**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**Form10-QSB**

----

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

**For theQuarterly Period Ended January 31, 2007**

**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          |       | (I.R.S. Employer                   |
| incorporation or  organization)           |       | 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) has filed 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 been subject tosuch 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 February 27, 2007: 7,402,916

 

----

INDEX

PPT VISION, INC.
| Part I.  |   | Financial Information                                                                      |   |   |
|----------|--------|--------------------------------------------------------------------------------------------|--------|--------|
|     |   |                                                                                       |   |   |
| Item 1.  |   | Financial Statements                                                                       |   |   |
|     |   | Balance Sheets as of January 31, 2007 and October 31,  2006                                |   |   |
|     |   | Statements of Operations for the Three Months Ended  January 31, 2007 and January 31, 2006 |   |   |
|     |   | Statements of Cash Flows for the Three Months Ended  January 31, 2007 and January 31, 2006 |   |   |
|     |   | Notes to Condensed Financial Statements – January 31,  2007                           |   |   |
| Item 2.  |   | Management’s  Discussion and Analysis or Plan of Operation                            |   |   |
| Item 3.  |   | Controls and  Procedures                                                                   |   |   |
|     |   |                                                                                       |   |   |
| Part II. |   | Other Information                                                                          |   |   |
|     |   |                                                                                       |   |   |
| Item 1.  |   | Legal Proceedings                                                                          |   |   |
| Item 2.  |   | Unregistered  Sales of Equity 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                                                                                   |   |   |
|     |   | Signatures                                                                                 |   |   |

 

2

----

PPT VISION, INC.BALANCE SHEETS
| ** **                                       | ** ** | **January 31, 2007** | ** ** | **October 31, 2006** | ** ** |
|--------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                       | ** ** | **(unaudited)**                | ** ** | **(audited)**                  | ** ** |
| ASSETS                                           |       |                           |       |                           |       |
| Current assets                                   |       |                           |       |                           |       |
| Cash and cash  equivalents                       |       | $                              | 278,000    |                           | $          | 753,000 |   |
| Accounts  receivable, net                        |       | 845,000                        |       | 903,000                        |       |
| Inventories:                                     |       |                           |       |                           |       |
| Manufactured and  purchased parts                |       | 470,000                        |       | 440,000                        |       |
| Work-in-process                                  |       | 29,000                         |       | 15,000                         |       |
| Finished goods                                   |       | 23,000                         |       | 15,000                         |       |
| Total inventories                                |       | 522,000                        |       | 470,000                        |       |
| Other current  assets                            |       | 127,000                        |       | 135,000                        |       |
| Total current assets                             |       | 1,772,000                      |       | 2,261,000                      |       |
| Fixed assets,  net                               |       | 288,000                        |       | 308,000                        |       |
| Intangible  assets                               |       | 18,000                         |       | 22,000                         |       |
| Total assets                                     |       | $                              | 2,078,000  |                           | $          | 2,591,000 |   |
|                                             |       |                           |       |                           |       |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY       |       |                           |       |                           |       |
| Current liabilities                              |       |                           |       |                           |       |
| Accounts payable                                 |       | $                              | 440,000    |                           | $          | 487,000 |   |
| Accrued expenses                                 |       | 138,000                        |       | 138,000                        |       |
| Deferred revenue  – customer advances       |       | 2,000                          |       | 2,000                          |       |
| Total current  liabilities                       |       | 580,000                        |       | 627,000                        |       |
| Shareholders’ equity                        |       |                           |       |                           |       |
| Common stock                                     |       | 455,000                        |       | 453,000                        |       |
| Capital in  excess of par value                  |       | 36,634,000                     |       | 36,625,000                     |       |
| Accumulated  deficit                             |       | (35,591,000                    | )          | (35,114,000                    | )          |
| Total shareholders’  equity                 |       | 1,498,000                      |       | 1,964,000                      |       |
| Total liabilities and shareholders’  equity |       | $                              | 2,078,000  |                           | $          | 2,591,000 |   |

 

