**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**Form 10-QSB**

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**QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the Quarterly Period Ended January 31, 2003**

 

**Commission File Number 0-11518**

** **

| **PPT  VISION, INC.**                                                          |
|--------------------------------------------------------------------------------|
| (Exact name of Small  Business Issuer as specified in its charter)             |
|                                                                           |   |   |
| **MINNESOTA**                                                                  |   | **41-1413345** |
| (State or other  jurisdiction of  incorporation or organization)               |   | (I.R.S. Employer  Identification Number) |
|                                                                           |   |   |
| **12988 Valley View Road**   **Eden Prairie, Minnesota  55344** |
| (Address of principal  executive offices)(Zip Code)                            |
|                                                                           |   |   |
| **(952) 996-9500**                                                             |
| (Issuer’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

 

Shares of $.10 par value common stock outstanding at March 11, 2003:10,067,950

 

 

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INDEX

 

PPT VISION, INC.

 
| Part I.  | Financial Information                                                                       |
|----------|---------------------------------------------------------------------------------------------|
|     |                                                                                        |
| Item 1.  | Financial Statements                                                                        |
|     |                                                                                        |
|     | Balance Sheets as of January 31, 2003  and October 31, 2002                                 |
|     |                                                                                        |
|     | Income Statements for the Three  Months Ended January 31, 2003 and January 31, 2002         |
|     |                                                                                        |
|     | Statements of Cash Flows for  the Three Months Ended January 31, 2003 and January 31, 2002  |
|     |                                                                                        |
|     | Notes to Interim  Financial Statements–January 31, 2003                                |
|     |                                                                                        |
| Item 2.  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|     |                                                                                        |
| Item 3.  | Controls and  Procedures                                                                    |
|     |                                                                                        |
| Part II. | Other Information                                                                           |
|     |                                                                                        |
| Item 1.  | Legal Proceedings                                                                           |
|     |                                                                                        |
| Item 2.  | Changes in Securities                                                                       |
|     |                                                                                        |
| 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                                                                                  |
|     |                                                                                        |
|     | Certifications                                                                              |

 

2

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PPT VISION, INC.

 

BALANCE SHEETS

 
|                                             |   | **January  31, 2003** |      | **October  31, 2002** |   |
|--------------------------------------------------|--------|-----------------------|-----------|-----------------------|--------|
|                                             |   | **(unaudited)**       |      |                  |   |
| ASSETS                                           |   |                  |      |                  |   |
| Cash and cash  equivalents                       |   | $                     | 1,454,000 |                  | $      | 2,932,000 |   |
| Accounts  receivable, net                        |   | 2,511,000             |      | 1,843,000             |   |
| Inventories:                                     |   |                  |      |                  |   |
| Manufactured and  purchased parts                |   | 1,335,000             |      | 1,339,000             |   |
| Work-in-process                                  |   | 361,000               |      | 449,000               |   |
| Finished goods                                   |   | 59,000                |      | 65,000                |   |
| Total  inventories, net                          |   | 1,755,000             |      | 1,853,000             |   |
| Other current  assets                            |   | 284,000               |      | 294,000               |   |
| Total current  assets                            |   | 6,004,000             |      | 6,922,000             |   |
|                                             |   |                  |      |                  |   |
| Fixed assets,  net                               |   | 1,305,000             |      | 1,417,000             |   |
| Intangible  assets, net                          |   | 2,462,000             |      | 2,545,000             |   |
| Other assets                                     |   | 53,000                |      | 53,000                |   |
| Total assets                                     |   | $                     | 9,824,000 |                  | $      | 10,937,000 |   |
|                                             |   |                  |      |                  |   |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY       |   |                  |      |                  |   |
| Accounts payable  and accrued expenses.          |   | $                     | 1,319,000 |                  | $      | 1,269,000 |   |
| Deferred revenue                                 |   | 48,000                |      | 24,000                |   |
| Total current  liabilities                       |   | 1,367,000             |      | 1,293,000             |   |
|                                             |   |                  |      |                  |   |
| Shareholders’  equity:                      |   |                  |      |                  |   |
| Common stock                                     |   | 1,007,000             |      | 1,007,000             |   |
| Capital in  excess of par value                  |   | 34,094,000            |      | 34,094,000            |   |
| Accumulated  deficit                             |   | (26,644,000           | )         | (25,457,000           | )      |
| Total  shareholders’ equity                 |   | 8,457,000             |      | 9,644,000             |   |
|                                             |   |                  |      |                  |   |
| Total  liabilities and shareholders’ equity |   | $                     | 9,824,000 |                  | $      | 10,937,000 |   |

