**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**

 

 

**ForQuarter Ended April 30, 2002**

**CommissionFile Number 0-11518**

 

 

**PPT VISION, INC.**

(Exact name of registrantas specified in its charter)

 

| **MINNESOTA**                                                   |   | **41-1413345**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |   | (I.R.S. Employer  Identification Number) |
|                                                            |   |                                     |
| **12988  Valley View Road**                                     |   | **Eden  Prairie, Minnesota  55344** |
| (Address of principal  executive offices)                       |   | (Zip Code)                               |

 

**(952)996-9500**

(Registrant’s telephonenumber including area code)

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the last 90 days. Yes ý No   ̈

 

Shares of $.10 par value common stock outstanding at June 11, 2002:10,067,950

 

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INDEX

 

PPT VISION, INC.

 
| Part I.  | Financial Information                                                                       |   |
|----------|---------------------------------------------------------------------------------------------|--------|
|     |                                                                                        |   |
| Item 1.  | Financial Statements                                                                        |   |
|     |                                                                                        |   |
|     | Balance Sheets as of April 30, 2002 and  October 31, 2001                                   |   |
|     |                                                                                        |   |
|     | Income Statements for the Three and  Six Months Ended April 30, 2002 and April 30, 2001     |   |
|     |                                                                                        |   |
|     | Statements of Cash Flows for  the Six Months Ended April 30, 2002 and April 30, 2001        |   |
|     |                                                                                        |   |
|     | Notes to Interim  Financial Statements—April 30, 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. | Submission  Of Matters To A Vote Of Security Holders                                        |   |
|     |                                                                                        |   |
| 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                                                                                  |   |

 

 

2

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PPT VISION, INC.

 

BALANCE SHEETS

 
|                                                   |   | **April 30,  2002** |       | **October  31, 2001** |    |
|--------------------------------------------------------|--------|---------------------|------------|-----------------------|---------|
|                                                   |   | **(unaudited)**     |       |                  |    |
| ASSETS                                                 |   |                |       |                  |    |
| Cash and cash  equivalents                        |   | $                   | 1,436,000  |                  | $       | 2,805,000 |   |
| Investments                                            |   | —              |       | 502,000               |    |
| Accounts  receivable, net                              |   | 1,482,000           |       | 2,175,000             |    |
| Inventories:                                           |   |                |       |                  |    |
| Manufactured and  purchased parts                      |   | 2,475,000           |       | 2,126,000             |    |
| Work-in-process                                        |   | 347,000             |       | 436,000               |    |
| Finished goods                                         |   | 55,000              |       | 30,000                |    |
| Inventories, net                                       |   | 2,877,000           |       | 2,592,000             |    |
| Other current  assets                                  |   | 314,000             |       | 228,000               |    |
| Total current  assets                                  |   | 6,109,000           |       | 8,302,000             |    |
|                                                   |   |                |       |                  |    |
| Fixed assets,  net                                     |   | 1,721,000           |       | 2,116,000             |    |
| Intangible  assets, net                                |   | 2,712,000           |       | 2,885,000             |    |
| Other assets                                           |   | 53,000              |       | 53,000                |    |
| Total  assets                                     |   | $                   | 10,595,000 |                  | $       | 13,356,000 |   |
|                                                   |   |                |       |                  |    |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY             |   |                |       |                  |    |
| Accounts payable  and accrued expenses                 |   |  $1,236,000    |       | $                     | 972,000 |   |
| Deferred revenue                                       |   | 465,000             |       | 286,000               |    |
| Total current  liabilities                             |   | 1,701,000           |       | 1,258,000             |    |
|                                                   |   |                |       |                  |    |
| Shareholders’  equity:                            |   |                |       |                  |    |
| Common stock                                           |   | 551,000             |       | 551,000               |    |
| Capital in  excess of par value                        |   | 30,117,000          |       | 30,117,000            |    |
| Accumulated  deficit                              |   | (21,774,000)        |       | (18,582,000           | )       |
| Accumulated  other comprehensive income                |   | —              |       | 12,000                |    |
| Total  shareholders’ equity                       |   | 8,894,000           |       | 12,098,000            |    |
| Total  liabilities and shareholders’ equity  |   | $                   | 10,595,000 |                  | $       | 13,356,000 |   |

 

See accompanying notes tocondensed financial statements

 

3

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PPT VISION, INC.