See accompanying notes tocondensed financial statements

3

----

PPTVISION, INC.STATEMENTS OF OPERATIONS(UNAUDITED)
| ** **                                   | ** ** | **Three Months Ended  January 31,** | ** ** |
|----------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                           | ** ** | **2006** | ** ** |
|                                         |       |                                               |       |   |   |
| Revenues                                     |       | $                                             | 1,041,000  |   | $ | 1,582,000 |   |
| Cost of revenues                             |       | 549,000                                            |       | 702,000 |   |
| Gross profit                                 |       | 492,000                                            |       | 880,000 |   |
|                                         |       |                                               |       |   |   |
| Expenses:                                    |       |                                               |       |   |   |
| Sales and marketing                          |       | 429,000                                            |       | 559,000 |   |
| General and administrative                   |       | 235,000                                            |       | 236,000 |   |
| Research and development                     |       | 306,000                                            |       | 329,000 |   |
| Total expenses                               |       | 970,000                                            |       | 1,124,000 |   |
| Interest and  other income                   |       | 1,000                                              |       | 40,000 |   |
| Net loss                                     |       | $                                             | (477,000   | ) | $ | (204,000 | ) |
|                                         |       |                                               |       |   |   |
| Per share data:                              |       |                                               |       |   |   |
| Weighted average  basic shares outstanding   |       | 4,546,000                                          |       | 2,999,000 |   |
| Weighted average  diluted shares outstanding |       | 4,546,000                                          |       | 2,999,000 |   |
| Basic and diluted loss  per common share     |       | $                                                  | (0.10      | ) | $ | (0.07 | ) |

 

See accompanyingnotes to condensed financial statements

4

----

PPT VISION, INC.STATEMENTS OF CASH FLOWS(UNAUDITED)
| ** **                                                                   | ** ** | **Three Months**          | ** ** | **Three Months**          | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                                                   | ** ** | **Ended**                      | ** ** | **Ended**                      | ** ** |
| ** **                                                                   | ** ** | **January 31, 2007** | ** ** | **January 31, 2006** | ** ** |
| Net loss                                                                     |       | $                              | (477,000   | )                              | $          | (204,000 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                           |       |                           |       |
| Stock option expense                                                         |       | 6,000                          |       | 1,000                          |       |
| Depreciation and amortization                                                |       | 32,000                         |       | 44,000                         |       |
| Change in assets  and liabilities:                                           |       |                           |       |                           |       |
| Accounts receivable                                                          |       | 58,000                         |       | (206,000                       | )          |
| Inventories                                                                  |       | (52,000                        | )          | 6,000                          |       |
| Other current assets                                                         |       | 8,000                          |       | 14,000                         |       |
| Accounts payable                                                             |       | (47,000                        | )          | 128,000                        |       |
| Accrued expenses                                                             |       | —                         |       | (45,000                        | )          |
| Deferred revenue - customer advances                                         |       | —                         |       | 8,000                          |       |
| Total adjustments                                                            |       | (5,000                         | )          | (50,000                        | )          |
| Net cash used in operating activities                                        |       | (472,000                       | )          | (254,000                       | )          |
| Cash flows from  investing activities:                                       |       | (7,000                         | )          | (5,000                         | )          |
| Purchase of fixed assets                                                     |       |                           |       |                           |       |
| Net cash used in investing activities                                        |       | (7,000                         | )          | (5,000                         | )          |
| Cash flows from  financing activities:                                       |       |                           |       |                           |       |
| Proceeds from  issuance of common stock                                      |       | 4,000                          |       | —                         |       |
| Net cash provided by financing activities                                    |       | 4,000                          |       | —                         |       |
| Net decrease in  cash and cash equivalents                                   |       | (475,000                       | )          | (259,000                       | )          |
| Cash and cash  equivalents at beginning of year                              |       | 753,000                        |       | 778,000                        |       |
| Cash  and cash equivalents at end of period                                  |       | $                              | 278,000    |                           | $          | 519,000 |   |

 

See accompanying notes to condensed financial statements

5

----

PPT VISION, INC.NOTES TO CONDENSED FINANCIAL STATEMENTSJanuary 31, 2007(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’sIMPACTTM intelligent camera product line enables manufacturers to realizesignificant economic paybacks by increasing the quality of manufactured partsand improving the productivity of manufacturing processes. The Company’s IMPACTintelligent camera product line is sold through a global network ofdistribution and integration partners to end-user manufacturers, originalequipment manufacturers, and manufacturing machine builders, in a wide varietyof manufacturing markets including electronics, automotive, medical device, andpackaged 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 forinterim financial 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 theopinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.Results of operations for the interim periods are not necessarily indicative ofthe results to be expected for the full year or of the results for any futureperiods.

