**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

** **

**Form 10-Q**

** **

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** **

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

** **

**For Quarter Ended July 31, 2002**

**Commission File Number 0-11518**

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** **

** **

**PPT VISION, INC.**

(Exactname of registrant 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**                                       |
| (Registrant’s telephone number including area code) |

 

 

Indicate by check mark whether theregistrant (1) has filed all reportsrequired to be filed by Section 13or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12months (or for such shorter periodthat the registrant was required tofile such reports), and (2) has beensubject to such filing requirementsfor the last 90 days.  Yes ý  No  ̈

 

Shares of $.10 par value commonstock outstanding at September 12, 2002: 10,067,950

 

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INDEX

 

PPTVISION, INC.

 
| Part I.   | Financial  Information                                                                      |   |
|-----------|---------------------------------------------------------------------------------------------|--------|
|      |                                                                                        |   |
| Item 1.   | Financial  Statements                                                                       |   |
|      |                                                                                        |   |
|      | Balance  Sheets as of July 31, 2002 and October 31, 2001                                    |   |
|      |                                                                                        |   |
|      | Income  Statements for the Three and Nine Months Ended July 31, 2002 and July 31,  2001     |   |
|      |                                                                                        |   |
|      | Statements  of Cash Flows for the Nine Months Ended July 31, 2002 and July 31, 2001         |   |
|      |                                                                                        |   |
|      | Notes  to Interim Financial Statements—July 31, 2002                                   |   |
|      |                                                                                        |   |
| Item  2.  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|      |                                                                                        |   |
| Item  3.  | Quantitative  and Qualitative Disclosures about Market Risk                                 |   |
|      |                                                                                        |   |
| Item 4.   | Controls and  Procedures                                                                    |   |
|      |                                                                                        |   |
| Part  II. | Other  Information                                                                          |   |
|      |                                                                                        |   |
| Item  1.  | Legal  Proceedings                                                                          |   |
|      |                                                                                        |   |
| Item  2.  | Changes  in Securities and Use of Proceeds                                                  |   |
|      |                                                                                        |   |
| Item 3.   | Defaults Upon  Senior Securities                                                            |   |
|      |                                                                                        |   |
| Item  4.  | Submission  of Matters to a Vote of Security Holders                                        |   |
|      |                                                                                        |   |
| Item  5.  | Other  Information                                                                          |   |
|      |                                                                                        |   |
| Item 6.   | Exhibits and  Reports on Form 8-K                                                           |   |
|      |                                                                                        |   |
|      | Signatures                                                                                  |   |
|      |                                                                                        |   |
|      | Certification                                                                               |   |

 

2

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PPT VISION, INC.

 

BALANCE SHEETS

 
|                                             |   | **July 31,  2002** |       | **October  31, 2001** |   |
|--------------------------------------------------|--------|--------------------|------------|-----------------------|--------|
|                                             |   | **(unaudited)**    |       |                  |   |
| ASSETS                                           |   |               |       |                  |   |
| Cash and cash  equivalents                       |   | $                  | 3,973,000  |                  | $      | 2,805,000 |   |
| Investments                                      |   | —             |       | 502,000               |   |
| Accounts  receivable, net                        |   | 1,713,000          |       | 2,175,000             |   |
| Inventories:                                     |   |               |       |                  |   |
| Manufactured and  purchased parts                |   | 2,175,000          |       | 2,126,000             |   |
| Work-in-process                                  |   | 334,000            |       | 436,000               |   |
| Finished goods                                   |   | 224,000            |       | 30,000                |   |
| Inventories, net                                 |   | 2,733,000          |       | 2,592,000             |   |
| Other current  assets                            |   | 288,000            |       | 228,000               |   |
| Total current  assets                            |   | 8,707,000          |       | 8,302,000             |   |
|                                             |   |               |       |                  |   |
| Fixed assets,  net                               |   | 1,528,000          |       | 2,116,000             |   |
| Intangible  assets, net                          |   | 2,633,000          |       | 2,885,000             |   |
| Other assets                                     |   | 53,000             |       | 53,000                |   |
| Total assets                                     |   | $                  | 12,921,000 |                  | $      | 13,356,000 |   |
|                                             |   |               |       |                  |   |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY       |   |               |       |                  |   |
| Accounts payable  and accrued expenses           |   | $                  | 919,000    |                  | $      | 972,000 |   |
| Deferred revenue                                 |   | 187,000            |       | 286,000               |   |
| Total current  liabilities                       |   | 1,106,000          |       | 1,258,000             |   |
|                                             |   |               |       |                  |   |
| Shareholders’  equity:                      |   |               |       |                  |   |
| Common stock                                     |   | 1,007,000          |       | 551,000               |   |
| Capital in  excess of par value                  |   | 34,074,000         |       | 30,117,000            |   |
| Accumulated  deficit                             |   | (23,266,000        | )          | (18,582,000           | )      |
| Accumulated  other comprehensive income          |   | —             |       | 12,000                |   |
| Total  shareholders’ equity                 |   | 11,815,000         |       | 12,098,000            |   |
| Total  liabilities and shareholders’ equity |   | $                  | 12,921,000 |                  | $      | 13,356,000 |   |

