant’s Form 10-K for the year ended December 31, 2003, SEC file 000-12728, and incorporated herein by reference).
4.2	Securities Purchase Agreement, Effective April 12, 2005 (filed as Exhibit 4.(A) to registrant’s Form 8-K filed April 14, 2005, SEC file 000-12728, and incorporated herein by reference).
4.3	Form of Consent to Modifications dated November 14, 2006 modifying the terms of the Fourth Amended Note and Warrant Purchase Agreement including Form of Integral Vision, Inc. Class 2 Warrant (filed as Exhibit 4.9 to registrant’s Form 10-Q for the quarter ended September 30, 2006, SEC file 000-12728, and incorporated herein by reference).
4.4	Form of Consent to Modifications dated August 13, 2007 modifying the terms of the Fourth Amended Note and Warrant Purchase Agreement (filed as Exhibit 4.4 to registrant’s Form 10-QSB for the quarter ended June 30, 2007, SEC file 000-12728, and incorporated herein by reference).

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4.5	Form of Consent to Modifications dated October 10, 2007 modifying the terms of the Fourth Amended Note and Warrant Purchase Agreement (filed as Exhibit 4.6 to registrant’s Form 10-QSB for the quarter ended September 30, 2007, SEC file 000-12728, and incorporated herein by reference).
4.6	Form of Consent to Modifications dated January 18, 2008 modifying the terms of the Fourth Amended Note and Warrant Purchase Agreement (filed as Exhibit 4.6 to the registrant’s Form 10-KSB for the year ended December 31, 2007, SEC file 000-12728, and incorporated herein by reference).
4.7	Form of Amended Collateral Assignment of Proprietary Rights dated March 5, 2008 (filed as Exhibit 4.7 to the registrant’s Form 10-KSB for the year ended December 31, 2007, SEC file 000-12728, and incorporated herein by reference).
4.8	Form of Amended Security Agreement dated March 6, 2008 (filed as Exhibit 4.8 to the registrant’s Form 10-KSB for the year ended December 31, 2007, SEC file 000-12728, and incorporated herein by reference).
4.9	Form of Consent to Amend and Replace Agreements dated March 12, 2008 (filed as Exhibit 4.9 to the registrant’s Form 10-KSB for the year ended December 31, 2007, SEC file 000-12728, and incorporated herein by reference).
4.10	Form of Fifth Amended and Restated Note and Warrant Purchase Agreement (filed as Exhibit 4.10 to the registrant’s Form 10-KSB for the year ended December 31, 2007, SEC file 000-12728, and incorporated herein by reference).
4.11	Waiver and Amendment Agreement, effective September 15, 2008, and the Registration Rights Agreement and common stock Warrants, made a part thereof, among the respective parties thereto (filed as Exhibit 4.1 to the registrant’s Form 8-K filed September 15, 2008, SEC file 000-12728, and incorporated herein by reference).
4.12	Exchange Agreements, effective September 15, 2008, among the respective parties thereto (filed as Exhibit 4.3 to the registrant’s Form 8-K filed September 15, 2008, SEC file 000-12728, and incorporated herein by reference).
4.13	Consent to Amend and Replace Agreements dated June 10, 2009 (Form of Consent filed as Exhibit 4.13 to the registrant’s Form 10-Q for the quarter ended September 30, 2009, SEC file 000-12728, and incorporated herein by reference).
4.14	Consent to Amend and Replace Agreements dated June 24, 2009 (Form of Consent filed as Exhibit 4.13 to the registrant’s Form 10-Q for the quarter ended September 30, 2009, SEC file 000-12728, and incorporated herein by reference).
4.15	Consent to Amend and Replace Agreements dated September 16, 2009 (Form of Consent filed as Exhibit 4.13 to the registrant’s Form 10-Q for the quarter ended September 30, 2009, SEC file 000-12728, and incorporated herein by reference).
4.16	Consent to Modifications dated April 19, 2010, modifying the terms of the Fifth Amended Note and Warrant Purchase Agreement (Form of Consent filed as Exhibit 4.16 to the registrant’s Form 10-Q for the quarter ended March 30, 2010, SEC file 000-12728, and incorporated herein by reference).
4.17	Amendment Agreement dated April 22, 1010, modifying the terms of certain warrants issued pursuant to the Waiver and Amendment Agreement (Form of Agreement filed as Exhibit 4.17 to the registrant’s Form 10-Q for the quarter ended March 30, 2010, SEC file 000-12728, and incorporated herein by reference).
4.18	Amendment Agreement dated April 22, 2010 (Form of Agreement filed as Exhibit 4.17 to the registrant's Form 10-Q for the quarter ended March 30, 2010, SEC file 000-12728, and incorporated herein as reference).
4.19	Consent to Modifications dated June 18, 2010.
4.20	Amendment Agreement dated May 17, 2011, modifying the terms of the Fifth Amended Note and Warrant Purchase Agreement.
10.1	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 000-12728, and incorporated herein by reference).

34

10.2	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 000-12728, and incorporated herein by reference).
10.3	Integral Vision, Inc. 1999 Employee Stock Option Plan (filed as exhibit 10.5 to the registrant’s Form 10-Q for the quarter ended June 30, 1999, SEC file 000-12728, and incorporated herein by reference).
10.4	Integral Vision, Inc. 2004 Employee Stock Option Plan (filed as exhibit 10.11 to the registrant’s Form 10-Q for the quarter ended June 30, 2004, SEC file 000-12728, and incorporated herein by reference).
10.5	Integral Vision, Inc. 2008 Equity Incentive Plan (filed as Exhibit 10.5 to the registrant’s Form 10-KSB for the year ended December 31, 2007, SEC file 000-12728, and incorporated herein by reference).
10.6	Amendment and Restatement of Integral Vision, Inc. 2008 Equity Incentive Plan (filed as Exhibit 10.6 to the registrant’s Schedule 14A filed March 26, 2009, SEC file 000-12728, and incorporated herein by reference).
10.7	Form of Amendment and Restatement of Integral Vision, Inc. 2008 Equity Incentive Plan. (filed as Exhibit 10.7 to the registrant’s Form 10-Q for the quarter ended March 30, 2010, SEC file 000-12728, and incorporated herein by reference).
31.1	Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14(a) or Rule 15d-14(a).
31.2	Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14(e) or Rule 15d-14(a).
32.1	Certification by Chief Executive Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.
32.2	Certification by Chief Financial Officer of Periodic Report Pursuant to 18 U.S.C. Section 1350.

35

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	INTEGRAL VISION, INC.
Dated:  September 21, 2011	By:	/s/ Charles J. Drake
		Charles J. Drake
		Chairman of the Board and
		Chief Executive Officer
Dated:  September 21, 2011	By:	/s/ Mark R. Doede
		Mark R. Doede
		President, Chief Operating Officer
		and Chief Financial Officer

36

EX-4.13

CONSENT TO MODIFICATIONS

This Consent to Modifications, dated June 10, 2009, is given and agreed to by the “Purchasers” under the Fifth Amended and Restated Note and Warrant Purchase Agreement by and among the Purchasers, Integral Vision, Inc., a Michigan corporation (the "Company"), and J. M. Warren Law Offices, P.C., as Agent.

Factual Statements

A.  The undersigned is a Purchaser under the Fifth Amended and Restated Note and Warrant Purchase Agreement (as modified December 15, 2008 and January 28, 2009), dated effective as of the date of execution by such Purchaser, for the purchase of the Notes and Warrants of the Company (the “Purchase Agreement”).

B. The Company needs to raise additional funds to keep operating.  Prospective investors have requested terms for their potential investments that require certain portions of the Purchase Agreement be modified.  The parties to this Purchase Agreement wish to modify certain portions of the Fifth Amended and Restated Note and Warrant Purchase Agreement to accommodate said prospective investors, which shall be accomplished by attaching said changes to the Purchase Agreement in the form of an addendum to the Purchase Agreement.

Agreement

1. Modifications.  The undersigned agree to the modifications to the Purchase Agreement as follows:

Section 1.b:  In the portion of said section stating, “As used herein, “Note” or "Notes" means either “Class 2 Notes” or “Class 3 Notes” in a total aggregate amount outstanding at any time not to exceed $7,000,000” shall be modified to read, “As used herein, “Note” or "Notes" means either “Class 2 Notes” or “Class 3 Notes” in a total aggregate amount outstanding at any time not to exceed $8,000,000.”

Section 1.d:  This section shall be amended by adding a third paragraph which states as follows:

Subject to the approval of the Board of Directors, the Company may issue up to a minimum of 90 days of Class 2 Warrants on Class 2 Notes issued or amended after June 10, 2009 rather than the minimum of 30 days specified above..

2. Voluntary and Informed Execution.  THE PARTIES ACKNOWLEDGE THAT THEY HAVE HAD AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, AND THAT THE MODIFICATIONS SET FORTH HEREIN WERE KNOWINGLY AND VOLUNTARILY MADE.

3. Effective Date.  This agreement shall be effective on the date that the majority of the holders of the Notes and Shares currently outstanding under said Purchase Agreement, the Company (as authorized by its Board of Directors), and the Agent have signed this Consent to Modification.

 

Signed:
Integral Vision, Inc.	J.M. Warren Law Offices, P.C.
By: /s/ Charles J. Drake	By: /s/ J. Michael Warren
Charles J. Drake, Chairman	J. Michael Warren

Signed:
Dean Witter Reynolds	Industrial Boxboard Company
Custodian for John N. Hunter	John N. Hunter, its General Partner
IRA Rollover dtd 3-30-2000	2249 Davis Court
MSDW Account #112-014301	Hayward, CA  94545
245 Lytton Avenue, Suite 200
Palo Alto, CA  94301

J.N. Hunter and J.A. Hunter, Trustees
Industrial Boxboard Corporation
Profit Sharing Plan and Trust	by /s/ J.N. Hunter
(July 1, 1989 Restatement and	J.N. Hunter, in his capacities as
subsequent restatements)	Beneficial Owner of the IRA Rollover,
2249 Davis Court	Trustee of the Profit Sharing Plan,
Hayward, CA  94545	and General Partner of the Industrial
	Boxboard Company

Signed:

John R. Kiely, III

John R. Kiely, III Trust dated May 22, 2007,

John R. Kiely, III, Trustee

John R. & Margaret Lee Kiely Revocable Trust,

John R. Kiely, III, Trustee

/s/ John R. Kiely, III

John R. Kiely, III

In his respective capacities

 

Signed:

Michael H. Kiely

Michael H. Kiely, Beneficiary (for his directed IRA account)

TD Ameritrade, Inc., Custodian for Michael H. Kiely IRA, Account # 370-91506

/s/ Michael H. Kiely

Michael H. Kiely

(Personally and as Beneficiary for his IRA)

 

EX-4.14

CONSENT TO MODIFICATIONS

This Consent to Modifications, dated June 23, 2009, is given and agreed to by the “Purchasers” under the Fifth Amended and Restated Note and Warrant Purchase Agreement by and among the Purchasers, Integral Vision, Inc., a Michigan corporation (the "Company"), and J. M. Warren Law Offices, P.C., as Agent.

Factual Statements

A. The undersigned is a Purchaser under the Fifth Amended and Restated Note and Warrant Purchase Agreement (as modified December 15, 2009, January 28, 2009 and June 10, 2009), dated effective as of the date of execution by such Purchaser, for the purchase of the Notes and Warrants of the Company (the “Purchase Agreement”).

B. The Company needs to raise additional funds to keep operating.  Prospective investors have requested terms for their potential investments that require certain portions of the Purchase Agreement be modified.  The parties to this Purchase Agreement wish to modify certain portions of the Fifth Amended and Restated Note and Warrant Purchase Agreement to accommodate said prospective investors, which shall be accomplished by attaching said changes to the Purchase Agreement in the form of an addendum to the Purchase Agreement.

Agreement

1. Modifications.  The undersigned agree to the modifications to the Purchase Agreement as follows:

Exhibit D, Section 1.1.(c) [Exercise of Warrant – Manner of Exercise] Restrictions: For Warrants issued after July 1, 2009 the following shall replace the current section in its entirety:

[The following provision shall be omitted at the request of any Purchaser made to the Company prior to issuance of the Warrant]The holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 1.1(a) or otherwise, to the extent that after giving effect to such issuance after exercise, the holder (together with the holder’s affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in excess of 4.90% of the number of shares of the Common Stock outstanding immediately after giving effect to such issuance.

June 23, 2009 — Integral Vision, Inc. — Consent to Modifications

Page 1 of 4

[The following provision shall be omitted at the request of any Purchaser made to the Company prior to issuance of the Warrant]The holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 1.1(a) or otherwise, to the extent that after giving effect to such issuance after exercise, the holder (together with the holder’s affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in excess of 9.90% of the number of shares of the Common Stock outstanding immediately after giving effect to such issuance.  This paragraph shall only be applicable if the Purchaser of this Note elected to omit the paragraph immediately preceding this paragraph (the paragraph referring to the holder beneficially owning in excess of 4.90% of the shares of the Company).

For purposes of the foregoing two paragraphs, the number of shares of Common Stock beneficially owned by the holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Shares or Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the holder or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 1.1(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act, it being acknowledged by holder that the Company is not representing to holder that such calculation is in compliance with Section 13(d) of the Exchange Act and holder is solely responsible for any schedules required to be filed in accordance therewith.   To the extent that the limitation contained in this Section 1.1(c) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of such holder, and the submission of a Notice of Exercise shall be deemed to be such holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by such holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.  For purposes of this Section 1.1(c), in determining the number of outstanding shares of Common Stock, the holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of the holder, the Company shall within two Trading Days confirm orally and in writing to the holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.  The provisions of this Section 1.1(c) may be waived by the holder, at the election of the holder, upon not less than 61 days’ prior notice to the Company, and the provisions of this Section 1.1(c) shall continue to apply until such 61st day (or such later date, as determined by the holder, as may be specified in such notice of waiver).

June 23, 2009 — Integral Vision, Inc. — Consent to Modifications

Page 2 of 4

2. Voluntary and Informed Execution.  THE PARTIES ACKNOWLEDGE THAT THEY HAVE HAD AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, AND THAT THE MODIFICATIONS SET FORTH HEREIN WERE KNOWINGLY AND VOLUNTARILY MADE.