 

See accompanying notes tocondensed financial statements

 

3

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PPT VISION, INC.

INCOME STATEMENTS

(UNAUDITED)

 
|                                        |   | **Three  Months Ended  January 31,** |       |
|---------------------------------------------|--------|--------------------------------------|------------|
|                                        |   | **2003**                             |       | **2002** |   |
| Net revenues                                |   | $                                    | 2,124,000  |   | $ | 1,656,000 |   |
| Cost of sales                               |   | 947,000                              |       | 935,000 |   |
| Gross profit                                |   | 1,177,000                            |       | 721,000 |   |
|                                        |   |                                 |       |   |   |
| Expenses:                                   |   |                                 |       |   |   |
| Sales and  marketing                        |   | 863,000                              |       | 826,000 |   |
| General and  administrative                 |   | 423,000                              |       | 413,000 |   |
| Research and  development                   |   | 1,084,000                            |       | 1,093,000 |   |
| Total expenses                              |   | 2,370,000                            |       | 2,332,000 |   |
|                                        |   |                                 |       |   |   |
| Loss from operations                        |   | (1,193,000                           | )          | (1,611,000 | ) |
|                                        |   |                                 |       |   |   |
| Interest and other income                   |   | 6,000                                |       | 31,000 |   |
| Net loss                                    |   | $                                    | (1,187,000 | ) | $ | (1,580,000 | ) |
|                                        |   |                                 |       |   |   |
| Per share data:                             |   |                                 |       |   |   |
| Weighted average basic shares outstanding   |   | 10,068,000                           |       | 5,512,000 |   |
| Weighted average diluted shares outstanding |   | 10,068,000                           |       | 5,512,000 |   |
| Basic and diluted loss per common share     |   | $                                    | (0.12      | ) | $ | (0.29 | ) |

 

See accompanying notes tocondensed financial statements

 

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PPT VISION, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 
|                                                                         |   | **Three  Months  Ended  January 31, 2003 ** |        | **Three  Months  Ended  January 31, 2002** |   |
|------------------------------------------------------------------------------|--------|--------------------------------------------------|-------------|--------------------------------------------|--------|
| Net loss                                                                     |   | $                                                | (1,187,000) |                                       | $      | (1,580,000 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                                             |        |                                       |   |
| Depreciation and  amortization                                               |   | 316,000                                          |        | 345,000                                    |   |
| Realized loss on  sale of investments                                        |   | —                                           |        | (8,000                                     | )      |
| Change in assets  and liabilities                                            |   |                                             |        |                                       |   |
| Accounts  receivable                                                         |   | (668,000                                         | )           | 602,000                                    |   |
| Inventories                                                                  |   | 98,000                                           |        | (227,000                                   | )      |
| Other assets                                                                 |   | 10,000                                           |        | (10,000                                    | )      |
| Accounts payable  and accrued expenses                                       |   | 50,000                                           |        | 130,000                                    |   |
| Deferred revenue                                                             |   | 24,000                                           |        | (240,000                                   | )      |
| Total  adjustments                                                           |   | (170,000                                         | )           | 592,000                                    |   |
| Net cash used in  operating activities                                       |   | (1,357,000                                       | )           | (988,000                                   | )      |
|                                                                         |   |                                             |        |                                       |   |
| Cash flows from  investing activities:                                       |   |                                             |        |                                       |   |
| Purchase of  fixed assets                                                    |   | (110,000                                         | )           | (69,000                                    | )      |
| Sales and  maturities of investments                                         |   | —                                           |        | 500,000                                    |   |
| Net investment  in other long-term assets                                    |   | (11,000                                          | )           | (6,000                                     | )      |
|                                                                         |   |                                             |        |                                       |   |
| Net cash  provided by (used in) investing activities                         |   | (121,000                                         | )           | 425,000                                    |   |
|                                                                         |   |                                             |        |                                       |   |
| Cash flows from  financing activities                                        |   | —                                           |        | —                                     |   |
|                                                                         |   |                                             |        |                                       |   |
| Net decrease in  cash and cash equivalents                                   |   | (1,478,000                                       | )           | (563,000                                   | )      |
|                                                                         |   |                                             |        |                                       |   |
| Cash and cash  equivalents at beginning of year                              |   | 2,932,000                                        |        | 2,805,000                                  |   |
|                                                                         |   |                                             |        |                                       |   |
| Cash and cash  equivalents at end of period                                  |   | $                                                | 1,454,000   |                                       | $      | 2,242,000 |   |

