**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

 

**Form 10-QSB**

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

**OF THESECURITIES EXCHANGE ACT OF 1934**

 

 

**For the Quarterly Period EndedJanuary 31, 2006**

**Commission File Number 0-11518**

 

 

 

**PPT VISION, INC.**

(Exact name of SmallBusiness Issuer as specified in its charter)

 

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

**(952) 996-9500**

| (Issuer’s telephone  number, including area code) |
|--------------------------------------------------------|

 

 

 

Check whether the issuer (1) has filed all reports required to be filedby Section 13 or 15(d) of the Exchange Act during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the last 90 days.  Yes ý  No o

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act). Yes o No ý

 

Shares of $.10 par value common stock outstanding at February 21, 2006:2,998,747

 

 

 

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|     |   |                                                         |   |   |
|----------|--------|--------------------------------------------------------------|--------|--------|
|     |   | INDEX                                                        |   |   |
|     |   |                                                         |   |   |
|     |   | PPT VISION, INC.                                             |   |   |
|     |   |                                                         |   |   |
| Part I.  |   | Financial Information                                        |   | Page   |
|     |   |                                                         |   |   |
| Item 1.  |   | Financial Statements                                         |   |   |
|     |   |                                                         |   |   |
|     |   | Balance Sheets as of January 31, 2006 and                    |   |   |
|     |   | October 31, 2005                                             |   | 3      |
|     |   |                                                         |   |   |
|     |   | Statements of Operations for the Three Months                |   |   |
|     |   | Ended January 31, 2006 and January 31, 2005                  |   | 4      |
|     |   |                                                         |   |   |
|     |   | Statements of Cash Flows for the Three Months  Ended         |   |   |
|     |   | January 31, 2006 and January 31, 2005                        |   | 5      |
|     |   |                                                         |   |   |
|     |   | Notes to Condensed Financial Statements —               |   |   |
|     |   | January 31, 2006                                             |   | 6      |
|     |   |                                                         |   |   |
| Item 2.  |   | Management’s  Discussion and Analysis or Plan of        |   |   |
|     |   | Operation                                                    |   | 11     |
|     |   |                                                         |   |   |
| Item 3.  |   | Controls and Procedures                                      |   | 17     |
|     |   |                                                         |   |   |
| Part II. |   | Other Information                                       |   | 17     |
|     |   |                                                         |   |   |
| Item 1.  |   | Legal Proceedings                                            |   |   |
|     |   |                                                         |   |   |
| Item 2.  |   | Unregistered Sales of Equity Securities and Use of  Proceeds |   |   |
|     |   |                                                         |   |   |
| Item 3.  |   | Defaults Upon Senior Securities                              |   |   |
|     |   |                                                         |   |   |
| Item 4.  |   | Submission of Matters to a Vote of Security Holders          |   | 17     |
|     |   |                                                         |   |   |
| Item 5.  |   | Other Information                                       |   | 18     |
|     |   |                                                         |   |   |
| Item 6.  |   | Exhibits                                                     |   | 18     |
|     |   |                                                         |   |   |
|     |   | Signatures                                              |   | 18     |
|     |   |                                                         |   |   |

 

 

2

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PPT VISION, INC.

 

BALANCESHEETS

 
| ** **                                       | ** ** | ** **           | ** ** | ** **           | ** ** |
|--------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                       | ** ** | **January 31, 2006** | ** ** | **October 31, 2005** | ** ** |
| ** **                                       | ** ** | **(unaudited)**      | ** ** | **(audited)**        | ** ** |
| ASSETS                                           |       |                 |       |                 |       |
| Current assets                                   |       |                 |       |                 |       |
| Cash and cash  equivalents                       |       | $                    | 519,000    |                 | $          | 778,000 |   |
| Accounts  receivable, net                        |       | 1,403,000            |       | 1,197,000            |       |
| Inventories:                                     |       |                 |       |                 |       |
| Manufactured and  purchased parts                |       | 445,000              |       | 454,000              |       |
| Work-in-process                                  |       | 35,000               |       | 34,000               |       |
| Finished goods                                   |       | 4,000                |       | 2,000                |       |
|                                             |       |                 |       |                 |       |
| Total  inventories                               |       | 484,000              |       | 490,000              |       |
| Other current  assets                            |       | 146,000              |       | 160,000              |       |
|                                             |       |                 |       |                 |       |
| Total current  assets                            |       | 2,552,000            |       | 2,625,000            |       |
|                                             |       |                 |       |                 |       |
| Fixed assets,  net                               |       | 406,000              |       | 438,000              |       |
| Intangible  assets                               |       | 61,000               |       | 68,000               |       |
| Other assets                                     |       | 22,000               |       | 22,000               |       |
|                                             |       |                 |       |                 |       |
| Total assets                                     |       | $                    | 3,041,000  |                 | $          | 3,153,000 |   |
|                                             |       |                 |       |                 |       |
| LIABILITIES AND SHAREHOLDERS’ EQUITY        |       |                 |       |                 |       |
| Current liabilities                              |       |                 |       |                 |       |
| Accounts payable                                 |       | $                    | 495,000    |                 | $          | 367,000 |   |
| Accrued expenses                                 |       | 178,000              |       | 223,000              |       |
| Deferred revenue  — customer advances       |       | 17,000               |       | 9,000                |       |
|                                             |       |                 |       |                 |       |
| Total current  liabilities                       |       | 690,000              |       | 599,000              |       |
|                                             |       |                 |       |                 |       |
| Shareholders’ equity                        |       |                 |       |                 |       |
| Common stock                                     |       | 300,000              |       | 300,000              |       |
| Capital in  excess of par value                  |       | 36,082,000           |       | 36,081,000           |       |
| Accumulated  deficit                             |       | (34,031,000          | )          | (33,827,000          | )          |
|                                             |       |                 |       |                 |       |
| Total  shareholders’ equity                 |       | 2,351,000            |       | 2,554,000            |       |
|                                             |       |                 |       |                 |       |
| Total  liabilities and shareholders’ equity |       | $                    | 3,041,000  |                 | $          | 3,153,000 |   |
|                                             |       |                 |       |                 |       |
|                                             |       |                 |       |                 |       |
|                                                  |            |                      |            |                      |            |  |  |  |

