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**SECURITIESAND EXCHANGE COMMISSION****Washington, D.C. 20549**

**Form 10-Q**

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

**For Quarter Ended July 31, 2001**

**Commission File Number 0-11518**

| **PPT VISION, INC.**                                             |
|------------------------------------------------------------------|
| (Exact  name of registrant as specified in its charter)          |
|                                                             |
| **MINNESOTA**                                                    | **41-1413345** |
|                                                                  |  |
| (State or  other jurisdiction of  incorporation or organization) | (I.R.S.  Employer  Identification Number) |
|                                                             |   |
| **12988 Valley View Road**                                       | **Eden Prairie, Minnesota 55344** |
|                                                                  |  |
| (Address  of principal executive offices)                        | (Zip Code) |
|                                                             |   |
| **(952) 996-9500**                                               |
| (Registrant's  telephone number including area code)             |

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the last 90 days.  Yes ý No o

Shares of$.10 par value common stock outstanding at September 10, 2001: 5,494,193

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INDEX

PPT VISION, INC.

| Part I.  | Financial Information                                                                  |
|----------|----------------------------------------------------------------------------------------|
|     |                                                                                   |
| Item 1.  | Financial Statements                                                                   |
|     |                                                                                   |
|     | Balance Sheets as of July 31, 2001 and  October 31, 2000                               |
|     |                                                                                   |
|     | Income Statements for the Three and  Nine Months Ended July 31, 2001 and July 31, 2000 |
|     |                                                                                   |
|     | Statements of Cash Flows for  the Nine Months Ended July 31, 2001 and July 31, 2000    |
|     |                                                                                   |
|     | Notes to  Interim Financial Statements—July 31, 2001                              |
|     |                                                                                   |
| Item  2. | Management's  Discussion and Analysis of Financial Condition and Results of Operations |
|     |                                                                                   |
| Item  3. | Quantitative  and Qualitative Disclosures about Market Risk                            |
|     |                                                                                   |
| Part II. | Other Information                                                                      |
|     |                                                                                   |
| Item 1.  | Legal  Proceedings                                                                     |
|     |                                                                                   |
| Item  2. | Changes  in Securities and Use of Proceeds                                             |
|     |                                                                                   |
| Item  3. | Defaults  Upon Senior Securities                                                       |
|     |                                                                                   |
| Item  4. | Submission  of Matters to a Vote of Security Holders                                   |
|     |                                                                                   |
| Item 5.  | Other Information                                                                      |
|     |                                                                                   |
| Item 6.  | Exhibits  and Reports on Form 8-K                                                      |
|     |                                                                                   |
|     | Signatures                                                                             |

 

PPT VISION, INC.