 

Seeaccompanying notes to condensed financial statements

 

3

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PPT VISION, INC.

INCOMESTATEMENTS

(UNAUDITED)

 
|                                         |   | **Three  Months Ended** |       | **Nine  Months Ended** |   |
|----------------------------------------------|--------|-------------------------|------------|------------------------|--------|
|                                         |   | **July 31,**            |       | **July 31,**           |   |
|                                         |   | **2002**                |       | **2001**               |   | **2002** |   | **2001** |   |
| Net revenues                                 |   | $                       | 2,027,000  |                   | $      | 2,009,000 |   | $ | 5,290,000 |   | $ | 11,248,000 |   |
| Cost of revenues                             |   | 1,007,000               |       | 1,119,000              |   | 2,748,000 |   | 5,415,000 |   |
| Gross profit                                 |   | 1,020,000               |       | 890,000                |   | 2,542,000 |   | 5,833,000 |   |
|                                         |   |                    |       |                   |   |   |   |   |   |
| Expenses:                                    |   |                    |       |                   |   |   |   |   |   |
| Sales and  marketing                         |   | 945,000                 |       | 1,038,000              |   | 2,594,000 |   | 3,456,000 |   |
| General and  administrative                  |   | 424,000                 |       | 542,000                |   | 1,269,000 |   | 1,732,000 |   |
| Research and  development                    |   | 1,157,000               |       | 1,246,000              |   | 3,414,000 |   | 3,749,000 |   |
| Non-recurring  charges                       |   | —                  |       | 158,000                |   | — |   | 158,000 |   |
| Total expenses                               |   | 2,526,000               |       | 2,984,000              |   | 7,277,000 |   | 9,095,000 |   |
| Loss from  operations                        |   | (1,506,000              | )          | (2,094,000             | )      | (4,735,000 | ) | (3,262,000 | ) |
|                                         |   |                    |       |                   |   |   |   |   |   |
| Interest and  other income                   |   | 14,000                  |       | 45,000                 |   | 51,000 |   | 171,000 |   |
| Net loss before  taxes                  |   | (1,492,000              | )          | (2,049,000             | )      | (4,684,000 | ) | (3,091,000 | ) |
| Income tax  expense (benefit)                |   | —                  |       | —                 |   | — |   | — |   |
| Net loss                                     |   | $                       | (1,492,000 | )                      | $      | (2,049,000 | ) | $ | (4,684,000 | ) | $ | (3,091,000 | ) |
| Per share data:                              |   |                    |       |                   |   |   |   |   |   |
| Weighted average  basic shares outstanding   |   | 9,361,000               |       | 5,494,000              |   | 6,809,000 |   | 5,485,000 |   |
| Weighted average  diluted shares outstanding |   | 9,361,000               |       | 5,494,000              |   | 6,809,000 |   | 5,485,000 |   |
| Basic and  diluted loss per common share     |   | $                       | (0.16      | )                      | $      | (0.37 | ) | $ | (0.69 | ) | $ | (0.56 | ) |

 

Seeaccompanying notes to condensed financial statements

 

4

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PPT VISION, INC.

