**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-QSB**

 

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**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the Quarterly Period Ended January 31,2008**

** **

**CommissionFile Number 0-11518**

 

**PPT VISION, INC.**

(Exact name ofSmall Business Issuer 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**

(Issuer’stelephone number, including area code)

 

Check whether the issuer (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theExchange Act during the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has beensubject to such filing requirements for the last 90 days.  Yes x  No o

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o  No x

 

Shares of $.10 par valuecommon stock outstanding at March 13, 2008: **14,902,916**

 

 

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INDEX

 

PPT VISION, INC.

 
| ** **    | ** ** | ** **                                                                                           | ** ** | **Page** |
|---------------|------------|------------------------------------------------------------------------------------------------------|------------|----------|
| Part I.  |       | Financial Information                                                                           |       |     |
|          |       |                                                                                                 |       |     |
| Item 1.       |       | Financial Statements                                                                                 |       |     |
|          |       |                                                                                                 |       |     |
|          |       | Balance Sheets as of January 31, 2008 and  October 31, 2007                                |       | 3        |
|          |       |                                                                                                 |       |     |
|          |       | Statements of Operations for the Three  Months Ended January 31, 2008 and January 31, 2007 |       | 4        |
|          |       |                                                                                                 |       |     |
|          |       | Statements of Cash Flows for the Three  Months Ended January 31, 2008 and January 31, 2007 |       | 5        |
|          |       |                                                                                                 |       |     |
|          |       | Notes to Condensed Financial Statements –  January 31, 2008                                |       | 6        |
|          |       |                                                                                                 |       |     |
| Item 2.       |       | Management’s Discussion and Analysis or Plan of  Operation                                      |       | 9        |
|          |       |                                                                                                 |       |     |
| Item 3.       |       | Controls and Procedures                                                                              |       | 15       |
|          |       |                                                                                                 |       |     |
| Part II. |       | Other Information                                                                                    |       | 15       |
|          |       |                                                                                                 |       |     |
| Item 1.       |       | Legal Proceedings                                                                                    |       | 15       |
|          |       |                                                                                                 |       |     |
| Item 2.       |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                         |       | 15       |
|          |       |                                                                                                 |       |     |
| Item 3.       |       | Defaults  Upon Senior Securities                                                                     |       | 16       |
|          |       |                                                                                                 |       |     |
| Item 4.       |       | Submission  of Matters to a Vote of Security Holders                                                 |       | 16       |
|          |       |                                                                                                 |       |     |
| Item 5.       |       | Other Information                                                                                    |       | 17       |
|          |       |                                                                                                 |       |     |
| Item 6.       |       | Exhibits                                                                                             |       | 17       |
|          |       |                                                                                                 |       |     |
|          |       | Signatures                                                                                           |       | 18       |

 

2

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PPT VISION, INC.

BALANCE SHEETS

 
| ** **                                       | ** ** | **January 31, 2008** | ** ** | **October 31, 2007** | ** ** |
|--------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                       | ** ** | **(unaudited)**                | ** ** | **(audited)**                  | ** ** |
| ASSETS                                           |       |                           |       |                           |       |
| Current assets                                   |       |                           |       |                           |       |
| Cash and cash  equivalents                       |       | $                              | 407,000    |                           | $          | 624,000 |   |
| Accounts  receivable, net                        |       | 1,049,000                      |       | 1,199,000                      |       |
| Inventories:                                     |       |                           |       |                           |       |
| Manufactured and  purchased parts                |       | 377,000                        |       | 400,000                        |       |
| Work-in-process                                  |       | 13,000                         |       | 12,000                         |       |
| Finished goods                                   |       | 22,000                         |       | 24,000                         |       |
| Total  inventories                               |       | 412,000                        |       | 436,000                        |       |
| Other current  assets                            |       | 60,000                         |       | 69,000                         |       |
| Total current  assets                            |       | 1,928,000                      |       | 2,328,000                      |       |
| Fixed assets,  net                               |       | 226,000                        |       | 245,000                        |       |
| Intangible and  other assets, net                |       | 61,000                         |       | 61,000                         |       |
| Total assets                                     |       | $                              | 2,215,000  |                           | $          | 2,634,000 |   |
|                                             |       |                           |       |                           |       |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY       |       |                           |       |                           |       |
| Current  liabilities                             |       |                           |       |                           |       |
| Accounts payable                                 |       | $                              | 470,000    |                           | $          | 490,000 |   |
| Accrued expenses                                 |       | 163,000                        |       | 156,000                        |       |
| Deferred revenue  – customer advances       |       | 9,000                          |       | 3,000                          |       |
| Total current  liabilities                       |       | 642,000                        |       | 649,000                        |       |
| Shareholders’  equity                       |       |                           |       |                           |       |
| Common stock                                     |       | 990,000                        |       | 990,000                        |       |
| Capital in  excess of par value                  |       | 37,609,000                     |       | 37,607,000                     |       |
| Accumulated  deficit                             |       | (37,026,000                    | )          | (36,612,000                    | )          |
| Total  shareholders’ equity                 |       | 1,573,000                      |       | 1,985,000                      |       |
|                                             |       |                           |       |                           |       |
| Total  liabilities and shareholders’ equity |       | $                              | 2,215,000  |                           | $          | 2,634,000 |   |

 

See accompanying notes to condensed financialstatements

 

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PPT VISION, INC.