BALANCESHEETS

|                                          | July 31, 2001                              |       | October 31, 2000 |       |
|-----------------------------------------------|--------------------------------------------|------------|------------------|------------|
|                                          |                                            |       |                  |       |
|                                          | (unaudited)                                |       |             |       |
| ASSETS                                        |                                       |       |             |       |
| Cash and cash equivalents                     | $                                          | 2,733,000  |             | $          | 1,818,000 |   |
| Restricted cash                               | 400,000                                    |       | 400,000          |       |
| Investments                                   | 505,000                                    |       | 3,072,000        |       |
| Accounts receivable, net                      | 2,564,000                                  |       | 5,202,000        |       |
| Inventories:                                  |                                       |       |             |       |
|                                          | Manufactured and purchased parts           | 2,560,000  |             | 2,615,000  |   |
|                                          | Work-in-process                            | 552,000    |             | 275,000    |   |
|                                          | Finished goods                             | -          |             | -          |   |
|                                          |                                       |            |             |            |   |
| Inventories, net                              | 3,112,000                                  |       | 2,890,000        |       |
| Other current assets                          | 458,000                                    |       | 325,000          |       |
|                                          |                                            |       |                  |       |
|                                          | Total current assets                       | 9,772,000  |             | 13,707,000 |   |
|                                          |                                       |       |             |       |   |
| Fixed assets, net                             | 2,265,000                                  |       | 2,464,000        |       |
| Other assets, net                             | 3,015,000                                  |       | 3,241,000        |       |
|                                          |                                            |       |                  |       |
|                                          | Total assets                               | $          | 15,052,000       |       | $ | 19,412,000 |   |
|                                          |                                            |       |                  |       |
|                                          |                                       |       |             |       |
| LIABILITIES AND SHAREHOLDERS’ EQUITY     |                                       |       |             |       |
| Accounts payable and accrued expenses         | $                                          | 1,024,000  |             | $          | 2,258,000 |   |
| Deferred revenue                              | 246,000                                    |       | 283,000          |       |
|                                          |                                            |       |                  |       |
|                                          | Total current liabilities                  | 1,270,000  |             | 2,541,000  |   |
|                                          |                                       |       |             |       |   |
| Shareholders' equity:                         |                                       |       |             |       |
| Common stock                                  | 551,000                                    |       | 548,000          |       |
| Capital in excess of par value                | 30,117,000                                 |       | 30,062,000       |       |
| Accumulated deficit                           | (16,829,000                                | )          | (13,739,000      | )          |
| Accumulated other comprehensive income (Loss) | (57,000                                    | )          | -                |       |
|                                          |                                            |       |                  |       |
|                                          | Total shareholders' equity                 | 13,782,000 |             | 16,871,000 |   |
|                                          |                                            |       |                  |       |
|                                          | Total liabilities and shareholders' equity | $          | 15,052,000       |       | $ | 19,412,000 |   |
|                                          |                                            |       |                  |       |
|                                               |                                            |            |                  |            |  |  |  |  |  |

Seeaccompanying notes to condensed financial statements

 

PPT VISION, INC.INCOME STATEMENTS(UNAUDITED)

|                                             | Three  Months Ended  July 31, |       | Nine  Months Ended  July 31, |      |
|--------------------------------------------------|-------------------------------|------------|------------------------------|-----------|
|                                             |                               |       |                              |      |
|                                             | 2001                          |       | 2000                         |      | 2001 |   | 2000 |   |
|                                             |                               |       |                              |      |  |   |  |   |
| Net revenues                                     | $                             | 2,009,000  |                         | $         | 4,714,000 |   | $ | 11,248,000 |   | $ | 12,945,000 |   |
| Cost of sales                                    | 1,119,000                     |       | 2,063,000                    |      | 5,415,000 |   | 5,658,000 |   |
|                                             |                               |       |                              |      |  |   |  |   |
| Gross profit                                     | 890,000                       |       | 2,651,000                    |      | 5,833,000 |   | 7,287,000 |   |
|                                             |                          |       |                         |      |   |   |   |   |
| Expenses:                                        |                          |       |                         |      |   |   |   |   |
|                                             | Sales and marketing           | 1,038,000  |                         | 1,200,000 |   | 3,456,000 |   | 3,426,000 |   |
|                                             | General and  administrative   | 542,000    |                         | 598,000   |   | 1,732,000 |   | 1,638,000 |   |
|                                             | Research and  development     | 1,246,000  |                         | 1,343,000 |   | 3,749,000 |   | 3,882,000 |   |
|                                             | Non-recurring charges         | 158,000    |                         | 1,319,000 |   | 158,000 |   | 1,700,000 |   |
|                                             |                          |            |                         |           |   |  |   |  |   |
|                                             | Total expenses                | 2,984,000  |                         | 4,460,000 |   | 9,095,000 |   | 10,646,000 |   |
|                                             |                          |            |                         |           |   |  |   |  |   |
| Loss from operations                             | (2,094,000                    | )          | (1,809,000                   | )         | (3,262,000 | ) | (3,359,000 | ) |
|                                             |                          |       |                         |      |   |   |   |   |
| Interest income                                  | 21,000                        |       | 101,000                      |      | 141,000 |   | 353,000 |   |
|                                             |                          |       |                         |      |   |   |   |   |
| Other income  (expense), net                     | 24,000                        |       | 60,000                       |      | 30,000 |   | 112,000 |   |
|                                             |                               |       |                              |      |  |   |  |   |
| Net loss before taxes                            | (2,049,000                    | )          | (1,648,000                   | )         | (3,091,000 | ) | (2,894,000 | ) |
| Income tax expense  (benefit)                    | -                             |       | -                            |      | - |   | - |   |
|                                             |                               |       |                              |      |  |   |  |   |
| Net loss                                         | $                             | (2,049,000 | )                            | $         | (1,648,000 | ) | $ | (3,091,000 | ) | $ | (2,894,000 | ) |
|                                             |                               |       |                              |      |  |   |  |   |
| Per share data:                                  |                          |       |                         |      |   |   |   |   |
| Common shares  outstanding                       | 5,494,000                     |       | 5,380,000                    |      | 5,485,000 |   | 5,301,000 |   |
| Common and common  equivalent shares outstanding | 5,494,000                     |       | 5,380,000                    |      | 5,485,000 |   | 5,301,000 |   |
| Basic loss per share                             | $                             | (0.37      | )                            | $         | (0.31 | ) | $ | (0.56 | ) | $ | (0.55 | ) |
|                                             |                               |       |                              |      |  |   |  |   |
| Diluted loss per share                           | $                             | (0.37      | )                            | $         | (0.31 | ) | $ | (0.56 | ) | $ | (0.55 | ) |
|                                             |                               |       |                              |      |  |   |  |   |
|                                                  |                               |            |                              |           |  |  |  |  |  |  |  |  |  |  |

