UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

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

                                    FORM 10-Q

        (Mark One)


      [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

                              EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended June 30, 2005

                                       OR


      [_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

                              EXCHANGE ACT OF 1934

                       For the Transition Period From to .

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

                        Commission File Number: 000-25781

                              NET PERCEPTIONS, INC.
             (Exact Name of Registrant as Specified in its Charter)

           Delaware                                            41-1844584
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                           Identification Number)

                               One Landmark Square
                           Stamford, Connecticut 06901
               (Address of principal executive offices, Zip Code)


                                 (203) 428-2040
              (Registrant's telephone number, including area code)

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As  of  August  9,  2005,  there  were  outstanding  28,917,745  shares  of  the
registrant's Common Stock, $0.0001 par value.


<PAGE>


                              NET PERCEPTIONS, INC.
                                    FORM 10-Q
                       For the Quarter Ended June 30, 2005

================================================================================

                                TABLE OF CONTENTS

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


                                                                          Page

PART I.  FINANCIAL INFORMATION

      Item 1.  Financial Statements

            Consolidated Balance Sheets as of June 30,
              2005 and December 31, 2004                                   1

            Consolidated Statements of Operations for
              the Three and Six Months Ended June 30, 2005
              and 2004                                                     2

            Consolidated Statements of Cash Flows for the
              Six Months Ended June 30, 2005 and 2004                      3

            Notes to the Consolidated Financial Statements                 4

      Item 2.  Management's Discussion and Analysis of
            Financial Condition and Results of Operations                  9

      Item 3.  Quantitative and Qualitative Disclosures
            about Market Risk                                              14

      Item 4.  Controls and Procedures                                     14

PART II.  OTHER INFORMATION

      Item 4.  Submission of Matters to a Vote of Security Holders         14

      Item 6.  Exhibits                                                    15

SIGNATURES                                                                 16

EXHIBIT INDEX                                                              17


<PAGE>


PART I.         FINANCIAL INFORMATION

Item 1.         Financial Statements


<TABLE>
<CAPTION>
                              NET PERCEPTIONS, INC.

                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

=====================================================================================
                                                            June 30,    December 31,
-------------------------------------------------------------------------------------
                                                              2005             2004
                                                          (Unaudited)
<S>                                                      <C>             <C>
Assets
Current assets:
     Cash and cash equivalents                           $     11,657    $     14,444
     Marketable securities                                      3,001              --
     Prepaid expenses and other current assets                    158              40
-------------------------------------------------------------------------------------
           Total current assets                                14,816          14,484

Other assets                                                      225             239
-------------------------------------------------------------------------------------
           Total assets                                  $     15,041    $     14,723
=====================================================================================

Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable and accrued liabilities            $        128    $        178
-------------------------------------------------------------------------------------
           Total current liabilities                              128             178
-------------------------------------------------------------------------------------

           Note payable                                         2,533           2,517
-------------------------------------------------------------------------------------
           Total liabilities                                    2,661           2,695
-------------------------------------------------------------------------------------

Commitments and contingencies
Stockholders' equity:
     Common stock                                                   2               2
     Additional paid-in capital                               234,400         234,350
     Unearned stock compensation                                 (149)           (135)
     Accumulated other comprehensive (loss)                        (4)             --
     Accumulated deficit                                     (221,869)       (222,189)
-------------------------------------------------------------------------------------
          Total stockholders' equity                           12,380          12,028
-------------------------------------------------------------------------------------
          Total liabilities and stockholders' equity     $     15,041    $     14,723
=====================================================================================
</TABLE>


        See accompanying notes to the consolidated financial statements.


                                       1
<PAGE>


<TABLE>
<CAPTION>
                                              NET PERCEPTIONS, INC.


                                      CONSOLIDATED STATEMENTS OF OPERATIONS
                               (Unaudited, in thousands, except per share amounts)

                                              Three Months Ended       Six Months Ended
                                                    June 30,              June 30,
                                             --------------------    --------------------
                                                 2005        2004        2005        2004
=========================================================================================
<S>                                          <C>         <C>         <C>         <C>
   Revenues:
    Product                                  $     --    $     51    $     --    $    405
    Service, maintenance and royalties             32         321          43         467
-----------------------------------------------------------------------------------------
            Total revenues                         32         372          43         872
Cost of revenues:
    Service and maintenance                        --         103          --         205
-----------------------------------------------------------------------------------------
            Total cost of revenues                 --         103          --         205