STATEMENTS OF OPERATIONS

(UNAUDITED)

 
| ** **                                   | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|
| ** **                                   | ** ** | **January 31,**             | ** ** |
| ** **                                   | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                         |       |                             |       |   |   |
| Revenues                                     |       | $                                | 1,335,000  |   | $ | 1,041,000 |   |
| Cost of revenues                             |       | 714,000                          |       | 549,000 |   |
| Gross profit                                 |       | 621,000                          |       | 492,000 |   |
| Expenses:                                    |       |                             |       |   |   |
| Sales and  marketing                         |       | 474,000                          |       | 429,000 |   |
| General and  administrative                  |       | 217,000                          |       | 235,000 |   |
| Research and  development                    |       | 350,000                          |       | 306,000 |   |
| Total expenses                               |       | 1,041,000                        |       | 970,000 |   |
| Interest and  other income                   |       | 6,000                            |       | 1,000 |   |
| Net loss                                     |       | $                                | (414,000   | ) | $ | (477,000 | ) |
| Per share data:                              |       |                             |       |   |   |
| Weighted average  basic shares outstanding   |       | 9,903,000                        |       | 4,546,000 |   |
| Weighted average  diluted shares outstanding |       | 9,903,000                        |       | 4,546,000 |   |
| Basic and  diluted loss per common share     |       | $                                | (0.04      | ) | $ | (0.10 | ) |

 

See accompanyingnotes to condensed financial statements

 

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PPT VISION, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
| ** **                                                                   | ** ** | **Three Months**          | ** ** | **Three Months**          | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | **Ended**                      | ** ** | **Ended**                      | ** ** |
| ** **                                                                   | ** ** | **January 31, 2008** | ** ** | **January 31, 2007** | ** ** |
| Net loss                                                                     |       | $                              | (414,000   | )                              | $          | (477,000 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                           |       |                           |       |
| Stock option  expense                                                        |       | 2,000                          |       | 6,000                          |       |
| Depreciation and  amortization                                               |       | 25,000                         |       | 32,000                         |       |
| Change in assets  and liabilities:                                           |       |                           |       |                           |       |
| Accounts  receivable                                                         |       | 150,000                        |       | 58,000                         |       |
| Inventories                                                                  |       | 24,000                         |       | (52,000                        | )          |
| Other current  assets                                                        |       | 9,000                          |       | 8,000                          |       |
| Accounts payable                                                             |       | (20,000                        | )          | (47,000                        | )          |
| Accrued expenses                                                             |       | 7,000                          |       | —                         |       |
| Deferred revenue  – customer advances                                   |       | 6,000                          |       | —                         |       |
| Total  adjustments                                                           |       | 203,000                        |       | 5,000                          |       |
| Net cash used in  operating activities                                       |       | (211,000                       | )          | (472,000                       | )          |
| Cash flows from  investing activities:                                       |       |                           |       |                           |       |
| Purchase of  fixed assets                                                    |       | (6,000                         | )          | (7,000                         | )          |
| Net cash used in  investing activities                                       |       | (6,000                         | )          | (7,000                         | )          |
| Cash flows from  financing activities:                                       |       |                           |       |                           |       |
| Proceeds from  issuance of common stock and warrants                         |       | —                         |       | 4,000                          |       |
| Net cash  provided by financing activities                                   |       | —                         |       | 4,000                          |       |
| Net decrease in  cash and cash equivalents                                   |       | (217,000                       | )          | (475,000                       | )          |
| Cash and cash  equivalents at beginning of year                              |       | 624,000                        |       | 753,000                        |       |
| Cash and cash  equivalents at end of period                                  |       | $                              | 407,000    |                           | $          | 278,000 |   |

 

See accompanying notes tocondensed financial statements

 

5

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PPT VISION, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTSJanuary 31, 2008

(UNAUDITED)

 

NOTE A – DESCRIPTION OFBUSINESS

 

PPT VISION, Inc. (“the Company”) designs,manufactures, and markets machine vision based intelligent cameras used forautomated inspection, measurement, and guidance applications in themanufacturing marketplace. The Company’s IMPACTTM intelligent camera productline enables manufacturers to realize significant economic paybacks byincreasing the quality of manufactured parts and improving the productivity ofmanufacturing processes. The Company’s IMPACT intelligent camera product lineis sold through a global network of distribution and integration partners toend-user manufacturers, original equipment manufacturers, and manufacturingmachine builders, in a wide variety of manufacturing markets includingelectronics, automotive, medical device, and packaged goods industries.