STATEMENTSOF CASH FLOWS

(UNAUDITED)

 
| ** **                                                                                 |   | **Nine  Months**

**Ended**

**July 31,  2002** |       | **Nine  Months**

**Ended**

**July 31,  2001** |   |
|--------------------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|-------------------------------------------------|--------|
| Net loss                                                                                   |   | $                                               | (4,684,000 | )                                               | $      | (3,091,000 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |   |                                            |       |                                            |   |
| Depreciation and  amortization                                                             |   | 999,000                                         |       | 1,058,000                                       |   |
| Accrued interest  income                                                                   |   | —                                          |       | 62,000                                          |   |
| Realized loss on  sale of investments                                                      |   | (12,000                                         | )          | —                                          |   |
| Change in assets  and liabilities                                                          |   |                                            |       |                                            |   |
| Accounts  receivable                                                                       |   | 462,000                                         |       | 2,639,000                                       |   |
| Inventories                                                                                |   | (141,000                                        | )          | (222,000                                        | )      |
| Other assets                                                                               |   | (60,000                                         | )          | (190,000                                        | )      |
| Accounts payable  and accrued expenses                                                     |   | (53,000                                         | )          | (1,234,000                                      | )      |
| Deferred revenue                                                                           |   | (99,000                                         | )          | (36,000                                         | )      |
| Total  adjustments                                                                         |   | 1,096,000                                       |       | 2,077,000                                       |   |
| Net cash used in  operating activities                                                |   | (3,588,000                                      | )          | (1,014,000                                      | )      |
|                                                                                       |   |                                            |       |                                            |   |
| Cash flows from  investing activities:                                                     |   |                                            |       |                                            |   |
| Purchase of  fixed assets                                                                  |   | (124,000                                        | )          | (578,000                                        | )      |
| Sales and  maturities of investments                                                       |   | 502,000                                         |       | 2,506,000                                       |   |
| Net investment  in other long-term assets                                                  |   | (35,000                                         | )          | (58,000                                         | )      |
| Net cash  provided by investing activities                                                 |   | 343,000                                         |       | 1,870,000                                       |   |
|                                                                                       |   |                                            |       |                                            |   |
| Cash flows from  financing activities:                                                     |   |                                            |       |                                            |   |
| Proceeds from  the issuance of common stock                                                |   | 4,413,000                                       |       | 59,000                                          |   |
| Net cash  provided by financing activities                                                 |   | 4,413,000                                       |       | 59,000                                          |   |
| Net (decrease)  increase in cash and cash equivalents                                      |   | 1,168,000                                       |       | 915,000                                         |   |
|                                                                                       |   |                                            |       |                                            |   |
| Cash and cash  equivalents at beginning of year                                            |   | 2,805,000                                       |       | 1,818,000                                       |   |
| Cash and cash  equivalents at end of period                                                |   | $                                               | 3,973,000  |                                            | $      | 2,733,000 |   |

 

Seeaccompanying notes to condensed financial statements

 

5

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PPT VISION, INC.

NOTESTO INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

July31, 2002

 

NOTE A — DESCRIPTION OF BUSINESS

 

PPT VISION, Inc. (the Company) designs, manufactures, markets,and integrates 2D and 3D machine vision-based automated inspection systems formanufacturing applications.  Machine vision-basedinspection systems enable manufacturers to realize significant economicpaybacks by increasing the quality of manufactured parts and improving theproductivity of manufacturing processes. The Company’s 2D machine vision product line is sold on a global basisto end-users, system integrators, and original equipment manufacturers (OEM’s)primarily in the electronic and semiconductor component, automotive, medicaldevice, and packaged goods industries. The Company’s SpeedScanTM 3D sensor, incorporating the Company’s patentedhigh-speed Scanning Moiré InterferometryTM technology, is sold to original equipment manufacturers for specificapplications.  The Company’s PPT861TM 3Dscanning system, which uses the Company’s SpeedScanTM 3D sensor, is anapplication-specific inspection solution targeted at inspection of leaded andbumped components in the semiconductor back-end manufacturing process,inspection of surface-mount electronic connectors, and inspection of componentsused in hard disk drives.  The Company’sCommon Stock trades on the Nasdaq SmallCap Market tier of The Nasdaq StockMarket under the symbol PPTV.

 

NOTE B — BASIS OF PRESENTATION

 

The accompanyingunaudited condensed financial statements have been prepared inaccordance withgenerally accepted accounting principles for interim financialinformation andwith the instructions to Form 10-Q and Rule 10-01 of RegulationS-X.  Accordingly, they do not include all of theinformation and footnotesrequired by generally accepted accounting principles forcomplete financialstatements.  In the opinion of management, alladjustments (consisting of normalrecurring accruals) considerednecessary for a fair presentation have beenincluded.

 

The Balance Sheet at October 31,2001 has been derived from the Company’s audited financial statements for thefiscal year ended October 31, 2001 but does not include all of the informationand footnotes required by generally accepted accounting principles for completefinancial statements.

 

For further information, refer tothe financial statements and footnotes thereto included in the Company’s annualreport on Form 10-K for the year ended October 31, 2001.