Gross margin                                       32         269          43         667

Operating expenses:
    Research and development                       --          --          --         250
    General and administrative
                                                  109         898         169       1,926
    Gain on sale of patents                        --          --          --      (1,800)
    Gain on litigation settlement                  --          --        (229)         --
    Restructuring related charges                  --          --          --          (7)
-----------------------------------------------------------------------------------------
            Total operating expenses              109         898         (60)        369
-----------------------------------------------------------------------------------------

Operating income (loss)                           (77)       (629)        103         298

Other income (expense):
   Interest income                                104          32         187          58
   Interest expense                               (15)        (22)        (42)        (22)
   Other income (expense)                          49          29          72          54
-----------------------------------------------------------------------------------------
            Total other income (expense),
                net                               138          39         217          90
-----------------------------------------------------------------------------------------
Net income (loss)                            $     61    $   (590)   $    320    $    388
-----------------------------------------------------------------------------------------
Net income (loss) per share:
  Basic                                      $   0.00    $  (0.02)   $   0.01    $   0.01
  Diluted                                    $   0.00    $  (0.02)   $   0.01    $   0.01

Shares used in computing basic and diluted
net income (loss) per share:
  Basic                                        28,918      28,504      28,918      28,355
  Diluted                                      29,217      28,504      29,195      28,924
=========================================================================================
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                       2
<PAGE>


<TABLE>
<CAPTION>
                              NET PERCEPTIONS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited, in thousands)


=============================================================================================
                                                                            Six Months Ended
                                                                                June 30,
                                                                           -----------------
                                                                             2005        2004
---------------------------------------------------------------------------------------------
<S>                                                                      <C>         <C>
   Cash flows from operating activities:
   Net income (loss)                                                     $    320    $    388
---------------------------------------------------------------------------------------------
   Reconciliation of net income (loss) to net cash used in operating
      activities:
      Gain on sale of patents                                                  --      (1,800)
      Provision for (recovery of) doubtful accounts                            --         (21)
      Restructuring related charges                                            --          (7)
      Amortization of debt issuance costs                                      14           6
      Amortization of discount on debt                                         16          12
      Stock-based compensation                                                 36          19
      Amortization of discounts on securities, net                             (7)         --
       Changes in assets and liabilities:
           Accounts receivable                                                 --         358
           Prepaid expenses and other assets                                 (118)        330
           Accounts payable and accrued liabilities                           (50)       (403)
           Deferred revenue                                                    --        (352)
---------------------------------------------------------------------------------------------

         Net cash provided by (used in) operating activities                  211      (1,470)

Cash flows from investing activities:
     Proceeds from sale of patents                                             --       1,800
     Purchase of marketable securities                                     (2,998)         --
---------------------------------------------------------------------------------------------
        Net cash provided by (used in) investing activities                (2,998)      1,800

Cash flows from financing activities:
   Proceeds from issuance of convertible subordinated note, net of
      offering costs of $288                                                   --       2,245
   Proceeds from exercise of stock options, net of stock repurchases           --         152
---------------------------------------------------------------------------------------------
        Net cash provided by financing activities                              --       2,397
---------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                       (2,787)      2,727
Cash and cash equivalents at beginning of period                           14,444      11,932
---------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period                               $ 11,657    $ 14,659
=============================================================================================
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                       3
<PAGE>


                              NET PERCEPTIONS, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                (dollars in thousands, except per share amounts)


Note 1. Basis of Presentation

In the opinion of management,  the accompanying  unaudited financial  statements
contain all  adjustments  necessary to fairly  present the  Company's  financial
position,  results of operations and cash flows for the periods presented. These
adjustments  consist of normal  recurring  items.  The  preparation of financial
statements in conformity with accounting  principles  generally  accepted in the
United States of America  requires  management to make estimates and assumptions
that  affect the  reported  amounts  therein.  Due to the  inherent  uncertainty
involved in making  estimates,  actual results in future periods may differ from
those estimates.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted.  These  financial  statements  should be read in
conjunction  with the Company's  financial  statements and notes thereto for the
year ended December 31, 2004, which are contained in the Company's Annual Report
on Form 10-K filed with the  Securities  and  Exchange  Commission  on March 31,
2005.  The results of  operations  for the  interim  periods  presented  are not
necessarily  indicative  of results that may be expected  for any other  interim
period or for the full fiscal year.