See accompanying notesto condensed financial statements

 

PPT VISION, INC.STATEMENTS OF CASH FLOWS(UNAUDITED)

|                                                                                       | Nine Months  Ended                        |       | Nine Months  Ended |       |
|--------------------------------------------------------------------------------------------|-------------------------------------------|------------|--------------------|------------|
|                                                                                       | July 31, 2001                             |       | July 31, 2000      |       |
|                                                                                       |                                           |       |                    |       |
| Net loss                                                                                   | $                                         | (3,091,000 | )                  | $          | (2,894,000 | ) |
| Adjustments to reconcile net loss to net cash provided by (used  in) operating activities: |                                      |       |               |       |
|                                                                                       | Depreciation and amortization             | 1,058,000  |               | 805,000    |   |
|                                                                                       | Accrued interest income                   | 62,000     |               | 31,000     |   |
| Change in assets and liabilities                                                           |                                      |       |               |       |
|                                                                                       | Accounts receivable                       | 2,639,000  |               | (1,229,000 | ) |
|                                                                                       | Inventories                               | (222,000   | )                  | (373,000   | ) |
|                                                                                       | Other assets                              | (190,000   | )                  | (63,000    | ) |
|                                                                                       | Accounts payable and accrued expenses     | (1,234,000 | )                  | (938,000   | ) |
|                                                                                       | Deferred revenue                          | (36,000    | )                  | 260,000    |   |
|                                                                                       |                                      |            |               |            |   |
|                                                                                       | Total adjustments                         | 2,077,000  |               | (1,507,000 | ) |
|                                                                                       |                                      |            |               |            |   |
|                                                                                       | Net cash used in operating activities     | (1,014,000 | )                  | (4,401,000 | ) |
|                                                                                       |                                      |       |               |       |   |
| Cash flows from investing activities:                                                      |                                      |       |               |       |
|                                                                                       | Purchase of fixed assets                  | (578,000   | )                  | (773,000   | ) |
|                                                                                       | Purchase of investments                   | -          |               | (2,643,000 | ) |
|                                                                                       | Sales and maturities of investments       | 2,506,000  |               | 6,767,000  |   |
|                                                                                       | Net investment in other long-term assets  | (58,000    | )                  | (62,000    | ) |
|                                                                                       |                                      |            |               |            |   |
|                                                                                       | Net cash provided by investing activities | 1,870,000  |               | 3,289,000  |   |
|                                                                                       |                                      |       |               |       |   |
| Cash flows from financing activities                                                       |                                      |       |               |       |
|                                                                                       | Proceeds from issuance of common stock    | 59,000     |               | 1,213,000  |   |
|                                                                                       |                                      |            |               |            |   |
|                                                                                       | Net cash provided by financing activities | 59,000     |               | 1,213,000  |   |
|                                                                                       |                                      |            |               |            |   |
| Net increase (decrease) in cash and cash equivalents                                       | 915,000                                   |       | (101,000           | )          |
|                                                                                       |                                      |       |               |       |
| Cash and cash equivalents at beginning of year                                             | 1,818,000                                 |       | 2,135,000          |       |
|                                                                                       |                                           |       |                    |       |
| Cash and cash equivalents at end of period                                                 | $                                         | 2,733,000  |               | $          | 2,236,000 |   |
|                                                                                       |                                           |       |                    |       |
|                                                                                            |                                           |            |                    |            |  |  |  |  |