 

NOTE B – BASIS OFPRESENTATION

 

The accompanyingunaudited condensed financial statements have been prepared in accordance withaccounting principles generally accepted in the United States of America for interimfinancial information and with the instructions to Form 10-QSB.Accordingly, they do not include all of the information and footnotes requiredby accounting principles generally accepted in the United States of America forcomplete financial statements. In the opinion of management, all adjustments(consisting of normal recurring accruals) considered necessary for a fairpresentation have been included. Results of operations for the interim periodsare not necessarily indicative of the results to be expected for the full yearor of the results for any future periods.

 

The Balance Sheet at October 31,2007 has been derived from the Company’s audited financial statements for thefiscal year ended October 31, 2007 but does not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States of America for complete financial statements.

 

For further information,refer to the financial statements and footnotes thereto included in the Company’sannual report on Form 10-KSB for the year ended October 31, 2007.

 

NOTE C – REVENUERECOGNITION

 

The Company typicallyrecognizes revenue on product sales upon shipment to the end user customers ifcontractual obligations have been met and title and risk of loss have passed tothe customer, which is generally the case for sales of machine vision systems,spare parts and accessories. The Company also recognizes revenue on productssold to distributors upon shipment because contracts with distributors do notinclude post-shipment obligations or any right of return provisions and pricingis fixed at the time of sale. Revenue related to application engineering,product development and customer training services is recognized when theservices are performed. Service revenue was less than 10% of total revenues forthe three months ended January 31, 2008 and 2007.

 

6

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NOTE D – LIQUIDITY ANDCAPITAL RESOURCES

 

The Company had a net loss for the three months ended January 31,2008 of $414,000. Cash used in operations was $211,000 for the three monthsended January 31, 2008. See Note I regarding an event impacting liquidityand capital resources subsequent to the end of the January 31, 2008quarter.

 

NOTE E – LOSS PER SHARE

 

At January 31, 2008,options to purchase 385,590 shares and warrants to purchase 2,000,000 shares ofthe Company’s common stock were not considered in the calculation of dilutedearnings per share. At January 31, 2007, options to purchase 383,015shares of the Company’s common stock were not considered in the calculation ofdiluted earnings per share. As the Company had a net loss for both periods, theinclusion of potentially dilutive outstanding options and warrants would havebeen anti-dilutive.

 

NOTE F – STOCK-BASED COMPENSATION

 

TheCompany has five equity compensation plans, all of which have been approved byits shareholders: 1988 Stock Option Plan, 1997 Stock Option Plan, 2000 StockOption Plan, 2005 Employee Stock Purchase Plan and 2007 Stock Option Plan. Theseplans are administered by the Board of Directors, which selects personsto receive awards and determines the number of shares subject to each award andthe terms, conditions, performance measures and other provisions of the award.Readers should refer to Note 10 of the Company’s consolidated financialstatements in the Annual Report on Form 10-KSB for the fiscal year ended October 31,2007, for additional information related to these stock-based compensationplans.

 

Effective November 1, 2006, the Company adoptedStatement of Financial Accounting Standards (SFAS) 123R, Share-Based PaymentSFAS No. 123R, which requires companies to measure and recognizecompensation expense for all stock-based payments at fair value. SFAS 123R isbeing applied on the modified prospective basis. Prior to the adoption of SFAS123R, the Company had adopted the disclosure-only provisions of SFAS No. 148,Accounting for Stock-Based Compensation and, accordingly, recognized nocompensation expense related to the stock-based plans prior to November 1,2006.

 

Under the modified prospective approach, SFAS 123Rapplies to new awards and to awards that were outstanding on November 1,2006 that are subsequently modified, repurchased, cancelled or vested. Underthe modified prospective approach, compensation cost recognized in 2007 and2008 includes compensation cost for all share-based payments granted prior to,but not yet vested on, November 1, 2006, based on the grant-date fairvalue estimated in accordance with the provisions of SFAS 123R, andcompensation cost for all shared-based payments granted subsequent to November 1,2006, based on the grant-date fair value estimated in accordance with theprovisions of SFAS 123R.

 

As a result of SFAS 123R, the net loss and net lossper share for the three months ended January 31, 2008 were $2,000 and$0.00, respectively. The net loss and net loss per share for the three monthsended January 31, 2007 were $6,000 and $0.00, respectively.

 

7

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TheCompany uses the Black-Scholes option-pricing model to estimate fair value ofstock-based awards with the following weighted average assumptions:

 

| **For Periods Ended  January 31,** | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|
| Risk free  interest rates                         |       | 3.9      | %          | 4.5      | %          |
| Expected lives                                    |       | 7 Years  |       | 7 Years  |       |
| Expected  volatility                              |       | 293      | %          | 264      | %          |
| Expected  dividends                               |       | 0        | %          | 0        | %          |

 

The Company calculates expected volatility for stockoptions and awards using historical volatility as the Company believes theexpected volatility will approximate historical volatility. The starting pointfor the historical period used is based on a material change in the Company’soperations that occurred in the first quarter of fiscal 2003.