INCOME STATEMENTS

(UNAUDITED)

 

 

 
| ** **                                   |   | **Three  Months Ended  April 30,** |       | **Six Months  Ended  April 30,** |   |
|----------------------------------------------|--------|------------------------------------|------------|----------------------------------|--------|
|                                         |   | **2002**                           |       | **2001**                         |   | **2002** |   | **2001** |   |
| Net revenues                                 |   | $                                  | 1,607,000  |                             | $      | 4,438,000 |   | $ | 3,263,000 |   | $ | 9,239,000 |   |
| Cost of revenues                             |   | 805,000                            |       | 2,057,000                        |   | 1,740,000 |   | 4,296,000 |   |
| Gross profit                                 |   | 802,000                            |       | 2,381,000                        |   | 1,523,000 |   | 4,943,000 |   |
|                                         |   |                               |       |                             |   |   |   |   |   |
| Expenses:                                    |   |                               |       |                             |   |   |   |   |   |
| Sales and  marketing                         |   | 823,000                            |       | 1,237,000                        |   | 1,649,000 |   | 2,418,000 |   |
| General and  administrative                  |   | 432,000                            |       | 566,000                          |   | 845,000 |   | 1,189,000 |   |
| Research and  development                    |   | 1,165,000                          |       | 1,242,000                        |   | 2,258,000 |   | 2,503,000 |   |
| Total expenses                               |   | 2,420,000                          |       | 3,045,000                        |   | 4,752,000 |   | 6,110,000 |   |
| Loss from  operations                        |   | (1,618,000                         | )          | (664,000                         | )      | (3,229,000 | ) | (1,167,000 | ) |
|                                         |   |                               |       |                             |   |   |   |   |   |
| Interest and  other income                   |   | 6,000                              |       | 67,000                           |   | 37,000 |   | 125,000 |   |
| Net loss before  taxes                       |   | (1,612,000                         | )          | (597,000                         | )      | (3,192,000 | ) | (1,042,000 | ) |
| Income tax  expense (benefit)                |   | —                             |       | —                           |   | — |   | — |   |
| Net loss                                     |   | $                                  | (1,612,000 | )                                | $      | (597,000 | ) | $ | (3,192,000 | ) | $ | (1,042,000 | ) |
| Per share data:                              |   |                               |       |                             |   |   |   |   |   |
| Weighted average  basic shares outstanding   |   | 5,512,000                          |       | 5,480,000                        |   | 5,512,000 |   | 5,480,000 |   |
| Weighted average  diluted shares outstanding |   | 5,512,000                          |       | 5,480,000                        |   | 5,512,000 |   | 5,480,000 |   |
| Basic and  diluted loss per common share     |   | $                                  | (0.29      | )                                | $      | (0.11 | ) | $ | (0.58 | ) | $ | (0.19 | ) |

 

See accompanying notes tocondensed financial statements

 

4

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PPT VISION, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 
| ** **                                                                                 |   | **Six Months**