The Balance Sheet atOctober 31, 2006 has been derived from the Company’s audited financialstatements for the fiscal year ended October 31, 2006 but does not include allof the information and footnotes required by accounting principles generallyaccepted in 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/A for the year ended October 31, 2006.

NOTE C – REVENUERECOGNITION

The Company typicallyrecognizes revenue on product sales upon shipment to the end user customers ifcontractual obligations have been substantially met and title and risk of losshave passed to the customer, which is generally the case for sales of machinevision systems, spare parts and accessories. The Company also recognizesrevenue on products sold to distributors upon shipment because contracts withdistributors do not include post-shipment obligations or any right of returnprovisions and pricing is fixed at the time of sale. Revenue related toapplication engineering, product development and customer training services isrecognized when the services are performed. Service revenue was less than 10%of total revenues for the three months ended January 31, 2007 and 2006.

6

----

NOTE D – LIQUIDITY ANDCAPITAL RESOURCES

The Company had a net lossfor the three months ended January 31, 2007 of $477,000. Cash used inoperations was $472,000 for the three months ended January 31, 2007.

On February 26, 2007, theCompany agreed to issue $1,000,000 of securities in a private placement toCompany’s current largest shareholder and a director, Mr. Peter R. Peterson, whois purchasing the securities through the P. R. Peterson Keogh Plan. The Companyentered in the agreement to strengthen its balance sheet and provide foradditional working capital requirements. In the offering, the Company agreed toissue 2,857,143 shares of its common stock, together with seven—year warrantsto purchase an additional 1,000,000 shares at a price of $0.50 per share.Although the offering was funded on February 26, 2007, issuance of the sharesis subject to approval by the shareholders of the Company at the PPT VISION2007 Annual Meeting of Shareholders of an increase in the shares of authorizedcommon stock from 5,000,000 to 10,000,000. The Company and Mr. Peterson alsoentered into a Registration Rights Agreement under which the Company agreed toregister the shares underlying the warrants. With the proceeds of the offering,the Company believes it has sufficient cash to fund its operations, workingcapital and capital resource needs through the next twelve months.

NOTE E – LOSS PER SHARE

At January 31, 2007,options to purchase 383,015 shares of the Company’s common stock were notconsidered in the calculation of diluted earnings per share. At January 31,2006, options to purchase 331,330 shares of the Company’s common stock were notconsidered in the calculation of diluted earnings per share.  As the Company had a net loss for bothperiods, the inclusion of outstanding options would have been anti-dilutive.

NOTE F – STOCK-BASED COMPENSATION

The Company has various types of stock-based compensationplans. These plans are administered by the Board of Directors, which selectspersons to receive awards and determines the number of shares subject to eachaward and the terms, conditions, performance measures and other provisions ofthe award. Readers should refer to Note 10 of the Company’s consolidatedfinancial statements in the Annual Report on Form 10-KSB for the fiscal yearended October 31, 2006, for additional information related to these stock-basedcompensation plans.

Effective November 1, 2006, the Company adoptedStatement of Financial Accounting Standards (SFAS) 123R, Share-Based PaymentSFAS No. 123R, which requires companies to measure and recognize compensationexpense for all stock-based payments at fair value. SFAS 123R is being appliedon the modified prospective basis. Prior to the adoption of SFAS 123R, theCompany had adopted the disclosure-only provisions of SFAS No. 148, Accountingfor Stock-Based Compensation and, accordingly, recognized no compensationexpense 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, 2006that are subsequently modified, repurchased, cancelled or vest. Under themodified prospective approach, compensation cost recognized in 2007 includescompensation cost for all share-

7

----

based payments granted prior to, but not yet vestedon, November 1, 2006, based on the grant-date fair value estimated inaccordance with the provisions of SFAS 123R, and compensation cost for allshared-based payments granted subsequent to November 1, 2006, based on thegrant-date fair value estimated in accordance with the provisions of SFAS 123R.Prior periods were not restated to reflect the impact of adopting the newstandard.

As a result of adopting SFAS 123R on November 1, 2006,the net loss and net loss per share for the three months ended January 31,2007, were $6,000 and $0 lower, respectively, than if the Company had continuedto account for stock-based compensation under SFAS No. 148.