 

As of January 31, 2008 the estimated expenserelated to stock options outstanding and unvested is $3,000 for the remainingquarters in the year ending October 31, 2008. The estimated expenserelated to stock options outstanding and unvested is $4,000, $2,000 and $0 forthe fiscal years ending October 31, 2009, 2010 and 2011, respectively.

 

NOTE G – CUSTOMER AND GEOGRAPHIC DATA

 

The following tables set forth the percentage of theCompany’s revenues (including sales delivered through internationaldistributors) by geographic location for the three months ended January 31,2008 and 2007:

 
| **Three Months Ended January 31,** | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|--------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| North America                                          |       | 46         | %          | 43         | %          |
| Europe                                                 |       | 31         | %          | 21         | %          |
| Asia-Pacific                                           |       | 22         | %          | 36         | %          |
| South America                                          |       | 1          | %          | 0          | %          |
|                                                   |       | 100        | %          | 100        | %          |

 

In the three-month periodended January 31, 2008, revenues from two customers represented approximately15% and 10% of total revenue, respectively. In the three-month period ended January 31,2007, revenues from two customers represented approximately 13% and 11% totalrevenue, respectively.

 

NOTE H – NEW ACCOUNTINGPRONOUNCEMENTS

 

The Company adopted FSP EITF 00-19-2, as of October 1,2007, “Accounting for Registration Payment Arrangements” (“FSP”), whichaddresses an issuer’s accounting for registration payment arrangements. ThisFSP specifies that the contingent obligation to make future payments or otherwisetransfer consideration under a registration payment arrangement, whether issuedas a separate agreement or included as a provision of a financial instrument orother agreement, should be separately recognized and measured in accordancewith FASB Statement No. 5, “Accounting for Contingencies”. This FSPfurther clarifies that a financial instrument subject to a registration paymentarrangement should be accounted for in accordance with other applicablegenerally accepted accounting principles (GAAP) without regard to thecontingent obligation to transfer 

 

8

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consideration pursuant to the registration paymentarrangement.   The adoption of this FSPdid not have an impact on the Company.

 

NOTE I – SUBSEQUENT EVENT

 

OnMarch 11, 2008, the Company entered into a Subscription Agreement with P.R. Peterson relating to the purchase on March 11, 2008 of securities ofthe Company by the P. R. Peterson Co. Keogh Plan (the “Keogh Plan”). P. R.Peterson, a director of the Company and the Company’s largestshareholder, controls the Keogh Plan.

 

Pursuantto the Subscription Agreement, the Company sold to the KeoghPlan 5,000,000 shares of the Company’s common stock for $0.10 per share incash for gross proceeds of $500,000. As additional consideration for theissuance of the common stock, the Company also issued the Keogh Plan aseven-year immediately exercisable warrant to purchase 500,000 shares of theCompany’s common stock at an exercise price of $0.10 per share. Also on March 11,2008, the Company and the Keogh Plan entered into a Registration RightsAgreement by which the Company is obligated, among other things, toregister the 500,000 shares underlying the warrant upon demand of the KeoghPlan, subject to certain limitations. Through the Registration RightsAgreement, the Company also granted the Keogh Plan “piggyback” registrationrights with respect to the shares underlying the warrant.  With the proceeds of the sale of shares tothe Keogh Plan, the Company believes it has sufficient cash to fund itsoperations, working capital and capital resource needs through its fiscal yearending October 31, 2008.

 

Item 2

 

MANAGEMENT’S DISCUSSIONAND ANALYSIS OR PLAN OF OPERATION

 

# Overview

 

PPT VISION, Inc. (“the Company”) designs,manufactures, and markets machine vision based intelligent cameras used forautomated inspection, measurement, and guidance applications in themanufacturing marketplace. The Company’s IMPACT intelligent camera product lineenables manufacturers to realize significant economic paybacks by increasingthe quality of manufactured parts and improving the productivity ofmanufacturing processes. The Company’s IMPACT intelligent camera product lineis sold through a global network of distribution and integration partners toend-user manufacturers, original equipment manufacturers, and manufacturingmachine builders, in a wide variety of manufacturing markets includingelectronics, automotive, medical device, and packaged goods industries.

 

The Company’s revenuesincreased 28% to $1,335,000 during the first quarter ended January 31,2008 compared to revenues of $1,041,000 in the prior year’s first quarter. TheCompany’s net loss for the quarter ended January 31, 2008 decreased to$414,000 or $0.04 per share compared to $477,000 or $0.10 per share in theprior year’s period. The increase in revenue in the first quarter of fiscalyear 2008 compared to the first quarter of fiscal year 2007 occurred as aresult of an increase in our IMPACT product line sales. IMPACT unit volumeincreased 54% in the first quarter of fiscal 2008 compared to the first quarterof fiscal 2007.

 

9

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During the fiscal 2008 first quarter, revenues fromoutside North America accounted for 54% of revenues compared to 57% in thefirst quarter of fiscal 2007.