3. Effective Date.  This agreement shall be effective on the date that the majority of the holders of the Notes and Shares currently outstanding under said Purchase Agreement, the Company (as authorized by its Board of Directors), and the Agent have signed this Consent to Modification. 

Signed:

Integral Vision, Inc.

/s/ Charles J. Drake

Charles J. Drake

Chairman

J.M. Warren Law Offices, P.C.

/s/ J. Michael Warren

J. Michael Warren

June 23, 2009 — Integral Vision, Inc. — Consent to Modifications

Page 3 of 4

Signed:

Dean Witter Reynolds	Industrial Boxboard Company
Custodian for John N. Hunter	John N. Hunter, its General Partner
IRA Rollover dtd 3-30-2000	2249 Davis Court
MSDW Account #112-014301	Hayward, CA  94545
245 Lytton Avenue, Suite 200
Palo Alto, CA  94301

J.N. Hunter and J.A. Hunter, Trustees

Industrial Boxboard Corporation

Profit Sharing Plan and Trust	by /s/ J.N. Hunter
(July 1, 1989 Restatement and	J.N. Hunter, in his capacities as
subsequent restatements)	Beneficial Owner of the IRA Rollover,
2249 Davis Court	Trustee of the Profit Sharing Plan,
Hayward, CA  94545	and General Partner of the Industrial
	Boxboard Company

Signed:

John R. Kiely, III

John R. Kiely, III Trust dated May 22, 2007,

John R. Kiely, III, Trustee

John R. & Margaret Lee Kiely Revocable Trust,

John R. Kiely, III, Trustee

/s/ John R. Kiely, III

John R. Kiely, III

In his respective capacities

Signed:

Michael H. Kiely

Michael H. Kiely, Beneficiary (for his directed IRA account)

TD Ameritrade, Inc., Custodian for Michael H. Kiely IRA, Account # 370-91506

/s/ Michael H. Kiely

Michael H. Kiely

(Personally and as Beneficiary for his IRA)

June 23, 2009 — Integral Vision, Inc. — Consent to Modifications

Page 4 of 4

EX-4.15

CONSENT TO MODIFICATIONS

This Consent to Modifications, dated September 16, 2009, is given and agreed to by the “Purchasers” under the Fifth Amended and Restated Note and Warrant Purchase Agreement by and among the Purchasers, Integral Vision, Inc., a Michigan corporation (the "Company"), and J. M. Warren Law Offices, P.C., as Agent.

Factual Statements

A. The undersigned is a Purchaser under the Fifth Amended and Restated Note and Warrant Purchase Agreement (as modified December 15, 2008, January 28, 2009, June 10, 2009, and June 23, 2009), dated effective as of the date of execution by such Purchaser, for the purchase of the Notes and Warrants of the Company (the “Purchase Agreement”).

B. The Company needs to raise additional funds to keep operating.  Prospective investors have requested terms for their potential investments that require certain portions of the Purchase Agreement be modified.  The parties to this Purchase Agreement wish to modify certain portions of the Fifth Amended and Restated Note and Warrant Purchase Agreement to accommodate said prospective investors, which shall be accomplished by attaching said changes to the Purchase Agreement in the form of an addendum to the Purchase Agreement.

Agreement

1. Modifications.  The undersigned agree to the modifications to the Purchase Agreement as follows:

Section 1. b.:  In the portion of said section stating, “As used herein, “Note” or "Notes" means either “Class 2 Notes” or “Class 3 Notes” in a total aggregate amount outstanding at any time not to exceed $8,000,000” shall be modified to read, “As used herein, “Note” or "Notes" means either “Class 2 Notes” or “Class 3 Notes” in a total aggregate amount outstanding at any time not to exceed $10,000,000.”

Section 8.10.:  Limitations of future Common Stock issuances.  The following shall replace the current section in its entirety:

September 16, 2009 — Integral Vision, Inc. — Consent to Modifications

1

Issue any security which commits it to issue or potentially to issue Common Stock in excess of the limit of authorized shares outstanding at the time of the issuance of any such security excepting securities which are Notes or Warrants.

2. Voluntary and Informed Execution.  THE PARTIES ACKNOWLEDGE THAT THEY HAVE HAD AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, AND THAT THE MODIFICATIONS SET FORTH HEREIN WERE KNOWINGLY AND VOLUNTARILY MADE.

3. Effective Date.  This agreement shall be effective on the date that the majority of the holders of the Notes and Shares currently outstanding under said Purchase Agreement, the Company (as authorized by its Board of Directors), and the Agent have signed this Consent to Modification.  

Signed:

Integral Vision, Inc.

/s/ Charles J. Drake

Charles J. Drake

Chairman

J.M. Warren Law Offices, P.C.

/s/ J. Michael Warren

J. Michael Warren

September 16, 2009 — Integral Vision, Inc. — Consent to Modifications

2

Signed:

Dean Witter Reynolds	Industrial Boxboard Company
Custodian for John N. Hunter	John N. Hunter, its General Partner
IRA Rollover dtd 3-30-2000	2249 Davis Court
MSDW Account #112-014301	Hayward, CA  94545
245 Lytton Avenue, Suite 200
Palo Alto, CA  94301

J.N. Hunter and J.A. Hunter, Trustees
Industrial Boxboard Corporation
Profit Sharing Plan and Trust	by /s/ J.N. Hunter
(July 1, 1989 Restatement and	J.N. Hunter, in his capacities as
subsequent restatements)	Beneficial Owner of the IRA
Rollover,
2249 Davis Court	Trustee of the Profit Sharing Plan,
Hayward, CA  94545	and General Partner of the Industrial
	Boxboard Company

Signed:

John R. Kiely, III

John R. Kiely, III Trust dated May 22, 2007,

John R. Kiely, III, Trustee

John R. & Margaret Lee Kiely Revocable Trust,

John R. Kiely, III, Trustee

/s/ John R. Kiely, III

John R. Kiely, III

In his respective capacities

September 16, 2009 — Integral Vision, Inc. — Consent to Modifications

3

Signed:

Michael H. Kiely

Michael H. Kiely, Beneficiary (for his directed IRA account)

TD Ameritrade, Inc., Custodian for Michael H. Kiely IRA, Account # 370-91506

/s/ Michael H. Kiely

Michael H. Kiely

(Personally and as Beneficiary for his IRA)

September 16, 2009 — Integral Vision, Inc. — Consent to Modifications

4

EX-4.16

CONSENT TO MODIFICATIONS

This Consent to Modifications, dated April 19, 2010, is given and agreed to by the “Purchasers” under the Fifth Amended and Restated Note and Warrant Purchase Agreement by and among the Purchasers, Integral Vision, Inc., a Michigan corporation (the "Company"), and J. M. Warren Law Offices, P.C., as Agent.

Factual Statements

A.  The undersigned is a Purchaser under the Fifth Amended and Restated Note and Warrant Purchase Agreement (as modified December 15, 2008, January 28, 2009, June 10, 2009,  June 23, 2009, and September 16, 2009), dated effective as of the date of execution by such Purchaser, for the purchase of the Notes and Warrants of the Company (the “Purchase Agreement”).

B.  The Company intends to ask shareholders at its next shareholders meeting to approve a one (1) for ten (10) reverse stock split of its Common Stock or Shares.  This reverse stock split is part of its plan to encourage greater interest in its shares among members of the financial community and the investing public and possibly create a more liquid market for the Company’s shareholders with respect to those shares presently held by shareholders and issuable to Note and Warrant holders.  Warrants issued and issuable to Note holders need to be amended to allow this reverse stock split.

C.  Limitations on equity security which can be issued by the Company under employee compensation plans have not been raised since March 2008.  Since then, the Company has been required to raise funds to maintain operations by issuing equity securities which have diluted the interest of key officers and employees in the future potential of the Company.  It is in the interest of the shareholders and Note and Warrant holders to allow the Company to issue additional equity securities under its employee compensation plans to restore the incentive compensation for the Company’s key officers and employees to the levels that were set in March 2008.

D.  The parties to this Purchase Agreement, wish to modify certain portions of the Fifth Amended and Restated Note and Warrant Purchase Agreement and Warrants (issued and issuable) to accommodate the proposals outlined above.  This shall be accomplished by attaching said changes to the Purchase Agreement in the form of an addendum to the Purchase Agreement and by attaching an Amendment to Warrants that have already been issued – with said “warrant amendment” attached hereto as Exhibit A.  Warrants issued by the Company after the effective date of this Consent to Modifications will incorporate the modifications herein. 

April 19, 2010 — Integral Vision, Inc. — Consent to Modifications

Page 1of 8

Agreement

1.  Modifications.  The undersigned agree to the modifications to the Purchase Agreement as follows:

Section 1. (d).: This section shall be amended by adding a fourth paragraph which states as follows:

The number of Shares that each Warrant holder is entitled to receive pursuant to this section and the exercise price for such Shares shall be adjusted in the event the Company issued stock dividends, recapitalizes, etc. as follows:  

In the event the Company shall, after the issuance of any Class 2 Note that is currently accruing Warrants, issue any shares of Common Stock (i) by stock dividend or any other distribution upon the stock of the Company payable in Common Stock or in securities convertible into or exercisable for shares of Common Stock or (ii) in subdivision of its outstanding Common Stock, by reclassification or otherwise, the current exercise price then in effect shall be reduced proportionately and the number of shares of Common Stock for which accrued Warrants are exercisable shall also be proportionately increased so that the percentage of the Company’s outstanding capital stock for which accrued Warrants are exercisable will remain unchanged; and, in like manner, in the event of any combination of shares of Common Stock, by reclassification or otherwise, the current exercise price then in effect shall be increased proportionately and the number of shares of Common Stock for which accrued Warrants are exercisable shall also be proportionately decreased so that the percentage of the Company’s outstanding capital stock for which accrued Warrants are exercisable will remain unchanged.  An adjustment made pursuant to this paragraph shall become retroactively effective immediately after the record date in the case of a dividend or other distribution and shall become retroactively effective immediately after the effective date in the case of a subdivision or combination.  Retroactively shall mean that such adjustment shall be made to both the accrued Warrants earned to the record date or the effective date as set forth in the previous sentence and to Warrants that may accrue in the future.

Section 4.15. Stock Ownership. The following shall replace the current section in its entirety:

April 19, 2010 — Integral Vision, Inc. — Consent to Modifications

Page 2of 8

The authorized capital stock of the Company consists of (i) 90,000,000 shares of Common Stock, without par value, of which 34,333,409 shares are outstanding, and (ii) 400,000 shares of Preferred Stock (though 7,000 shares of preferred stock are retired), without par value, none of which are outstanding. Such outstanding shares of Common Stock are duly authorized, validly issued and outstanding and fully paid and nonassessable.  Except for the Warrants, the warrants to purchase 7.0 million shares of the Company issued to investors who purchased 7 million shares of the Company in April 2005 [“PIPE Investors”], the Class 3 Notes, and options to purchase shares of Common Stock granted to employees, directors or agents of the Company pursuant to the Company's stock option plans, there are no outstanding options, warrants, rights, convertible securities or other agreements or plans under which the Company may become obligated to issue, sell or transfer shares of its capital stock or other securities.

Section 8.11.:  Limitations on equity securities which may be issued under employee compensation plans.  The following shall replace the current section in its entirety:

Issue restricted stock bonuses, new stock options, or link other bonus plans to the change in the price of its Common Stock to its current employees, officers, or directors (current employees, officers, or directors being defined as any individuals that were engaged in such capacities at any time from January 1, 2007 to the effective date of this Consent to Modifications for this section) outside of the 2004 Employee Stock Option Plan and the 2008 Integral Vision, Inc. Equity Incentive Plan as amended (collectively, the “Plans”) or have net awards from the “Plans” in the amount exceeding Eight Million Three Hundred Twenty Eight Thousand (8,328,000) issued or issuable shares of its Common Stock as adjusted for recapitalization or reorganization pursuant to the Plans without approval of the majority of the Note holders until all Class 2 Notes are repaid (where net awards is defined as all of the issued or issuable shares granted/awarded pursuant to the Plans less the issuable share grants/awards which have been surrendered, cancelled, or forfeited).

Exhibit D: The first paragraph of this exhibit shall be amended deleting the words “the lower of” before the specified price per share (“$______”) and replacing the phrase “or (ii) the price determined according to Section 2.2(a) hereof” after the specified price per share (“$______”) with the phrase as follows: “subject to adjustment according to Section 2.2 hereof.”  

Additionally, Section 2.2(b) of Exhibit D shall be replaced in its entirety with as follows:  

April 19, 2010 — Integral Vision, Inc. — Consent to Modifications

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(b) Adjustments for Stock Dividends, Recapitalization. etc. In the event the Company shall, after the Closing Date, issue any shares of Common Stock (i) by stock dividend or any other distribution upon the stock of the Company payable in Common Stock or in securities convertible into or exercisable for shares of Common Stock or (ii) in subdivision of its outstanding Common Stock, by reclassification or otherwise, the current exercise price then in effect shall be reduced proportionately and the number of shares of Common Stock for which this Warrant is exercisable shall also be proportionately increased so that the percentage of the Company’s outstanding capital stock for which this Warrant is exercisable will remain unchanged; and, in like manner, in the event of any combination of shares of Common Stock, by reclassification or otherwise, the current exercise price then in effect shall be increased proportionately and the number of shares of Common Stock for which this Warrant is exercisable shall also be proportionately decreased so that the percentage of the Company’s outstanding capital stock for which this Warrant is exercisable will remain unchanged. An adjustment made pursuant to this Section 2.2(b) shall become effective retroactively immediately after the record date in the case of a dividend or other distribution and shall become effective immediately after the effective date in the case of a subdivision or combination.

2.  Modifications.  The undersigned agrees to the modifications of all Warrants issued to the undersigned as specified in the Amendment to Warrants attached hereto as Exhibit A and agrees to attach said Exhibit A to each Warrant issued to the undersigned.

3.  Voluntary and Informed Execution.  THE PARTIES ACKNOWLEDGE THAT THEY HAVE HAD AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, AND THAT THE MODIFICATIONS SET FORTH HEREIN WERE KNOWINGLY AND VOLUNTARILY MADE.