**Ended**

**April 30,  2002** |       | **Six Months**

**Ended**

**April 30,  2001** |   |
|--------------------------------------------------------------------------------------------|--------|------------------------------------------------|------------|------------------------------------------------|--------|
| Net loss                                                                                   |   | $                                              | (3,192,000 | )                                              | $      | (1,042,000 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |   |                                           |       |                                           |   |
| Depreciation and  amortization                                                             |   | 684,000                                        |       | 703,000                                        |   |
| Accrued interest  income                                                                   |   | —                                         |       | 61,000                                         |   |
| Realized loss on  sale of investments                                                      |   | (8,000                                         | )          | —                                         |   |
| Change in assets  and liabilities                                                          |   |                                           |       |                                           |   |
| Accounts  receivable                                                                       |   | 692,000                                        |       | 1,031,000                                      |   |
| Inventories                                                                                |   | (285,000                                       | )          | (146,000                                       | )      |
| Other assets                                                                               |   | (88,000                                        | )          | (434,000                                       | )      |
| Accounts payable  and accrued expenses                                                     |   | 264,000                                        |       | (198,000                                       | )      |
| Deferred revenue                                                                           |   | 179,000                                        |       | (2,000                                         | )      |
| Total  adjustments                                                                         |   | 1,438,000                                      |       | 1,015,000                                      |   |
| Net cash used in  operating activities                                                     |   | (1,754,000                                     | )          | (27,000                                        | )      |
|                                                                                       |   |                                           |       |                                           |   |
| Cash flows from  investing activities:                                                     |   |                                           |       |                                           |   |
| Purchase of  fixed assets                                                                  |   | (98,000                                        | )          | (229,000                                       | )      |
| Sales and  maturities of investments                                                       |   | 500,000                                        |       | 2,107,000                                      |   |
| Net investment  in other long-term assets                                                  |   | (17,000                                        | )          | (52,000                                        | )      |
| Net cash  provided by investing activities                                                 |   | 385,000                                        |       | 1,826,000                                      |   |
|                                                                                       |   |                                           |       |                                           |   |
| Cash flows from  financing activities                                                      |   | —                                         |       | —                                         |   |
|                                                                                       |   |                                           |       |                                           |   |
| Net (decrease)  increase in cash and cash equivalents                                      |   | (1,369,000                                     | )          | 1,799,000                                      |   |
|                                                                                       |   |                                           |       |                                           |   |
| Cash and cash  equivalents at beginning of year                                            |   | 2,805,000                                      |       | 1,818,000                                      |   |
| Cash and cash  equivalents at end of period                                                |   | $                                              | 1,436,000  |                                           | $      | 3,617,000 |   |

 

See accompanying notes tocondensed financial statements

 

5

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PPT VISION, INC.

NOTES TO INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

April 30, 2002

 

 

NOTE A — DESCRIPTION OF BUSINESS

 

PPT VISION, Inc.(the Company) designs, manufactures, markets, and integrates 2D and 3D machinevision-based automated inspection systems for manufacturing applications.  Machine vision-based inspection systemsenable manufacturers to realize significant economic paybacks by increasing thequality of manufactured parts and improving the productivity of manufacturingprocesses.  The Company’s 2D machinevision product line is sold on a global basis to end-users, system integrators,and original equipment manufacturers (OEM’s) primarily in the electronic andsemiconductor component, automotive, medical device, and packaged goodsindustries.  The Company’s SpeedScanTM 3Dsensor, incorporating the Company’s patented high-speed Scanning MoiréInterferometryTM  technology, is sold tooriginal equipment manufacturers for specific applications.  The Company’s PPT861TM 3D scanning system,which uses the Company’s SpeedScanTM 3D sensor, is an application-specificinspection solution targeted at inspection of leaded and bumped components inthe semiconductor back-end manufacturing process, inspection of surface-mountelectronic connectors, and inspection of components used in hard diskdrives.  The Company’s Common Stocktrades on the Nasdaq National Market tier of The Nasdaq Stock Market under thesymbol PPTV.

 

 

NOTE B - BASIS OF PRESENTATION

 

The accompanying unaudited condensed financial statements have beenprepared in accordance with generally accepted accounting principles forinterim financial information and with the instructions to Form 10-Q and Rule10-01 of Regulation S-X.  Accordingly,they do not include all of the information and footnotes required by generallyaccepted accounting principles for complete financial statements.  In the opinion of management, alladjustments (consisting of normal recurring accruals) considered necessary fora fair presentation have been included.

 

The Balance Sheet at October 31, 2001 has been derived from theCompany’s audited financial statements for the fiscal year ended October 31,2001 but does not include all of the information and footnotes required bygenerally accepted accounting principles for complete financial statements.

 

At April 30, 2002, options to purchase 660,000 shares and warrants topurchase 25,000 shares of the Company’s common stock were not included in thecalculation of diluted earnings per share. At April 30, 2001, options to purchase 820,000 shares and warrants topurchase 25,000 shares of the Company’s common stock were not included in thecalculation of diluted earnings per share. As the Company had a net loss for both periods, the inclusion of theaforementioned shares would have been anti-dilutive.