 

Total operating expenses for the three-month periodended January 31, 2008 were $1,041,000, a 7% increase in comparison tototal operating expenses of $970,000 in the prior year’s first quarter. Theincrease in operating expenses from the first quarter of fiscal year 2008compared to the same period in fiscal 2007 primarily relates to additionalstaffing in the research and development department.

 

CRITICALACCOUNTING POLICIES AND ESTIMATES

 

Management’s discussionand analysis of its financial condition and results of operations are based onthe Company’s accompanying unaudited condensed financial statements, which havebeen prepared in accordance with accounting principles generally accepted inthe United States of America for interim financial information and with theinstructions to Form 10-QSB. Accordingly, they do not include all of theinformation required by accounting principles generally accepted in UnitedStates of America for complete financial statements. In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.

 

The preparation of thesefinancial statements requires management to make certain estimates andassumptions that affect the reported amounts of assets and liabilities as ofthe date of the financial statements and the reported revenues and expensesduring the reporting period. Management bases its estimates on historicalexperience and various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities. Actual resultscould differ from these estimates.

 

Management believes theCompany’s critical accounting policies and areas that require more significantjudgments and estimates used in the preparation of its financial statements tobe:

 

·                  revenuerecognition;

·                  estimatingvaluation allowances, specifically the allowance for doubtful accounts andinventory; and

·                  valuationand useful lives of long-lived and intangible assets.

 

RevenueRecognition

 

The Company typicallyrecognizes revenue on product sales upon shipment to the end user customers ifcontractual obligations have been met and title and risk of loss have passed tothe customer, which is generally the case for sales of machine vision systems,spare parts and accessories. The Company also recognizes revenue on productssold to distributors upon shipment because contracts with distributors do notinclude post-shipment obligations or any right of return provisions and pricingis fixed at the time of sale. Service revenue, which includes applicationengineering, product development, customer training and repair services, isrecognized when the services are performed. Service revenue 

 

10

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is less than 10% of totalrevenues for the three months ended January 31, 2008 and 2007.

 

# Valuation Allowances

 

Management estimates theallowance for doubtful accounts by analyzing accounts receivable balances byage and considering specific factors about the individual customer’s financialcondition. When it is deemed probable that all or a portion of a customer’saccount is uncollectible, a corresponding amount is added to the allowance fordoubtful accounts.

 

The Company’s inventoryprimarily consists of parts and other materials that are used in themanufacture of vision systems. The Company generally only builds systems basedon customer orders and as a result maintains only a minor amount of finishedgoods inventory. Management establishes valuation reserves on inventory forestimated excess and obsolete inventory equal to the difference between thecost of inventory and its estimated market value based on assumptions aboutfuture product demand and market conditions. In view of the rapid pace oftechnological change in the machine vision industry, the Company generallyconsiders inventory that has had no usage for one year to be obsolete.  In addition, changes in the Company’s productofferings or those of the Company’s competitors may also result in excess orobsolete inventory levels.  Accordingly,these factors will also be considered in the determination of the market valueof inventory.

 

Actual results coulddiffer from these estimates under different assumptions.  If the financial condition of one or more ofour customers were to deteriorate, or if actual product demand or marketconditions are less favorable than anticipated by management, additionalreserves may be required.

 

# Long-Lived and Intangible Assets

 

The Company reviews itslong-lived assets for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable.Recoverability of assets to be held and used is measured by a comparison of thecarrying amount of an asset to undiscounted future net cash flows expected tobe generated by the assets. If these assets are considered to be impaired, theimpairment to be recognized is measured by the amount by which the carryingamount of the assets exceeds the fair value of the assets.

 

RESULTS OFOPERATIONS

 

Revenues

 

Net revenues increased28% to $1,335,000 for the three-month period ended January 31, 2008, comparedto net revenues of $1,041,000 for the same period in fiscal 2007. In thethree-month period ended January 31, 2008, revenues from two customerseach represented approximately 15% and 10% of total revenue, respectively. Inthe three-month period ended January 31, 2007, revenues from two customerseach represented approximately 13% and 11% of total revenue, respectively.

 

The increase in revenuein the first quarter of fiscal year 2008 compared to the first quarter offiscal year 2007 occurred as a result of an increase in our 

 

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IMPACT product linesales. Unit sales for the three-month period ended January 31, 2008increased to 298 from 194 in the same period of fiscal 2007. IMPACT unit volumeincreased 54% in the first quarter of fiscal 2008 compared to the first quarterof fiscal 2007.

 

During the first quarterof fiscal 2008, revenues from outside North America accounted for 54% ofrevenues compared to 57% in the fiscal 2007 first quarter.

 

Quarter to quarter net revenue is subject to fluctuation given thenature of the machine vision industry and the capital nature of our product.

 

Gross profit increased26% to $621,000 for the three-month period ended January 31, 2008,compared to $492,000 for the same period in fiscal 2007. As a percentage of netrevenues, the gross profit for the first quarter of fiscal 2008 and 2007remained flat at 47%. We expect that our future gross margins will trend intothe 55% to 60% range as our fixed manufacturing overhead is spread over ahigher volume of sales.