 

See accompanying notes tocondensed financial statements

 

5

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PPT VISION, INC.

NOTES TO INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

January 31, 2003

 

NOTE A – DESCRIPTION OF BUSINESS

 

PPT VISION, Inc.designs, manufactures, markets, and integrates 2D and 3D machine vision-basedautomated inspection systems for manufacturing applications.  Machine vision-based inspection systemsenable manufacturers to increase the quality of manufactured parts andimproving the productivity of manufacturing processes.  The Company’s 2D machine vision product lineis sold on a global basis to end-users, system integrators, and originalequipment manufacturers (OEM’s) primarily in the electronic and semiconductorcomponent, automotive, medical device, and packaged goods industries.  The Company’s SpeedScan 3DTM sensor,incorporating the Company’s patented high-speed Scanning Moiré InterferometryTMtechnology, is sold to original equipment manufacturers for specificapplications.  The Company’s PPT861TM 3Dscanning system, which uses the Company’s SpeedScan 3D sensor, is anapplication-specific inspection solution targeted at inspection of leaded andbumped components in the semiconductor back-end manufacturing process,inspection of surface-mount electronic connectors, and inspection of componentsused in hard disk drives.

 

NOTE B - BASIS OF PRESENTATION

 

The accompanying unaudited condensed financial statements have beenprepared in accordance with generally accepted accounting principles for interimfinancial information and with the instructions to Form 10-QSB and Rule 10-01of Regulation S-X. Accordingly, they do not include all of the information andfootnotes 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.

 

The Balance Sheet at October 31, 2002 has been derived from theCompany’s audited financial statements for the fiscal year ended October 31,2002 but does not include all of the information and footnotes required bygenerally accepted accounting principles for complete financial statements.

 

For further information, refer to the financial statements and footnotesthereto included in the Company’s annual report on Form 10-KSB for the yearended October 31, 2002.

 

NOTE C – LIQUIDITY AND CAPITAL RESOURCES

 

The Company has incurrednet losses and negative cash flows from operating activities in each of the pastthree years and has an accumulated deficit of $26.6 million at January 31,2003. During fiscal year 2002, the Company raised approximately $4.3 millionthrough its Shareholder Rights Offering to provide for these capital needs andas of  January 31, 2003, the Company had $1.5 million of cash, $4.6 million of working capital and no long-term debt. However, the Company expectsto incur losses and negative cash flows for fiscal 2003 and the continuedexecution of the Company’s business plan is dependent upon raising sufficientcapital to support future operations.