 

6

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For further information, refer to the financial statements and footnotesthereto included in the Company’s annual report on Form 10-K for the year endedOctober 31, 2001.

 

 

NOTE C — COMPREHENSIVE LOSS

 
| ** **                                  |   | **Three  Months Ended  April 30,** |       | **Six Months  Ended  April 30,** |   |
|---------------------------------------------|--------|------------------------------------|------------|----------------------------------|--------|
|                                        |   | **2002**                           |       | **2001**                         |   | **2002** |   | **2001** |   |
| Net loss                                    |   | $                                  | (1,612,000 | )                                | $      | (597,000 | ) | $ | (3,192,000 | ) | $ | (1,042,000 | ) |
| Other  comprehensive loss:                  |   |                               |       |                             |   |   |   |   |   |
| Unrealized loss  on derivative transactions |   | —                             |       | (112,000                         | )      | — |   | (100,000 | ) |
| Total  comprehensive loss                   |   | $                                  | (1,612,000 | )                                | $      | (709,000 | ) | $ | (3,192,000 | ) | $ | (1,142,000 | ) |

 

 

NOTE D - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

Effective November 1, 2000, the Company adopted SFAS No. 133 -“Accounting for Derivative Instruments and Hedging Activities” which requiresthat all derivative financial instruments, such as foreign exchange contracts,be recognized in the financial statements and measured at fair value regardlessof the purpose or intent for holding them. Changes in the fair value of derivative financial instruments are eitherrecognized periodically in income or shareholders’ equity (as a component ofother comprehensive income).

 

As part of the Company’s riskmanagement programs, the Company entered into forward exchange contracts duringfiscal 2000. The Company used forward exchange contracts to hedge against thecurrency risk associated with firmly committed Japanese Yen transactions.  In accordance with SFAS No. 133, the forwardexchange contracts were recognized as cash flow hedges at fair value with thegain or loss on the contracts being deferred in other comprehensive income.During fiscal 2001, the firmly committed Japanese yen transaction and theforward exchange contracts were settled. At April 30, 2002, the Company had no foreign exchange contractsoutstanding.

 

The Company does not engage in foreign currency speculation.

 

7

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NOTE E — SUBSEQUENT EVENT

 

Shareholder Rights Offering

 

In order to satisfy the Company’s anticipated working capital andcapital resources needs, the Company initiated a Shareholder Rights Offeringduring the second quarter of fiscal 2002. The first phase of the Offeringclosed on May 10, 2002, just after the end of the Company’s second quarter.

 

In the Offering, the Board of Directors authorized the sale of 5.5million units at $1 per unit to existing shareholders.  Each unit consisted of one share of commonstock and a warrant to purchase one-half share of common stock.  The warrants are exercisable at $2.50 untilSeptember 30, 2003.  In the first phaseof the Offering, the Company issued approximately 4.5 million shares of commonstock and approximately 2.250 million warrants to purchase a share of commonstock at $2.50 per share. The net proceeds to the Company from the first phaseof the Offering approximate $4.3 million after Offering expenses.  The issuance of the shares of stock andwarrants and the related receipt of cash have not been reflected in theaccompanying financial statements.

 

Under the terms of the Rights Offering, the Company reserved the rightto offer any remaining Units not sold in the initial phase of the Offering toparticipating shareholders that expressed an interest in purchasing additionalUnits as of the closing date of the Offering. The Company is currently evaluating this option in light of the successof the initial offering and the Company’s short and long term capitalrequirements.

 

 

Item 2

 

MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

 

Critical Accounting Policies and Estimates

 

Management’s discussion and analysis of its financial condition andresults of operations are based on the Company’s accompanying unauditedcondensed financial statements, which have been prepared in accordance withgenerally accepted accounting principles for interim financial information andwith the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of theinformation required by generally accepted accounting principles for completefinancial statements.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.

 

8

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The preparation of these financial statements requires management tomake certain estimates and assumptions that affect the reported amounts ofassets and liabilities as of the date of the financial statements and thereported revenues and expenses during the reporting period.  Management bases its estimates on historicalexperience and various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities.  Actual results could differ from theseestimates.