 

Sales and marketing expenses increased 10% to $474,000for the three-month period ended January 31, 2008 compared to $429,000 forthe same period in fiscal 2007. As a percentage of net revenues, sales andmarketing expenses decreased to 36% for the first quarter 2008 compared to 41%for the same period in fiscal 2007. The Company expects sales and marketingexpenses in absolute dollars to remain relatively flat for the remainder offiscal 2008. Increases in sales expenditures may occur to the extent thatrevenue growth is achieved.

 

General and administrative expenses decreased 8% to$217,000 for the three-month period ended January 31, 2008, compared to$235,000 for the same period in fiscal 2007. As a percentage of net revenues,general and administrative expenses decreased to 16% for the first quarter offiscal 2008 compared 23% for the same period in fiscal 2007. The Companyexpects general and administrative expenses to remain relatively flat for theremainder of fiscal 2008.

 

Research and development expenses increased 14% to$350,000 for the three-month period ended January 31, 2008, compared to$306,000 for the same period in fiscal 2007. As a percentage of net revenues,research and development expenses decreased to 26% for the first quarter offiscal 2008, compared to 29% for the first quarter of fiscal 2007. The Companyexpects research and development expenses to remain relatively flat for theremainder of fiscal 2008.

 

The Company did not record an income tax benefit orexpense for the three month periods ended January 31, 2008 or 2007.

 

TheCompany’s net loss for the first quarter of fiscal 2008 decreased from year-agolevels to $414,000 or $0.04 per share, as compared with a loss of $477,000 or$0.10 per share for the same period in fiscal 2007. There were approximately9.9 million shares outstanding during the three-month period ended January 31,2008, as compared with approximately 4.5 million shares outstanding for thesame period in fiscal 2007. The increase in the number of shares outstandingresulted in a decrease in per share net loss for the period ended January 31,2008 as compared to January 31, 2007.

 

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LIQUIDITYAND CAPITAL RESOURCES

 

At January 31, 2008 the Company had cash balancesof $407,000, working capital of approximately $1.3 million and no long-termdebt.

 

In the first quarter of fiscal 2008 the Companyincurred a net loss of $414,000 which included non-cash charges related todepreciation and amortization of $25,000. The net loss for the quarterdecreased $63,000 from the $477,000 loss reported in the first quarter offiscal 2007, which included $32,000 in non-cash charges relating to depreciationand amortization. For the three months ended January 31, 2008, cash usedin operating activities was $211,000.

 

As of January 31,2008, the Company had no outstanding debt.

 

Working capital decreased $393,000 to$1,286,000 at January 31, 2008 from $1,679,000 at October 31, 2007.The Company financed its operations during the first three months of fiscal2008 through existing cash and cash equivalents. Accounts receivable decreased$150,000 and inventories decreased $24,000 during the first three months offiscal 2008. Accounts payable decreased by $20,000 while accrued expensesincreased by $7,000 during the first three months of fiscal 2008.

 

Net cash used ininvesting activities was $6,000 during the three months ended January 31,2008 which accounted for fixed asset additions during the first three months offiscal 2008. This compares with $7,000 in fixed asset additions for the sameperiod in fiscal 2007. The Company expects that fixed asset additions for theremaining quarters of fiscal 2008 to continue at approximately the same rate,or slightly higher, as the first quarter of fiscal 2008.

 

The Company does not have relationships withunconsolidated entities or financial partnerships, such as entities oftenreferred to as structured finance or special purpose entities, which would havebeen established for the purpose of facilitating off-balance sheet financialarrangements. As such, the Company is not materially exposed to any financing,liquidity, market or credit risk that could arise if we had engaged in sucharrangements.

 

The Company believes it does not havematerial exposure to quantitative and qualitative market risks. The carryingamounts reflected in the balance sheets of cash and cash equivalents, tradereceivables and trade payables approximate fair value at January 31, 2008due to the short maturities of these instruments.

 

Subsequentto the end of the January 31, 2008 quarter, the Company anticipated ashortage in available capital and on March 11, 2008, the Company enteredinto a Subscription Agreement with P. R. Peterson relating to the purchase on March 11,2008 of securities of the Company by the P. R. Peterson Co. Keogh Plan(the “Keogh Plan”). P. R. Peterson, a director of theCompany and the Company’s largest shareholder, controls the KeoghPlan.

 

Pursuantto the Subscription Agreement, the Company sold to the Keogh Plan 5,000,000shares of the Company’s common stock for $0.10 per share in cash for grossproceeds of $500,000. As additional consideration for the issuance of thecommon stock, the Company also issued the Keogh Planseven-year immediately exercisable warrant to purchase 500,000 shares ofthe Company’s common stock at an exercise price of $0.10 per share. Alsoon March 11, 2008, the Company and the Keogh Plan entered into aRegistration Rights Agreement by which the Company is obligated, among otherthings, to register the 500,000 shares underlying the warrants upon demandof the Keogh Plan, subject to certain limitations. Through theRegistration Rights Agreement, the Company also granted the Keogh Plan 

 

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“piggyback”registration rights with respect to the shares underlying the warrant.  With the proceeds of the sale of shares tothe Keogh Plan, the Company believes it has sufficient cash to fund itsoperations, working capital and capital resource needs through its fiscal yearending October 31, 2008.