See accompanying notes tocondensed financial statements

 

 

3

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PPT VISION, INC.

STATEMENTSOF OPERATIONS

(UNAUDITED)

 

 
| ** **                                  | ** ** | **Three Months Ended January 31,** | ** ** |
|---------------------------------------------|------------|------------------------------------|------------|
| ** **                                  | ** ** | ** **                         |
|                                        |       | **2005**                           | ** ** | **2006** |   |
|                                        |       |                               |       |   |   |
| Revenues                                    |       | $                                  | 1,582,000  |   | $ | 1,525,000 |   |
| Cost of revenues                            |       | 702,000                            |       | 729,000 |   |
| Gross profit                                |       | 880,000                            |       | 796,000 |   |
|                                        |       |                               |       |   |   |
| Expenses:                                   |       |                               |       |   |   |
| Sales and  marketing                        |       | 559,000                            |       | 686,000 |   |
| General and administrative                  |       | 236,000                            |       | 291,000 |   |
|                                        |
| Research and development                    |       | 329,000                            |       | 374,000 |   |
|                                        |
|                                        |       |                               |       |   |   |
| Total expenses                              |       | 1,124,000                          |       | 1,351,000 |   |
|                                        |       |                               |       |   |   |
| Interest and other income                   |       | 40,000                             |       | 9,000 |   |
|                                        |       |                               |       |   |   |
| Loss from continuing operations             |       | (204,000                           | )     | (546,000 | )  |
|                                        |       |                               |       |   |   |
| Loss from discontinued operations           |       | —                             |       | (64,000 | )  |
|                                        |       |                               |       |   |   |
| Net loss                                    |       | $                                  | (204,000   | ) | $ | (610,000 | )  |
|                                        |       |                               |       |   |   |
| Per share data:                             |       |                               |       |   |   |
| Weighted average basic shares outstanding   |       | 2,999,000                          |       | 2,996,000 |   |
|                                        |
| Weighted average diluted shares outstanding |       | 2,999,000                          |       | 2,996,000 |   |
|                                        |
| Basic and diluted loss per common share     |       |                               |       |   |   |
|                                        |
| Loss from  continuing operations            |       | $                                  | (0.07      | ) | $ | (0.18 |   |
| )                                      |
| Loss from  discontinued operations          |       | $                                  | —     |   | $ | (0.02 |   |
| )                                      |
|                                        |       |                               |       |   |   |
| Net loss                                    |       | $                                  | (0.07      | ) | $ | (0.20 | )  |

 

 

See accompanying notes tocondensed financial statements

 

4

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PPT VISION, INC.

STATEMENTSOF CASH FLOWS

(UNAUDITED)

 

 
| ** **                                                                   | ** ** | **Three Months**     | ** ** | **Three Months**     | ** ** |
|------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                                   | ** ** | **Ended**            | ** ** | **Ended**            | ** ** |
| ** **                                                                   | ** ** | **January 31, 2006** | ** ** | **January 31, 2005** | ** ** |
|                                                                         |       |                 |       |                 |       |
| Net loss                                                                     |       | $                    | (204,000   | )                    | $          | (610,000 | )  |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                 |       |                 |       |
| Stock option  expense                                                        |       | 1,000                |       | —               |       |
| Depreciation and  amortization                                               |       | 44,000               |       | 66,000               |       |
| Loss from  discontinued operations                                           |       | —               |       | 55,000               |       |
|                                                                         |       |                 |       |                 |       |
| Change in assets and liabilities:                                            |       |                 |       |                 |       |
| Accounts  receivable                                                         |       | (206,000             | )          | 466,000              |       |
| Inventories                                                                  |       | 6,000                |       | (196,000             | )          |
| Other current  assets                                                        |       | 14,000               |       | 22,000               |       |
| Accounts payable                                                             |       | 128,000              |       | (192,000             | )          |
| Accrued expenses                                                             |       | (45,000              | )          | (33,000              | )          |
| Deferred revenue  - customer advances                                        |       | 8,000                |       | (27,000              | )          |
|                                                                         |       |                 |       |                 |       |
| Total  adjustments                                                           |       | (50,000              | )          | 161,000              |       |
|                                                                         |       |                 |       |                 |       |
| Net cash used in  operating activities                                       |       | (254,000             | )          | (449,000             | )          |
|                                                                         |       |                 |       |                 |       |
| Cash flows from investing activities:                                        |       |                 |       |                 |       |
| Purchase of  fixed assets                                                    |       | (5,000               | )          | (22,000              | )          |
|                                                                         |       |                 |       |                 |       |
| Net cash used in  investing activities                                       |       | (5,000               | )          | (22,000              | )          |
|                                                                         |       |                 |       |                 |       |
| Cash flows from financing activities:                                        |       |                 |       |                 |       |
| Proceeds from  the exercise of stock options                                 |       | —               |       | 3,000                |       |
|                                                                         |       |                 |       |                 |       |
| Net cash  provided by financing activities                                   |       | —               |       | 3,000                |       |
|                                                                         |       |                 |       |                 |       |
| Net cash  provided by discontinued operations                                |       | —               |       | 105,000              |       |
|                                                                         |       |                 |       |                 |       |
| Net decrease in cash and cash equivalents                                    |       | (259,000             | )          | (363,000             | )          |
|                                                                         |       |                 |       |                 |       |
| Cash and cash equivalents at beginning of year                               |       | 778,000              |       | 2,617,000            |       |
|                                                                         |       |                 |       |                 |       |
| Cash and cash equivalents at end of period                                   |       | $                    | 519,000    |                 | $          | 2,254,000 |   |