Seeaccompanying notes to condensed financial statements

 

PPT VISION, INC.NOTES TO CONDENSED FINANCIALSTATEMENTS(UNAUDITED)

July 31,2001

NOTE A –DESCRIPTION OF BUSINESS

PPT VISION, Inc. designs,manufactures, markets, and integrates 2D and 3D machine vision-based automatedinspection systems for manufacturing applications.  Machine vision-based inspection systems enable manufacturers torealize significant economic paybacks by increasing the quality of manufacturedparts and improving the productivity of manufacturing processes.  The Company’s 2D machine vision product lineis sold on a global basis to end-users, system integrators, and originalequipment manufacturers (OEM’s) primarily in the electronic and semiconductorcomponent, automotive, medical device, and packaged goods industries.  The Company’s SpeedScanTM 3D sensor,incorporating the Company’s patented high-speed Scanning MoiréInterferometryTM  technology is sold tooriginal equipment manufacturers for specific applications.  The Company’s PPT861 3D scanning system,which uses the Company’s SpeedScanTM 3D sensor, is an application-specificinspection solution targeted at inspection of leaded and bumped components inthe semiconductor back-end manufacturing process, inspection of surface-mountelectronic connectors, and inspection of components used in hard diskdrives.  The Company's Common Stocktrades on the Nasdaq National Market tier of The Nasdaq Stock Market under thesymbol PPTV. For more information, please see the PPT VISION, Inc. web site atwww.pptvision.com.

NOTE B –BASIS OF PRESENTATION

Theaccompanying unaudited condensed financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation and with the instructions to Form 10-Q and Rule 10-01 of RegulationS-X.  Accordingly, they do not includeall of the information and footnotes required by generally accepted accountingprinciples for complete financial statements. In the opinion of management, all adjustments (consisting of normalrecurring accruals) considered necessary for a fair presentation have beenincluded.

The BalanceSheet at October 31, 2000 has been derived from the Company’s audited financialstatements for the fiscal year ended October 31, 2000 but does not include allof the information and footnotes required by generally accepted accountingprinciples for complete financial statements.