The consolidated  financial  statements  include the accounts of the Company and
its wholly  owned  subsidiaries.  All  significant  inter-company  accounts  and
transactions have been eliminated.


Note 2. Stock-based compensation

In  December  2002,  the FASB  issued  SFAS  148,  "Accounting  for  Stock-Based
Compensation--Transition  and  Disclosure,  an Amendment to FASB  Statement  No.
123." The Company has chosen to continue  with its current  practice of applying
the  recognition  and  measurement  principles  of Accounting  Principles  Board
Opinion No. 25,  "Accounting  for Stock  Issued to  Employees."  The Company has
adopted  the  disclosure  requirements  of SFAS  No.  148 in its  discussion  of
stock-based  employee  compensation but the alternative  transition options made
available by the standard have not been implemented.

The  intrinsic  value  method is used to account  for  stock-based  compensation
plans.  If  compensation  expense  had been  determined  based on the fair value
method,  net  income  (loss) and net  income  (loss)  per share  would have been
adjusted to the pro forma amounts indicated below:


<TABLE>
<CAPTION>
                                                     Three Months Ended        Six Months Ended
                                                         June 30,                  June 30,
                                                  ---------------------------------------------
                                                       2005        2004        2005        2004
                                                  ---------------------------------------------
<S>                                                <C>         <C>         <C>         <C>
Net income (loss), as reported                     $     61    $   (590)   $    320    $    388
                                                   --------    --------    --------    --------
Add: Stock-based employee compensation expense           19
included in reported net loss                            21                      19          36
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards                                          (26)        (51)        (46)       (113)
                                                   --------    --------    --------    --------
Pro forma net income (loss)                        $     56    $   (622)   $    310    $    294
                                                   ========    ========    ========    ========
</TABLE>


                                       4
<PAGE>


<TABLE>
<CAPTION>
Net income (loss) per share:
<S>                                                <C>         <C>         <C>         <C>
Basic
     As reported                                   $   0.00    $  (0.02)   $   0.01    $   0.01
                                                   ========    ========    ========    ========
     Pro forma                                     $   0.00    $  (0.02)   $   0.01    $   0.01
                                                   ========    ========    ========    ========
Diluted
     As reported                                   $   0.00    $  (0.02)   $   0.01    $   0.01
                                                   ========    ========    ========    ========
     Pro forma                                     $   0.00    $  (0.02)   $   0.01    $   0.01
                                                   ========    ========    ========    ========
</TABLE>

Note 3.  Per Share Data

Basic  earnings per share is computed  using net income  (loss) and the weighted
average number of common shares outstanding. Diluted earnings per share reflects
the weighted  average number of common shares  outstanding  plus any potentially
dilutive  shares  outstanding  during the period.  Potentially  dilutive  shares
consist of shares  issuable  upon the exercise of stock  options and  restricted
stock  awards.  Shares used in the  diluted net income  (loss) per share for the
three and six months  ended  June 30,  2005,  include  the impact of 299 and 277
potential  common shares from the exercise of stock options and restricted stock
awards, respectively, which were dilutive. Shares used in the diluted net income
(loss) per share for the three and six months ended June 30,  2004,  exclude the
impact  of 300 and 330  potential  common  shares  from  the  exercise  of stock
options, which were anti-dilutive


<TABLE>
<CAPTION>
                                  Three Months Ended            Six Months Ended
                                       June 30,                     June 30,
                                --------------------------------------------------
                                      2005         2004          2005         2004
                                ----------   ----------    ----------   ----------
<S>                             <C>          <C>           <C>          <C>
Basic earnings per share
calculation:
                                --------------------------------------------------
  Net income (loss)             $       61   $     (590)   $      320   $      388
                                ==========   ==========    ==========   ==========
  Weighted average                  28,918       28,355
        common shares - basic       28,918       28,504
  Basic net income (loss)
      per share                 $     0.00   $    (0.02)   $     0.01   $     0.01
                                ==========   ==========    ==========   ==========

Diluted earnings per share
calculation:
  Net income (loss)             $       61   $     (590)   $      320   $      388
                                ==========   ==========    ==========   ==========
  Weighted average                  28,918       28,355
      common shares - basic         28,918       28,504
  Effect of dilutive stock
       options                          54           --            50          569
  Effect of restricted
         stock awards                  245           --           227           --
                                ----------   ----------    ----------   ----------
  Weighted average
         common shares              29,217       28,504        29,195       28,924
         diluted
  Diluted net income
       (loss) per share         $     0.00   $    (0.02)   $     0.01   $     0.01
                                ==========   ==========    ==========   ==========
</TABLE>


                                       5
<PAGE>


Note 4.  Commitments & Contingencies

Contingencies

Except as set forth below,  we are not a party to nor are any of our  properties
subject to any pending legal,  administrative or judicial proceedings other than
routine litigation incidental to our business.