 

See accompanying notes tocondensed financial statements

 

5

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PPT VISION, INC.

NOTES TO CONDENSEDFINANCIAL STATEMENTS

January 31, 2006

(UNAUDITED)

 

 

NOTE A — DESCRIPTION OF BUSINESS

 

PPT VISION, Inc. (“The Company”) designs, manufactures, and marketscamera-based intelligent systems for automated inspection in manufacturingapplications.  The Company’s products,commercially known as machine vision systems, enable manufacturers to realizesignificant economic paybacks by increasing the quality of manufactured partsand improving the productivity of manufacturing processes.  The Company’s machine vision product line issold on a global basis to end-users, system integrators, distributors andoriginal equipment manufacturers (OEM’s) primarily in the electronic andsemiconductor component, automotive, medical device, and packaged goodsindustries.

 

 

NOTE B - BASIS OF PRESENTATION

 

The accompanying unaudited condensed financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and with theinstructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotesrequired by accounting principles generally accepted in the United States ofAmerica for complete financial statements. In the opinion of management, all adjustments (consisting of normalrecurring accruals) considered necessary for a fair presentation have beenincluded.  Results of operations for theinterim periods are not necessarily indicative of the results to be expectedfor the full year or of the results for any future periods.

 

The Balance Sheet at October 31, 2005 has been derived from the Company’saudited financial statements for the fiscal year ended October 31, 2005 butdoes not include all of the information and footnotes required by accountingprinciples generally accepted in the United States of America for completefinancial statements.

 

For further information, refer to the financial statements andfootnotes thereto included in the Company’s annual report on Form 10-KSB forthe year ended October 31, 2005.

 

 

NOTE C — REVENUE RECOGNITION

 

The Company typically recognizes revenue on product sales upon shipmentto the end user customers if contractual obligations have been substantiallymet and title and risk of loss have passed to the customer, which is generallythe case for sales of machine vision systems, spare parts and accessories.  The Company also recognizes revenue onproducts sold to distributors upon shipment because contracts with distributorsdo not include post-shipment obligations or any right of return provisions andpricing is fixed at the time of sale. Revenue related to application engineering, product development andcustomer training services is recognized when the services are performed.  Service revenue is less than 10% of totalrevenues for the three-months ended January 31, 2006 and 2005.

 

 

6

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NOTE D — LIQUIDITY AND CAPITAL RESOURCES

 

TheCompany had a loss from continuing operations for the three months ended January31, 2006 of $204,000.  Cash used inoperations was $254,000 for the three months ended January 31, 2006.  Effective May 1, 2005, the Company finalizedan agreement with its current landlord to restructure the Company’s leaseobligation with respect to its headquarters facility in Eden Prairie,Minnesota.  Under the amended leaseterms, the Company received a reduction in its base rental rates and its leasedfacility decreased from approximately 64,000 square feet to approximately35,000 square feet, resulting in a savings of approximately $120,000 perquarter.  In exchange for these amendedlease terms, the Company paid and capitalized $140,000 for certain leaseholdimprovements associated with the reconfigured space which will be amortizedover the revised lease term and also paid approximately $300,000 in accrueddeferred rent.  The Company also agreedto pay a $240,000 lease termination fee (which was expensed) in equal monthlyinstallments over a twelve-month period that started on May 1, 2005 and to extendthe current lease term by two years through May, 2011.

 

The Company closed on a $400,000 private placement of common stock onFebruary 17, 2006 in an effort to further strengthen its balance sheet andprovide for future working capital requirements.  The private placement was funded by theCompany’s current largest shareholder, Mr. Peter R. Peterson.  In the private placement, the Company issued800,000 shares of common stock at a price of $0.50 per share.  The Companybelieves it has sufficient cash to fund its operations, working capital andcapital resource needs through fiscal 2006.

 

The Companybelieves that a variety of financing alternatives are available includingexternal borrowing against accounts receivable and inventory, customer orvendor financing, the issuance of additional stock to the public or tostrategic partners, or customer-sponsored research and development projects.

 

There can be no assurance, however, that additional capitalwill be available on acceptable terms or at all, and the failure to obtainadditional capital as needed may have an adverse effect on the Company’s abilityto continue to take advantage of future opportunities or respond to competitivepressures or unanticipated requirements, which could adversely affect itsbusiness, financial position, results of operations and cash flows.