4.  Effective Dates. 

The amendment to Section 4.15. and Section 8.11. of the Purchase Agreement shall be effective on the date that the majority of the holders of the Notes and Shares currently outstanding under said Purchase Agreement, the Company (as authorized by its Board of Directors), and the Agent have signed this Consent to Modification.  

The amendment to Section 1.(d). and Exhibit D of the Purchase Agreement shall be effective on the date that all of the holders of current Class 2 Notes and the majority of the holders of the Notes and Shares currently outstanding under said Purchase Agreement, the Company (as authorized by its Board of Directors), and the Agent have signed this Consent to Modification.

April 19, 2010 — Integral Vision, Inc. — Consent to Modifications

Page 4of 8

The amendment to outstanding Warrants shall be effective on the date that all of the current holders of Warrants and the majority of the holders of the Notes and Shares currently outstanding under said Purchase Agreement, the Company (as authorized by its Board of Directors), and the Agent have signed this Consent to Modification.

Signed:

/s/ Charles J. Drake

Charles J. Drake (personally)

Signed:

J. M. Warren Law Offices, P.C., as Agent

/s/ J. Michael Warren

J. Michael Warren

Signed:

Charlevoix Drive Properties, LLC

/s/ Max A. Coon

Max A. Coon, Member

Signed:

Edward J. Carney, Trustee of the Carney Trust, dated March 22, 1994

/s/ Edward J. Carney

Edward J. Carney, Trustee

Signed:

Susan W. Pillsbury, Trustee, Susan W. Pillsbury Revocable Trust dtd 03-13-1998

/s/ Susan W. Pillsbury

Susan W. Pillsbury, Trustee

April 19, 2010 — Integral Vision, Inc. — Consent to Modifications

Page 5of 8

Signed:

Michael H. Kiely

Michael H. Kiely, Beneficiary (directed IRA account)

TD Ameritrade, Inc., Custodian for Michael H. Kiely, Account # 370-91506

Michael H. Kiely, Trustee for the Michael Hughes Kiely Family Trust, dated November 4, 1986

/s/ Michael H. Kiely

Michael H. Kiely

(Personally, as Trustee for Michael Hughes Family Trust, and as Beneficiary for his IRA)

Signed:

Maria P. Kiely, Beneficiary (for her directed IRA Account)

TD Ameritrade, Inc., Custodian for Maria P. Kiely, Account # 370-91507

/s/ Maria P. Kiely

Maria P. Kiely

(as Beneficiary for her IRA)

Signed:

John R. Kiely, III

John R. Kiely, III Trust dated May 22, 2007,

John R. Kiely, III, Trustee

John R. & Margaret Lee Kiely Revocable Trust,

John R. Kiely, III, Trustee

Michael Hughes Kiely Family Trust, dated November 4, 1986,

John R. Kiely, III, Trustee

/s/ John R. Kiely, III

John R. Kiely, III

In his respective capacities

April 19, 2010 — Integral Vision, Inc. — Consent to Modifications

Page 6of 8

Signed:
/s/ P. Robert Klonoff	/s/ Susan J. Klonoff
P. Robert Klonoff	Susan J. Klonoff
The Klonoff Company, Inc.
/s/ P. Robert Klonoff
P. Robert Klonoff, its President
Signed:
Dale R. Kehoe
Dale Renee Kehoe, Trustee, Dale Renee Kehoe Living Trust
/s/ Dale Renee Kehoe	/s/ Dale R. Kehoe
Dale Renee Kehoe, Trustee	Dale R. Kehoe, (personally)
Signed:
Dean Witter Reynolds	Industrial Boxboard Company
Custodian for John N. Hunter	John N. Hunter, its General Partner
IRA Rollover dtd 3-30-2000	2249 Davis Court
MSDW Account #112-014301	Hayward, CA  94545
245 Lytton Avenue, Suite 200
Palo Alto, CA  94301
J.N. Hunter and J.A. Hunter, Trustees
Industrial Boxboard Corporation
Profit Sharing Plan and Trust	by /s/ J.N. Hunter
(July 1, 1989 Restatement and	J.N. Hunter, in his capacities as
subsequent restatements)	Beneficial Owner of the IRA Rollover,
2249 Davis Court	Trustee of the Profit Sharing Plan,
Hayward, CA  94545	and General Partner of the Industrial
	Boxboard Company

April 19, 2010 — Integral Vision, Inc. — Consent to Modifications

Page 7of 8

Exhibit A

Amendment to Warrants

This warrant is hereby modified by this amendment as follows:

The first paragraph of this warrant shall be amended deleting the words “the lower of” before the specified price per share (either $0.25 or $0.15) and replacing the phrase “or (ii) the price determined according to Section 2.2(a) hereof” after the specified price per share (either $0.25 or $0.15) with the phrase as follows: “subject to adjustment according to Section 2.2 hereof.”  

Additionally, Section 2.2(b) of this Warrant shall be amended by replacing said Section 2.2(b) in its entirety with as follows:  

(b) Adjustments for Stock Dividends, Recapitalization. etc. In the event the Company shall, after the Closing Date, issue any shares of Common Stock (i) by stock dividend or any other distribution upon the stock of the Company payable in Common Stock or in securities convertible into or exercisable for shares of Common Stock or (ii) in subdivision of its outstanding Common Stock, by reclassification or otherwise, the current exercise price then in effect shall be reduced proportionately and the number of shares of Common Stock for which this Warrant is exercisable shall also be proportionately increased so that the percentage of the Company’s outstanding capital stock for which this Warrant is exercisable will remain unchanged; and, in like manner, in the event of any combination of shares of Common Stock, by reclassification or otherwise, the current exercise price then in effect shall be increased proportionately and the number of shares of Common Stock for which this Warrant is exercisable shall also be proportionately decreased so that the percentage of the Company’s outstanding capital stock for which this Warrant is exercisable will remain unchanged. An adjustment made pursuant to this Section 2.2(b) shall become effective retroactively immediately after the record date in the case of a dividend or other distribution and shall become effective immediately after the effective date in the case of a subdivision or combination

April 19, 2010 — Integral Vision, Inc. — Consent to Modifications

Page 8of 8

EX-4.17

Execution Copy

AMENDMENT AGREEMENT

This Amendment Agreement, dated as of April 22, 2010 (this “Agreement”), is by and between INTEGRAL VISION, INC.,a Michigan corporation (the “Company”), and each person or entity that is named on Schedule A hereto.  Each such person or entity, together with its successors and permitted assigns, is referred to herein as an “Investor”, and all such persons and entities, together with their respective successors and permitted assigns, are collectively referred to herein as the “Investors”.

Each of the Investors is the holder of a warrant dated as of September 15, 2008, as identified on Schedule A (each, a “Warrant” and, collectively, the “Warrants”).  The Parties wish to amend the Warrants.

In consideration of the mutual covenants made herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.           Amendment of Warrants.

1.1           As of the date of this Agreement, paragraph 6(c) of each of the Warrants shall be deemed amended by the insertion of the following sentence at the end of such Warrant:

Upon a reverse stock split, stock combination or similar transaction that results in a decrease in the number of outstanding shares of the Company’s capital stock, the number of shares of Common Stock for which this Warrant is exercisable shall also be proportionately reduced so that the percentage of the Company’s outstanding capital stock for which this Warrant is exercisable will remain unchanged.

1.2           Except as amended hereby, each Warrant shall continue in full force and effect in accordance with its terms.

2.           Representations of the Company. The Company hereby represents and warrants to each Investor that (i) the Company has the requisite corporate power and authority to enter into this Agreement and to amend the Warrants as described herein; and (ii) this Agreement constitutes the valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to (a) applicable bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (b) general principles of equity.

3.           Representations of Each Investor. Each Investor hereby represents and warrants to the Company that this Agreement constitutes such Investor’s valid and legally binding obligation, enforceable in accordance with its terms, subject to (a) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (b) general principles of equity.

 

4.           Successors and Assigns.  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties.

5.           Governing Law.  This Agreement shall be governed by and construed under the laws of the State of New York applicable to contracts made and to be performed entirely within the State of New York.

6.           Notices. Any notice, demand or request given by the Company or the Investor concerning this Agreement shall be in writing and shall be deemed delivered (i) when delivered personally or by verifiable facsimile transmission, unless such delivery is made on a day that is not a Business Day, or after 5:00 p.m. (eastern time) on a Business Day, in which case such delivery will be deemed to be made on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to an overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows:

If to the Company:

Integral Vision, Inc.

49113 Wixom Tech Drive

Wixom, Michigan  48393

Attn:           Mark R. Doede, President

Tel:           (248) 668-9230 x203

Fax:           (248) 668-9384

With a copy (which shall not constitute notice) to:

Mazzeo Song & Bradham LLP

708 Third Avenue

New York, New York 10017

Attn:           David S. Song, Esq.

Tel:           212-599-0700

Fax:           212-599-8400

and if to any Investor, to such address for such Investor as shall appear next to such Investor’s name on Schedule A hereto, or as shall be designated by such Investor in writing to the Company in accordance with this Section 6.

 

2

7.           Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.  This Agreement may be executed and delivered by facsimile transmission or email of an electronic file.

8.           Entire Agreement; Amendments.  This Agreement constitutes the entire agreement between the parties with regard to the subject matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between or among the parties.  Except as expressly provided herein, neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and each Investor. Any waiver or consent given by a party shall be in writing and shall be effective only in the specific instance and for the specific purpose for which given.

[Signature Page to Follow]

 

3

 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written.

INTEGRAL VISION, INC.
By:	/s/ Mark Doede
	Name: Mark Doede
	Title: President, COO, CFO
BONANZA MASTER FUND LTD.
By:	/s/ Brian Ladin
	Name:  Brian Ladin
	Title:  Managing Director

4

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written.

INTEGRAL VISION, INC.
By:	/s/ Mark Doede
	Name: Mark Doede
	Title: President, CFO, COO
SRB GREENWAY OPPORTUNITY FUND, L.P.
By:	SRB Management, L.P., General Partner
By:	BC Advisors, L.L.C., General Partner
By:	/s/ Steven R. Becker
	Name:  Steven R. Becker
	Title:  Member
SRB GREENWAY OPPORTUNITY FUND (QP), L.P.
By:	SRB Management, L.P., General Partner
By:	BC Advisors, L.L.C., General Partner
By:	/s/ Steven R. Becker
	Name:  Steven R. Becker
	Title:  Member

5

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written.

INTEGRAL VISION, INC.
By:	/s/ Mark Doede
	Name: Mark Doede
	Title: President, CFO, COO
KIRCHER FAMILY TRUST
By:	/s/ Stephen C. Kircher
	Name:  Stephen C. Kircher
	Title:

 

6

Schedule A

SCHEDULE OF INVESTORS

Investor  Name	Address for Notices	Jurisdiction of Residence	Number of  Warrant Shares in  Warrant
Bonanza Master Fund Ltd.	300 Crescent Court, Suite 1740 Dallas, TX 75201 Attention: Brian Ladin		3,000,000
SRB Greenway Opportunity Fund, L.P.	300 Crescent Court, Suite 1111 Dallas, TX 75201 Attention: Joe Worsham		42,600
SRB Greenway Opportunity Fund (QP), L.P.	300 Crescent Court, Suite 1111 Dallas, TX 75201 Attention: Joe Worsham		305,150 and 27,250
Kircher Family Trust	6000 Greystone Place Granite Bay, CA 95746 Attention: Stephen C. Kircher		25,000

 

7

EX-4.18

 Execution Copy

AMENDMENT AGREEMENT

This Amendment Agreement, dated as of April 22, 2010 (this “Agreement”), is by and between INTEGRAL VISION, INC.,a Michigan corporation (the “Company”), and each person or entity that is named on Schedule A hereto.  Each such person or entity, together with its successors and permitted assigns, is referred to herein as an “Investor”, and all such persons and entities, together with their respective successors and permitted assigns, are collectively referred to herein as the “Investors”.

Each of the Investors is the holder of a warrant dated as of September 15, 2008, as identified on Schedule A (each, a “Warrant” and, collectively, the “Warrants”).  The Parties wish to amend the Warrants.

In consideration of the mutual covenants made herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Amendment of Warrants.

1.1          As of the date of this Agreement, paragraph 5(c) of each of the Warrants shall be deemed amended by the insertion of the following sentence at the end of such Warrant:

Upon a reverse stock split, stock combination or similar transaction that results in a decrease in the number of outstanding shares of the Company’s capital stock, the number of shares of Common Stock for which this Warrant is exercisable shall also be proportionately reduced so that the percentage of the Company’s outstanding capital stock for which this Warrant is exercisable will remain unchanged.

1.2          Except as amended hereby, each Warrant shall continue in full force and effect in accordance with its terms.

2.           Representations of the Company. The Company hereby represents and warrants to each Investor that (i) the Company has the requisite corporate power and authority to enter into this Agreement and to amend the Warrants as described herein; and (ii) this Agreement constitutes the valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to (a) applicable bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (b) general principles of equity.

3.           Representations of Each Investor. Each Investor hereby represents and warrants to the Company that this Agreement constitutes such Investor’s valid and legally binding obligation, enforceable in accordance with its terms, subject to (a) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (b) general principles of equity.

4.           Successors and Assigns.  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties.

5.           Governing Law.  This Agreement shall be governed by and construed under the laws of the State of New York applicable to contracts made and to be performed entirely within the State of New York.

6.           Notices. Any notice, demand or request given by the Company or the Investor concerning this Agreement shall be in writing and shall be deemed delivered (i) when delivered personally or by verifiable facsimile transmission, unless such delivery is made on a day that is not a Business Day, or after 5:00 p.m. (eastern time) on a Business Day, in which case  such delivery will be deemed to be made on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to an overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows:

If to the Company:
Integral Vision, Inc.
49113 Wixom Tech Drive
Wixom, Michigan  48393
Attn:	Mark R. Doede, President
Tel:	(248) 668-9230 x203
Fax:	(248) 668-9384
With a copy (which shall not constitute notice) to:
Mazzeo Song & Bradham LLP
708 Third Avenue
New York, New York 10017
Attn:	David S. Song, Esq.
Tel:	212-599-0700
Fax:	212-599-8400

and if to any Investor, to such address for such Investor as shall appear next to such Investor’s name on Schedule A hereto, or as shall be designated by such Investor in writing to the Company in accordance with this Section 6.