Litigation

On  November  2, 2001,  Timothy J. Fox filed a purported  class  action  lawsuit
against the Company,  FleetBoston Robertson Stephens, Inc., the lead underwriter
of the Company's April 1999 initial public offering,  several other underwriters
who participated in the initial public offering, Steven J. Snyder, the Company's
then  president  and  chief  executive  officer,  and  Thomas M.  Donnelly,  the
Company's  chief financial  officer.  The lawsuit was filed in the United States
District  Court for the Southern  District of New York and has been  assigned to
the judge who is also the pretrial  coordinating judge for substantially similar
lawsuits  involving  more  than 300  other  issuers.  An  amended  class  action
complaint,  captioned  In re  Net  Perceptions,  Inc.  Initial  Public  Offering
Securities  Litigation,  01 Civ.  9675  (SAS),  was  filed  on April  22,  2002,
expanding  the  basis for the  action to  include  allegations  relating  to the
Company's March 2000 follow-on  public offering in addition to those relating to
its initial public offering.

The amended  complaint  generally  alleges that the defendants  violated federal
securities  laws by not  disclosing  certain  actions  taken by the  underwriter
defendants  in  connection  with  the  Company's  initial  public  offering  and
follow-on public offering.  The amended complaint alleges  specifically that the
underwriter  defendants,  with the Company's direct  participation and agreement
and without  disclosure  thereof,  conspired to and did raise and increase their
underwriters'  compensation  and the market prices of the Company's common stock
following its initial public  offering and in its follow-on  public  offering by
requiring their  customers,  in exchange for receiving  allocations of shares of
the Company's common stock sold in its initial public offering, to pay excessive
commissions on transactions in other securities,  to purchase  additional shares
of the Company's  common stock in the initial  public  offering  aftermarket  at
pre-determined  prices above the initial public offering price,  and to purchase
shares of the  Company's  common stock in its  follow-on  public  offering.  The
amended  complaint seeks  unspecified  monetary  damages and  certification of a
plaintiff  class  consisting  of all persons who acquired the  Company's  common
stock between  April 22, 1999 and December 6, 2000.  The  plaintiffs  have since
agreed to dismiss  the  claims  against  Mr.  Snyder  and Mr.  Donnelly  without
prejudice,  in return for their  agreement  to toll any  statute of  limitations
applicable  to those  claims;  and  those  claims  have been  dismissed  without
prejudice.  On July 15, 2002, all of the issuer  defendants filed a joint motion
to dismiss the  plaintiffs'  claims in all of the related cases. On February 19,
2003, the court ruled against the Company on this motion.

The parties  have  negotiated  a  settlement  that is subject to approval by the
Court. On February 15, 2005, the Court issued an Opinion and Order preliminarily
approving the settlement, provided that the defendants and plaintiffs agree to a
modification  narrowing  the scope of the bar  order  set forth in the  original
settlement agreement. In the opinion of management,  the ultimate disposition of
this matter will not have a material effect on the Company's financial position,
results of operation or cash flows.


Note 5. Income Taxes

The Company  has  incurred  significant  operating  losses for all periods  from
inception  through  June 30,  2005.  For income tax  purposes,  the  Company has
available federal net operating loss  carry-forwards  of approximately  $123,000
and research and development credit carry-forwards of $151 at June 30, 2005. The
net operating loss and research and development credit  carry-forwards expire in
2001  through  2022  if  not  previously  utilized.  The  utilization  of  these
carry-forwards may be subject to limitations based on past and future changes in
ownership of the Company  pursuant to Internal  Revenue Code Section 382. If the
Company  were to be acquired at its recent  stock value such that Section 382 is
applicable,  this would  eliminate the ability to use a substantial  majority of
these  carry-forwards.  Future  tax  benefits  have not been  recognized  in the
financial statements,  as their utilization is considered uncertain based on the
weight of available information.