 

 

 

NOTE E — LOSS PER SHARE

 

On March 10, 2005, the Company announced that its Board of Directorsapproved a 1-for-4 reverse split of its common stock effective as of the closeof business on March 31, 2005 and the conversion to book-entry shareregistration also effective as of March 31, 2005.  In connection with the reverse split, theBoard of Directors also approved an amendment to Article 4.1 of the Company’sArticles of Incorporation to proportionately reduce the number of shares ofcommon stock authorized from 20,000,000 shares to 5,000,000 shares.  All share numbers presented in this reporthave been restated to give effect to the 1-for-4 reverse split.

 

At January 31, 2006, options to purchase 331,330 shares of the Company’scommon stock were not considered in the calculation of diluted earnings pershare.  At January 31, 2005, options topurchase 243,580 shares and warrants to purchase 

 

 

7

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6,250 shares of the Company’s common stock were not considered in thecalculation of diluted earnings per share. As the Company had a net loss for both periods, the inclusion ofoutstanding options and warrants would have been anti-dilutive.

 

 

 

NOTE F —STOCK-BASED COMPENSATION

 

The Company uses the intrinsic value method prescribed byAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees,” and related interpretations in accounting for employee stockoptions.  Under the intrinsic valuemethod, compensation expense is recorded only to the extent that the market priceof the common stock exceeds the exercise price of the stock option on the dateof grant.

 

In December 2002, the FinancialAccounting Standards Board (FASB) issued Statement of Financial AccountingStandards (SFAS) No. 148, “Accounting for Stock-Based Compensation - Transitionand Disclosure.”  SFAS No. 148 is an amendment to SFAS No. 123 providingalternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation and alsoprovides required additional disclosures about the method of accounting forstock-based employee compensation. The Company adopted the annualdisclosure provision of SFAS No. 148 during the year ended October 31,2003.  The Company chose to not adopt thevoluntary change to the fair value based method of accounting for stock-basedemployee compensation, pursuant to SFAS No. 148.

 

During fiscal 2005, the Companygranted 2,500 of seven-year options to purchase shares of the Company’s commonstock to a consultant with an exercise price of $1.43 per share.  Pursuant to Emerging Issues Task Force 96-18(EITF 96-18), “Accounting for Equity Instruments that are Issued to Other ThanEmployees for Acquiring, or in Conjunction with Selling, Goods or Services,”the Company will value and record an expense related to the options on theearlier of the date a performance commitment is met or the date the performanceis complete.  The Company recorded anexpense of $1,000 for the three months ended January 31, 2006 in accordance withEITF 96-18.

 

The Company has adopted the disclosure-only provisions of SFAS No. 148,Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized with respect tostock options.  Had compensation cost forstock options been determined based on the fair value methodology prescribed bySFAS 123, the Company’s net loss and net loss per share would have been reducedto the pro forma amounts indicated below:

 

 
| **Three Months Ended****January 31,** | ** ** | ** **      | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------|------------|-----------------|----------|------------|----------|------------|
| Net loss                              |       | As reported     | $        | (204,000   | )        | $          | (610,000 | ) |
|                                  |       | Pro forma       | $        | (248,000   | )        | $          | (637,000 | ) |
|                                  |       |            |     |       |     |       |
| Stock based compensation              |       | As reported     | $        | 1,000      |     | $          | — |   |
|                                  |       |  Pro forma | $        | (44,000    | )        | $          | (27,000 | ) |
|                                  |       |            |     |       |     |       |
| Basic and diluted loss per share      |       | As reported     | $        | (0.07      | )   | $          | (0.20 | ) |
|                                  |       | Pro forma       | $        | (0.08      | )        | $          | (0.21 | ) |
|                                       |            |                 |          |            |          |            |  |  |  |  |  |  |

 

 

8

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| **For Periods Ended January 31,** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| Risk free interest rates          |       | N/A      |       | 4.0      | %          |
| Expected lives                    |       | N/A      |       | 6 years  |       |
| Expected volatility               |       | N/A      |       | 115      | %          |
| Expected dividends                |       | N/A      |       | 0        | %          |

 

 

 

NOTE G — CUSTOMER AND GEOGRAPHIC DATA

 

The followingtables set forth the percentage of the Company’s net revenues (including salesdelivered through international distributors) by geographic location for thethree months ended January 31, 2006 and 2005:

 
| **Three Months Ended January 31** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|
| United States                     |       | 39       | %          | 51       | %          |
| Europe and Canada                 |       | 34       | %          | 30       | %          |
| Asia-Pacific                      |       | 27       | %          | 18       | %          |
| South America                     |       | 0        | %          | 1        | %          |
|                              |       | 100      | %          | 100      | %     |

 

 

 

In the three-month period ended January 31, 2006, revenues from onecustomer represented approximately 18% of total revenue.  In the three-month period ended January 31,2005, revenues from two customers each represented approximately 14% of the totalrevenue.

 

 

NOTE H — NEW ACCOUNTING PRONOUNCEMENTS

 

In December 2004, FASB issued SFAS No. 123 (revised 2004), “Share-BasedPayment,” that focuses primarily on accounting for transactions in which anentity obtains employee services in share-based payment transactions.  This statement replaces SFAS No. 123, “Accountingfor Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accountingfor Stock Issued to Employees.” Beginning with our quarterly period that begins November 1, 2006, wewill be required to expense the fair value of employee stock options andsimilar awards.  As a public company, weare allowed to select from two alternative transition methods, each havingdifferent reporting implications.  Wehave not yet determined the impact of SFAS No. 123R on us.