 

NOTE C — REVENUE RECOGNITION

 

The Company typically recognizesrevenue on product sales upon shipment to the customer if contractualobligations have been substantially met and title and risk of loss have passedto the customer, which is generally the case for sales of 2D machine visionsystems, spare parts, accessories and some 3D machine vision sensors andsystems.  Some 3D machine vision systemsales, however, may include post-shipment obligations or contractual terms thatcan only be satisfied after shipment, such as installation and meetingcustomer-specified 

 

6

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performance requirements at thecustomer’s site.  In these cases,revenue is not recognized until these obligations have been satisfied and thereis objective evidence that the applicable contract terms have been met. In situationswhere equipment is shipped but revenue and the related receivable are notrecognized, the cost of the equipment is included in inventories on our balancesheet.

The Company also recognizes revenueon 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 to application engineering, product developmentand customer training services is recognized when the services are performed.

 

We often receive payments fromcustomers prior to recognizing revenue. These amounts are recorded as deferred revenue on our balance sheet.

 

NOTE D — COMPREHENSIVE LOSS

 
|                                        |   | **Three  Months Ended** |       | **Nine  Months Ended** |   |
|---------------------------------------------|--------|-------------------------|------------|------------------------|--------|
|                                        |   | **July 31,**            |       | **July 31,**           |   |
|                                        |   | **2002**                |       | **2001**               |   | **2002** |   | **2001** |   |
| Net loss                                    |   | $                       | (1,492,000 | )                      | $      | (2,049,000 | ) | $ | (4,684,000 | ) | $ | (3,091,000 | ) |
| Other  comprehensive loss:                  |   |                    |       |                   |   |   |   |   |   |
| Unrealized loss  on derivative transactions |   | —                  |       | 43,000                 |   | — |   | (57,000 | ) |
| Total  comprehensive loss                   |   | $                       | (1,492,000 | )                      | $      | (2,006,000 | ) | $ | (4,684,000 | ) | $ | (3,148,000 | ) |
|                                             |        |                         |            |                        |        |  |  |  |  |  |  |  |  |  |

 

NOTE E — FINANCIAL INSTRUMENTS ANDRISK MANAGEMENT

 

Effective November 1, 2000, theCompany adopted SFAS No. 133 - “Accounting for Derivative Instruments andHedging Activities” which requires that all derivative financial instruments,such as foreign exchange contracts, be recognized in the financial statementsand measured at fair value regardless of the purpose or intent for holdingthem.  Changes in the fair value ofderivative financial instruments are either recognized periodically in incomeor shareholders’ equity (as a component of other comprehensive income).

 

Aspart of the Company’s risk management programs, the Company entered intoforward exchange contracts during fiscal 2000. The Company used forwardexchange contracts to hedge against the currency risk associated with firmlycommitted Japanese Yen transactions.  Inaccordance with SFAS No. 133, the forward exchange contracts were recognized ascash flow hedges at fair value with the gain or loss on the contracts beingdeferred in other comprehensive income. During fiscal 2001, the firmlycommitted Japanese yen transaction and the forward exchange contracts weresettled.  At July 31, 2002, the Companyhad no foreign exchange contracts outstanding.

 

The Company does not engage inforeign currency speculation.

 

7

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NOTE F — SHAREHOLDERS RIGHTSOFFERING

 

In order to satisfy the Company’santicipated working capital and capital resources needs, the Company initiateda Shareholder Rights Offering (Offering) during the third quarter of fiscal2002. The Offering closed on May 10, 2002.

 

In the Offering, the Board ofDirectors authorized the sale of 5.5 million units at $1 per unit to existingshareholders.  Each unit consisted ofone share of common stock and a warrant to purchase one-half share of commonstock.  The warrants are exercisable at$2.50 until September 30, 2003.  As aresult of the Offering, the Company issued approximately 4.5 million shares ofcommon stock and approximately 2.250 million warrants to purchase a share ofcommon stock at $2.50 per share. The net proceeds to the Company wereapproximately $4.3 million after Offering expenses.  The issuance of the shares of stock and warrants and the relatedreceipt of cash have been reflected in the accompanying financial statements.