                                       6
<PAGE>


Note 6. Recently Issued Accounting Pronouncements

In December 2004, the Financial  Accounting  Standards Board issued SFAS 123(R),
"Share Based Payment".  SFAS 123(R) requires that the compensation cost relating
to share-based payment transactions be recognized in financial statements.  That
cost  will be  measured  based on the  fair  value of the  equity  or  liability
instruments  used.  In April  2005,  the SEC  adopted  a rule that  amended  the
compliance dates for SFAS 123(R) such that the Company will be required to apply
Statement 123(R) in the fiscal year 2006. We are currently evaluating the impact
of this statement. We believe the adoption of this statement,  effective January
1, 2006, will have an impact on our consolidated financial statements.

Note 7. Gain on Sale of Patents

On March 31, 2004,  the Company  completed  the sale of its patent  portfolio to
Thalveg Data Flow LLC for $1,800 pursuant to a patent purchase agreement entered
into on December  30, 2003 and amended on March 31,  2004.  The patent  purchase
agreement  includes a royalty-free,  non-exclusive  license back to the Company.
The license is transferable,  subject to certain restrictions  applicable to the
transferee relating to revenues that can be generated by products covered by the
license.

Note 8. Gain on litigation settlement

In February 2005,  the Company  received $229 from the settlement of its lawsuit
with i2  Technologies  Inc.,  resulting  from a breach of  contract  claim.  The
Company recorded the gain on the settlement in the first quarter of 2005.

Note 9. Note Payable

On April 21, 2004,  the Company  announced  the Company  closed on an investment
into the Company by Olden  Acquisition LLC ("Olden"),  an affiliate of Kanders &
Company,  Inc.,  an  entity  owned and  controlled  by the  Company's  Executive
Chairman,  Warren B.  Kanders,  for the  purpose of  initiating  a  strategy  to
redeploy the  Company's  assets and use its cash and cash  equivalent  assets to
enhance  stockholder  value.  The Company issued and sold to Olden a 2% ten-year
Convertible  Subordinated Note (the "Convertible  Subordinated  Note"), which is
convertible after one year (or earlier upon a call by the Company and in certain
other  circumstances)  at a conversion price of $0.45 per share of the Company's
common stock into  approximately  19.9% of the outstanding  common equity of the
Company as of the closing  date.  Proceeds to the Company from this  transaction
totaled  approximately  $2,533 before transaction costs of $288. The transaction
costs are being amortized over ten years, the term of the debt.  Interest on the
note accrues  semi-annually  but is not payable  currently or upon conversion of
the note.  The  Convertible  Subordinated  Note matures on April 21,  2014.  The
Convertible  Subordinated  Note was  deemed to include a  beneficial  conversion
feature.  At the date of issue,  the  Company  allocated  $56 to the  beneficial
conversion feature,  which has been fully amortized as of June 30, 2005. Also in
connection with this transaction, the Company entered into a Registration Rights
Agreement, which requires the Company, upon request of the purchaser of the note
or its assignee,  to register under the Securities Act of 1933, as amended,  the
resale of the  shares of common  stock into  which the note is  convertible.  In
connection with this transaction, the board of directors adopted an amendment to
the Company's Rights  Agreement such that the transaction  would not trigger the
rights thereunder.

Note 10. Restricted Stock

On April 1, 2005, Mr. Nigel Ekern, the Company's Chief  Administrative  Officer,
received a restricted stock grant of 66,667 shares of the Company's common stock
under the  Company's  1999 Equity Plan,  having an aggregate  value of $50 based
upon the average  stock  price of the  Company's  closing  stock on such date of
$0.75 per share. The shares underlying the grant vest in two years. On April 21,
2004,  Mr.  Ekern  received a  restricted  stock grant of 364,583  shares of the
Company's common stock under the Company's 1999 Equity Plan, having an aggregate
value of $175 based upon the closing price of the Company's common stock on such
date of $0.48 per share.  The shares  underlying  the grant will vest over three
years. The Company recorded  compensation expense of $21 and $36 relating to the
restricted  stock during the  three-and  six-month  periods ended June 30, 2005,
respectively.  The Company recorded  compensation expense of $0 and $19 relating
to the restricted  stock during the three-and  six-month  periods ended June 30,
2004, respectively.