The following table illustrates the effect on net lossand net loss per share had the Company accounted for stock-based compensationin accordance with SFAS 123R for the three months ended January 31, 2006:
| Three Months Ended  January 31, | ** **   | **2006** | ** ** |
|------------------------------------------------|--------------|----------|------------|
| Net loss                                       | As  reported |     | $          | (204,000 | ) |
|                                                | Pro  forma   |     | $          | (248,000 | ) |
|                                           |         |     |       |   |
| Stock based compensation                       | As reported  |     | $          | 1,000 |   |
|                                                | Pro forma    |     | $          | (44,000 | ) |
|                                           |         |     |       |   |
| Basic and diluted loss per  share              | As  reported |     | $          | (0.07 | ) |
|                                                | Pro forma    |     | $          | (0.08 | ) |
|                                                |              |          |            |  |  |  |

 

The Company uses the Black-Scholesoption-pricing model to estimate fair value of stock-based awards with thefollowing weighted average assumptions:
| For Periods Ended  January 31, | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
| Risk free  interest rates                     |       | 4.5      | %          | N/A      |       |
| Expected lives                                |       | 7 Years  |       | N/A      |       |
| Expected  volatility                          |       | 264      | %          | N/A      |       |
| Expected dividends                            |       | 0        | %          | N/A      |       |

 

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, 2007 the estimated expense relatedto stock options outstanding and unvested will be $8,000 for the remainingquarters in the year ending October 31, 2007. The estimated expense related to stock options outstanding and unvestedwill be $2,000 and $0 for the fiscal years ending October 31, 2008 and 2009,respectively.

8

----

NOTE G – CUSTOMER ANDGEOGRAPHIC DATA

The following tables set forth the percentage of theCompany’s net revenues (including sales delivered through internationaldistributors) by geographic location for the three months ended January 31,2007 and 2006:
| Three Months Ended January, 31 | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|
| North America                                      |       | 43       | %          | 49       | %          |
| Europe                                             |       | 21       | %          | 24       | %          |
| Asia-Pacific                                       |       | 36       | %          | 27       | %          |
| South America                                      |       | 0        | %          | 0        | %          |
|                                               |       | 100      | %          | 100      | %          |

 

In the three-month periodended January 31, 2007, revenues from two customers represented approximately13% and 11% of total revenue, respectively. In the three-month period endedJanuary 31, 2006, revenues from one customer represented approximately 18% oftotal revenue.

NOTE H – NEW ACCOUNTINGPRONOUNCEMENTS

The FASB has publishedFASB Interpretation No. 48 (FIN No. 48), Accounting for Uncertainty in IncomeTaxes, to address the noncomparability in reporting tax assets and liabilitiesresulting from a lack of specific guidance in FASB Statement of FinancialAccounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes, onthe uncertainty in income taxes recognized in an enterprise’s financialstatements. Specifically, FIN No. 48 prescribes (a) a consistent recognitionthreshold and (b) a measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return, and provides related guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition. FIN No. 48 will apply to fiscal years beginning after December 15,2006, with earlier adoption permitted. The Company does not expect the adoptionof FIN No. 48 to have a material effect on its financial statements.

In September, 2006, theSecurities and Exchange Commission (SEC) issued Staff Accounting Bulletin 108, “Consideringthe Effects on Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements,” (“SAB 108”). SAB 108 requires registrantsto quantify errors using both the income statement method (i.e. iron curtainmethod) and the rollover method and requires adjustment if either methodindicates a material error. If a correction in the current year relating toprior year errors is material to the current year, then the prior yearfinancial information needs to be corrected. A correction to the prior yearresults that are not material to those years, would not require a “restatementprocess” where prior financials would be amended. SAB 108 is effective forfiscal years ending after November 15, 2006. We do not anticipate that SAB 108will have a material effect on our financial position, results of operations orcash flows.

9

----

NOTE I – SUBSEQUENT EVENT

Subsequent to the end ofthe first quarter ended January 31, 2007, PPT Vision closed on a $1,000,000private placement with P. R. Peterson on February 26, 2007. Details of thisclosing can be found in Note D Liquidity and Capital Resources.