2

7.           Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.  This Agreement may be executed and delivered by facsimile transmission or email of an electronic file.

8.           Entire Agreement; Amendments.  This Agreement constitutes the entire agreement between the parties with regard to the subject matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between or among the parties.  Except as expressly provided herein, neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and each Investor. Any waiver or consent given by a party shall be in writing and shall be effective only in the specific instance and for the specific purpose for which given.

[Signature Page to Follow]

3

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written.

INTEGRAL VISION, INC.

By:	/s/ Mark Doede
	Name: Mark Doede
	Title: President, CFO, COO
SPECIAL SITUATIONS CAYMAN FUND, L.P.

By:	/s/ David Greenhouse
	Name:  David Greenhouse
	Title:  General Partner
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By:	/s/ David Greenhouse
	Name:  David Greenhouse
	Title:  General Partner
SPECIAL SITUATIONS TECHNOLOGY FUND, L.P.
By:	/s/ David Greenhouse
	Name:  David Greenhouse
	Title:  General Partner
SPECIAL SITUATIONS TECHNOLOGY FUND II, L.P.
By:	/s/ David Greenhouse
	Name:  David Greenhouse
	Title:  General Partner

4

Schedule A

SCHEDULE OF INVESTORS

Investor Name	Address for Notices	Jurisdiction of Residence	Number of Warrant Shares in  Warrant
Special Situations Cayman Fund, L.P.	527 Madison Avenue, Suite 2600 New York, NY 10022 Attention:  Marianne Kelly	Delaware	681,081
Special Situations Private Equity Fund, L.P.	527 Madison Avenue, Suite 2600 New York, NY 10022 Attention:  Marianne Kelly	Delaware	1,459,459
Special Situations Technology Fund, L.P.	527 Madison Avenue, Suite 2600 New York, NY 10022 Attention:  Marianne Kelly	Delaware	204,325
Special Situations Technology Fund II, L.P.	527 Madison Avenue, Suite 2600 New York, NY 10022 Attention:  Marianne Kelly	Delaware	1,255,135

5

EX-4.19

CONSENT TO MODIFICATIONS

This Consent to Modifications, dated June 18, 2010, is given and agreed to by the “Purchasers” under the Fifth Amended and Restated Note and Warrant Purchase Agreement by and among the Purchasers, Integral Vision, Inc., a Michigan corporation (the "Company"), and J. M. Warren Law Offices, P.C., as Agent.

Factual Statements

A. The undersigned is a Purchaser under the Fifth Amended and Restated Note and Warrant Purchase Agreement (as modified December 15, 2008, January 28, 2009, June 10, 2009,  June 23, 2009, September 16, 2009, and April 19, 2010), dated effective as of the date of execution by such Purchaser, for the purchase of the Notes and Warrants of the Company (the “Purchase Agreement”).

B. Some of the Company’s Class 2 Noteholders have indicated a desire to have some payments made by the Company pursuant to their Class 2 Notes applied to the principal outstanding on said notes first rather than be applied first to the accrued interest due as specified in the Purchase Agreement.  The parties to this Purchase Agreement wish to modify the terms therein to allow such an election by the Class 2 Noteholders.

C. Class 3 Noteholders are currently limited pursuant to Section 6. of their notes as follows:  “Forbearance from suit. No Note holder of this issue may institute any suit or proceeding for the enforcement of the payment of principal or interest unless the holders of more than 50 percent in amount of all outstanding Notes of this issue join in the suit or proceeding.”  It is in the Company’s and Noteholders’ interest to have the “Events of Default” provisions governing Class 3 Notes be amended to “conform” to the aforementioned forbearance from suit limitations.

Agreement

1.Modifications.  The undersigned agree to the modifications to the Purchase Agreement as follows:

Section 1. (b) (ii): The sentence in this section, “Payments will be applied first to accrued interest and then to principal.” shall be replaced with as follows:

June 18, 2010 — Integral Vision, Inc. — Consent to Modifications

1

Payments to Class 2 Noteholders will be applied first to accrued interest and then to principal unless a specific Class 2 Noteholder notifies the Company in writing (with said written notice being received by the Company on or before the Company makes a payment to said Class 2 Noteholder) that it wants payments or a portion of said payments (as specified in said written notice to the Company by the Class 2 Noteholder) applied first to principal and then to accrued interest.

Section 14.1. (a): The following shall be added after the word “Agent” in said section:

Notwithstanding the foregoing, it shall not be considered an Event of Default if the Company defaults in the payment of any part of the principal or interest due pursuant to any Class 3 Note when the same shall become due and payable (“Late Class 3 Note Payments”) unless the Company has Late Class 3 Note Payments due to the holders of fifty percent (50%) of the then outstanding Class 3 Notes (said 50% shall be based on the aggregate principal amounts of Class 3 Notes then outstanding);

2.Voluntary and Informed Execution.  THE PARTIES ACKNOWLEDGE THAT THEY HAVE HAD AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, AND THAT THE MODIFICATIONS SET FORTH HEREIN WERE KNOWINGLY AND VOLUNTARILY MADE.

3.Effective Date.  

This agreement shall be effective on the date that the majority of the holders of the Notes and Shares currently outstanding under said Purchase Agreement, the Company (as authorized by its Board of Directors), and the Agent have signed this Consent to Modification

Signed:

Integral Vision, Inc.

/s/ Charles J. Drake

Charles J. Drake

Chairman

June 18, 2010 — Integral Vision, Inc. — Consent to Modifications

2

Signed:

J.M. Warren Law Offices, P.C., As Agent

/s/ J.Michael Warren

J. Michael Warren

Signed:

John R. Kiely, III

John R. Kiely, III Trust dated May 22, 2007,

John R. Kiely, III, Trustee

John R. & Margaret Lee Kiely Revocable Trust,

John R. Kiely, III, Trustee

Michael Hughes Kiely Family Trust, dated November 4, 1986,

John R. Kiely, III, Trustee

/s/ John R. Kiely, III

John R. Kiely, III

In his respective capacities

Signed:

Michael H. Kiely

Michael H. Kiely, Beneficiary (self-directed IRA account)

TD Ameritrade, Inc., Custodian for Michael H. Kiely, Account # 370-91506

Michael H. Kiely, Trustee for the Michael Hughes Kiely Family Trust, dated November 4, 1986

/s/ Michael H. Kiely

Michael H. Kiely

(Personally, as Trustee for Michael Hughes Family Trust, and as Beneficiary for his IRA)

June 18, 2010 — Integral Vision, Inc. — Consent to Modifications

3

Signed:

Dean Witter Reynolds	Industrial Boxboard Company
Custodian for John N. Hunter	John N. Hunter, its General Partner
IRA Rollover dtd 3-30-2000	2249 Davis Court
MSDW Account #112-014301	Hayward, CA  94545
245 Lytton Avenue, Suite 200
Palo Alto, CA  94301

J.N. Hunter and J.A. Hunter, Trustees
Industrial Boxboard Corporation
Profit Sharing Plan and Trust	by /s/ J.N. Hunter
(July 1, 1989 Restatement and	J.N. Hunter, in his capacities as
subsequent restatements)	Beneficial Owner of the IRA Rollover,
2249 Davis Court	Trustee of the Profit Sharing Plan,
Hayward, CA  94545	and General Partner of the Industrial
	Boxboard Company

June 18, 2010 — Integral Vision, Inc. — Consent to Modifications

4

EX-4.20

Class 2 Note Amendments – Dated May 17, 2011

The maturity date of all of Integral Vision, Inc.’s (the “Company”) Class 2 Notes amended with this amendment and held in the name of the undersigned as of May 17, 2011 shall be extended to July 1, 2013.

Specified Orders (and related terms):

The Specified Orders for these Class 2 Notes shall be amended to the terms as follows:

Class 2 Notes which are amended with this amendment (“May 17 Class 2 Notes”) shall be repaid from 40% (forty percent) of all payments received by the Company (including, without limitation any Subsidiary of the Company [whether partly or wholly owned by the Company] or successor to the Company) (“Company and its Subsidiaries”) for the design, sale, or service (including modifications or additions thereto) for all display inspection systems or sales or contracts relating thereto:

a. above $6 million from May 1, 2011 through January 1, 2012,

b. above $6.5 million from May 1, 2011 through February 1, 2012 (payments made to May 17 Note holders pursuant to “a.” above shall reduce the amount due May 17 Class 2 Note holders pursuant to this section “b.”),

c. above $7.0 million from May 1, 2011through March 1, 2012 (payments made to May 17 Note holders pursuant to “a.” through “b.” above shall reduce the amount due May 17 Class 2 Note holders pursuant to this section “c.”),

d. increased by $500,000 for each month after March 1, 2012 above the $7.0 million in “c.” above until all of the Company’s May 17 Class 2 Notes are repaid in full including accrued interest due thereon.  Payments made to May 17 Class 2 Note holders pursuant to “a.” through “c.” combined with payments made for any month after March 1, 2012 shall reduce the amount due May 17 Class 2 Note holders for subsequent months after March 1, 2012.

For example, for the period May 1, 2011 through July 1, 2012, the Company is obligated to repay May 17, 2011 Class 2 Note holders 40% of all payments received by the Company above $9.0 million (with payments made to May 17 Class 2 Note holders pursuant to these Specified Orders prior to June 1, 2012 reducing the amount due May 17 Class 2 Note holders for the month ending July 1, 2012.

Other terms and conditions:

This May 17 Class 2 Note holder hereby waives (retroactively) its right to receive any payments due it pursuant Specified Orders terms prior to May 17, 2011 that were not remitted to it.

Other terms and conditions (continued):

Page 1 of 5

1. Amounts payable to May 17 Class 2 Notes pursuant to the above terms shall be paid first to the latest issued May 17 Class 2 Notes then outstanding until said note is paid in full including accrued interest due thereon.  If more than one May 17 Class 2 Note was issued on the same date, said note holders will share an undivided interest in payments payable by the Company until their notes are paid in full including accrued interest due thereon.  For the purpose of this section, all Class 2 Notes outstanding on September 15, 2008 (the date of a major restructuring of the Company’s notes – $1,576,000 principal face amount) shall be considered to have been issued September 15, 2008.

2. All deposits received by the Company and its Subsidiaries on orders placed by its customers shall not be included in the calculations of payments received by the Company and its Subsidiaries until the Company and its Subsidiaries has received the earlier of a second progress payment or the final payment for the system or systems ordered for which the deposit payment was made.

3. Additionally, any sales commissions payable to agents of the Company and its Subsidiaries shall be excluded from the amounts of payments received by the Company and its Subsidiaries when calculating the amounts payable to May 17 Class 2 Note holders – said excluded commissions are hereby limited to a maximum of 15% (fifteen percent) of the payment or partial payment received by the Company and its Subsidiaries pursuant to an order.  For the purposes of this section, commissions payable to employees or former employees of the Company and its Subsidiaries (former employees being defined individuals employed by the Company and its Subsidiaries at any time after May 17, 2011) shall not be excluded from the amounts of payments received by the Company and its subsidiaries when calculating the payments due May 17 Class 2 Note holders.

4. This May 17 Class 2 Note holder hereby waives any Default Interest payments due on said notes retroactively from September 30, 2010 through May 17, 2011.

5. If the Company elects to repay May 17 Class 2 Notes from other funds than those payments required pursuant to the Specified Orders herein, said repayments shall be made in the same order as in Section “1.” above with the following exception:  The designated Agent of the Note holders (pursuant to the Fifth Amended and Restated Note and Warrant Purchase Agreement) may direct the Company to make up to $100,000 of payments to note holders based on “special circumstances” of said note holders rather than paying note holders in the order specified in Section “1.” above.  The Agent’s determination of “special circumstances” shall be in its sole discretion.  The current Agent is The Klonoff Company, Inc.

Other terms and conditions (continued):

Class 2 Note Amendments — Dated May 17, 2011

Page 2 of 5

6. This amendment shall be effective when Class 2 Note holders holding at least 90% (ninety percent) of the principal face amount of all of the Company’s Class 2 Notes outstanding at May 17, 2011 sign this amendment.

All of the Class 2 Notes held in the name of the undersigned Note holders as of May 17, 2011 shall be amended according to the terms herein.

Additionally, the Class 2 Notes issued in the name of John R. Kiely, III Trust dated May 22, 2007, John R. Kiely, III, Trustee since September 27, 2010 shall have their trust name corrected to the Kiely 1979 Trust FBO John R. Kiely, III, John R. Kiely, III, Trustee.  The six notes incorrectly titled are as follows: 1) Note 140 issued September 27th in the amount of $86,000, 2) Note 141 issued September 28th in the amount of $39,000, 3) Note 151 issued January 26th in the amount of $65,000, 4) Note 153 issued February 23rd in the amount of $65,000, 5) Note 156 issued March 28th in the amount of $55,000, and 6) Note 159 issued April 20th in the amount of $50,000.  All of the funds for these six notes came from the Kiely 1979 Trust FBO John R. Kiely, III, John R. Kiely, III, Trustee.

John R. Kiely, III,	John R. Kiely, III, Co-Trustee
John R. Kiely, III Trust dated May 22, 2007	Michael Hughes Kiely 1986 Family Trust
17817 Davis Road	dated November 3, 1986
Dundee, Michigan  48131	17817 Davis Road
	Dundee, Michigan  48131
John R. Kiely, III, Trustee	John R. Kiely, III, Trustee
John R. & Margaret Lee Kiely Revocable Trust	Kiely 1979 Trust FBO John R. Kiely, III
in care of First Republic Investment Management	17817 Davis Road
Custodian Account # A 9 G - 3 0 1 7 5 7	Dundee, Michigan  48131
1000 SW Broadway, Suite 1810
Portland, OR  97205

/s/ John R. Kiely, III

By John R. Kiely, III in his respective capacities

Note:  Michael H. Kiely, Co-Trustee of the Michael Hughes Kiely 1986 Family Trust has to sign a note amendment for the notes held is said trust to be amended.