 

6

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In order to addressthe need for additional capital, in January 2003, the Company obtained a letterof commitment from a shareholder to provide up to $750,000 in either debt orequity financing through April 2004 depending on the needs of the Company. TheCompany also believes that other sources of financing are available to fundfuture operations including lowering the exercise price of the 2.242 millionoutstanding warrants and the subsequent exercise of these warrants, sales ofits common or preferred stock, external borrowing, customer or vendorfinancing, customer sponsored research and development projects or investmentsby strategic partners. There can be no assurance, however, that other sourcesof financing or capital will be available on acceptable terms or at all. Thefailure to obtain additional capital as needed may have an adverse effect onthe Company’s ability to continue to operate at current levels and may notallow the Company to take advantage of future opportunities or respond tocompetitive pressures or unanticipated requirements, which could seriously harmits business, financial position, results of operations and cash flows.

 

NOTE D –COMPREHENSIVE LOSS

 
|                                            |   | **Three  Months Ended  January 31,** |       |
|-------------------------------------------------|--------|--------------------------------------|------------|
|                                            |   | **2003**                             |       | **2002** |   |
|                                            |   |                                 |       |   |   |
| Net loss                                        |   | $                                    | (1,187,000 | ) | $ | (1,580,000 | ) |
| Other  comprehensive loss:                      |   |                                 |       |   |   |
| Change in  unrealized value of investments, net |   | —                               |       | (12,000 | ) |
| Total  comprehensive loss                       |   | $                                    | (1,187,000 | ) | $ | (1,592,000 | ) |

 

NOTE E – EARNINGS PER SHARE

 

In fiscal 2002, the Company issuedwarrants to purchase 2,242,000 shares of the Company’s common stock inconnection with a shareholder rights offering. At January 31, 2003, options to purchase 1,122,950 shares and warrantsto purchase 2,267,000 shares of the Company’s common stock were not included inthe calculation of diluted earnings per share. At January 31, 2002, options to purchase 638,350 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.

 

7

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NOTE F –CUSTOMER GEOGRAPHIC DATA

 

The followingtable sets forth the percentage of the Company’s net revenues (including salesdelivered through international distributors) by geographic location for thequarter ended January 31, 2003 and for the same period in fiscal year 2002:

 
| **Quarter Ended January 31,** |   | **2003** |   | **2002** |   |
|-------------------------------|--------|----------|--------|----------|--------|
| United States                 |   | 63       | %      | 61       | %      |
| Europe and Canada             |   | 16       | %      | 11       | %      |
| Asia-Pacific                  |   | 17       | %      | 22       | %      |
| South America                 |   | 4        | %      | 6        | %      |

 

NOTE G –NEW ACCOUNTING PRONOUNCEMENTS

 

Effective November 1, 2002, theCompany adopted Statement of Financial Accounting Standards (SFAS) No. 144,“Accounting for Impairment of Long-Lived Assets”.  SFAS No. 144, effective for financial statements for fiscal yearsbeginning after December 15, 2001, addresses issues relating to theimplementation of SFAS No. 121, “Accounting for the Impairment of Long-LivedAssets and for Long-Lived Assets to be Disposed Of,” and develops a singleaccounting model for long-lived assets to be disposed of by sale, whetherpreviously held and used or newly acquired. The adoption of SFAS No. 144 on November 1, 2002, did not have a materialimpact on the Company’s financial position or results of operations.

 

In July 2002, the FinancialAccounting Standards Board issued Statement of Financial Accounting StandardsNo. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  This standard reviews the accounting forcertain exit costs and disposal activities currently set forth in EmergingIssues Task Force issue No. 94-3, “Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring).” The principal change relates to therequirements necessary for recognition of a liability for a cost associatedwith an exit or disposal activity.  Thenew statement requires that a liability for a cost associated with an exit ordisposal activity be recognized when the liability is incurred versus the dateof commitment to an exit plan.  Thisstatement was effective for exit and disposal activities initiated afterDecember 31, 2002.  The new standard principallyaffects the Company’s ultimate timing of when charges are recorded as opposedto the amount of the ultimate charge.