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’sIMPACT intelligent camera product line enables manufacturers to realizesignificant economic paybacks by increasing the quality of manufactured partsand improving the productivity of manufacturing processes. The Company’s IMPACTintelligent camera product line is sold through a global network ofdistribution and integration partners to end-user manufacturers, originalequipment manufacturers, and manufacturing machine builders, in a wide varietyof manufacturing markets including electronics, automotive, medical device, andpackaged goods industries.

The Company’s revenuesdecreased 34% to $1,041,000 during the first quarter ended January 31, 2007compared to revenues of $1,582,000 in the prior year’s first quarter. TheCompany’s net loss for the quarter ended January 31, 2007 increased to $477,000or $.10 per share compared to $204,000 or $.07 per share in the prior year’speriod. The decrease in revenue in the first quarter of fiscal year 2007 comparedto the first quarter of fiscal year 2006 occurred as a result of a 32% decreasein revenue from the IMPACT product line and a 42% decrease in other revenue.The decrease in IMPACT revenue occurred for two reasons. The first was a salesmix shift toward IMPACT units with a lower selling price. The second was theCompany’s decision to defer shipment on a number of new IMPACT units in backloginto the second quarter due to engineering and quality problems. The Companybelieves these engineering and quality problems will be solved in the secondquarter and that normal shipments of the new product will commence in thesecond quarter. Other revenue declined due to reduced shipments of spare partsand legacy products. The Company expects minimal sales going forward fromlegacy products as sales of these products have been phased out and are nolonger manufactured by the Company.

During the fiscal 2007 first quarter, revenues fromoutside North America accounted for 57% of revenues compared to 51% in thefirst quarter of fiscal 2006.

Total operating expenses for the three-month periodended January 31, 2007 were $970,000, a 14% decrease in comparison to totaloperating expenses of $1,124,000 in the prior year’s first quarter. Thedecrease in operating expenses from the first quarter of fiscal year 2007compared to the same period in fiscal 2006 is from the Company’s continuingefforts to control costs primarily related to sales and marketing expenses.

10

----

CRITICAL ACCOUNTINGPOLICIES 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 and assumptionsthat affect the reported amounts of assets and liabilities as of the date ofthe financial statements and the reported revenues and expenses during thereporting period. Management bases its estimates on historical experience andvarious other assumptions that are believed to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities. Actual results could differ fromthese 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:

·                  revenue recognition;

·                  estimating valuation allowances,specifically the allowance for doubtful accounts and inventory; 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 substantially met and title and risk of losshave passed to the customer, which is generally the case for sales of machinevision systems, spare parts and accessories. The Company also recognizesrevenue on products sold to distributors upon shipment because contracts withdistributors do not include post-shipment obligations or any right of returnprovisions and pricing is fixed at the time of sale. Service revenue, whichincludes application engineering, product development, customer training andrepair services, is recognized when the services are performed. Service revenueis less than 10% of total revenues for the three months ended January 31, 2007and 2006.

# 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 for doubtfulaccounts.

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 

11

----

of finished goodsinventory. Management establishes valuation reserves on inventory for estimatedexcess and obsolete inventory equal to the difference between the cost ofinventory and its estimated market value based on assumptions about futureproduct 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 usedis measured by a comparison of the carrying amount of an asset to undiscountedfuture net cash flows expected to be generated by the assets.  If these assets are considered to beimpaired, the impairment to be recognized is measured by the amount by whichthe carrying amount of the assets exceeds the fair value of the assets.

RESULTS OF OPERATIONS

Revenues

Net revenues decreased34% to $1,041,000 for the three-month period ended January 31, 2007, comparedto net revenues of $1,582,000 for the same period in fiscal 2006. Unit salesfor the three-month period ended January 31, 2007 decreased to 194 from 255 inthe same period of fiscal 2006.  In thethree-month period ended January 31, 2007, revenues from two customersrepresented approximately 13% and 11% of total revenue, respectively.  In the three-month period ended January 31,2006, revenues from one customer represented approximately 18% of totalrevenue.

The decrease in IMPACTrevenue occurred for two reasons. The first was a sales mix shift toward IMPACTunits with a lower selling price. The second was the Company’s decision todefer shipment on a number of new IMPACT units in backlog into the secondquarter due to engineering and quality problems. The Company believes theseengineering and quality problems will be solved in the second quarter and thatnormal shipments of the new product will commence in the second quarter. Otherrevenue declined due to reduced shipments of spare parts and legacy products.The Company expects minimal sales going forward from legacy products as salesof these products have been phased out and are no longer manufactured by theCompany.