 

In November 2004, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standards (SFAS) No. 151 “Inventory Costs,”(SFAS No. 151) which amends the guidance in ARB No. 43 (ARB 43), Chapter 4 “InventoryPricing,” to clarify the accounting for abnormal amounts of idle facilityexpense, freight, handling costs, and wasted material (spoilage).  Paragraph 5 of ARB 43, Chapter 4, previouslystated that under some circumstances, items such as idle facility expense,excessive spoilage, double freight, and re-handling costs may be so abnormal asto require treatment as current period charges. SFAS No. 151 requires that those items be recognized as current-periodcharges regardless of whether they meet the criterion of “so abnormal.”  In addition, SFAS No. 151 requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity 

 

 

9

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of the production facilities. SFAS No. 151 shall be effective for inventory costs incurred duringfiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred duringfiscal years beginning after the date SFAS No. 151 was issued.  SFAS No. 151 shall be appliedprospectively.  The adoption of SFAS No.151 did not have a material effect on the Company’s financial statements.

 

 

NOTE I —DISCONTINUED OPERATIONS

 

In the fourth quarter of fiscal 2004, the Company implemented astrategy to focus all of its resources on its core 2D machine visionbusiness.  In accordance with this plan,in the fourth quarter of fiscal 2004, the Company initiated and completed thesale of its 3D business unit, together with all the related patents,intellectual property, inventory and equipment. The terms of the sale included cash payments of $1.0 million and theopportunity to receive royalties on sales of certain products by the buyer forthe next five years.  The royalties,which will be recorded as a part of discontinued operations, are anticipated tobe minimal, if any.  To date there havebeen no royalties.  As a result of thesale, in accordance with appropriate accounting principles, the Company hasrevised the financial results for all periods presented to include the 3Dbusiness as a discontinued operation. Accordingly, all 3D related revenue and expenses have been removed fromcontinuing operations and presented in a separate line in the statement ofoperations entitled “loss from discontinued operations.”  Below is a Condensed Statement of Operationsfor the discontinued operations for the three month periods ended January 31,2005 and 2006.

 

 
| **Condensed Statement of  Operations** | ** ** | **Quarter Ended  January 31, 2006** | ** ** | **Quarter Ended  January 31, 2005** | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| Revenues                               |       | —                              |       | $                                   | 169,000    |   |
| Cost of revenues                       |       | —                              |       | 56,000                              |       |
| Gross profit                           |       | —                              |       | 113,000                             |       |
| Total operating expenses               |       | —                              |       | 177,000                             |       |
| Loss from discontinued Operations      |       | $                                   | —     |                                | $          | (64,000 | ) |
|                                   |       |                                |       |                                |       |
| Assets                                 |       | January 31, 2006                    |       | October 31, 2005                    |       |
| Accounts receivable                    |       | $                                   | —     |                                | $          | — |   |

 

 

 

NOTE J —RESTRUCTURING ACTIONS

 

In the second quarter offiscal 2005, the Company completed a three part corporate restructuring in aneffort to bring the Company’s cost structure into closer alignment with currentrevenues.  The first part of this planinvolved the closing of the Company’s Michigan office.  The functions of the Michigan office havebeen transferred to several of the Company’s system integration partners.  The second part of the plan involved therestructuring of the Company’s lease obligation with respect to itsheadquarters facility in Eden Prairie, Minnesota. Under the amended lease terms signed on April 29,2005, the Company received a reduction in its base rental rates and its leasedfacility 

 

 

10

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decreased from approximately 64,000 square feet to approximately 35,000square feet resulting in a savings of approximately $120,000 per quarter.  In exchange for these amended lease terms,the Company paid $140,000 for certain leasehold improvements associated withthe reconfigured space and also paid approximately $300,000 in accrued deferredrent.  The Company is also paying a$240,000 lease termination fee, which was accrued in the second quarter offiscal 2005, in equal monthly installments over a twelve-month period whichstarted on May 1, 2005.  The amendedlease terms also extended the current lease term by two years through May,2011. The third part of the plan included other operatingexpense reductions primarily consisted of an approximately 15% workforcereduction.  When taken together, thethree parts of this restructuring will result in a reduction of the Company’stotal cost structure by over $1,200,000 per year.

 

An analysis of the components of the restructuring charge related tothese restructuring actions is as follows:

 
| Lease  termination fee and related costs                 |   | $        | 280,000 | ** ** |
|----------------------------------------------------------|--------|----------|---------|------------|
| Michigan office closure costs                            |   | 60,000   |    |
| Severance costs                                          |   | 50,000   |    |
| Total nonrecurring charge                                |   | $        | 390,000 |       |
| Less: Payment through January 31, 2006                   |   | (350,000 | )       |
| Amount included in accrued expenses at January 31,  2006 |   | $        | 40,000  |       |
|                                                     |

 

 

NOTE K — SUBSEQUENT EVENT

 

The Company closed on a $400,000 private placement of common stock onFebruary 17, 2006 in an effort to further strengthen its balance sheet andprovide for future working capital requirements.  The private placement was funded by theCompany’s current largest shareholder, Mr. Peter R. Peterson.  In the private placement, the Company issued800,000 shares of common stock at a price of $0.50 per share.

 

 

Item 2

 

MANAGEMENT’S DISCUSSIONAND ANALYSIS OR PLAN OF OPERATION

 

# Overview 

 

PPT VISION, Inc.designs, manufactures, and markets camera-based intelligent systems forautomated inspection in manufacturing applications. The Company’s products,commercially known as machine vision systems, enable manufacturers to realizesignificant economic paybacks by increasing the quality of manufactured partsand improving the productivity of manufacturing processes.  The Company’s machine vision product line issold on a global basis to end-users, system integrators, distributors andoriginal equipment manufacturers (OEM’s) primarily in the electronic andsemiconductor component, automotive, medical device, and packaged goodsindustries.