 

In November 2002, the FinancialAccounting Standards Board issued FASB Interpretation No. 45, “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others.” This interpretation elaborates on thedisclosures to be made by a guarantor in its interim and annual financialstatements about its obligations under certain guarantees that it hasissued.  It also clarifies (forguarantees issued after January 1, 2003) that a guarantor is required torecognize, at the inception of a guarantee, a liability for the fair value ofthe obligations undertaken in issuing the guarantee.  At January 31, 2003, the Company does not have any significantguarantees or required disclosures under FASB Interpretation No. 45.

 

In December 2002, the FinancialAccounting Standards Board issued Statement of Financial Accounting Standard(SFAS) No. 148, “Accounting for Stock-Based Compensation-Transition andDisclosure.  An amendment of FASBStatement No.

 

8

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123.”  This statement is effective for financial reports containingcondensed financial statements for interim periods beginning after December 15,2002.  The Company intends to continuewith its current practice of applying the recognition and measurementprinciples of APB No. 25, “Accounting for Stock Issued to Employees.”  The Company will adopt the disclosurerequirements of SFAS No. 148 in its discussion of stock based employeecompensation but will not implement the alternative transition options madeavailable by the standard.

 

In January 2003, the FinancialAccounting Standards Board issued FASB Interpretation No. 46, “Consolidation ofVariable Interest Entities.”  Thisinterpretation addresses the requirements for business enterprises toconsolidate related entities in which they are determined to be the primarybeneficiary as a result of their variable economic interests.  The interpretation is intended to provideguidance in judging multiple economic interests in an entity and in determiningthe primary beneficiary.  Theinterpretation outlines disclosure requirements for variable interest entitiesin existence prior to January 31, 2003, and outlines consolidation requirementsfor variable interest entities created after January 31, 2003.  The Company has reviewed its majorcommercial relationships and its overall economic interests with other companies.  The review has not resulted in a determinationthat the Company would be judged to be the primary economic beneficiary in anymaterial relationships, or that any material entities would be judged to bevariable interest entities of the Company.

 

Item 2

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION 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-QSB 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.

 

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.

 

9

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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 andinventory; and

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

 

The Company typically recognizes revenue on product sale 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, accessories andsome 3D machine vision sensors and systems. Some 3D machine vision system sales, however, may include post-shipmentobligations or contractual terms that can only be satisfied after shipment,such as installation and meeting customer-specified performance requirements atthe customer’s site.  In these cases,revenue is not recognized until these obligations have been satisfied and thereis objective evidence that the applicable contract terms have been met.  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.  Due to the higher selling price of certain3D machine vision systems, the timing of revenue recognition of a relativelysmall number of transactions may have a significant impact on our quarterlyresults.

 

Management estimates the 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 reserve.

 

Management establishes valuation reserves on inventory for estimatedexcess and obsolete inventory equal to the difference between the cost ofinventory and its estimated market value based on assumptions about futureproduct demand and market conditions. In view of the rapid pace of technological change in the machine visionindustry, the Company generally considers inventory that has had no usage for oneyear to be obsolete.  In addition,changes in the Company’s product offerings or those of the Company’scompetitors, may also result in excess or obsolete inventory levels.  Accordingly, these factors will also beconsidered in the determination of the market value of inventory.

 

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.

 

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Results of Operations

 

Net revenues increased 28% to $2,124,000 for the three-month periodended January 31, 2003, compared to net revenues of $1,656,000 for the sameperiod in fiscal 2002.  Unit sales ofthe Company’s machine vision systems increased to 73 for the first quarter offiscal 2003 versus 49 for the same period in fiscal 2002.

 

Sales to customers outside the United States represented 37% of grossrevenues for the first three-months of fiscal 2003, compared to 39% for thesame period in fiscal 2002.