During the first quarterof fiscal 2007, revenues from outside North America accounted for 57% ofrevenues compared to 51% in the fiscal 2006 first quarter.

Revenue trends may be inconsistent given the nature of the machine visionindustry and the capital nature of our product.

12

----

Gross profit decreased44% to $492,000 for the three-month period ended January 31, 2007, compared to$880,000 for the same period in fiscal 2006. As a percentage of net revenues, the gross profit for the first quarterof fiscal 2007 decreased to 47% compared to 56% in the same period of fiscal2006. The decrease in gross margin is a reflection of the decrease in revenueduring the first quarter of fiscal 2007. We expect that our future grossmargins will trend into the 55% to 60% range as our fixed manufacturingoverhead is spread over a higher volume of sales.

Sales and marketing expensesdecreased 23% to $429,000 for the three-month period ended January 31, 2007compared to $559,000 for the same period in fiscal 2006. As a percentage of netrevenues, sales and marketing expenses increased to 41% for the first quarter2007 compared to 35% for the same period in fiscal 2006. The Company expectssales and marketing expenses in absolute dollars to remain relatively flat forthe remainder of fiscal 2007. Increases in sales and marketing expenditures mayoccur to the extent that revenue growth is achieved.

General and administrativeexpenses decreased slightly to $235,000 for the three-month period endedJanuary 31, 2007, compared to $236,000 for the same period in fiscal 2006. As apercentage of net revenues, general and administrative expenses increased to23% for the first quarter of fiscal 2007 versus 15% for the same period infiscal 2006. The Company expects general and administrative expenses to remainrelatively flat for the remainder of fiscal 2007.

Research and developmentexpenses decreased 7% to $306,000 for the three-month period ended January 31,2007, compared to $329,000 for the same period in fiscal 2006. As a percentageof net revenues, research and development expenses increased to 29% for thefirst quarter of fiscal 2007, compared to 21% for the first quarter of fiscal 2006.The Company expects research and development expenses to remain relatively flatfor the remainder of fiscal 2007.

The Company did not recordan income tax benefit or expense for the three month periods ended January 31,2007 or 2006.

TheCompany’s net loss for the first quarter of fiscal 2007 increased from year-agolevels to $477,000 or 10 cents per share, as compared with a loss of $204,000or 7 cents per share for the same period in fiscal 2006. There wereapproximately 4.5 million shares outstanding during the three-month periodended January 31, 2007, as compared with approximately 3.0 million sharesoutstanding for the same period in fiscal 2006.

LIQUIDITY AND CAPITALRESOURCES

At January 31, 2007 theCompany had cash balances of $278,000, working capital of approximately $1.2million and no long-term debt.

In the first quarter offiscal 2007 the Company incurred a net loss of $477,000 which included non-cashcharges related to depreciation and amortization of $32,000. The net loss forthe quarter increased $273,000 from the $204,000 loss reported in the firstquarter of fiscal 2006. For the quarter ended January 31, 2007, cash used inoperating activities was $472,000.

13

----

On February 26, 2007, theCompany agreed to issue $1,000,000 of securities in a private placement toCompany’s current largest shareholder and a director, Mr. Peter R. Peterson,who is purchasing the securities through the P. R. Peterson Keogh Plan. TheCompany entered in the agreement to strengthen its balance sheet and providefor additional working capital requirements. In the offering, the Companyagreed to issue 2,857,143 shares of its common stock, together with seven—yearwarrants to purchase an additional 1,000,000 shares at a price of $0.50 pershare. Although the offering was funded on February 26, 2007, issuance of theshares is subject to approval by the shareholders of the Company at the PPTVISION 2007 Annual Meeting of Shareholders of an increase in the shares ofauthorized common stock from 5,000,000 to 10,000,000. The Company and Mr.Peterson also entered into a Registration Rights Agreement under which theCompany agreed to register the shares underlying the warrants. With theproceeds of the offering, the Company believes it has sufficient cash to fundits operations, working capital and capital resource needs through the nexttwelve months.

As of January31, 2007, the Company had no outstanding debt.