 

The Company’s revenues increased 4% to $1,582,000 during the firstquarter ended January 31, 2006 compared to sales of $1,525,000 in the prioryear’s first quarter.  The Company’s lossfrom continuing operations for the quarter ended January 31, 2006 decreased to$204,000 or $.07 per share compared to $546,000 or 

 

 

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$.18 per share in the prior year’s period.  The increase in revenues in the first quarter resulted in increasedsales of our IMPACT product line.  Duringthe first quarter of fiscal year 2006 approximately 80% of revenue was IMPACTrelated compared to 69% of revenue during the same period of fiscal year 2005.

 

During the fiscal2006 first quarter, revenues from outside the United States accounted for 61%of revenues compared to 49% in the first quarter of fiscal 2005.

 

Total operatingexpenses for the three-month period ending January 31, 2006 were $1,124,000, a 17%decrease in comparison to total operating expenses of $1,351,000 in the prioryear’s first quarter. This reduction in operating expenses reflect the effectof the restructuring actions implemented in the second quarter ending April 30,2005 as described in Note J.

 

 

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 withaccounting principles generally accepted in the United States of America forinterim financial information and with the instructions to Form 10-QSB.  Accordingly, they do not include all of theinformation required by accounting principles generally accepted in UnitedStates of America for complete financial statements.  In the opinion of management, all adjustments(consisting of normal recurring accruals) considered necessary for a fair presentationhave been included.

 

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 financial statements to be:

 

•                  revenue recognition;

•                  estimating valuation allowances, specifically the allowance fordoubtful accounts and inventory; and

•                  valuation and useful lives of long-lived and intangible assets.

 

### Revenue Recognition

 

The Company typically recognizes revenue on product sales upon shipmentto the end user customers if contractual obligations have been substantiallymet and title and risk of loss have passed to the customer, which is generallythe case for sales of 2D machine vision systems, spare parts andaccessories.  The Company also recognizesrevenue on products sold to distributors upon shipment because contracts withdistributors do not include post-shipment obligations or any right of returnprovisions and pricing is fixed at the time of sale.

 

 

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Services revenue, which includes application engineering, productdevelopment, customer training and repair services, is recognized when theservices are performed.  Service revenueis less than 10% of total revenues for the three months ended January 31, 2006and 2005.

 

# ValuationAllowances

 

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 all or a portion of a customer’s accountis uncollectible, a corresponding amount is added to the allowance for doubtfulaccounts.

 

The Company’s inventory primarily consists of parts and other materialsthat are used in the manufacture of vision systems.  The Company generally only builds systemsbased on customer orders and as a result maintains only a minor amount offinished goods inventory.  Managementestablishes valuation reserves on inventory for estimated excess and obsoleteinventory equal to the difference between the cost of inventory and itsestimated market value based on assumptions about future product demand andmarket conditions.  In view of the rapidpace of technological change in the machine vision industry, the Companygenerally considers inventory that has had no usage for one year to beobsolete.  In addition, changes in theCompany’s product offerings or those of the Company’s competitors may also resultin excess or obsolete inventory levels. Accordingly, these factors will also be considered in the determinationof the market value of inventory.

 

Actual results could differ from these estimates under differentassumptions.  If the financial conditionof one or more of our customers were to deteriorate, or if actual productdemand or market conditions are less favorable than anticipated by management,additional reserves may be required.

 

# Long-Livedand Intangible Assets

 

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 usedis measured by a comparison of the carrying amount of an asset to undiscountedfuture net cash flows expected to be generated by the assets.  If these assets are considered to be impaired,the impairment to be recognized is measured by the amount by which the carryingamount of the assets exceeds the fair value of the assets.

 

 

RESULTS OF OPERATIONS

 

Revenues

 

Net revenues increased 4% to $1,582,000 for the three-month periodended January 31, 2006, compared to net revenues of $1,525,000 for the sameperiod in fiscal 2005. Unit sales of the Company’s machine vision systems increasedto 255 for the first quarter of fiscal 2006 versus 221 for the same period infiscal 2005.  In the three-month periodended January 31, 2006, revenues from one customer represented approximately 18%of total revenue.  In the three-monthperiod ended January 31, 2005, revenues from two customers each representedapproximately 14% of total revenue.

 

 

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The increase in revenues in thefirst quarter resulted in increased sales of our IMPACT product line.  During the first quarter of fiscal year 2006approximately 80% of revenue was IMPACT related compared to 69% of revenueduring the same period of fiscal year 2005.

 

During the fiscal 2006 first quarter, revenues from outside the UnitedStates accounted for 61% of revenues compared to 49% in the fiscal 2005 firstquarter.

 

We will continue to experience fluctuatingquarter-over-quarter revenue comparisons as we transition almost exclusively toproduct development and sales of the IMPACT family of products.  Revenue trends may also be inconsistent giventhe nature of the machine vision industry and the capital nature of ourproduct.

 

Gross profit increased 11% to $880,000 for the three-month period endedJanuary 31, 2006, compared to $796,000 for the same period in fiscal 2005.  As a percentage of net revenues, the grossprofit for the first quarter of fiscal 2006 increased to 56% compared to 52% inthe same period of fiscal 2005.  Theincrease in gross margin is a reflection of the increase in revenues along withthe fact that the majority of our revenue in 2006 related to our IMPACT productline which has a higher gross margin than our older product lines.  Now that a majority of the Company’s revenuesconsist of its newer, higher gross margin, IMPACT product line, it is expectedthat future gross margins will trend into the 55% to 60% range as our fixedmanufacturing overhead is spread over a higher volume of sales.