 

PPTVISION has realized significant operating losses over the past several years,resulting in recurring external capital requirements necessary to continue theoperations of the Company. The Company cannot assure that positive cash flowswill be realized within a time frame such that future external financing willnot be required to continue the operations of the Company. Further, the Company’scurrent business plan and future external financing requirements is uncertainand subject to change based upon, among other factors, market and industryconditions, the Company’s ability to continue to introduce new products, serviceexisting customers, obtain new customers, and increase revenue and cash flowfrom operations. In the event that the Company needs to obtainadditional external capital to continue its operations, the Company believesthat a variety of debt or equity financing alternatives may be available,including borrowing secured by accounts receivable, inventory and other assets.However, there can be no assurance that this potential financing will beavailable.

 

Whilethe Company met its external working capital requirements for fiscal years 2006and 2007 through proceeds from sale of equity securities to P. R. Peterson, theCompany has no commitments or agreements from Mr. Peterson or any otherperson at the current time to fund any future capital requirements. The Company’sefforts to raise additional funds from the sale of its equity may behampered by the fact that its securities are relatively illiquid and that morethan a majority of the Company’s outstanding common stock is controlled by oneshareholder. Additionally, any future financing may be raised on terms that aredilutive to the holders of the Company’s common stock.

 

NEW ACCOUNTINGPRONOUNCEMENTS

 

Information regarding newaccounting pronouncements is included in Note H to Condensed UnauditedFinancial Statements, included in Item 1, “Financial Statements” of thisQuarterly Report on Form 10-QSB.

 

FORWARD LOOKINGSTATEMENTS

 

The discussion above contains forward-looking statementswithin the meaning of the Private Securities Litigation Reform Act of 1995,including statements regarding the Company’s expectations, beliefs, intentionsand strategies regarding the future. Forward-looking statements include,without limitation, statements regarding the extent and timing of futurerevenues and expenses and customer demand. All forward-looking statementsincluded in this document are based on information available to the Company asof the date hereof, and the Company assumes no obligation to update any suchforward-looking statements.

 

TheCompany’s actual results are subject to risks and uncertainties and coulddiffer materially from those discussed in the forward-looking statements. Thesestatements are based upon the Company’s expectations regarding a number offactors, including the Company’s ability to obtain additional working capitalif 

 

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necessaryto support its operations, changes in worldwide general economic conditions,cyclicality of capital spending by customers, the Company’s ability to keeppace with technological developments and evolving industry standards, worldwidecompetition, and the Company’s ability to protect its existing intellectualproperty from challenges from third parties. A detailed description of thefactors that could cause future results to materially differ from the Company’srecent results or those projected in the forward-looking statements arecontained in the section entitled “Description ofBusiness” under the caption “Important Factors Regarding Forward-LookingStatements” contained in its filing with the Securities and Exchange Commissionon Form 10-KSB for the year ended October 31, 2007 and other reportsfiled with the Securities and Exchange Commission.

 

Item3:    CONTROLS ANDPROCEDURES

 

(a)   Evaluation of Disclosure Controls and Procedures.

 

The Company’s President,Chief Executive Officer and Chief Financial Officer Joseph C. Christenson, hasreviewed the Company’s disclosure controls and procedures as of the end of theperiod covered by this report and concluded that the Company’s disclosurecontrols and procedures are effective.

 

(b)   Changes in Internal Control Over Financial Reporting.

 

There have been nochanges in internal control over financial reporting that occurred during thefiscal quarter covered by this report that have materially affected, or arereasonably likely to materially affect, the registrant’s internal control overfinancial reporting.

 

PART II.        OTHER INFORMATION

 

Item1:            LEGALPROCEEDINGS

 

None.

 

Item2:            UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

OnMarch 11, 2008, the Company entered into a Subscription Agreement with P.R. Peterson relating to the purchase on March 11, 2008 of securities ofthe Company by the P. R. Peterson Co. Keogh Plan (the “Keogh Plan”). P.R. Peterson, a director of the Company and the Company’s largestshareholder, controls the Keogh Plan.

 

Pursuantto the Subscription Agreement, the Company sold to the KeoghPlan 5,000,000 shares of the Company’s common stock for $0.10 per share incash for gross proceeds of $500,000. As additional consideration for theissuance of the common stock, the Company also issued the Keogh Plan aseven-year  immediately exercisable warrant to purchase 500,000 shares ofthe Company’s common stock at an exercise price of $0.10 per share. Thepurchase price for the Company’s common stock was determined based uponnegotiations between the Company and Mr. Peterson.