Workingcapital decreased $442,000 to $1,192,000 at January 31, 2007 from $1,634,000 atOctober 31, 2006. The Company financed its operations during the first threemonths of fiscal 2007 through existing cash and cash equivalents. Accountsreceivable decreased $58,000 and inventories increased $52,000 during the firstthree months of fiscal 2007. Accounts payable decreased by $47,000 whileaccrued expenses had no change during the first three months of fiscal 2007.

Net cash used ininvesting activities was $7,000 during the three months ended January 31, 2007which accounted for the fixed asset additions during the quarter. This compareswith $5,000 in fixed asset additions for the same period in fiscal 2006. TheCompany expects that fixed asset additions for the remaining quarters of fiscal2007 to continue at approximately the same rate as the first quarter of fiscal2007.

The Companydoes not have relationships with unconsolidated entities or financialpartnerships, such as entities often referred to as structured finance orspecial purpose entities, which would have been established for the purpose offacilitating off-balance sheet financial arrangements. As such, the Company isnot materially exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in such arrangements.

The Companybelieves it does not have material exposure to quantitative and qualitativemarket risks. The carrying amounts reflected in the balance sheets of cash andcash equivalents, trade receivables and trade payables approximate fair valueat January 31, 2007 due to the short maturities of these instruments.

NEW ACCOUNTINGPRONOUNCEMENTS

Information regarding newaccounting pronouncements is included in the Notes to Condensed FinancialStatements.

14

----

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 necessary to support its operations, changes in worldwide general economicconditions, cyclicality of capital spending by customers, the Company’s abilityto keep pace with technological developments and evolving industry standards,worldwide competition, and the Company’s ability to protect its existingintellectual property from challenges from third parties. A detaileddescription of the factors that could cause future results to materially differfrom the Company’s recent results or those projected in the forward-lookingstatements are contained 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, 2006 and other reports filed withthe Securities and Exchange Commission.

Item3:                         CONTROLSAND PROCEDURES

(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 disclosure controlsand procedures are effective.

(b) Changes in InternalControl 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.

PARTII.             OTHERINFORMATION

Item1:                         LEGALPROCEEDINGS

None.

15

----

Item 2:                         UNREGISTERED SALES OFEQUITY SECURITIES AND USE OF PROCEEDS

On February 26, 2007, the Company agreed to issue $1,000,000 ofsecurities in a private placement to Company’s current largest shareholder anda director, Mr. Peter R. Peterson, who is purchasing the securities through theP. R. Peterson Keogh Plan. The Company entered in the agreement to strengthenits balance sheet and provide for additional working capital requirements. Inthe offering, the Company agreed to issue 2,857,143 shares of its common stock,together with seven—year warrants to purchase an additional 1,000,000 shares ata price of $0.50 per share. Although the offering was funded on February 26,2007, issuance of the shares is subject to approval by the shareholders of theCompany at the PPT VISION 2007 Annual Meeting of Shareholders of an increase inthe shares of authorized common stock from 5,000,000 to 10,000,000. The Companyand Mr. Peterson also entered into a Registration Rights Agreement under whichthe Company agreed to register the shares underlying the warrants. With theproceeds of the offering, the Company believes it has sufficient cash to fundits operations, working capital and capital resource needs through the nexttwelve months. The transaction was exempt pursuant to Section 4(2) of theSecurities Act of 1933.

Item3.                         DEFAULTSUPON SENIOR SECURITIES

Not Applicable.

Item4:                         SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Item5:                         OTHERINFORMATION

None.

Item6:                         EXHIBITS

(a)                      Thefollowing exhibits are included herein:

10.1                           SubscriptionAgreement dated February 26, 2007 between PPT Vision Inc. and the PR PetersonKeogh Plan

10.2                           Warrantdated February 26, 2007 to P. R. Peterson Keogh Plan

10.3                           RegistrationRights Agreement dated February 26, 2007 between PPT Vision, Inc. and P. R.Peterson Keogh Plan

32.1                           Certificationof President, Chief Executive Officer and Chief Financial Officer pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a- 14 and 15d-14 of theExchange Act).

32.1                           Certificationpursuant Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).

16

----

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: February  28, 2007 |   |                                                             |
|                     |   |                                                             |
|                     |   | /s/Joseph C. Christenson                                         |   |
|                     |   | Joseph C. Christenson                                            |
|                     |   | President, Chief Executive Officer and   Chief Financial Officer |

 

17

----