For further information, refer to the financialstatements and footnotes thereto included in the Company's annual report onForm 10-K for the year ended October 31, 2000.
NOTE C –COMPREHENSIVE LOSS
 Three  Months Ended  July 31, Nine  Months Ended  July 31,     2001 2000 2001 2000      Net loss$(2,049,000)$(1,648,000)$(3,091,000)$(2,894,000)Other comprehensive loss:         Unrealized (loss) gain on derivative transactions43,000 — (57,000)—  Change in unrealized value of investments, net— 13,000 — 1,000      Total comprehensive loss$(2,006,000)$(1,635,000)$(3,148,000)$(2,883,000)     
NOTE D –FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

EffectiveNovember 1, 2000, the Company adopted SFAS No. 133 - "Accounting forDerivative Instruments and Hedging Activities" which requires that allderivative financial instruments, such as foreign exchange contracts, berecognized in the financial statements and measured at fair value regardless ofthe purpose or intent for holding them. Changes in the fair value of derivativefinancial instruments are either recognized periodically in income orshareholders' equity (as a component of other comprehensive income).

As part ofthe Company's risk management programs, the Company uses forward exchangecontracts. The Company does not hold or issue derivative financial instrumentsfor trading purposes.  The Company usesforward exchange contracts to hedge against the currency risk associated withfirmly committed Japanese Yen transactions.  In accordance with SFAS No. 133, the forward exchange contracts arerecognized at fair value with the gain or loss on the contracts being deferredin other comprehensive income. The Company measures hedge effectiveness offorward exchange contracts based on the forward price of the underlyingcurrency.  No gains or losses wererecognized in earnings for the period ended July 31, 2001 as hedges were 100%effective. The fair values of the contracts were $112,730 at July 31,2001.  These fair values were calculatedbased on the change in spot rates since the inception of the contracts and werenot materially different than the fair values calculated based on thediscounted change in forward rates as required under SFAS No. 133.

ForeignCurrency Exchange Rate Risk.

Historically,the Company's international sales, which are primarily in Europe, SouthAmerica, Japan and Southeast Asia, have been transacted in U.S. Dollars.  However, during fiscal 2000 the Companyentered into forward foreign exchange contracts in Japanese Yen to hedgecurrency exposures associated with specific contracts denominated in JapaneseYen.  These contracts are used to reducethe Company's risk associated with exchange rate movements, as the gains orlosses on these contracts are intended to offset the exchange rate losses orgains on the underlying transactions. The Company does not engage in foreigncurrency speculation.  Foreign currencyfluctuations did not have a material impact on the Company's results ofoperations and financial position for the first nine months of fiscal 2001. 
NOTE E –NON-RECURRING CHARGES

             During the third quarter endingJuly 31, 2001 the Company realized a non-recurring charge of $158,000.  This charge represented severance payments,and expenses in connection with the closing of a sales office as part of a costreduction program implemented in May, 2001. At July 31, 2001 a $15,000 accrual relating to these non-recurringcharges remained on the balance sheet in accrued expenses.

NOTE F – NEWACCOUNTING PRONOUNCEMENTS

             InDecember 1999, the Securities and Exchange Commission (SEC) issued StaffAccounting Bulletin No. 101 (SAB 101), "Revenue Recognition in FinancialStatements." SAB 101 summarizes certain of the SEC's views in applyinggenerally accepted accounting principles to revenue recognition in financial statements.In October 2000, the SEC issued additional written guidance to furthersupplement SAB 101. Accordingly, the Company is continuing to evaluate thepotential impact of SAB 101 on the Company's results of operations andfinancial position. The Company is required to adopt SAB 101 in the fourthquarter of fiscal 2001. Based on the Company's preliminary assessment, theCompany believes the implementation of SAB No. 101 is not expected to have anymaterial effect on the Company's revenues or revenue recognition policy.

Item 2   MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Net revenues decreased 57% to $2,009,000for the three-month period ended July 31, 2001, compared to net revenues of$4,714,000 for the same period in fiscal 2000. Net revenues decreased 13% to$11,248,000 for the nine-month period ended July 31, 2001, compared to$12,945,000 for the same period in fiscal 2000.  Unit sales of the Company's machine vision systems decreased to 71for the third quarter of fiscal 2001 versus 233 for the same period in fiscal2000.  Unit sales for the nine-monthperiod ended July 31, 2001 increased to 621 versus 597 for the same period infiscal 2000.  The decrease in the numberof units sold during the quarter is attributed to the economic slowdown in theCompany’s core markets, primarily electronic component manufacturing.
Sales to customers outside North Americarepresented 52% of gross revenues for the first nine-months of fiscal 2001,compared to 48% for the same period in fiscal 2000.