 

Revenues were essentially flat as compared with the immediatelypreceding quarter as a result of unexpected delays in the receipt of a numberof orders from our customers.  This isan indication that the economy continues to be soft in our key markets and thereturn to more normal capital spending levels in the manufacturing sector isprogressing slowly and unevenly. Accordingly, we anticipate that revenues will remain at approximatelythese levels or perhaps increase gradually over the course of fiscal 2003.

 

While the sales and shipment process is slower than normal, we areexperiencing an increase in interest in our new 2D machine vision products andin our 3D vision technology.  Sinceintroducing our new IMPACTTM machine vision micro-system inSeptember 2002, we have now sold over 40 units, including several to keyexisting PPT customers and several important new system integration partners.  Additionally, we have recently entered intoa distribution agreement with Power/mation Division, Inc., one of the largestdistributors of industrial control products in the upper Midwest.  We believe that this relationship will helpus expose our core 2D products to more potential customers.

 

We have also recently announced a new OEM agreement with Ismeca EuropeS.A., a world leading supplier of automation solutions targeted at thesemiconductor back-end manufacturing process. PPT will provide both 3D and 2D machine vision inspection solutions forincorporation into Ismeca’s new LTMTM series tray -to-tray andtray-to-tape scanning machines.  Thisagreement provides for minimum order quantities of these vision systems overthe course of calendar years 2003 and 2004.

 

Gross profit increased 63% to $1,177,000 for the three-month periodended January 31, 2003, compared to $721,000 for the same period in fiscal2002.  As a percentage of net revenues,the gross profit for the first quarter of fiscal 2003 increased to 55% comparedto 44% in the same period in fiscal 2002. The increase in gross profit in absolute dollars and on a percentagebasis for the three-month period ended January 31, 2003 is attributed to theincrease in net revenues, the higher profit margins related to our 3D productsales and improved utilization of our manufacturing facilities.

 

Sales and marketing expenses increased 4% to $863,000 for thethree-month period ended January 31, 2003, compared to $826,000 for the sameperiod in fiscal 2002.  As a percentageof net revenues, sales and marketing expenses decreased to 41% for the firstquarter of fiscal 2003 compared to 50% for the same period in fiscal 2002.  The Company expects sales and marketingexpenses in absolute dollars to stay relatively the same during the secondquarter of fiscal 2003. Increases in sales and marketing expenditures beyondthis current expectation may occur to the extent that revenue growth isachieved.

 

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General and administrative expenses increased slightly to $423,000 forthe three-month period ended January 31, 2003, compared to $413,000 for thesame period in fiscal 2002.  As apercentage of net revenues, general and administrative expenses decreased to 20%for the first quarter of fiscal 2003 versus 25% for the same period in fiscal2002.  The Company expects general andadministrative expenses to stay relatively the same during the remainder of  fiscal 2003.

 

Research and development expenses decreased slightly to $1,084,000 forthe three-month period ended January 31, 2003, compared to $1,093,000 for thesame period in fiscal 2002.  As apercentage of net revenues, research and development expenses decreased to 51%for the first quarter of fiscal 2003, compared to 66% for the first quarter offiscal 2002.

 

Interest and other income decreased 81% to $6,000 for the three-monthperiod ended January 31, 2003, compared to $31,000 for the same period infiscal 2002.  The decrease in interestincome for the first quarter of fiscal 2003 is related to a reduction in thebalances in cash and cash equivalents.

 

The Company did not record an income tax benefit or expense for eitherof the first three-months ended January 31, 2003 or the three-month periodended January 31, 2002.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company incurred a net loss ofapproximately $1.2 million for the quarter ended January 31, 2003 and has anaccumulated deficit of $26.6 million as of January 31, 2003. In addition, theCompany expects to incur losses for the next several quarters of the currentfiscal year.  The Company has been usingits existing cash and cash equivalents to fund the cash needs of its operatingactivities.  We are carefully monitoringour cash position and evaluating the need for additional capital to enable usto achieve our short and long-term objectives.