 

Management believes the Company’s critical accounting policies andareas that require more significant judgments and estimates used in thepreparation of its consolidated financial statements to be:

 

·        revenuerecognition;

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

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

 

The Company records sales revenue typically upon shipment to thecustomer as the terms are primarily FOB shipping point and the Company has nosignificant remaining obligations.  TheCompany also recognizes revenue shipped to distributors upon shipment, ascontracts with distributors do not include any right of return and pricing isfixed at the time of sale.  In certaincases, installation is performed by the Company and the related revenue isrecognized as the installation is completed.

 

Management estimates the allowance for doubtful accounts by analyzingaccounts receivable balances by age and considering specific factors about theindividual customer’s financial condition. When it is deemed probable that a customer account is uncollectible,that balance is added to the reserve. Actual results could differ from these estimates under differentassumptions.

 

The Company reviews its long-lived assets for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Recoverability of assets to be held and used is measured by a comparisonof the carrying amount of an asset to undiscounted future net cash flowsexpected 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.

 

 

Recent Developments

 

Shareholder Rights Offering

 

In March, 2002 PPT VISION initiated aShareholder Rights Offering to raise important growth capital for theCompany.  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 stock and a warrant to purchase one-half share of stock.  The warrants are exercisable at $2.50 until 

 

9

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September 30, 2003. The initial phase of theOffering closed just after the end of the second quarter on May 10, 2002, andresulted in the sale of approximately 4.5 million units.  The net proceeds to the Company from thefirst phase of the offering approximate $4.3 million after Offeringexpenses.  These proceeds have not beenreflected on the Company’s April 30, 2002 balance sheet.

 

Under the terms of the Rights Offering, the Company reserved the rightto offer any remaining Units not sold in the initial phase of the Offering toparticipating shareholders that expressed an interest in purchasing additionalUnits as of the closing date of the Offering. The Company is currently evaluating this option in light of the successof the initial offering and the Company’s short and long term capitalrequirements.

 

Product Development and OEM PartnershipAgreement

 

On April 30, 2002 PPT announced a new productdevelopment and OEM partnership with Electroglas Inc., a leading supplier oftest and inspection equipment for the semiconductor industry.  Pursuant to this agreement, PPT VISION willdesign and manufacture a custom SMI 3D sensor for Electroglas.  Electroglas will integrate this sensor aspart of their Quick Silver wafer inspection system for the specific purpose ofinspecting bumps on wafers.  Inspectingbumps on wafers is a growing requirement in the semiconductor industry and thisnew SMI-3D sensor will bring specific competitive advantages with respect tothroughput and accuracy.

 

New Product Order—PPT 861-SH

 

Another significant business development forour 3D business is the receipt of an order for over $300,000 for our newPPT861-SH inspection system from a major US-based semiconductormanufacturer.  This product is designedto inspect BGA’s in strip form at a very high rate of speed.  This product addresses an important need ofsemiconductor manufacturers for 100% in line inspection of componentparts.  We believe that this representsa major market opportunity for PPT VISION.

 

 

Results of Operations

 

Net revenues decreased 64% to $1,607,000 for the three-month periodended April 30, 2002, compared to net revenues of $4,438,000 for the sameperiod in fiscal 2001.  For thesix-month period ended April 30, 2002, net revenues decreased 65% to $3,263,000compared to $9,239,000 for the same period in fiscal 2001.  Unit sales of the Company’s machine visionsystems decreased to 41 for the second quarter of fiscal 2002 versus 266 forthe same period in fiscal 2001.  Unitsales for the six-month period ended April 30, 2002 decreased to 90 versus 550for the same period in 2001.  Thedecrease in the number of units sold during the quarter and six-month periodended April 30, 2001 is attributed to the economic slowdown in the Company’score markets, primarily electronic component manufacturing.

 

10

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Sales to customers outside the United States represented 30% of grossrevenues for the three-month period ended April 30, 2002, compared to 73% forthe same period in fiscal 2001.  For thesix-month period ended April 30, 2002, sales to customers outside the UnitedStates represented 30% of gross revenues, compared to 62% for the same periodin fiscal 2001.