The Company’s visibility regardingrevenue results for the next several quarters is currently very limited.Several of the Company’s largest customers who drove record levels of revenuesin fiscal 2000 have substantially cut back capital spending. Thus, it ispossible that revenues in the fourth quarter of fiscal year 2001 and the firsthalf of fiscal year 2002 will be substantially below prior year periods. Thisis primarily a result of lower order levels reflective of a slowdown in capitalspending in the electronics manufacturing sector of the global economy.

Gross profit decreased 66% to $890,000for the three-month period ended July 31, 2001, compared to $2,651,000 for thesame period in fiscal 2000. For the nine-month period ended July 31, 2001 grossprofit decreased 20% to $5,833,000, compared to $7,287,000 for the same periodin fiscal 2000.  As a percentage of netrevenues, the gross profit for the third quarter of fiscal 2001 decreased to44% compared to 56% in the same period in fiscal 2000. For the nine-monthperiod ended July 31, 2001 gross profit as a percentage of net revenuesdecreased to 52% compared to 56% in the same period in fiscal 2000.  The decrease in gross profit in absolutedollars and on a percentage basis for the three and nine month periods endedJuly 31, 2001 is attributed to the decrease in net revenues and the applicationof fixed manufacturing overhead expenses across a lower volume of shipments.

Sales and marketing expenses decreased 14%to $1,038,000 for the three-month period ended July 31, 2001, compared to$1,200,000 for the same period in fiscal 2000. For the nine-month period ended July 31, 2001, sales and marketingexpenses increased 1% to $3,456,000, compared to $3,426,000 for the same periodin fiscal 2000.  As a percentage of netrevenues, sales and marketing expenses increased to 52% for the third quarterof fiscal 2001 verses 25% for the same period in fiscal 2000.  For the nine-month period ended July 31,2001, sales and marketing expenses as a percentage of net revenues increased to31%, compared to 26% for the same period in fiscal 2000. The large increase in expenses as a percentage of netrevenues for the nine-month period ended July 31, 2001 is attributed to thedecrease in net revenues.  Alsocontributing to this increase is the decrease in international revenues whichtypically have a lower cost of selling resulting from the Company’s use ofinternational distributors.  The Companyexpects sales and marketing expenses in absolute dollars to decline during thelast quarter of fiscal 2001 as a continuing result of the cost reductionmeasures implemented in May 2001. Additionally, any corresponding increase ordecline in sales and marketing expenditures beyond this current expectationwill be driven by the level of net revenues achieved in fiscal 2001.General and administrative expenses decreased 9% to $542,000 for thethree-month period ended July 31, 2001, compared to $598,000 for the sameperiod in fiscal 2000.  For thenine-month period ended July 31, 2001, general and administrative expensesincreased 6% to $1,732,000, compared to $1,638,000 for the same period infiscal 2000.  As a percentage of netrevenues, general and administrative expenses increased to 27% for the thirdquarter of fiscal 2001 verses 13% for the same period in fiscal 2000.  For the nine-month period ended July 31,2001, general and administrative expenses as a percentage of net revenuesincreased to 15%, compared to 13% for the same period in fiscal 2000.  The Company expects general and administrative expenses for thebalance of fiscal 2001 to decline slightly in absolute dollars as a result ofcost reductions measures implemented in May 2001.
Research and development expensesdecreased 7% to $1,246,000 for the three-month period ended July 31, 2001,compared to $1,343,000 for the same period in fiscal 2000.  For the nine-month period ended July 31,2001, research and development expenses decreased to $3,749,000 compared to$3,882,000 for the same period in fiscal 2000. As a percentage of net revenues, research and development expensesincreased to 62% for the third quarter of fiscal 2001, compared to 28% for thethird quarter of fiscal 2000.  For thenine-month period ended July 31, 2001, research and development expense as apercentage of net revenues increased to 33%, compared to 30% for the sameperiod in fiscal 2000.