 

Alsoon March 11, 2008, the Company and the Keogh Plan entered into aRegistration Rights Agreement by which the Company is obligated, among other 

 

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things, toregister the 500,000 shares underlying the warrant upon demand of the KeoghPlan, subject to certain limitations. Through the Registration RightsAgreement, the Company also granted the Keogh Plan “piggyback” registrationrights with respect to the shares underlying the warrants.  With the proceeds of the sale of shares tothe Keogh Plan, the Company believes it has sufficient cash to fund itsoperations, working capital and capital resource needs through its fiscal yearending October 31, 2008.

 

Basedon the manner of sale of shares of common stock and the warrants andrepresentations of the Keogh Plan (which represents itself as an “accreditedinvestor”), the Company relied upon the exemption from registration afforded bySection 4(2) of the Securities Act of 1933, as amended, and Section 4(6) thereof.

 

Additionally,at the March 10, 2008 Annual Meeting of Shareholders, the Company’sshareholders approved a proposal to an amendment to the Company’s Articles ofIncorporation to increase the authorized common stock of the Company from10,000,000 to 50,000,000 shares. In part, the Company sought the increase inthe number of shares of common stock authorized to permit the issuance to theKeogh Plan of 2,500,000 shares of its common stock and seven-year warrants topurchase an additional 1,000,000 shares of common stock pursuant to aSubscription Agreement dated August 30, 2007 between the Company and theKeogh Plan. On March 11, 2008, the Company and the Keogh Plan closed thetransactions contemplated by the Subscription Agreement dated August 30,2007 and the Company issued the Keogh Plan the 2,500,000 shares of its commonstock and the seven-year warrants to purchase 1,000,000 shares of common stock.

 

Asof March 13, 2008, and including the March 11, 2008 issuances to theKeogh Plan described above, there were 14,902,916 shares of the Company’scommon stock outstanding.

 

Item3.            DEFAULTSUPON SENIOR SECURITIES

 

Not Applicable.

 

Item4:            SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

 

On March 10, 2008the Company held its Annual Meeting of Shareholders. Of the 7,402,916 shares ofcommon stock outstanding and entitled to vote at the meeting, 6,493,050 shareswere present, either in person or by proxy. The following describes the mattersconsidered by the Company’s shareholders at the Annual Meeting, as well as theresults of the votes cast at the Annual Meeting:

 

A.    Toelect three (3) directors to hold office until the next Annual Meeting ofShareholders or until their respective successors have been elected and shallqualify.

 
| **Name of Nominee** | ** ** | **For**   | ** ** | **Withheld** | ** ** |
|-------------------------------|------------|-----------|------------|--------------|------------|
| Joseph C.  Christenson        |       | 6,314,752 |       | 178,298      |       |
| Robert W. Heller              |       | 6,281,360 |       | 211,690      |       |
| Peter R.  Peterson            |       | 6,317,277 |       | 175,773      |       |

 

B.    The second matterrelated to the approval of an amendment to the Company’s Articles ofIncorporation to increase the authorized common stock of the Company from10,000,000 to 50,000,000 shares. 

 

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6,249,113 voteswere cast for approval and 240,357 were cast against approval. There were 3,580abstentions and zero broker non-votes.

 

C.    Thethird matter related to the approval of an amendment to the Company’s 2007Stock Incentive Plan. 5,226,243 votes were cast for approval and 63,875 werecast against approval. There were 2,174 abstentions and 1,200,758 brokernon-votes.

 

Based on these votingresults, each of the directors nominated were elected and the second and thirdmatters were approved.

 

Item5:            OTHERINFORMATION

 

See Item 2. “UnregisteredSales of Equity Securities and Use of Proceeds” for disclosure of informationthat would otherwise be disclosed by the Company under Items 1.01 and 3.02 of aCurrent Report on Form 8-K.

 

Item6:            EXHIBITS

 

(a)   The following exhibits areincluded herein:

 
| 3.1       |   | PPT VISION, Inc.  Articles of Incorporation as in effect March 11, 2008.                                                                        |
|-----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                      |
|  4.1 |   | Warrant  to Purchase 500,000 shares of Common stock of PPT VISION, Inc. dated  March 11, 2008 issued to P. R. Peterson Co. Keogh Plan.          |
|      |   |                                                                                                                                                      |
|  4.2 |   | Registration  Rights Agreement dated March 11, 2008 by and between PPT  VISION, Inc. and P. R.  Peterson Co Keogh Plan.                         |
|      |   |                                                                                                                                                      |
| 31.1      |   | Certification  of President, Chief Executive Officer and Chief Financial Officer pursuant to  Rules 13a-14(a) and 15d-14(a)of the Exchange Act. |
|      |   |                                                                                                                                                      |
| 32.1      |   | Certification pursuant to 18 U.S.C. §1350.                                                                                                           |

 

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SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                       | PPT VISION, INC.                                                 |
|----------------------------|------------------------------------------------------------------|
|                       |                                                             |
| Date: March 13,  2008 |                                                             |
|                       |                                                             |
|                       | /s/Joseph C.  Christenson                                        |
|                       | Joseph C.  Christenson                                           |
|                       | President, Chief  Executive Officer and  Chief Financial Officer |

 

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