 

Several of the Company’s largest customers who drove revenues to recordlevels in the first half of 2001 have substantially cut back capital spendingand, as a result, the Company’s revenues have decreased dramatically since thethird quarter of last fiscal year.  Thisis primarily a result of a significant slowdown in capital spending in theelectronics manufacturing sector of the global economy.

 

The Company has seen several encouraging developments recently withrespect to an increase in business activity, increasing interest in ourproducts from a variety of new and existing customers, and improvements inmanufacturing related economic indicators, which management believes willtranslate into improved operating results in the quarters ahead.  However, management continues to believethat the recovery will be gradual and that the timing and magnitude of theseimprovements is not precisely determinable.

 

Gross profit decreased 66% to $802,000 for the three-month period endedApril 30, 2002, compared to $2,381,000 for the same period in fiscal 2001.  For the six-month period ended April 30,2002, gross profit decreased 69% to $1,523,000, compared to $4,943,000 for thesame period in fiscal 2001.  As apercentage of net revenues, the gross profit for the second quarter of fiscal2002 decreased to 50% compared to 54% in the same period in fiscal 2001.  For the six-month period ended April 30,2002, gross profit as a percentage of net revenues decreased to 47% compared to54% in the same period of fiscal 2001. The decrease in gross profit in absolute dollars and on a percentagebasis for the three and six month periods ended April 30, 2002 is attributed tothe decrease in net revenues and the application of fixed manufacturingoverhead expenses across a lower volume of shipments.  Gross profit margins in the second quarter of 2002 were approximatelythe same as in the first quarter.

 

Sales and marketing expenses decreased 33% to $823,000 for thethree-month period ended April 30, 2002, compared to $1,237,000 for the sameperiod in fiscal 2001.  For thesix-month period ended April 30, 2002, sales and marketing expenses decreased32% to $1,649,000, compared to $2,418,000 for the same period in fiscal2001.  As a percentage of net revenues,sales and marketing expenses increased to 51% for the second quarter of fiscal2002 compared to 28% for the same period in fiscal 2001.  For the six-month period ended April 30,2002, sales and marketing expenses as a percentage of net revenues increased to51% compared to 26% in the same period of fiscal 2001.  The large increase in expenses as apercentage of net revenues for the three and six month periods ended April 30,2002 is attributed to the decrease in net revenues.  Also contributing to this increase is the decrease ininternational revenues which typically have a lower cost of selling resultingfrom the Company’s use of international distributors.  The Company expects sales and marketing expenses in 

 

11

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absolute dollars to stay relatively the same during the second half offiscal 2002 as a continuing result of the cost reduction measures implementedin fiscal 2001.  Additionally, anycorresponding increase or decline in sales and marketing expenditures beyondthis current expectation will be driven by the level of revenues achieved infiscal 2002.

 

General and administrative expenses decreased 24% to $432,000 for thethree-month period ended April 30, 2002, compared to $566,000 for the sameperiod in fiscal 2001.  For thesix-month period ended April 30, 2002, general and administrative expensesdecreased 29% to $845,000, compared to $1,189,000 in the same period of fiscal2001.  As a percentage of net revenues,general and administrative expenses increased to 27% for the second quarter offiscal 2002 versus 13% for the same period in fiscal 2001.  For the six-month period ended April 30,2002, general and administrative expenses as a percentage of net revenuesincreased to 51% compared to 13% in the same period of fiscal 2001.  The large increase in expenses as apercentage of net revenues for the three and six month periods ended April 30,2002 is attributed to the decrease in net revenues.  The Company expects general and administrative expenses to stayrelatively the same during the second half of fiscal 2002.

 

Research and development expenses decreased 6% to $1,165,000 for thethree-month period ended April 30, 2002, compared to $1,242,000 for the sameperiod in fiscal 2001.  For thesix-month period ended April 30, 2002, research and development expensesdecreased 10% to $2,258,000, compared to $2,503,000 in the same period offiscal 2001.  As a percentage of netrevenues, research and development expenses increased to 72% for the secondquarter of fiscal 2002, compared to 28% for the second quarter of fiscal2001.  For the six-month period endedApril 30, 2002, research and development expenses as a percentage of netrevenues increased to 69% compared to 27% in the same period of fiscal2001.  The large increase in expenses asa percentage of net revenues for the three and six month periods ended April 30,2002 is attributed to the decrease in net revenues.