Michael H. Kiely (personally)	Michael H. Kiely, Co-Trustee
	Michael Hughes Kiely 1986 Family Trust
30 Gladys Drive	dated November 3, 1986

Class 2 Note Amendments — Dated May 17, 2011 (corrected)

Page 3 of 5

Spring Valley, NY  10977	17817 Davis Road
	Dundee, Michigan  48131

/s/ Michael H. Kiely

By Michael H. Kiely in his respective capacities

Note: John R. Kiely, III, Co-Trustee of the Michael Hughes Kiely 1986 Family Trust has to sign a note amendment for the notes held is said trust to be amended.

Dale Renee Kehoe, Trustee

Dale Renee Kehoe Living Trust

in care of P. Robert Klonoff

1631 North 201st Street

Shoreline, WA 98133

/s/ Dale Renee Kehoe

By Dale Renee Kehoe, Trustee

Michael H. Kiely (self directed) IRA account.

This custodian for this account was TD Ameritrade, Inc., Account # 370-91506.  Michael has transferred this account to Equity Trust Company.  Equity Trust Company has assigned account

# 83574 to this IRA.

/s/ Michael H. Kiely

By Michael H. Kiely, beneficiary

Maria P. Kiely (self directed) IRA account

This custodian for this account was TD Ameritrade, Inc., Account # 370-91507.  Maria has transferred this account to Equity Trust Company.  Equity Trust Company has assigned account

# 83580 to this IRA.

/s/ Maria P. Kiely

By Maria P. Kiely, beneficiary

P. Robert Klonoff and Susan J. Klonoff

1631 North 201st Street

Shoreline, WA 98133

Class 2 Note Amendments — Dated May 17, 2011 (corrected)

Page 4 of 5

/s/ P. Robert Klonoff	/s/ Susan J. Klonoff
P. Robert Klonoff	Susan J. Klonoff

The Klonoff Company, Inc.

/s/ P. Robert Klonoff

By P. Robert Klonoff, its President

Susan W. Pillsbury, Trustee

Susan W. Pillsbury 1998 Revocable

Trust, dtd 3-13-0998

/s/ Susan W. Pillsbury

Susan W. Pillsbury,

Trustee

John N. Hunter, Trustee	John N. Hunter (personally)
Industrial Boxboard Corporation	in care of
Profit Sharing Plan and Trust	Industrial Boxboard Corporation
2247 Davis Court	2247 Davis Court
Hayward, CA  94545	Hayward, CA  94545

/s/ J.N. Hunter

By J. N. Hunter, in his respective capacities

Class 2 Note Amendments — Dated May 17, 2011 (corrected)

Page 5 of 5

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Charles J. Drake, certify that:

1.      I have reviewed this quarterly report on Form 10-Q of Integral Vision, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  September 21, 2011
	/s/ Charles J. Drake
	Charles J. Drake
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Mark R. Doede, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Integral Vision, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  September 21, 2011
	/s/ Mark R. Doede
	Mark R. Doede
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350, as adopted), the undersigned, Charles J. Drake, Chairman of the Board and Chief Executive Officer of Integral Vision, Inc. (the “Company”), hereby certifies that, to the best of his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011 (the “Quarterly Report”), to which this Certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Quarterly Report and results of operations of the Company for the period covered by the Quarterly Report.

DATED:  September 21, 2011
	/s/ Charles J. Drake
	Charles J. Drake
	Chairman of the Board and
	Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350, as adopted), the undersigned, Mark R. Doede, President, Chief Operating Officer, and Chief Financial Officer of Integral Vision, Inc. (the “Company”), hereby certifies that, to the best of his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011 (the “Quarterly Report”), to which this Certification is attached as Exhibit 32.2, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Quarterly Report and results of operations of the Company for the period covered by the Quarterly Report.

DATED:  September 21, 2011
	/s/ Mark R. Doede
	Mark R. Doede
	President, Chief Operating Officer,
	and Chief Financial Officer

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Condensed Balance Sheets [Parenthetical] (USD $) In Thousands, except Per Share data	Jun. 30, 2011	Dec. 31, 2010
Accumulated amortization, Net (in dollars)	$ 1,586,000	$ 1,583,000
Notes payable in default (in dollars)	760,900	0
Notes payable to related parties and directors in default (in dollars)	4,426,098	0
Accrued interest on notes payable in default (in dollars)	121,139	0
Accrued interest related parties and directors on notes payable in default (in dollars)	$ 826,846	$ 0
Preferred stock, shares authorized	400,000	400,000
Preferred stock, shares issued	0	0
Common stock, no par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized	90,000,000	90,000,000
Common stock, shares issued	35,675,409	35,675,409
Common stock, shares outstanding	35,675,409	35,675,409

XML



Condensed Statements of Operations (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Revenues:
Net product sales	$ 34	$ 240	$ 42	$ 770
Costs of sales:
Costs of sales for products	47	93	50	292
Depreciation and amortization	4	6	8	8
Total costs of sales	51	99	58	300
Gross margin	(17)	141	(16)	470
Other costs and expenses:
Marketing	81	122	169	236
General and administrative	264	417	533	663
Engineering and development	176	229	340	412
Total other costs and expenses	521	768	1,042	1,311
Operating loss	(538)	(627)	(1,058)	(841)
Other income			0	2
Troubled debt restructuring gain	72	0	72	0
Interest expense	(25)	(26)	(76)	(33)
Interest expense related parties and directors	(254)	(148)	(536)	(385)
Loss from operations before income taxes	(745)	(801)	(1,598)	(1,257)
Income taxes	0	0	0	0
Net loss	$ (745)	$ (801)	$ (1,598)	$ (1,257)
Basic and diluted loss per share (in dollars per share)	$ (0.02)	$ (0.02)	$ (0.04)	$ (0.04)
Weighted average number of shares outstanding of common stock and common stock equivalents, where applicable (in shares)	35,675	34,978	35,675	32,995

XML



Document And Entity Information	6 Months Ended
	Jun. 30, 2011	Sep. 16, 2011
Entity Registrant Name	INTEGRAL VISION INC
Entity Central Index Key	0000719152
Entity Filer Category	Smaller Reporting Company
Trading Symbol	invi
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		35,675,409
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2011

XML



Loss per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note F – Loss per Share

The following table sets forth the computation of basic and diluted loss per share:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(Unaudited)						(Unaudited)
	(in thousands, except per share data)						(in thousands, except per share data)
Numerator for basic and diluted loss per share - loss available to common stockholders
Net loss	$	(745	)	$	(801	)	$	(1,598	)	$	(1,257	)
*there was no effect of dilutive securities, see below
Denominator for basic and diluted loss per share - weighted average shares		35,675			34,978			35,675			32,995
*there was no effect of dilutive securities, see below
Basic and diluted loss per share:
Net loss	$	(0.02	)	$	(0.02	)	$	(0.04	)	$	(0.04	)

Warrants and options outstanding were not included in the computation of diluted earnings per share because the inclusion of these instruments would have an anti-dilutive effect.  For additional disclosures regarding stock options and warrants, see Note G – Share-Based Compensation.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

Note B - Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires us 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 year.  Actual results could differ from those estimates.

Inventories

Inventories are stated at the lower of first-in, first-out (“FIFO”) cost or market.  Cost is computed using currently adjusted standards which approximates actual costs on a FIFO basis.  We assess the recoverability of all inventory to determine whether adjustments for impairment are required.  At June 30, 2011 and December 31, 2010, inventories consisted of the following amounts (net of an obsolescence allowance of $30,000 at June 30, 2011 and $15,000 at December 31, 2010):

	2011		2010
	(in thousands)
Raw materials	$	67	$	80
Finished goods		157		133
	$	224	$	213

We periodically perform an analysis of our inventory to determine if its cost exceeds estimated net realizable value.  Over the last several years, given the market conditions and the direction of the Company, we discontinued certain product lines and attempted to liquidate the remaining inventory related to those product lines.

Property and Equipment

Property and equipment are stated on the basis of cost. Inventory transferred to engineering equipment and/or marketing and demonstration equipment is transferred at historical cost.  Expenditures for normal repairs and maintenance are charged to operations as incurred.

Depreciation is computed by the straight-line method based on the estimated useful lives of the assets (building improvements: over 5 years; production and engineering equipment: over 3 to 10 years; furniture and fixtures: over 5 to 10 years; computer equipment: over 3 to 10 years; and marketing and demonstration equipment: over 3 to 5 years).

Stockholder’s Equity

On March 17, 2010, the Board of Directors changed the stated value of our common stock from $0.20 to “no stated value”.  As a result, we reclassified $47,528,000 of additional paid in capital to common stock.

As of June 30, 2011, we have 90,000,000 authorized shares of common stock of which 35,675,409 shares are issued and outstanding.  24,243,549 shares of common stock are commited to the holders of outstanding warrants, 23,233,132 shares of common stock are commited to the holders of Class 3 Convertible Notes, and 6,160,000 shares of common stock are commited to the holders of stock options.  We also have commitments to issue warrants that can be exercised for a combined total of 10,656,498  of our common shares.  We have not issued these warrants and will not issue them until the shareholders authorize sufficient shares to cover their potential exercise. Our total commitment for shares of common stock is  99,968,588 shares as of  June 30, 2011.  Based on the foregoing, we are in default of our commitment to some of the holders of warrants earned against their Class 2 Notes to reserve adequate authorized shares of common stock for our outstanding commitments and would be in default of our commitment to deliver warrants on request if the holders requested their earned but unissued warrants before sufficient shares were authorized.  The Board of Directors has authorized proposing a reverse stock split to the shareholders which, if approved, would resolve this issue .

Deferred Revenue

Deferred revenue represents amounts periodically invoiced for sales orders in excess of amounts recognized as revenues. Deferred revenue was $438,186 at June 30, 2011 and $346,000 at December 31, 2010.

Fair Value of Financial Instruments

Our financial instruments are cash and cash equivalents, accounts receivable, accounts payable, notes payable, and long-term debt. The recorded values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values based on their short-term nature. The recorded values of notes payable and long-term debt approximate their fair values, as interest approximates market rates.

Revenue Recognition

We recognize revenue in accordance with ASC 605 “Revenue Recognition”, Staff Accounting Bulletin No. 101 (“SAB 101”), and Staff Accounting Bulletin No. 104 (“SAB 104”) “Revenue Recognition in Financial Statements”. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

We recognize revenue at the time of shipment for product sales where the customer’s acceptance criteria can be demonstrated as met prior to shipment and where title transfers on shipment.  We recognize revenue at the time of final acceptance at the customer site when title does not transfer on shipment or if acceptance criteria at the customer site are substantially different than acceptance criteria for shipment.  We recognize revenue for product sales with no specific customer acceptance criteria, including spare parts, on shipment.  Revenue from service contracts is recognized over the term of the contract.  Revenue is reported net of sales commissions which were $1,000 and $6,738 for the three-month periods ended March 31, 2011 and 2010, respectively, and $1,000 and $67,894 for the six-month periods ended June 30, 2011 and 2010, respectively.

Supplemental Disclosure of Non-cash Investing and Financing Activities

During 2010, we exchanged $170,000 of Class 2 Notes for $170,000 of Class 3 Notes.

During 2010, we issued $176,308 of Class 3 Notes in settlement of interest.

During the six-month period ending June 30, 2011, we issued approximately $2,000 of warrants in settlement of interest.

Common Stock Options

We account for our share-based compensation plans according to the provisions of ASC Topic 718 “Stock Compensation”. Accordingly, compensation costs attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date, and expensed over the expected vesting period.  ASC Topic 718 “Stock Compensation” requires excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid.

Reclassifications

Certain amounts have been reclassified in prior periods’ statements to conform to the current period’s presentation.

Contingencies and Litigation

We make an assessment of the probability of an adverse judgment resulting from current and threatened litigation. We accrue the cost of an adverse judgment if, in our estimation, an adverse settlement is probable and management can reasonably estimate the ultimate cost of such litigation.  We had no such accruals at June 30, 2011 and December 31, 2010.

Recently Issued Accounting Standards

ASU 2010-17

Accounting Standards Update (“ASU”) 2010-17, “Revenue Recognition – Milestone Method,” provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a study or achieving a specific result from the research or development efforts. An entity often recognizes these milestone payments as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method. The amendments in ASU 2010-17 are effective on a prospective basis for milestones achieved in fiscal years, and interimperiods within those years, beginning on or after June 15, 2010. We adopted the guidance in ASU 2010-17 and there was no effect on our financial position, results of operations, or cash flows.

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Contingencies and Litigation

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Note H – Contingencies and Litigation

Product Warranties

We provide standard warranty coverage for most of our products, generally for one year from the date of customer acceptance. We record a liability for estimated warranty claims based on historical claims and other factors. We review these estimates on a regular basis and adjust the warranty reserves as actual experience differs from historical estimates or other information becomes available. This warranty liability primarily includes the anticipated cost of materials, labor and travel, and shipping necessary to repair and service the equipment.

The following table illustrates the changes in our warranty liability for the six-month period ended June 30, 2011 and 2010:

	Amount			Amount
	2011			2010
	(in thousands)
Balance as of January 1	$	87		$	108
Product warranties issued		-			2
Estimate changes for preexisting warranties		(31	)		-
Payments made		(1	)		(4	)
Balance as of June 30	$	55		$	106

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Going Concern Matters

6 Months Ended

Jun. 30, 2011

Going Concern Matters [Abstract]

Going Concern [Text Block]

Note I – Going Concern Matters

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As shown in the financial statements, we incurred losses in the first six months of 2011 and 2010 of $1,598,000 and $1,257,000, respectively.  Additionally, we incurred losses from operations in the years of 2010 and 2009 of $2.4 million and $2.7 million, respectively.  The continuing losses raise substantial doubt about our ability to continue operating as a going concern..

We are currently working with a number of large customers who are using our technologies to evaluate their microdisplay production or are evaluating our technology for the inspection of LCD displays and components.  We expect that additional sales orders will be placed by these customers in the fourth quarter of 2011 and into 2012, provided that markets for these products continue to grow and the customers continue to have interest in our technology-assisted inspection systems.  Ultimately, our ability to continue as a going concern will be dependent on these large companies getting their emerging display technology products into high volume production and placing sales orders with us for inspection products to support that production.  However, there can be no assurance that we will be succesful in securing sales orders sufficient to continue operating as a going concern.