#  

Salesand marketing expenses decreased 19% to $559,000 for the three-month periodended January 31, 2006 compared to $686,000 for the same period in fiscal 2005.  As a percentage of net revenues, sales andmarketing expenses decreased to 35% for the first quarter of fiscal 2006compared to 45% for the same period in fiscal 2005.  The Company expects sales and marketingexpenses in absolute dollars to remain relatively flat for the remainder offiscal 2006. Increases in sales and marketing expenditures may occur to theextent that revenue growth is achieved.

 

Generaland administrative expenses decreased 19% to $236,000 for the three-monthperiod ended January 31, 2006, compared to $291,000 for the same period infiscal 2005.  As a percentage of netrevenues, general and administrative expenses decreased to 15% for the first quarterof fiscal 2006 versus 19% for the same period in fiscal 2005.  The Company expects general andadministrative expenses to remain relatively flat during fiscal 2006.

 

Researchand development expenses decreased 12% to $329,000 for the three-month periodended January 31, 2006, compared to $374,000 for the same period in fiscal 2005.  As a percentage of net revenues, research anddevelopment expenses decreased to 21% for the first quarter of fiscal 2006,compared to 25% for the first quarter of fiscal 2005.  Again, the Company expects research anddevelopment expenses to remain relatively flat during fiscal 2006.

 

TheCompany did not record an income tax benefit or expense for the three monthperiods ended January 31, 2006 or 2005.

 

The Company’s net loss from continuing operationsfor the first quarter of fiscal 2006 decreased from year-ago levels to $204,000or 7 cents per share, as compared with a loss of $546,000 or 18 cents per sharefor the same period in 

 

 

14

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fiscal 2005. There were approximately 3.0 million shares outstanding during the threemonth periods in fiscal 2006 and 2005.

 

The results of our discontinued operations resultedin no loss for the first quarter of fiscal 2006 and a loss of $64,000 or $0.02per share in the first quarter of fiscal 2005.

 

 

LIQUIDITYAND CAPITAL RESOURCES

-------------------------------

At January31, 2006 the Company had cash balances of $519,000, working capital ofapproximately $1.9 million and no long-term debt.

 

In the firstquarter of fiscal 2006 the Company incurred a net loss from continuing anddiscontinued operations of $204,000 which included non-cash charges related todepreciation and amortization of $44,000. The net loss for the quarter decreased $406,000 from the $610,000 lossreported in the first quarter of fiscal 2005. For the quarter ended January 31, 2006, cash used in operating activitieswas $254,000.  The decrease in cash used inoperations during fiscal 2006 relates to the Company’s second quarter corporaterestructuring actions.  The Companyfinalized an agreement with its current landlord to restructure the Company’slease obligation with respect to its headquarters facility in Eden Prairie,Minnesota.  Under the amended leaseterms, the Company received a reduction in its base rental rates and its leasedfacility decreased from approximately 64,000 square feet to approximately35,000 square feet resulting in a savings of approximately $120,000 perquarter.  In exchange for these amendedlease terms, the Company paid $140,000 for certain leasehold improvementsassociated with the reconfigured space and also paid approximately $300,000 inaccrued deferred rent. The Company expects that the restructuring actions willreduce operating expenses by approximately $1.2 million annually.  Future building rent commitments for the nextfive years are as follows:

 
| Three Months ended Jan 31,  |   | 2006                | $       | 71,000    | ** ** |
|-----------------------------|--------|---------------------|---------|-----------|------------|
| Feb 1, 2006 through Oct 31, |   | 2006                | 214,000 |      |
|                        |   | 2007                | 285,000 |      |
|                        |   | 2008                | 285,000 |      |
|                        |   | 2009                | 299,000 |      |
|                        |   | 2010                | 313,000 |      |
|                        |   | 2011 and thereafter | 202,000 |      |
|                        |   | Total               | $       | 1,669,000 |       |

 

The Company has been using its existing cash and cash equivalents tofund the cash needs of its operating activities.  The Companybelieves it has sufficient cash to fund its operations, working capital andcapital resource needs through fiscal 2006. The Companyclosed on a $400,000 private placement of common stock on February 17, 2006 inan effort to further strengthen its balance sheet and provide for futureworking capital requirements.  The privateplacement was funded by the Company’s current largest shareholder, Mr. Peter R.Peterson.  In the private placement, theCompany issued 800,000 shares of common stock at a price of $0.50 per share.

 

We arecarefully monitoring our cash position and evaluating the need for additionalcapital to enable us to achieve our short and long-term objectives.  If there was a need for additional capital, theCompany believes that a variety of financing alternatives are availableincluding external borrowing against 

 

 

15

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accountsreceivable and inventory, customer or vendor financing, the issuance ofadditional stock to the public or to strategic partners, or customer-sponsoredresearch and development projects. The avenues that we take to satisfy ourpotential capital requirements will depend in large part on the level of ourrevenues, and we will evaluate these alternatives as we obtain bettervisibility of our revenue expectations.

 

There can be no assurance, however, that additional capitalwill be available on acceptable terms or at all, and the failure to obtainadditional capital as needed may have an adverse effect on the Company’sability to continue to take advantage of future opportunities or respond to competitivepressures or unanticipated requirements, which could adversely affect itsbusiness, financial position, results of operations and cash flows.