 

Interest and other income decreased 91% to $6,000 for the three-monthperiod ended April 30, 2002, compared to $67,000 for the same period in fiscal2001.  For the six-month period endedApril 30, 2002, interest and other income decreased 70% to $37,000, compared to$125,000 in the same period of fiscal 2001. The large decrease in interest and other income for the three and sixmonth periods ended April 30, 2002 is related to a reduction in the balances incash and cash equivalents and investments.

 

The Company did not record an income tax benefit or expense for thethree or six month period ended April 30, 2002 or for the three or six monthperiod ended April 30, 2001.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

Due to its continuing losses, the Company has been using its existingcash and cash equivalents to fund the shortfall in cash generated from itsoperating activities.

 

In order to satisfy the Company’s anticipated working capital andcapital resources needs, the Company initiated a Shareholder Rights Offeringduring the second quarter. As noted above under “Recent Developments”, theCompany raised net proceeds of approximately $4.3 million subsequent to thequarter end in the first phase of the Offering and is evaluating whether tooffer and sell remaining units.

 

The Company believes that cash generated from operations together withthe cash provided by this Rights Offering will be sufficient to meet itsworking capital and capital resource obligations through the next twelvemonths.  The Company will continue toexplore other financing alternatives as the need or the opportunity may ariseincluding, potentially, customer or vendor financing, customer-sponsoredresearch and development projects, external borrowings or sales of stock tostrategic investors.

 

As of April 30, 2002, the Company had no outstanding debt.

 

The Company leases facilities and equipment under non-cancelableoperating lease agreements.  Minimumfuture rental payment obligations are approximately $1.0 million annually.

 

Working capital decreased to $4,408,000 at April 30, 2002 from$7,044,000 at October 31, 2001.  TheCompany financed its operations during the first six months of fiscal 2002through internally generated cash flow and existing cash and cashequivalents.  Net cash used in operatingactivities during the first six months of fiscal 2002 was $1,754,000.  Accounts receivable decreased $692,000primarily due to lower sequential net revenues and strong collections realizedduring the second quarter of fiscal 2002. Inventories increased $285,000 during the first six months of fiscal2002 due to the purchase of inventory items with extended delivery lead times.  Accounts payable and accrued expensesincreased by $264,000.  The increase inaccounts payable and accrued expenses primarily results from the Company’sextension of payment terms to vendors and suppliers in an effort to conservecash. Deferred revenue increased $179,000 from year end due to the receipt of cash advances from customers for productsthat will be delivered in the months ahead.

 

After consideration of the net proceeds fromthe Company’s recently completed Shareholder Rights Offering, working capitalwould have been approximately $8.7 million as of April 30, 2002.

 

Net cash provided by investing activities was $385,000, primarily dueto the sale of investments net of fixed asset additions.  During the first six months of fiscal 2002fixed asset additions totaled $98,000 in comparison with $229,000 in fixedasset additions realized for the same period in fiscal 2001.  These 

 

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fixed asset additions were primarily demo equipment for our new productline.  Fixed asset additions in thethird quarter of fiscal 2002 are expected to be at levels comparable with thesecond quarter of fiscal 2002.

 

The Company incurred a net loss of $1,612,000 for the quarter endedApril 30, 2002, and has an accumulated deficit of $21,774,000 as of April 30,2002.  The Company expects to incurlosses for the remainder of its current fiscal year. There can be no assurancethat the Company will not incur additional losses for a longer period, willgenerate positive cash flow from its operations, or that the Company willattain or thereafter sustain profitability in any future period.  To the extent the Company continues to incurlosses or grows in the future, its operating and investing activities may usecash and, consequently, may require the Company to obtain additional sources offinancing in the future.  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 is not materiallyexposed to any financing, liquidity, market or credit risk that could arise ifwe had engaged in such arrangements.