 

The avenues that we take to satisfy thispotential capital requirement will depend in large part on the pace of thegrowth of our revenues, and we will evaluate these alternatives as we obtainbetter visibility of our revenue expectations over the next severalquarters.  While the Company anticipatesthat it will be able to generate cash from operations in a future period, wehave considered other measures to maintain or provide necessary operatingcapital.  These measures include costcutting actions, customer advances and external debt or equity financing.  In January 2003, the Company obtained a$750,000 commitment from a shareholder to provide debt or equity financing throughApril of 2004 depending on the Company’s needs.  The Company believes that other financing alternatives areavailable including lowering the exercise price of the 2.242 millionoutstanding warrants and the subsequent exercise of these warrants, theissuance of additional stock to the public, strategic partnerships, vendorfinancing, customer-sponsored research and development projects or externalborrowing against our accounts receivable and inventory.  The Company believes that it will be able toraise sufficient funds through these sources so that the Company will be ableto meet its working capital and capital resource obligations through the nexttwelve months.

 

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There can be no assurance that the Companywill not incur additional losses for a longer period of time, will generatepositive cash flow from it operations, or that the Company will attain orthereafter sustain profitability in any future period.  To the extent that the Company continues toincur losses or achieves revenue growth in the future, its operating andinvesting activities may use cash and, consequentially, such losses or growthwill require the Company to obtain additional sources of financing to providefor these cash needs.  There can be noassurance, however, that additional capital will be available on acceptableterms or at all, and the failure to obtain additional capital as needed mayhave an adverse effect on the Company’s ability to continue to operate atcurrent levels, and may not allow the Company to take advantage of futureopportunities or respond to competitive pressures or unanticipatedrequirements, which could seriously harm its business, financial position,results of operations and cash flows.

 

As of January 31, 2003, the Company had nooutstanding debt.

 

The Company leases facilities and equipmentunder non-cancelable operating lease agreements.  The Company entered into a ten-year lease for its primary officeand manufacturing space in June of 1999. Annual rental and common area maintenance payment obligations areapproximately $1.0 million.

 

Working capital decreased to $4,637,000 atJanuary 31, 2003 from $5,629,000 at October 31, 2002.  The Company financed its operations during the first three monthsof fiscal 2003 through existing cash and cash equivalents.  Net cash used in operating activities duringthe first three months of fiscal 2003 was $1,357,000.  Accounts receivable increased $668,000.  Inventories decreased $98,000 during the first three months offiscal 2003.  Accounts payable andaccrued expenses increased by $50,000.

 

Net cash used in investing activities was $121,000.  During the first quarter ending January 31,2003 fixed asset additions totaled $110,000 in comparison with $69,000 in fixedasset additions realized for the same period in fiscal 2002.  Fixed asset additions in the second quarterof fiscal 2003 are expected to be lower than first quarter amounts.

 

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

 

The Company believesit does not have material exposure to quantitative and qualitative marketrisks.  The carrying amounts reflectedin the balance sheets of cash and cash equivalents, trade receivables and tradepayables approximate fair value at January 31, 2003 due to the short maturitiesof these instruments

 

NEW ACCOUNTING PRONOUNCEMENTS

 

Information regarding new accounting pronouncements is included in theNotes to Interim Financial Statements.

 

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FORWARD LOOKING STATEMENTS

 

This Form 10-QSB contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933 andSection 21E of the Securities Exchange Act of 1934, including statementsregarding the Company’s expectations, beliefs, intentions and strategiesregarding the future.  Forward-lookingstatements include, without limitation, statements regarding the extent andtiming of future 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 such forward-lookingstatements.