From November 2006 through August 25, 2011, we have used $9,719,804 of Class 2 and Class 3 Notes to fund operations.  $4,953,632 are Class 3 Notes, all of which are in default as of September 1, 2011.  $4,766,172 are Class 2 Notes,  $290,000 of which are in default as of September 1, 2011. We continue to need need to negotiate forbearance or a cure of the defaults and continue to need to raise additional funds for operations in the third quarter of 2011.  Certain note holders have continued to fund operations while their notes are in default, but the limited basis of the funding is causing us to fall behind with vendors not essential to our daily operations or production. We have $158,120 of over 90 days in accounts payable as of June 30, 2011.  We are presently negotiating potential orders that would allow us to deliver $2,000,000 to $2,500,000 of inspection systems in the fourth quarter of 2011 and throughout 2012.  Management believes there are opportuinities with other customers for additional orders that would allow us to maintain that pace through 2012. We have already raised $387,000 in operating capital in the third quarter and if these orders were to materialize we expect that we will need to raise up to an additional $500,000 of operating capital through November of 2011 to ramp up production and support and to get to the cash flow from the orders.  If the anticipated orders do not materialize, we will need to raise up to $2,500,000 to fund operations through the third quarter of 2012 and continue to defer interest and principle payments on existing debt to continue to fund operations.  These levels of required capital may be beyond the means of existing noteholders and would cause us to seek new investors, which could result in a restructuring of current positions.

For further information regarding our obligations, see Note C – Long Term Debt and Other Financing Arrangements and Note J – Subsequent Events.

The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

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Share-Based Compensation

6 Months Ended

Jun. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note G – Share-Based Compensation

We currently have two active stock option plans: the 2004 Employee Stock Option Plan (“2004 Plan”) and the 2008 Integral Vision, Inc. Equity Incentive Plan (“2008 Plan”) (collectively the “Plans”).  The purpose of the Plans generally is to retain and attract persons of appropriate education, experience and ability to serve as our employees, to encourage a sense of proprietorship of such persons, and to stimulate an active interest in our development and financial success.

The 2004 Plan is designed to promote the interests of the Company and its shareholders by providing a means by which the Company can grant equity-based incentives to eligible employees of the Company or any Subsidiary as well as non-employee directors, consultants, or advisors who are in a position to contribute materially to the Company’s success.  The Plan permits the Compensation Committee of the Company’s Board of Directors to grant Incentive Stock Options and Non-Qualified Stock Options.  The maximum number of shares cumulatively available is 1,000,000 shares.

The 2008 Plan is designed to promote the interests of the Company and its shareholders by providing a means by which the Company can grant equity-based incentives to eligible employees of the Company or any Subsidiary as well as non-employee directors, consultants, or advisors who are in a position to contribute materially to the Company’s success.  The Plan permits the Compensation Committee of the Company’s Board of Directors to grant Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock, and Shares.  The maximum number of shares cumulatively available is 14,000,000 plus (i) any shares that are forfeited or remain unpurchased or undistributed upon termination or expiration of the awards from the Plan or options from the 2004 Plan and (ii) any shares exchanged as full or partial payment for the exercise price of any award under the 2008 Plan.

On March 24, 2009, on the recommendation of the Compensation Committee, the Board of Directors approved amending and restating the 2008 Integral Vision, Inc. Equity Compensation Plan to provide for an additional 2,500,000 shares for awards under the Plan of which an additional 1,500,000 may be awarded over the two year period beginning March 24, 2009 to the Company’s Chief Executive Officer.  The shareholders approved the amendment and restatement at the annual shareholders meeting held May 20, 2009.  As of December 31, 2009, 2,328,000 Stock Option shares and 1,300,000 Restricted Shares have been granted from the 2008 Equity Incentive Plan leaving a balance of 3,700,000 shares available for future grants.

Effective April 19, 2010, and pending shareholder approval, the Board increased the maximum number of cumulative shares available to 14,000,000 plus (i) any shares that are forfeited or remain unpurchased or undistributed upon termination or expiration of the awards from the 2008 Plan or options from the 2004 Plan and (ii) any shares exchanged as full or partial payment for the exercise price of any award under the 2008 Plan.  As of June 30, 2011, and assuming shareholder ratification of the Board’s action, 6,572,000 shares remain which can be issued under the 2008 Plan.

The Plans are administered by the Compensation Committee of the Board of Directors (the “Committee”).  The Committee determines which eligible employees will receive awards, the timing and manner of the grant of such option awards, the exercise price of the stock options (which may not be less than market value on the date of grant) and the number of shares.  We may at any time amend or terminate the Plans, however no amendment that would impair the rights of any participant with respect to outstanding grants can be made without the participant’s prior consent.

On April 2, 2010, the Compensation Committee of the Board approved a plan to offer key employees the opportunity to surrender certain outstanding stock options in exchange for replacement options effective April 2, 2010.  The replacement options vest immediately.  The program received 100% participation.  3,301,000 options with an average exercise price of $0.24 per share of our common stock were surrendered and 3,301,000 options with an exercise price of $0.0679, the closing price of the stock on April 2, 2010, were issued as replacements.

On May 5, 2010, the Committee removed the vesting restriction on 800,000 shares of common stock granted to certain executives because an amendment to Section 8.11 of the Fifth Amended Note and Warrant Purchase Agreement made the restriction unnecessary.

On May 5, 2010, the Committee awarded (i) 2,375,000 Incentive Stock Options from the Amended 2008 Equity Compensation Plan to various key employees and (ii) a grant of 1,342,000 shares to the Chief Executive Officer, both contingent on shareholder approval of the proposed amendment to the 2008 Equity Compensation Plan.

The Committee did not grant any options or shares to empolyees during the three months or the six months ended June 30, 2011.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model with the weighted average assumptions noted in the following table. The fair value of all awards is amortized on a straight-line basis over the requisite service periods.  The expected life of all awards granted represents the period of time that they are expected to be outstanding.  The expected life is determined using historical and other information available at the time of grant.  Expected volatilities are based on historical volatility of our common stock, and other factors.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  We use historical data to estimate pre-vesting option forfeitures.

	2011		2010
	(in thousands)
Expected Life (in years)		-		5.0
Expected volatility		-		92.3	%
Risk-free interest rate		-		2.4	%
Expected dividend yield		-		0	%
Expected forfeiture rate		-		0	%

A summary of option activity under all Plans for the six month periods ended June 30, 2011, and 2010 follows:

	2011				2010
	Shares		Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
	(number of shares in thousands)
Outstanding at January 1		6,260	$	0.06		3,785		$	0.23
Granted		0		0.00		5,676			0.06
Exercised		0		0.00		0			0.00
Expired		0		0.00		(3,301	)		0.24
Outstanding at December 31 ($.04 to $0.30 per share)		6,260	$	0.06		6,160		$	0.06
Exercisable ($.04 to $.30 per share)		6,160	$	0.06		6,096		$	0.06

A summary of the status of our nonvested shares as of June 30, 2011 and 2010, and changes during the six months ended June 30, 2011, and June 30, 2010, is presented below:

	2011					2010
	Shares			Weighted Average Grant- Date Fair Value		Shares			Weighted Average Grant- Date Fair Value
Nonvested at January 1		64,000		$	0.04		590,000		$	0.25
Granted		0			0.00		5,676,000			0.06
Exchanged		0			0.00		(590,000	)		0.25
Vested		(64,000	)		0.04		(5,612,000	)		0.06
Nonvested at June 30		0		$	0.04		64,000		$	0.04

The following table summarizes share-based compensation expense for the three-months and six-months periods ended June 30, 2011 and 2010 related to share-based awards under ASC Topic 718 “Stock Compensation” as recorded in the Statements of Operations in the following expense categories:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(in thousands)				(in thousands)
Marketing	$	-	$	20	$	-	$	22
Engineering and Development		-		37		-		40
General and Administrative		-		110		-		112
Total share-based compensation expense	$	-	$	167	$	-	$	174

As of June 30, 2011, we had no unrecognized expense related to un-vested share-options.

Additional information regarding the range of exercise prices and weighted average remaining life of options outstanding at June 30, 2011 and 2010 is as follows:

				2011						2010
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Life		Number Exercisable		Number Outstanding		Weighted Average Remaining Life		Number Exercisable
		(number of shares in thousands)						(number of shares in thousands)
	$0.04 to $0.07		5,776		9.0		5,676		5,676		9.8		5,612
	$0.10 to $0.24		484		3.4		484		484		4.1		484
Totals			6,260		8.6		6,160		6,160		9.4		6,096

A summary of the outstanding warrants, options, and shares available upon the conversion of Class 3 Notes at June 30, 2011 and 2010 is as follows:

			2011								2010
	Weighted Average Exercise Price		Number Outstanding		Weighted Average Remaining Life		Number Exercisable		Weighted Average Exercise Price		Number Outstanding		Weighted Average Remaining Life		Number Exercisable
	(number of shares in thousands)								(number of shares in thousands)
PIPE Warrants	$	0.001		7,000		2.21		7,000	$	0.001		7,000		3.21		7,000
Class 2 Note Warrants	$	0.161		17,244		2.63		17,244	$	0.174		8,316		3.05		8,316
Class 3 Convertible Notes	$	0.213		23,233		-		23,233	$	0.213		23,233		0.11		23,233
1995 Employee Stock Option Plan	$	0.170		184		0.46		184	$	0.170		184		1.46		184
1999 Employee Stock Option Plan	$	0.170		290		4.69		290	$	0.170		290		5.69		290
2004 Employee Stock Option Plan	$	0.067		1,000		8.77		1,000	$	0.067		1,000		9.77		1,000
2008 Equity  Compensation Plan	$	0.052		4,786		8.71		4,686	$	0.052		4,686		9.81		4,622
	$	0.151		53,737		2.10		53,637	$	0.152		44,709		2.42		44,645

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Condensed Statements of Cash Flows (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash Flows From Operating Activities:
Net loss for the period	$ (1,598)	$ (1,257)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	44	44
Amortization	6	16
Gain on sale of equipment	0	(2)
Warrants issued in settlement of interest	0	4
Warrants issued in settlement of interest to related parties	2	28
Share-based compensation	0	174
Troubled debt restructuring gain	72	0
Issuance of Class 3 Notes in settlement of interest	0	11
Issuance of Class 3 Notes in settlement of interest to related parties	0	165
Changes in operating assets and liabilities:
Accounts receivable	(37)	(64)
Accounts receivable employees	(61)	0
Inventories	(11)	(32)
Other current assets	23	22
Accounts payable and other current liabilities	104	69
Accrued interest	535	185
Customer Deposits	39	58
Deferred revenue	92	122
Net cash used in operating activities	(790)	(457)
Cash Flows Provided By (Used In) Investing Activities:
Proceeds from sale of equipment	0	2
Purchase of equipment	0	(7)
Additional patent expenditures	(5)	(5)
Net cash used in investing activities	(5)	(10)
Cash Flows Provided By (Used In) Financing Activities:
Proceeds from sale of Class 2 Notes	90	0
Proceeds from sale of Class 2 Notes to related parties	674	370
Proceeds from sale of Class 3 Notes to related parties	0	85
Proceeds from loans payable	10	0
Proceeds from loans payable officers	10	0
Payments for loans payable officers	(10)	0
Proceeds from exercise of stock warrants	0	2
Net Cash Provided By Financing Activities	774	457
(Decrease) in cash	(21)	(10)
Cash at beginning of period	23	28
Cash at End of Period	2	18
Supplemental cash flows information:
Interest paid	$ 0	$ 14

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Long-Term Debt and Other Financing Arrangements

6 Months Ended

Jun. 30, 2011

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note C - Long-Term Debt and Other Financing Arrangements

2011 Activity (Values for warrants are determined using the Black Scholes Option Pricing Model)

As of January 1, 2011, we had $3,624,172 of outstanding Class 2 Notes and 5,898,780 unissued warrants valued at $29,615. These Class 2 Notes are working capital notes secured by accounts receivable, inventory, and intellectual property and have been issued primarily to certain shareholders that are directors or beneficially own more than five percent of the outstanding shares of common stock of the Company (see  Note D – Related Party Transactions). The Notes bear interest at 10%, payable at maturity of the note and earn warrants at the rate of five warrants per year per dollar invested. The warrants have an exercise price ranging from $0.10 to $0.25  per share of our common stock.  The holder can elect to forgo warrants and earn an additional 2% interest.

During the quarter ended March 31, 2011, we issued $420,000 of Class 2 Notes.  We also issued 49,315 warrants valued at $533.  During the quarter ended June 30, 2011, we issued $344,000 of Class 2 Notes. $160,000 of these Class 2 Notes and their associated interest have the right, through December 5, 2011 and subject to certain restrictions, to be converted into Class 3 Notes.   See the transactions detailed in Note D – Related Party Transactions for a description of the restrictions.  These Class 3 Notes would mature on July 1, 2013, earn 8% interest, and would be convertible at $0.10 per share. We also issued 280,274 warrants valued at $1,088.  We had 10,656,498 accrued warrants that were earned but not issued as of June 30, 2011, valued at $30,510.  The value of these unissued warrants is reflected in the balance sheet as a liability as “Accrued Warrants for Interest”.

As of June 30, 2011, $331,500 of the Class 2 Notes were earning 10% interest and accruing warrants, $318,366 of the Class 2 Notes were earning default interest of 14% and accruing warrants, $3,738,306 of the Class 2 Notes were earning interest at 12% and do not earn warrants.

As of June 30, 2011, $318,366 of the Class 2 Notes were past due and in default. $3,775,806 of Class 2 Notes are due July 1, 2013 (see the next paragraph for details of this transaction).  $80,000 of Class 2 Notes were due June 30, 2011.  $10,000 of Class 2 Notes were due August 3, 2011.  $204,000 of Class 2 Notes are due December 23, 2011.  See Note J – Subsequent Events for recent activity associated with the maturity of Class 2 Notes.