Non-recurring charges for the three andnine month periods ended July 31, 2000 consist entirely of costs and expensesincurred in connection with the Company’s defense and settlement of the patentinfringement lawsuit brought by National Instruments Corporation and theCompany’s defense and settlement of the breach of contract lawsuit brought byIntegrated Electronic Technologies.  Bothlawsuits were settled during the quarter ended July 31, 2000.  Non-recurring charges for the three and ninemonth periods ended July 31, 2001 consist entirely of costs and expensesincurred in connection with the implementation of the cost reductions made inMay 2001 as described in Note E.

Interest income decreased 79% to $21,000for the three-month period ended July 31, 2001, compared to $101,000 for thesame period in fiscal 2000.  For thenine-month period ended July 31, 2001 interest income decreased to $141,000,compared to $353,000 for the same period in fiscal 2000.  The decrease in interest income for bothperiods is related to a reduction in the balances in cash and cash equivalentsand investments.

The Company did not record an income taxbenefit or expense for either of the first nine-months ended July 31, 2001 orthe three or nine month periods ended July 31, 2000.

LIQUIDITY AND CAPITALRESOURCES

Working capital decreased to $8,502,000at July 31, 2001 from $11,166,000 at October 31, 2000.  The Company financed its operations duringthe first nine- months of fiscal 2001 through internally generated cash flowand existing cash and cash equivalents. Net cash used in operating activitiesduring the first nine months of fiscal 2001 was $1,014,000. Accounts receivabledecreased $2,639,000 primarily due to lower sequential net revenues and strongcollections realized during the first half of fiscal 2001. Inventoriesincreased $222,000 during the first nine-months of fiscal 2001 due to thepurchase of inventory items with extended delivery lead times.  Other current assets increased $190,000primarily due to the netting of derivative contracts. Accounts payable andaccrued expenses decreased by $1,234,000. The decrease in accounts payable and accrued expenses primarily resultsfrom reduced purchasing of new inventory as a result of declining sales and apayment to a distributor which was tied to the collection of a receivable.
Net cash provided by investing activitieswas $1,870,000, primarily due to the maturity of investments.  During the third quarter ending July 31,2001 fixed asset additions totaled $349,000 in comparison with $229,000 infixed asset additions realized in the first six months ending April 30,2001.  These fixed asset additions wereprimarily one-time purchases of computer equipment and software for a specificnew product development program.  Fixedasset additions in the fourth quarter of fiscal 2001 are expected to be atlevels comparable with the first and second quarter of fiscal 2001.

The Company believes that the reductionin operating costs achieved from the cost reduction measures taken in May 2001,will enable the Company to meet its obligations through the next twelvemonths.  However in the event thecurrent revenue expectations worsen the Company may need to implement furthercost reduction measures.  In addition,the Company is currently exploring the possibility of securing additionalsources of financing to ensure it is able to meet its working capital andcapital resource requirements.

The Company incurred a net loss of$2,049,000 for the quarter ended July 31, 2001, and has an accumulated deficitof $16,829,000 as of July 31, 2001. The Company expects to incur losses for theremainder of its current fiscal year. There can be no assurance that theCompany will not incur additional losses for a longer period, will generatepositive cash flow from its operations, or that the Company will attain orthereafter sustain profitability in any future period. To the extent the Companycontinues to incur losses or grows in the future, its operating and investingactivities may use cash and, consequently, such losses or growth will requirethe Company to obtain additional sources of financing in the future or toreduce operating expenses.