 

NOTE G — EARNINGS PER SHARE

 

During the three-month ended July31, 2002, the Company issued warrants to purchase 2.25 million shares of theCompany’s common stock in connection with the Shareholder Rights Offering.  At July 31, 2002, options to purchase865,700 shares and warrants to purchase 2,275,000 shares of the Company’scommon stock were not included in the calculation of diluted earnings pershare.  At July 31, 2001, options topurchase 831,100 shares and warrants to purchase 25,000 shares of the Company’scommon stock were not included in the calculation of diluted earnings pershare.  As the Company had a net lossfor both periods, the inclusion of the aforementioned shares would have beenanti-dilutive.

 

 

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF

OPERATIONS

 

Critical AccountingPolicies and Estimates

Management’s discussion and analysisof its financial condition and results of operations are based on the Company’saccompanying unaudited condensed financial statements, which have been preparedin accordance with generally accepted accounting principles for interimfinancial information and with the instructions to Form 10-Q and Rule 10-01 ofRegulation S-X.  Accordingly, they donot include all of the information required by generally accepted accountingprinciples for complete financial statements. In the opinion of management, all adjustments (consisting of normalrecurring accruals) considered necessary for a fair presentation have beenincluded.

 

The preparation of these financialstatements requires management to make certain estimates and assumptions thataffect the reported amounts of assets and liabilities as of the date of thefinancial statements and the reported revenues and expenses during thereporting period.  Management bases itsestimates on historical experience and various other assumptions that arebelieved to be reasonable under the circumstances, the results of which formthe basis for making judgments about the carrying values of assets andliabilities.  Actual results coulddiffer from these estimates.

 

8

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Management believes the Company’scritical accounting policies and areas that require more significant judgmentsand estimates used in the preparation of its consolidated financial statementsto be:

 

·        revenue recognition;

·        estimating valuation allowances,specifically the allowance for doubtful accounts and inventory; and

·        valuation and useful lives of long-livedand intangible assets.

 

The Company typically recognizesrevenue on product sales upon shipment to the customer if contractualobligations have been substantially met and title and risk of loss have passedto the customer, which is generally the case for sales of 2D machine visionsystems, spare parts, accessories and some 3D machine vision sensors andsystems.  Some 3D machine vision systemsales, however, may include post-shipment obligations or contractual terms thatcan only be satisfied after shipment, such as installation and meetingcustomer-specified performance requirements at the customer’s site.  In these cases, revenue is not recognized untilthese obligations have been satisfied and there is objective evidence that theapplicable contract terms have been met. The Company also recognizes revenue onproducts 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 to application engineering, product developmentand customer training services is recognized when the services are performed.  Due to the higher selling price of certain3D machine vision systems, the timing of revenue recognition of a relativelysmall number of transactions may have a significant impact on our quarterlyresults.

 

Management estimates the allowancefor doubtful accounts by analyzing accounts receivable balances by age andconsidering specific factors about the individual customer’s financialcondition.  When it is deemed probablethat all or a portion of a customer’s account is uncollectible, a correspondingamount is added to the reserve. 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. Actual results could differ from theseestimates under different assumptions. If the financial condition of one or more of our customers were todeteriorate, or if actual product demand or market conditions are lessfavorable than anticipated by management, additional reserves may be required.

 

The Company reviews its long-livedassets for impairment whenever events or changes in circumstances indicate thatthe 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 theundiscounted future net cash flows expected to be generated by the assets. Ifthese assets are considered to be impaired, the impairment to be recognized ismeasured by the amount by which the carrying amount of the assets exceeds thefair value of the assets.

 

During the quarter ended July 31,2002 the Company completed a Shareholder Rights Offering which resulted in theissuance of approximately 4.5 million shares of common stock and approximately2.25 million warrants to purchase common stock at $2.50 per share untilSeptember 30, 2003.  The Companyreceived approximately $4.3 million, net of Offering costs. See additionaldiscussion in the Liquidity and Capital Resources section below.

 

9

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Results ofOperations

 

Net revenues increased slightly to$2,027,000 for the three-month period ended July 31, 2002, compared to netrevenues of $2,009,000 for the same period in fiscal 2001.  For the nine-month period ended July 31,2002, net revenues decreased 53% to $5,290,000 compared to $11,248,000 for thesame period in fiscal 2001.  Unit salesof the Company’s machine vision systems decreased to 67 for the third quarterof fiscal 2002 versus 71 for the same period in fiscal 2001.  Unit sales for the nine-month period endedJuly 31, 2002 decreased to 157 versus 621 for the same period in 2001.  The decrease in the number of units sold duringthe quarter and nine-month period ended July 31, 2001 is attributed to the economicslowdown in the Company’s core markets, primarily electronic componentmanufacturing.