 

TheCompany’s actual results are subject to risks and uncertainties and coulddiffer materially from those discussed in the forward-looking statements.  These statements are based upon theCompany’s expectations regarding a number of factors, including the Company’sability to obtain additional working capital if necessary to support itsoperations, changes in worldwide general economic conditions, cyclicality ofcapital spending by customers, the Company’s ability to keep pace withtechnological developments and evolving industry standards, worldwidecompetition, and the Company’s ability to protect its existing intellectualproperty from challenges from third parties. A detailed description of the factors that could cause future results tomaterially differ from the Company’s recent results or those projected in theforward-looking statements are contained in the section entitled “ImportantFactors Regarding Forward-Looking Statements” on Form 10-KSB for the year endedOctober 31, 2002, filed with the SEC.

 

Item3:  CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controlsand Procedures.

 

The Company’s Chief Executive Officer, Joseph C. Christenson and ChiefFinancial Officer, Timothy C. Clayton have reviewed the Company’s disclosurecontrols and procedures within 90 days prior to the filing of this report.  Based upon this review, these officersbelieve that the Company’s disclosure controls and procedures are effective inensuring that material information related to the Company is made known to themby others within the Company.

 

(b) Changes in Internal Controls.

 

There were no significant changes in the Company’s internal controls orin other factors that could significantly affect these controls during thequarter covered by this report or from the end of the reporting period to thedate of this Form 10-QSB.

 

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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:  | DEFAULTS UPON SENIOR SECURITIES                     |
|     |                                                |   |
|     | Not Applicable                                      |
|     |                                                |   |
| Item 4:  | SUBMISSION OF 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. |
|          |                                                     |  |  |

 

 

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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: March 11, 2003 |   |                                                                   |
|                 |   |                                                                   |
|                 |   | /s/Joseph C. Christenson                                               |   |
|                 |   | Joseph C. Christenson                                                  |
|                 |   | President  (Principal Executive Officer)                               |
|                 |   |                                                                   |
|                 |   |                                                                   |
|                 |   | /s/Timothy C. Clayton                                                  |   |
|                 |   | Timothy C. Clayton                                                     |
|                 |   | Chief Financial Officer   (Principal Financial and Accounting Officer) |

 

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**CERTIFICATIONS**

I, Joseph C. Christenson,certify that:

 

1. I have reviewed thisquarterly report on Form 10-QSB of PPT Vision, Inc.

 

2. Based on my knowledge,this quarterly report does not contain any untrue statement of a material factor omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3. Based on my knowledge,the financial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4. The registrant’s othercertifying officer and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and15d-14) for the registrant and have:

 

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c) presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5. The registrant’s othercertifying officer and I have disclosed, based on our most recent evaluation,to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent functions):

 

a) all significant deficienciesin the design or operation of internal controls which could adversely affectthe registrant’s ability to record, process, summarize and report financialdata and have identified for the registrant’s auditors any material weaknessesin internal controls; and

 

b) any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6. The registrant’s othercertifying officer and I have indicated in this quarterly report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significant deficienciesand material weaknesses.

 
| Date:  March 11, 2003 |                              |
|----------------------------|-----------------------------------|
|                       | /s/  Joseph C. Christenson   |   |
|                       | Joseph C.  Christenson, President |

 

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I, Timothy C. Clayton,certify that:

 

1.  I have reviewed this quarterly report onForm 10-QSB of PPT vision, Inc.

 

2. Based on my knowledge,this quarterly report does not contain any untrue statement of a material factor omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3. Based on my knowledge,the financial statements, and other financial information included in thisquarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4. The registrant’s othercertifying officer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and have:

 

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c) presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5. The registrant’s othercertifying officer and I have disclosed, based on our most recent evaluation,to the registrant’s auditors and the audit committee of registrant’s board ofdirectors (or persons performing the equivalent functions):

 

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b) any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6. The registrant’s othercertifying officer and I have indicated in this quarterly report whether or notthere were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:  March 11, 2003 |                                         |
|----------------------------|----------------------------------------------|
|                       | /s/  Timothy C. Clayton                 |   |
|                       | Timothy C.  Clayton, Chief Financial Officer |

 

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