FORWARDLOOKING STATEMENTS

This Form 10-Q contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933 andSection 21E of the Securities Exchange Act of 1934, including statementsregarding the Company's expectations, beliefs, intentions or strategiesregarding the future. Forward-looking statements include, without limitation,statements regarding the extent and timing of future revenues and expenses andcustomer demand. These statements include, but are not limited to, changes inworldwide general economic conditions, cyclicality of capital spending bycustomers, PPT VISION’s ability to keep pace with technological developmentsand evolving industry standards, worldwide competition, PPT VISION’s ability toprotect its existing intellectual property from challenges from third parties,PPT VISION’s ability to obtain additional debt or equity financing tostrengthen its financial position and other factors.
All forward-looking statements includedin this document are based on information available to the Company as of thedate hereof, and the Company assumes no obligation to update any suchforward-looking statements. It is important to note that the Company's actualresults could differ materially from those in such forward-looking statements.The forward-looking statements of the Company are subject to risks anduncertainties. Some of the factors that could cause future results tomaterially differ from the Company's recent results or those projected in theforward-looking statements are detailed in our Annual Report on Form 10-K forthe year ended October 31, 2000, filed with the SEC.

Item 3:  QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company believes it does not havematerial exposure to quantitative and qualitative market risks.  The carrying amounts reflected in thebalance sheets of cash and cash equivalents, investments, trade receivables andtrade payables approximate fair value at July 31, 2001 due to the shortmaturities of these instruments.

Interest Rate Risk

The primary objective of our investmentactivities is to maintain the safety of principal and preserve liquidity whilemaximizing yields without significantly increasing risk. This is accomplishedby investing in marketable investment grade securities.

The Company's cash and investmentsinclude cash equivalents, which the Company considers to be investmentspurchased with original maturities of three months or less.  As of July 31, 2001, cash equivalentsconsisted of cash held in an interest bearing money market account andinvestment grade commercial paper. Investments having original maturities inexcess of three months are stated at fair value which is approximately the sameas amortized cost, and are classified as available for-sale. As of September14, 2001, the Company held one medium term note with an original maturity inexcess of three months which will mature within one year. The fair value ofinvestments at July 31, 2001 is $505,000.

Given the short maturities and investmentgrade quality of the portfolio holdings at July 31, 2001, as well as theCompany's policy of holding rate sensitive instruments to maturity, a 100 basispoint rise in interest rates would not be expected to have a material adverseimpact on the fair value of the Company's investment portfolio.  As a result, the Company does not currentlyhedge these interest rate exposures.
Foreign Currency Exchange Rate Risk.

             Historically,the Company's international sales, which are primarily in Europe, South America,Japan and Southeast Asia, have been transacted in U.S. Dollars.  However, during fiscal 2000 the Companyentered into forward foreign exchange contracts in Japanese Yen to hedgecurrency exposures associated with specific contracts denominated in JapaneseYen.  These contracts are used to reducethe Company's risk associated with exchange rate movements, as the gains orlosses on these contracts are intended to offset the exchange rate losses orgains on the underlying contracts. The Company does not engage in foreigncurrency speculation. Foreign currency fluctuations did not have a materialimpact on our results of operations and financial position for the first ninemonths of fiscal 2001. Also, refer to Note D of Notes to Condensed FinancialStatements (Unaudited) “Financial Instruments and Risk Management” foradditional discussion.

PART II.  Other Information

Item 1:    LEGALPROCEEDINGS                None.

Item 2:    CHANGES INSECURITIES AND USE OF PROCEEDS                None.

Item3:    DEFAULTS UPON SENIOR SECURITIES                Not Applicable

Item4:    SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERS                None.

Item 5:    OTHERINFORMATION                None.

Item 6:    EXHIBITS ANDREPORTS ON FORM 8-K                (a)      Exhibits:                           None.

                (b)      Reports on Form 8-K                           None

 

SIGNATURES

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
 PPT VISION, INC.  Date: September 14, 2001    /s/ Joseph C. Christenson Joseph C. Christenson  President  (principal financial and   accounting officer)