On May 4, 2011, $1,781,112 of Class 2 Notes ceased accruing warrants and began accruing an additional 2% interest; on May 12, 2011, $1,794,694 of Class 2 Notes ceased accruing warrants and began accruing an additional 2% interest; on May 17, 2011, all of these notes had their due dates extended to July 1, 2013, and waived any default interest payments due retroactively from September 30, 2010 through May 17, 2011.  This was accounted for in accordance with ASC 470-60 as a troubled debt restructuring and resulted in a gain of $72,000.  For more information on the circumstances surrounding these transactions, please see Note D – Related Party Transactions.

As of January 1, 2011, we had $4,953,633 of outstanding Class 3 Notes. Of these, $3,671,642 bear interest at 8% and $1,281,989 bear interest at 12%, payable January 1st and July 1st of each year. The Notes are secured by our intellectual property and have been issued primarily to certain shareholders that are directors or beneficially own more than five percent of the outstanding shares of common stock of the Company (see Note D – Related Party Transactions).  Also, $3,671,642 of the Notes are convertible into the Company’s common stock at $0.25 per share, and $1,281,989 of the Notes are convertible into the Company’s stock at $0.15 per share.  No new Class 3 Notes were issued during the six-month period ended June 30, 2011.  As of June 30, 2011, all but $85,000 of the Class 3 Notes are in default.  See Note J – Subsequent Events for recent activity associated with the maturity of Class 3 Notes.

The Company is in default under the terms of the Fifth Amended and Restated Note and Warrant Purchase Agreement (the “Agreement”), because as of June 30, 2011 it failed to make full payment of principal and interest on $318,366 of Class 2 Notes and $4,868,633 of Class 3 Notes that were past their maturity dates.  As of June 30, 2011, the outstanding unpaid interest on the defaulted Class 2 Notes and Class 3 Notes was $90,102 and $862,882 respectively.

The Class 2 and Class 3 Notes are secured by the Company’s intellectual property pursuant to a Collateral Assignment of Proprietary Rights and Security Agreement (the “Collateral Assignment”), and the Class 2 Notes are also secured by the Company’s accounts receivable and inventory pursuant to a Security Agreement (the “Security Agreement”).

The Class 2 and Class 3 Notes in default accrue interest at their default interest rates, which are equal to their respective interest rates plus an additional 4%. As such, $318,366 of Class 2 Notes are currently accruing interest at the default rate of 14%. Also, $3,671,643 of Class 3 Notes are currently accruing interest at the default rate of 12% and $1,196,989 of Class 3 Notes are currently accruing interest at the default rate of 16%.

Pursuant to the Collateral Assignment and the Security Agreement, the Class 2 and Class 3 Note holders (or the collateral agent acting on their behalf) have the right to foreclose on the collateral covered by such agreements, and exercise any of several remedies provided in such agreements, including taking possession of such collateral and selling such collateral.  See Note J– Subsequent Events for recent activity associated with the Class 2 and Class 3 Notes.

The Company is in discussions with certain note holders about curing or waiving the remaining defaults.  Certain note holders have continued to purchase new notes to provide additional funding to the Company after the default.  See Note J – Subsequent Events for information on note activity since June 30, 2011.

The following table summarizes Class 2 Note activity for the three-month and six-month periods ended June 30, 2011:

	Notes Issued for Cash		Class 3 Notes Issued for Class 2 Note Payment		Cash Redemption		Notes Issued for Interest Payment		Class 2 Note Balance		Warrants Issued for Interest
Balance December 31, 2010	$	-	$	-	$	-	$	-	$	3,624,172	$	-
Quarter Ended March 31, 2011		420,000		-		-		-		420,000		533
Quarter Ended June 30, 2011		344,000		-				-		344,000		1,146
Balance June 30, 2011, 2011	$	764,000	$	-	$	-	$	-	$	4,388,172	$	1,679

The following table summarizes Class 3 Note activity for the three-month and six-month periods ended June 30, 2011:

	Notes Issued For Cash		Exchange of Class 2 Note and Related Interest		Cash Redemption		Notes Issued For Interest		Class 3 Note Balance
Balance December 31, 2010	$	-	$	-	$	-	$	-	$	4,953,633
Quarter Ended March 31, 2011		-		-		-		-		-
Quarter Ended June 30, 2010		-		-		-		-		-
Balance June 30, 2011	$	-	$	-	$	-	$	-	$	4,953,633

During the quarter ended March 31, 2011, we received unsecured, non-interest bearing loans of $10,000 from certain officers of the Company. The loans do not have repayment terms but are intended to be short term.  During the quarter ended June 30, 2011, these loans were repaid.

During the quarter ended March 31, 2011, we received an unsecured, non-interest bearing loan of $10,000 from a current Note Holder. The loan does not have repayment terms but is considered to be short term.  There was no activity on this loan during the quarter ended June 30, 2011.

2010 Activity (Values for warrants are determined using the Black Scholes Option Pricing Model)

As of January 1, 2010, we had $2,855,112 of outstanding Class 2 Notes. The Class 2 Notes are working capital notes secured by accounts receivable, inventory, and intellectual property and have been issued primarily to certain shareholders that are directors or beneficially own more than five percent of the outstanding shares of common stock of the Company (see  Note D – Related Party Transactions).  The Notes bear interest at 10%, payable at maturity of the note and earn warrants at the rate of five warrants per year per dollar invested. The warrants have an exercise price of $0.15 per share of our common stock.  The holder can elect to forgo warrants and earn an additional 2% interest.  All notes are presently earning 10% interest and receiving warrants, except for $475,000 which are earning interest at 12%.  During the quarter ended March 31, 2010, we issued $370,000 of Class 2 Notes and we paid $170,000 of Class 2 Notes by issuing Class 3 Notes.  We also issued 3,700,363 warrants valued at $32,843.  During the quarter ended September 30, 2010, we issued $435,600 of new Class 2 Notes and we paid $50,950 to retire a Class 2 Note. We also issued 8,509,560 warrants valued at $104,936.  During the quarter ended December 31, 2010, we issued $391,784 of new Class 2 Notes and we paid $207,374 to retire Class 2 Notes.  We had 5,898,780 accrued warrants that were earned but not issued as of December 31, 2010, valued at $29,615.  See Note J – Subsequent Events for recent activity associated with the maturity of Class 2 Notes.

As of January 1, 2010, we had $4,522,000 of outstanding Class 3 Notes. Of these, $3,671,642 bear interest at 8% and $850,861 bear interest at 12%, payable January 1st and July 1st of each year. The Notes are secured by our intellectual property and have been issued primarily to certain shareholders that are directors or beneficially own more than five percent of the outstanding shares of common stock of the Company (see Note C – Long-Term Debt and Other Financing).  Also, $3,671,642 of the Notes are convertible into the Company’s common stock at $0.25 per share, and $850,681 of the Notes are convertible into the Company’s stock at $0.15 per share.  During the quarter ended March 31, 2010, we issued $176,308 of Class 3 Notes bearing 12% interest and convertible at $0.15 per share for the payment of interest, and $170,000 of Class 3 Notes bearing 12% interest and convertible at $0.15 per share for the payment of Class 2 Notes.  During the quarter ended June 30, 2010, we issued $85,000 of Class 3 Notes bearing 12% interest and convertible at $0.15 per share for cash which mature on July 1, 2011. All other Class 3 Notes matured on October 1, 2010, and are currently in default.  No new Class 3 Notes were issued during the quarter ended December 31, 2010.  See Note J – Subsequent Events for recent activity associated with the maturity of Class 3 Notes.

The Company is in default under the terms of the Fifth Amended and Restated Note and Warrant Purchase Agreement (the “Agreement”), because it failed to make full payment of principal and interest on certain Class 2 and Class 3 Notes on their respective maturity dates.

The Class 2 and Class 3 Notes are secured by the Company’s intellectual property pursuant to a Collateral Assignment of Proprietary Rights and Security Agreement (the “Collateral Assignment”), and the Class 2 Notes are also secured by the Company’s accounts receivable and inventory pursuant to a Security Agreement (the “Security Agreement”).

During 2010, the Class 2 and Class 3 Notes started accruing interest at their default interest rates, which is equal to their respective interest rates plus an additional 4%.

Pursuant to the Collateral Assignment and the Security Agreement, the Class 2 and Class 3 Note holders (or the collateral agent acting on their behalf) have the right to foreclose on the collateral covered by such agreements, and exercise any of several remedies provided in such agreements, including taking possession of such collateral and selling such collateral.  See Note J – Subsequent Events for recent activity associated with the Class 2 and Class 3 Notes.

The following table summarizes Class 2 Note activity for the year ended December 31, 2010:

	Notes Issued for Cash		Class 3 Notes Issued for Class 2 Note Payment			Cash Redemption			Notes Issued for Interest Payment		Class 2 Note Balance		Warrants Issued for Interest
Balance January 1, 2010	$	-	$	-		$	-		$	-	$	2,855,112	$	-
Quarter Ended March 31, 2010		370,000		(170,000	)		-			-		200,000		32,843
Quarter Ended June 30, 2010		-		-						-		-		-
Quarter Ended September 30, 2010		435,600		-			(50,950	)		-		384,650		104,936
Quarter Ended December 31, 2010		391,784		-			(207,374	)		-		184,410		-
Balance December 31, 2010	$	1,197,384	$	(170,000	)	$	(258,324	)	$	-	$	3,624,172	$	137,779

The following table summarizes Class 3 Note activity for the year ended December 31, 2010:

	Notes Issued For Cash		Exchange of Class 2 Note and Related Interest		Cash Redemption		Notes Issued For Interest		Class 3 Note Balance
Balance January 1, 2010	$	-	$	-	$	-	$	-	$	4,522,325
Quarter Ended March 31, 2010		-		170,000		-		176,308		346,308
Quarter Ended June 30, 2010		85,000		-		-		-		85,000
Quarter Ended September 30, 2010		-		-		-		-		-
Quarter Ended December 31, 2010		-		-		-		-		-
Balance December 31, 2010	$	85,000	$	170,000	$	-	$	176,308	$	4,953,633

A summary of the Company’s debt obligations is as follows as of June 30, 2011 and December 31, 2010:

	2011		2010
	(in thousands)
Short Term Notes Payable:
Class 2 Notes	$	612	$	3,624
Class 3 Notes		4,954		4,954
Net Short Term Notes Payable	$	5,566	$	8,578
Long Term Notes Payable:
Class 2 Notes	$	3,776	$	-
Class 3 Notes		-		-
Net Long Term Notes Payable	$	3,776	$	-
Total	$	9,342	$	8,578

There are no long-term maturities of debt due in 2011 or 2012.  $3,775,806 of long-term debt matures July 1, 2013.

See Note J– Subsequent Events for recent activity associated with Class 2 and Class 3 Notes.

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Related Party Transactions

6 Months Ended

Jun. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

Note D - Related Party Transactions

The portion of debt described in Note C above that has been issued to Directors and to certain shareholders that own more than five percent (5%) of the outstanding shares of common stock of the Company is disclosed in the table below.

	Greater than 5% shareholder					Director
	John Hunter		John R. Kiely, III.			Max A. Coon			Total
Outstanding balance as of December 31, 2010
Class 2 Notes	$	1,781,112	$	1,229,695	1	$	125,000	3
Class 3 Notes	$	1,490,167	$	2,541,427	2	$	354,504	4
Total	$	3,271,279	$	3,771,122		$	479,504		$	7,521,905
Aggregate amount of transactions (See “Related Party Transaction Detail” below)
2011	$	-	$	674,000		$	-
2010	$	-	$	-		$	-
Outstanding balance as of June 30,2011
Class 2 Notes	$	1,781,112	$	1,903,695	1	$	125,000	3
Class 3 Notes	$	1,490,167	$	2,541,427	2	$	354,504	4
Total	$	3,271,279	$	4,445,122		$	479,504		$	8,195,905
Amount of principal paid during period
2011	$	-	$	-		$	-
2010	$	-	$	-		$	-
Amount of interest paid during six month period ending June 30
Cash 2011	$	-	$	-		$	-		$	-
Notes issued in payment of interest 2011	$	-	$	-		$	-
Value of warrants issued 2011	$	-	$	969		$	-
Total 2011	$	-	$	969		$	-		$	969
Cash 2010	$	2,000	$	-		$	-
Notes issued in payment of interest 2010	$	60,106	$	90,568	5	$	14,291	7
Value of warrants issued 2010	$	10,923	$	14,985	6	$	1,008
Total 2010	$	73,029	$	105,553		$	15,299		$	193,881
Accrued interest at June 30
Cash 2011	$	761,935	$	792,280	8	$	122,332	10
Value of warrants accrued not issued 2011	$	12,575	$	10,148	9	$	2,079
Total 2011	$	774,510	$	802,428		$	124,411		$	1,701,349
Cash 2010	$	377,162	$	321,859	11	$	60,420	13
Value of warrants accrued not issued 2010	$	67,938	$	3,278	12	$	-
Total 2010	$	445,100	$	325,137		$	60,420		$	830,657

 

1) Includes $100,750 of Class 2 Notes held solely by Michael Kiely, brother of John R. Kiely, III, and $28,250 of Class 2 Notes held by Maria P. Kiely, sister in law of John R. Kiely, III.

2) Includes $1,190,194 of Class 3 Notes held solely by Michael Kiely, brother of John R. Kiely, III, and $29,389 of Class 3 Notes held by Maria P. Kiely, sister in law of John R. Kiely, III.

3) Includes $125,000 Class 2 Notes held by Charlevoix Drive Properties Ltd. of which Max A. Coon is the principal partner.

4) Includes $158,580 of Class 3 Notes held by Charlevoix Drive Properties, Ltd. of which Max A. Coon is the principal partner and $56,343 of Class 3 Notes held by Max Andrew Coon, grandson of Max A. Coon.

5) Includes $36,089 of Class 3 Notes issued to Michael Kiely, brother of John R. Kiely, III, and $1,139 of Class 3 Notes issued to Maria Kiely, sister-in-law of John R. Kiely, III.

6) Includes $1,652 of interest expense for accrued not issued warrants for Michael Kiely, brother of John R. Kiely, III, and $934 of interest expense for accrued and unissued warrants for Maria Kiely, sister-in-law of John R. Kiely, III.