 

As of January 31, 2006, the Company had no outstanding debt.

 

Working capital decreased 8% to $1,861,000 at January 31,2006 from $2,026,000 at October 31, 2005. The Company financed its operations during the first three months offiscal 2006 through existing cash and cash equivalents.  Net cash used in operating activities duringthe first three months of fiscal 2006 was $254,000.  Accounts receivable increased $206,000 andinventories decreased $6,000 during the first three months of fiscal 2006.  Accounts payable increased by $128,000 whileaccrued expenses decreased by $45,000, respectively.

 

Net cash used in investing activities was $5,000 during the threemonths ended January 31, 2006 and related to fixed asset additions.  This compares with $22,000 in fixed assetadditions for the same period in fiscal 2005. The Company expects that fixed asset additions for the remainingquarters of fiscal 2006 to continue at approximately the same rate as the firstquarter of fiscal 2006.

 

The Company does not have relationships with unconsolidatedentities or financial partnerships, such as entities often referred to asstructured finance or special purpose entities, which would have beenestablished for the purpose of facilitating off-balance sheet financialarrangements.  As such, the Company isnot materially exposed to any financing, liquidity, market or credit risk thatcould arise if we had engaged in such arrangements.

 

The Company believes it does not have material exposure toquantitative and qualitative market risks. The carrying amounts reflected inthe balance sheets of cash and cash equivalents, trade receivables and tradepayables approximate fair value at January 31, 2006 due to the short maturitiesof these instruments.

 

 

NEW ACCOUNTING PRONOUNCEMENTS

-----------------------------

 

Information regarding new accounting pronouncements is included in the Notesto Condensed Financial Statements.

 

 

FORWARD LOOKING STATEMENTS

--------------------------

 

Thediscussion above contains forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995, including statements 

 

 

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regardingthe Company’s expectations, beliefs, intentions and strategies regarding thefuture.  Forward-looking statementsinclude, without limitation, statements regarding the extent and timing offuture revenues and expenses and customer demand.  All forward-looking statements included inthis document are based on information available to the Company as of the datehereof, and the Company assumes no obligation to update any suchforward-looking statements.

 

The Company’s actual results aresubject to risks and uncertainties and could differ materially from thosediscussed in the forward-looking statements. These statements are based upon the Company’s expectations regarding anumber of factors, including the Company’s ability to obtain additional workingcapital if necessary to support its operations, changes in worldwide generaleconomic conditions, cyclicality of capital spending by customers, the Company’sability to keep pace with technological developments and evolving industrystandards, worldwide competition, and the Company’s ability to protect itsexisting intellectual property from challenges from third parties.  A detailed description of the factors thatcould cause future results to materially differ from the Company’s recentresults or those projected in the forward-looking statements are contained inthe section entitled “Description of Business”under the caption “Important Factors Regarding Forward-Looking Statements”contained in its filing with the Securities and Exchange Commission on Form10-KSB for the year ended October 31, 2005 and other reports filed with theSecurities and Exchange Commission.

 

 

Item 3: CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controlsand Procedures.

 

The Company’s President, Chief Executive Officer and Chief FinancialOfficer Joseph C. Christenson, has reviewed the Company’s disclosure controlsand procedures as of the end of the period covered by this report and concludedthat the Company’s disclosure controls and procedures are effective.

 

(b) Changes in Internal Control Over Financial Reporting.

 

There have been no changes in internal control over financial reportingthat occurred during the fiscal quarter covered by this report that havematerially affected, or are reasonably likely to materially affect, theregistrant’s internal control over financial reporting.

 

 
| PART II. | OTHER INFORMATION                                            |
|----------|--------------------------------------------------------------|
|     |                                                         |
| Item 1:  | LEGAL PROCEEDINGS                                            |
|     |                                                         |
|     | None.                                                        |
|     |                                                         |
| Item 2:  | UNREGISTERED SALES OF  EQUITY SECURITIES AND USE OF PROCEEDS |
|     |                                                         |
| None.    |                                                         |
|     |                                                         |
| Item 3.  | DEFAULTS UPON SENIOR  SECURITIES                             |
|     |                                                         |
|     | Not Applicable                                               |

 

 

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| Item 4: | SUBMISSION OF MATTERS  TO A VOTE OF SECURITY HOLDERS |
|---------|------------------------------------------------------|
|    |                                                 |
|    | None.                                                |
|    |                                                 |
| Item 5: | OTHER INFORMATION                                    |
|    |                                                 |
| .       | None                                                 |

 

 
| Item 6: | EXHIBITS |
|---------|----------|
|    |     |

 
|   | (a)    | The following exhibits  are included herein:                                                                                                                                                |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|   | 31.1   | Certification of President, Chief Executive Officer  and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002 (Rules 13a- 14 and 15d-14 of the Exchange Act). |
|   |   |
|   | 32.1   | Certification pursuant Section 906 of the  Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).                                                                                               |
|   |   |
|        |        |                                                                                                                                                                                             |  |

 

 

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 the undersignedthereunto duly authorized.

 

 
|                    | PPT VISION, INC.                                                |
|-------------------------|-----------------------------------------------------------------|
|                    |                                                            |
| Date: February 24, 2006 |                                                            |
|                    |                                                            |
|                    | /s/Joseph C. Christenson                                        |   |
|                    | Joseph C. Christenson                                           |
|                    | President, Chief Executive Officer and Chief  Financial Officer |
|                    |                                                            |

 

 

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