 

Sales to customers outside theUnited States represented 26% of gross revenues for the three-month periodended July 31, 2002, compared to 28% for the same period in fiscal 2001.  For the nine-month period ended July 31,2002, sales to customers outside the United States represented 34% of grossrevenues, compared to 52% for the same period in fiscal 2001.

 

Several of the Company’s largestcustomers who drove revenues to record levels in the first half of 2001 havesubstantially cut back capital spending and, as a result, the Company’srevenues have decreased dramatically since the third quarter of last fiscalyear.  This is primarily a result of asignificant slowdown in capital spending in the electronics manufacturingsector of the global economy.

 

The Company has seen severalencouraging developments recently with respect to an increase in businessactivity, increasing interest in our products from a variety of new andexisting customers, and improvements in manufacturing related economicindicators, which management believes will translate into improved operatingresults in the quarters ahead.  However,management continues to believe that the recovery will be gradual and that thetiming and magnitude of these improvements is not precisely determinable.

 

Gross profit increased 15% to$1,020,000 for the three-month period ended July 31, 2002, compared to $890,000for the same period in fiscal 2001. As a percentage of net revenues, the grossprofit for the third quarter of fiscal 2002 increased to 50% compared to 44% inthe same period in fiscal 2001. This improvement is attributable to lowermanufacturing costs as compared to the prior year as a result of cost cuttinginitiatives and due to changes in the revenue mix as compared to the thirdquarter of fiscal 2001.

 

For the nine-month period ended July31, 2002, gross profit decreased 56% to $2,542,000, compared to $5,833,000 forthe same period in fiscal 2001.  Grossprofit as a percentage of net revenues decreased to 48% compared to 52% in thesame period of fiscal 2001.  Thedecrease in gross profit in absolute dollars and on a percentage basis for thethree and month periods ended July 31, 2002 is attributed to the decrease innet revenues and the application of fixed manufacturing overhead expensesacross a lower volume of shipments. Gross profit margins in the third quarter of 2002 were approximately thesame as in the first quarter.

 

10

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Sales and marketing expensesdecreased 9% to $945,000 for the three-month period ended July 31, 2002,compared to $1,038,000 for the same period in fiscal 2001.  For the nine-month period ended July 31,2002, sales and marketing expenses decreased 25% to $2,594,000, compared to$3,456,000 for the same period in fiscal 2001. As a percentage of net revenues, sales and marketing expenses decreasedto 47% for the third quarter of fiscal 2002 compared to 52% for the same periodin fiscal 2001.  For the nine-monthperiod ended July 31, 2002, sales and marketing expenses as a percentage of netrevenues increased to 49% compared to 31% in the same period of fiscal 2001.  The large increase in expenses as apercentage of net revenues for the nine-month period ended July 31, 2002 isattributed to the significant decrease in net revenues.  Also contributing to this percentageincrease is the decrease in international revenues, which typically have a lowercost of selling resulting from the Company’s use of internationaldistributors.  The Company expects salesand marketing expenses in absolute dollars to stay relatively constant duringthe fourth quarter fiscal 2002 as a continuing result of the cost reductionmeasures implemented at the end of fiscal 2001.  Any increase or decrease in sales and marketing expendituresbeyond this expectation will be driven by the level of revenues achieved in theend of fiscal 2002.

 

General and administrative expensesdecreased 22% to $424,000 for the three-month period ended July 31, 2002,compared to $542,000 for the same period in fiscal 2001.  For the nine-month period ended July 31,2002, general and administrative expenses decreased 27% to $1,269,000, comparedto $1,732,000 in the same period of fiscal 2001.  As a percentage of net revenues, general and administrativeexpenses decreased to 21% for the third quarter of fiscal 2002 versus 27% forthe same period in fiscal 2001 due to cost cutting efforts implemented at theend of last fiscal year.  For the nine-monthperiod ended July 31, 2002, general and administrative expenses as a percentageof net revenues increased to 24% compared to 15% in the same period of fiscal2001.  The large increase in expenses asa percentage of net revenues for the nine-month period ended July 31, 2002 isattributed to the decrease in net revenues. The Company expects general and administrative expenses to stayrelatively constant during the fourth quarter of fiscal 2002.