7) Includes $2,248 of Class 3 Notes issued to Max Andrew Coon, grandson of Max A. Coon.

8) Includes $257,112 of interest due to Michael Kiely, brother of John R. Kiely, III, and $13,363 of interest due to Maria Kiely, sister-in-law of John R. Kiely.

9) Includes $898 of interest associated with accrued and unissued warrants due to Michael Kiely, brother of John R. Kiely, III, and $296 of interest associated with accrued and unissued warrants due to Maria Kiely, sister-in-law of John R. Kiely, III.

10) Includes $27,326 of interest due to Charlevoix Drive Properties, Ltd. of  which Max A. Coon is the principal partner and $9,561 of interest due to Max Andrew Coon, grandson of Max A. Coon.

11) Includes $74,432 of interest due to Michael Kiely, brother of John R. Kiely, III, and $6,757 of interest due to Maria Kiely, sister-in-law to John R. Kiely, III.

12) Includes $843 of interest expense for accrued and unissued warrants for Michael Kiely, brother of John R. Kiely, III, and $278 of interest expense for accrued and unissued warrants for Maria Kiely, sister-in-law of John R. Kiely, III.

13) Includes $52,268 of interest due to Charlevoix Drive Properties, Ltd. or which Max A. Coon is the principal partner and $2,344 of interest due to Max Andrew Coon, grandson of Max A. Coon.

Total interest expense for the period ended June 30, 2011 was $612,454 of which $504,750 and $31,735 were for greater than 5% shareholders and directors, respectively.  Interest expense for the period ended June 30, 2010 was $418,000 of which $364,724 and $21,102 were for greater than 5% shareholders and directors, respectively.

Related Party Transaction Detail

The Company did not have sufficient cash to meet its obligations in April of 2011 and sold Class 2 Notes to a related party to help meet its obligations.  On April 19, 2011, John R. Kiely, III with his brother Michael Kiely as co-trustee, purchased a $40,000 Class 2 Note.  This Class 2 Note matured on May 31, 2011, and earns interest at 12%.  On April 20, 2011, John R. Kiely, III purchased a $50,000 Class 2 Note.  This Class 2 Note matured on May 31, 2011 and earns interest at 12%.

On May 4, 2011, John Hunter elected to cease accruing warrants on all $1,656,112 of his Class 2 Notes.  On May 12, John R. Kiely, III, his brother Michael Kiely, and his sister-in-law Maria Kiely elected to cease accruing warrants on a total of $1,903,695 of Class 2 Notes and to begin receiving an additional 2% interest per the terms of the Agreement.  The affect on the Company of this election is to reduce the rate at which warrants are earned by Class 2 Notes.

In order to rationalize the specified orders on outstanding Class 2 Notes and to encourage additional notes to be purchased, on May 17, 2011,  John R. Kiely, III, his brother and sister-in-law Michael Kiely and Maria Kiely respectively, and John Hunter modified all $3,559,807 of their outstanding Class 2 Notes as follows:

1) The due dates were extended to July 1, 2013.

2) The specified orders securing the notes were amended to be 40% of all payments received for inspection systems or related contracts (a) above $6 million from May 1, 2011 through January 1, 2012, (b) above $6.5 million from May 1 2011 through February 1, 2012, and (c) increased in like manner by $500,000 each month thereafter until the notes and interest are paid in full.  Down payments are exempted from the calculation until a subsequent payment is received against the order and sales commissions up to 15% are exempted from the calculation if paid to outside companies.

3) Retroactively waived the right to receive payments not yet received from previously specified orders.

4) Waived any Default Interest Payments due on amended notes from September 30, 2010 through May 17, 2011.

The Company did not have sufficient cash to meet its obligations in May of 2011 and sold Class 2 Notes to a related party to help meet its obligations.  On May 25, 2011, John R. Kiely, III purchased $160,000 of Class 2 Notes maturing on December 23, 2011, earning interest at 10%, and earning warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note, warrants accruing during the first 90 days were issued immediately.  These 197,260 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.  Mr. Kiely elected in advance to cease warrant accrual on November 23, 2011.  Per the terms of the note, Mr. Kiely has the right to exchange all or any part of the Class 2 Note and its associated interest or the funds received in payment of the note and its interest for a Class 3 Note maturing July 1, 2013, earning interest at 8% per annum, and convertible into the Company’s common stock at $0.10 per share.  This exchange right expires on the earlier of December 5, 2011 or ten days after the Class 2 Note is repaid and is not effective until five days after Mr. Kiely elects in writing to cease accruing warrants or five days after the Class 2 Note is repaid.

The Company did not have sufficient cash to meet its obligations at the end of May of 2011 and defaulted on the May 31, 2011, payment of a $40,000 Class 2 Note purchased April 19, 2011, and $552 of associated interest owed to John R. Kiely, III and his brother Michael Kiely as co-trustees because it lacked the available cash to make the payments.  On the same day, the Company also defaulted on the payment of a $50,000 of Class 2 Note purchased April 20, 2011, and $674 of associated interest owed to John R. Kiely, III.  The notes began to accrue interest at the default interest rate of 14%.

The Company did not have sufficient cash to meet its obligations in June of 2011 and sold Class 2 Notes to a related party to help meet its obligations.  On June 28, 2011, John R. Kiely, III purchased $20,000 of Class 2 Notes maturing on December 23, 2011, earning interest at 10%, and earning warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note, warrants accruing during the first 90 days were issued immediately.  These 24,658 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.  Mr. Kiely elected in advance to cease warrant accrual on November 23, 2011.  On June 29, 2011, John R. Kiely, III purchased $24,000 of Class 2 Notes maturing on December 23, 2011, earning interest at 10%, and earning warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note, warrants accruing during the first 90 days were issued immediately.  These 29,589 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.  Mr. Kiely elected in advance to cease warrant accrual on November 23, 2011.

For more information on Class 2 and Class 3 notes, see Note C – Long Term Debt and Other Financing.

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Income Taxes

6 Months Ended

Jun. 30, 2011

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note E - Income Taxes

Income Taxes

In accordance with ASC Topic 740 “Income Taxes,” we assess our uncertain tax positions for tax years that are still open for examination.  Because of our historical significant net operating losses, we have not been subject to income tax since 1995.  There were no unrecognized tax benefits during all of the periods presented.  We classify all interest and penalties as income tax expense.  We did not have any accrued interest and penalties related to uncertain tax positions as of December 31, 2010.  We file income tax returns in the United States federal jurisdiction and various state jurisdictions.  The tax years 2007 through 2010 remain open to examination by taxing jurisdictions to which we are subject.  As of June 30, 2011, we did not have any tax examinations in process.

Deferred tax assets and liabilities are measured based on differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws that will be in effect when differences are expected to reverse.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit, or future deductibility is uncertain.  All deferred tax assets are fully offset by a valuation allowance because of our history of losses.

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Statement of Stockholders' Equity (Deficit) (USD $) In Thousands, except Share data	Common Stock	Preferred Stock	Accumulated Deficit	Total
Balance at Dec. 31, 2010	$ 54,020	$ 0	$ (64,588)	$ (10,568)
Balance (in shares) at Dec. 31, 2010	35,675,409
Net loss for the period			(1,598)	(1,598)
Issuance of warrants for settlement of interest on Class 2 Notes (see Note C)	2	0	0	2
Balance at Jun. 30, 2011	$ 54,020	$ 0	$ (66,186)	$ (12,164)
Balance (in shares) at Jun. 30, 2011	35,675,409

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Nature of Business

6 Months Ended

Jun. 30, 2011

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations [Text Block]

Note A – Nature of Business

Integral Vision, Inc. develops, manufactures, and markets flat panel display inspection systems to ensure product quality in the display manufacturing process.  We primarily inspect Microdisplays and small flat panel displays, though the technology used is scalable to allow inspection of full screen displays and components.  Our customers and potential customers are primarily large companies with significant investment in the manufacture of displays.  Nearly all of our sales originate in the United States, Asia, or Europe.  Our products are generally sold as capital goods.  Depending on the application, display inspection systems have an indefinite life and are more likely to require replacement due to possible technological obsolescence than from physical wear.

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Subsequent Events

6 Months Ended

Jun. 30, 2011

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Note J – Subsequent Events

On July 1, 2011, we defaulted on an additional $80,000 of Class 2 Note principal and $2,016 of interest.  This brings the total of the Class 2 Notes in default to $398,366.  The amount of interest due on the Class 2 Notes in default at July 1, 2011 was $92,119.

On July 1, 2011, we defaulted on an additional $85,000 of Class 3 Note principal and $11,355 of interest.  This brings the total of the Class 3 Notes in default to $4,953,633.  The amount of interest due on the Class 3 Notes in default at July 1, 2011 was $876,046.

On July 1, 2011, we sold an additional $40,000 of Class 2 Notes to a related party.  These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note agreement, warrants accruing in the first 90 days were issued immediately.  These 49,315 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.  The noteholder elected in advance to cease warrant accrual on November 23, 2011.

On July 5, 2011, we sold an additional $23,000 of Class 2 Notes to a related party. These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms the note agreement, warrants accruing during the first 90 days were issued immediately.  These 28,356 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.

On July 7, 2011, we sold an additional $13,000 of Class 2 Notes to a related party.  These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note agreement, warrants accruding during the first 90 days were issued immediately.  These 16,027 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.

On July 27, 2011, we sold an additional $150,000 of Class 2 Notes to a related party. These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note agreement, warrants accruing during the first 90 days were issued immediately.  These 184,932 warrants are exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015. Per the terms of the note agreement, the noteholders have the right to exchange all or any part of the Class 2 Note and its associated interest or the funds received in payment of the note and its interest for a Class 3 Note maturing July 1, 2013, earning interest at 8% per annum, and convertible into the Company’s common stock at $0.10 per share.  This exchange right expires on the earlier of December 5, 2011 or ten days after the Class 2 Note is repaid and is not effective until five days after the noteholder elects to cease accruing warrants or five days after the Class 2 Note is repaid.

On July 27, 2011, we sold an additional $9,400 of Class 2 Notes to a related party earning interest at 10% and maturing on December 23, 2011, and issued 3,863 of related warrants exercisable for 4 years at $0.10 per share.

On August 3, 2011, we defaulted on an additional $10,000 of Class 2 Note principal and $246 of interest.  This brings the total of the Class 2 Notes in default to $408,366.  The amount of interest due on the defaulted Class 2 Notes at July 1, 2011 is approximately $96,856.

On August 23, 2011, we repaid $6,536 of Class 2 Notes and $70 of related interest to a related party.

On August 23, 2011, we sold an additional $82,000 of Class 2 Notes to a related party. These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note agreement, we agreed to issue warrants accrued during the first 90 days and any additional warrants earned by this note upon shareholder approval of an increase in the authorized shares of the Company’s common stock that is sufficient to accommodate this commitment.  These 33,699 warrants will be exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015.

On August 25, 2011, we sold an additional $70,000 of Class 2 Notes to a related party. These Class 2 Notes mature on December 23, 2011, earn interest at 10%, and earn warrants at the rate of five warrants per dollar of outstanding note per year.  Per the terms of the note agreement, we agreed to issue warrants accruing during the first 90 days and any additional warrants earned by this note upon shareholder approval of an increase in the authorized shares of the Company’s common stock that is sufficient to accommodate this commitment.  These 28,767 warrants will be exercisable for shares of the Company’s common stock at $0.10 per share through July 1, 2015. Per the terms of the note agreement, the noteholders have the right to exchange all or any part of these notes or the funds received for payment of these notes, including accrued interest, until the earlier of ten days after the notes are repaid or December 5, 2011, for a Class 3 Note issued by the Company paying interest at 8% per annum, convertible into shares of the Company at $0.10 per share, and due July 1, 2013.  This right becomes effective five days after the holder has ceased to accrue warrants on the note or five days after the note is repaid if the note is repaid before November 23, 2011.  The right to convert the Class 3 Note into shares of the Company will be supsended until the shareholders approve an increase in the authorized shares that is sufficient to accommodate this commitment.

On August 26, 2011 we repaid $2,390 of Class 2 Notes and $2 of related interest to a related party.

On August 30, 2011 we repaid $2,654 of Class 2 Notes and $158 of related interest to a related party.

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Condensed Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Assets
Cash	$ 2	$ 23
Accounts receivable	86	49
Accounts receivable employees	61	0
Inventories	224	213
Other current assets	70	93
Total current assets	443	378
Property and equipment
Building Improvements	4	4
Production and engineering equipment	357	357
Furniture and fixtures	80	80
Computer equipment	201	201
Marketing/demonstration equipment	139	139
Total Property, Plant and Equipment, Gross	781	781
Less accumulated depreciation	713	670
Net property and equipment	68	111
Other assets - net of accumulated amortization of $1,586,000 for 2011 and $1,583,000 for 2010	42	43
Total Other assets	42	43
Total assets	553	532
Liabilities and Stockholders' Deficit
Notes payable ($760,900 in default in 2011. See Note C.)	851	1,056
Notes payable to related parties and directors ($4,426,098 in default in 2011. See Note C.)	4,715	7,522
Loans payable	11	0
Accounts payable	344	221
Customer deposits	39	0
Accrued compensation and related costs	420	318
Accrued interest ($121,139 of interest is due on notes in default in 2011. See Note C.)	233	273
Accrued warrants for interest	30	81
Accrued interest related parties and directors ($826,846 of interest is due on notes in default in 2011. See Note C.)	1,677	1,051
Accrued product warranty	55	87
Accrued sales commissions	48	48
Accrued professional services	74	79
Other accrued liabilities	6	18
Deferred revenue	438	346
Total current liabilities	8,941	11,100
Long-term debt
Notes payable	295	0
Notes payable related parties and directors (See Note D)	3,481	0
Total liabilities	12,717	11,100
Commitments and contingencies (Note C and H)
Stockholders' deficit
Preferred stock, 400,000 shares authorized; none issued	0	0
Common stock, without par value; 90,000,000 shares authorized; 35,675,409 shares issued and outstanding (35,675,409 in 2010)	54,022	54,020
Accumulated deficit	(66,186)	(64,588)
Total stockholders' deficit	(12,164)	(10,568)
Total liabilities and stockholders' deficit	$ 553	$ 532