 

 

FORWARD LOOKING STATEMENTS

 

This Form 10-Q contains forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995.  These statements by their nature involvesubstantial risks and uncertainties as described by PPT VISION’s periodicfilings.  Actual results may differmaterially depending on a variety of factors, including, but not limited to thefollowing: changes in worldwide general economic conditions, cyclicality ofcapital spending by customers, the success of PPT VISION’s sale of productsincorporating its SMI technology, PPT VISION’s ability to successfullyintroduce its IMPACT 2D Machine Vision product to meet competition from lowerpriced competitive products, PPT VISION’s dependence upon a limited number ofprincipal customers, PPT VISION’s ability to keep pace with technologicaldevelopments and evolving industry standards, worldwide competition, PPTVISION’s ability to successfully develop custom sensors for its OEM customersand PPT VISION’s ability to protect its existing intellectual property fromchallenges from third parties and other factors.

 

All forward-looking statements included in this document are based oninformation available to the Company as of the date hereof, and the Companyassumes no obligation to update any such forward-looking statements.  It is important to note that the Company’sactual results could differ materially from those in such forward-lookingstatements.  Additional information withrespect to the risks and uncertainties faced by PPT VISION may be found in thesection “Business” under the caption “Important Factors RegardingForward-Looking Statements” contained in its filing with the Securities andExchange Commission on Form 10-K for the year ended October 31, 2001, and inthe Section entitled “Risk Factors” in its Prospectus dated April 2, 2002, andother reports filed with the Securities and Exchange Commission.

 

 

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Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

The Company believes it does not have material exposure to quantitativeand qualitative market risks.  Thecarrying amounts reflected in the balance sheets of cash and cash equivalents,trade receivables and trade payables approximate fair value at April 30, 2002due to the short maturities of these instruments.

 

 

Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

On March 19, 2002, the Company held its Annual Meeting ofShareholders.  At the meeting, thefollowing actions were taken:

 

Election of Directors

 

The following persons were elected to the Company’s Board of Directors,receiving the votes set forth opposite their names:

 
|                   |   | **For**   |   | **Withheld** |   |
|------------------------|--------|-----------|--------|--------------|--------|
| Joseph C.  Christenson |   | 4,655,629 |   | 4,300        |   |
| Robert W. Heller       |   | 4,656,754 |   | 3,175        |   |
| David C.  Malmberg     |   | 4,656,754 |   | 3,175        |   |
| Peter R.  Peterson     |   | 4,656,697 |   | 3,232        |   |
| Benno G. Sand          |   | 4,656,754 |   | 3,175        |   |

 

Amendment of Articles of Incorporation

 

A proposal to increased the Authorized Common Stock from 10,000,000 to20,000,000 shares was approved by the following vote:

 
| For                   |   | 4,646,619 |   |
|-----------------------|--------|-----------|--------|
| Against               |   | 10,707    |   |
| Abstain               |   | 2,603     |   |
| Broker  Non-Vote |   | 0         |   |

 

The Company’s Articles of Incorporation were amended to reflect theincrease.

 

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PART II.  Other Information

 

Item 1:             LEGAL PROCEEDINGS

 

                                                None.

 

Item 2:             CHANGES IN SECURITIES AND USE OF PROCEEDS

 

                                                None.

 

Item 3:             DEFAULTSUPON SENIOR SECURITIES

 

                                                Not Applicable

 

Item 4:             SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

 

                                                None.

 

Item 5:             OTHER INFORMATION

 

                                                None.

 

Item 6:             EXHIBITS AND REPORTS ON FORM 8-K

 

                                                (a)                  Exhibits:

                                                                                None.

 

                                                (b)                 Reports on Form 8-K:

                                                                                None.

 

 

SIGNATURES

 

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

 
|                | PPT VISION, INC.                             |
|---------------------|----------------------------------------------|
|                |                                         |
| Date: June 11, 2002 |                                         |
|                |                                         |
|                | /s/Joseph C. Christenson                     |
|                | Joseph C. Christenson                        |
|                | President                                    |
|                | (principal financial and accounting officer) |

 

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