 

Research and development expensesdecreased 7% to $1,157,000 for the three-month period ended July 31, 2002,compared to $1,246,000 for the same period in fiscal 2001.  For the nine-month period ended July 31,2002, research and development expenses decreased 9% to $3,414,000, compared to$3,749,000 in the same period of fiscal 2001. As a percentage of net revenues, research and development expensesincreased to 57% for the third quarter of fiscal 2002, compared to 62% for thethird quarter of fiscal 2001.  For thenine-month period ended July 31, 2002, research and development expenses as apercentage of net revenues increased to 65%, compared to 33% in the same periodof fiscal 2001.  The large increase inexpenses as a percentage of net revenues for the nine-month period ended July31, 2002 is attributed to the decrease in net revenues.

 

Interest and other income decreased69% to $14,000 for the three-month period ended July 31, 2002, compared to$45,000 for the same period in fiscal 2001. For the nine-month period ended July 31, 2002, interest and other incomedecreased 70% to $51,000, compared to $171,000 in the same period of fiscal2001.  The large decrease in interestand other income for the three and six month periods ended July 31, 2002 isrelated to a reduction in the balances in cash and cash equivalents andinvestments.

 

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The Company did not record an incometax benefit or expense for the three or nine month periods ended July 31, 2002or 2001.

 

The Company’s net loss for thethree-month period ended July 31,2002 was $1,492,000 or $0.16 per share.  This compares with a loss of $2,049,000 or$0.37 for the three months ended July 31, 2001.  The reduction in the net loss per share is the result of asignificant increase in the number of shares outstanding this year.  As a result of the completion of ourShareholder Rights Offering in this quarter, the Company issued approximately4.5 million new shares of Common Stock. This increased the weighted average shares outstanding amounts used inthe computation of net loss per share to approximately 9.4 million versus 5.5million for the three month periods ended July 31, 2002 and 2001,respectively.  For the nine-monthperiods the weighted average shares used in the computation of the net loss pershare for 2002 and 2001 were 6.8 million shares and 5.5 million shares,respectively.

 

 

LIQUIDITY ANDCAPITAL RESOURCES

 

Due to its continuing losses, theCompany has been using its existing cash and cash equivalents to fund theshortfall in cash generated from its operating activities.

 

In order to satisfy the Company’santicipated working capital and capital resources needs, the Company initiateda Shareholder Rights Offering during the second quarter. As noted above, theCompany completed this offering in the third quarter and raised net proceeds ofapproximately $4.3 million. The Offering resulted in the issuance ofapproximately 4.5 million shares of Common stock and approximately 2.25 millionwarrants to purchase a share of Common stock at $2.50 per share until September30, 2003.

 

The Company believes that cashgenerated from operations together with the cash provided by this RightsOffering will be sufficient to meet its working capital and capital resourceobligations through the next twelve months. The Company will continue to explore other financing alternatives as theneed or the opportunity may arise including, potentially, customer or vendorfinancing, customer-sponsored research and development projects, externalborrowings or sales of stock to strategic investors.

 

As of July 31, 2002, the Company hadno outstanding debt.

 

The Company leases facilities andequipment under non-cancelable operating lease agreements.  Minimum future rental payment obligationsare approximately $1.0 million annually.

 

Working capital increased to$7,601,000 at July 31, 2002 from $7,044,000 at October 31, 2001.  The Company financed its operations duringthe first nine months of fiscal 2002 through internally generated cash flow andexisting cash and cash equivalents.  Netcash used in operating activities during the first nine months of fiscal 2002was $3,588,000.  Accounts receivabledecreased $462,000 primarily due to lower net revenues in fiscal 2002 ascompared with 2001 and strong collections realized during the third quarter offiscal 2002.  Inventories increased$141,000 during the first nine months of fiscal 2002 due to the purchase ofinventory items with extended delivery lead times.  Accounts payable and accrued expenses decreased by $53,000.  Deferred revenue decreased $99,000 from yearend.

 

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Net cash provided by investingactivities was $343,000, primarily due to the sale of investments, net of fixedasset additions.  During the first ninemonths of fiscal 2002, fixed asset additions totaled $124,000 in comparisonwith $578,000 in fixed asset additions for the same period in fiscal 2001.  Fixed asset additions in the fourth quarterof fiscal 2002 are expected to be at levels comparable with the third quarterof fiscal 2002.

 

The Company incurred a net loss of$1,492,000 for the quarter ended July 31, 2002, and has an accumulated deficitof $23,266,000 as of July 31, 2002.  TheCompany expects to incur losses for the remainder of its current fiscal year.There can be no assurance that the Company will not incur additional losses fora longer period, will generate positive cash flow from its operations, or thatthe Company will attain or thereafter sustain profitability in any futureperiod.  To the extent the Companycontinues to incur losses or grows in the future, its operating and investingactivities may use cash and, consequently, may require the Company to obtainadditional sources of financing in the future. The Company does not haverelationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured finance or special purpose entities,which would have been established for the purpose of facilitating off-balancesheet financial arrangements.  As such,the Company is not materially exposed to any financing, liquidity, market orcredit risk that could arise if we had engaged in such arrangements.

 

FORWARD LOOKINGSTATEMENTS

 

This Form 10-Q containsforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995.  Thesestatements by their nature involve substantial risks and uncertainties asdescribed by PPT VISION’s periodic filings. Actual results may differ materially depending on a variety of factors,including, but not limited to the following: (i)changes in worldwide generaleconomic conditions, (ii)cyclicality of capital spending by customers, (iii)thesuccess of PPT VISION’s sale of products incorporating its SMI technology,(iv)PPT VISION’s ability to successfully introduce its IMPACT 2D Machine Visionproduct to meet competition from lower priced competitive products, (v)PPTVISION’s dependence upon a limited number of principal customers, (vi)PPTVISION’s ability to keep pace with technological developments and evolvingindustry standards, (vii)worldwide competition, (viii)PPT VISION’s ability tosuccessfully develop custom sensors for its OEM customers and (ix)PPT VISION’sability to protect its existing intellectual property from challenges fromthird parties and other factors.

 

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.  It isimportant to note that the Company’s actual results could differ materiallyfrom those in such forward-looking statements. Additional information with respect to the risks and uncertainties facedby PPT VISION may be found in the section “Business” under the caption “ImportantFactors Regarding Forward-Looking Statements” contained in its filing with theSecurities and Exchange Commission on Form 10-K for the year ended October 31,2001, and in the Section entitled “Risk Factors” in its Prospectus dated April2, 2002, and other reports filed with the Securities and Exchange Commission.

 

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Item 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK.

 

The Company believes it does nothave material exposure to quantitative and qualitative market risks.  The carrying amounts reflected in thebalance sheets of cash and cash equivalents, trade receivables and tradepayables approximate fair value at July 31, 2002 due to the short maturities ofthese instruments.

 

Item 4:  CONTROLS AND PROCEDURES

There were no significant changes inthe Company’s internal controls or in other factors that could significantlyaffect these controls during the quarter covered by this report or from the endof the reporting period to the date of this Form 10-Q.

 

II.  Other Information

 

Item 1:             LEGAL PROCEEDINGS

 

                                                None.

 

Item 2:             CHANGES INSECURITIES AND USE OF PROCEEDS

 

                                                None.

 

Item3:             DEFAULTS UPONSENIOR SECURITIES

 

                                                NotApplicable

 

Item 4:             SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS

 

                                                None.

 

Item 5:             OTHER INFORMATION

 

As reported in“Management’s Discussion and Analysis—Liquidity and Capital Resources”, duringMay 2002, the Company completed a Shareholder Rights Offering under which itraised net proceeds of approximately $4.3 million.

 

Item 6:             EXHIBITS ANDREPORTS ON FORM 8-K

 

                                                (a)                                  Exhibits:

                                                                                                99.1Certification Pursuant to 18 USC Section 1850.

 

                                                (b)                                 Reportson Form 8-K:

                                                                                                None.

 

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SIGNATURES

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, theregistrant has duly caused thisreport to be signed on its behalf by theundersigned thereunto dulyauthorized.

 
|                      | PPT VISION, INC.                                                |
|---------------------------|-----------------------------------------------------------------|
|                      |                                                            |
| Date: September  12, 2002 |                                                            |
|                      |                                                            |
|                      | /s/Joseph C. Christenson                                        |
|                      | Joseph C. Christenson                                           |
|                      | President, Chief  Executive Officer and Chief Financial Officer |
|                      | (Principal  Executive, Financial and Accounting Officer)        |

 

 

 

CERTIFICATION

 

I, Joseph C. Christenson, certifythat:

 

1)              I have reviewedthis quarterly report on Form 10-Q of PPT Vision, Inc.;

 

2)              Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3)              Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report.

 

Date: September 12,2002

 
|   | /s/Joseph C. Christenson                                        |
|--------|-----------------------------------------------------------------|
|   | Joseph C. Christenson                                           |
|   | President, Chief  Executive Officer and Chief Financial Officer |
|   | (Principal  Executive, Financial and Accounting Officer)        |

 

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