                                       7
<PAGE>


Note 11. Related Party Transactions

We occupy space made  available to us by Kanders & Company,  an entity owned and
controlled  by  the  Company's  Executive  Chairman,  Warren  B.  Kanders.  This
arrangement can be terminated at any time. In connection  with the  consummation
of an asset  redeployment  transaction,  it is expected that  management  and or
Kanders & Company,  Inc. will be awarded cash and/or equity  compensation  based
upon the completion of the redeployment transaction.


                                       8
<PAGE>


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Forward-Looking Statements

This report contains certain forward-looking  statements,  including information
about or related to our future results, certain projections and business trends.
Assumptions  relating  to  forward-looking  statements  involve  judgments  with
respect  to,  among  other  things,  future  economic,  competitive  and  market
conditions  and  future  business  decisions,  all of  which  are  difficult  or
impossible to predict accurately and many of which are beyond our control.  When
used in this  report,  the words  "estimate,"  "project,"  "intend,"  "believe,"
"expect"  and similar  expressions  are  intended  to  identify  forward-looking
statements.   Although  we  believe   that  our   assumptions   underlying   the
forward-looking  statements are reasonable,  any or all of the assumptions could
prove  inaccurate,  and we may  not  realize  the  results  contemplated  by the
forward-looking statements. Management decisions are subjective in many respects
and  susceptible to  interpretations  and periodic  revisions  based upon actual
experience and business developments,  the impact of which may cause us to alter
our business strategy or capital expenditure plans that may, in turn, affect our
results of operations. In light of the significant uncertainties inherent in the
forward-looking  information  included in this report, you should not regard the
inclusion of such  information  as our  representation  that we will achieve any
strategy, objectives or other plans. The forward-looking statements contained in
this report speak only as of the date of this report,  and we have no obligation
to update publicly or revise any of these forward-looking statements.

These and other  statements,  which are not historical  facts, are based largely
upon our current  expectations  and  assumptions  and are subject to a number of
risks and  uncertainties  that could cause actual  results to differ  materially
from those  contemplated  by such  forward-looking  statements.  These risks and
uncertainties  include,  among others, our planned effort to redeploy our assets
and use our substantial cash and cash equivalent  assets to enhance  stockholder
value  following  the  sale  of  substantially  of all our  electronic  commerce
business,  which  represented   substantially  all  of  our  revenue  generating
operations and related assets,  and the risks and uncertainties set forth in the
section  headed  "Factors  That May Affect Our Future  Results" of Part 1 of our
Annual Report on Form 10-K, as amended,  for the fiscal year ended  December 31,
2004 and described below. The Company cannot guarantee its future performance.

OVERVIEW

AS PART OF OUR  PREVIOUSLY  ANNOUNCED  STRATEGY  TO LIMIT  OPERATING  LOSSES AND
ENABLE THE COMPANY TO REDEPLOY  ITS ASSETS AND USE ITS CASH AND CASH  EQUIVALENT
ASSETS  TO  ENHANCE   STOCKHOLDER  VALUE,  ALL  OF  OUR  OPERATIONS  OTHER  THAN
ADMINISTRATIVE FUNCTIONS HAVE BEEN TERMINATED.  THE INFORMATION APPEARING BELOW,
WHICH RELATES TO PRIOR PERIODS,  IS THEREFORE NOT INDICATIVE OF THE RESULTS THAT
MAY BE EXPECTED FOR ANY  SUBSEQUENT  PERIODS.  THE THREE- AND SIX-MONTH  PERIODS
ENDED  JUNE  30,  2005  PRIMARILY  REFLECT,   AND  FUTURE  PERIODS  PRIOR  TO  A
REDEPLOYMENT  OF OUR ASSESTS  ARE  EXPECTED TO  PRIMARILY  REFLECT,  GENERAL AND
ADMINISTRATIVE EXPENSES AND TRANSACTION EXPENSES ASSOCIATED WITH THE CONTINUTING
ADMINISTRATION OF THE COMPANY AND ITS EFFORTS TO REDEPLOY ITS ASSETS.

The following  discussion and analysis  should be read in  conjunction  with the
consolidated  financial statements and notes thereto appearing elsewhere in this
report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's  discussion of financial  condition and results of operations  are
based on the  consolidated  financial  statements,  which have been  prepared in
accordance with accounting  principles  generally accepted in the United States.
The preparation of these consolidated financial statements require management to
make  estimates  and  assumptions  that affect the  reported  amounts of assets,
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  consolidated  financial  statements.  Estimates  also  affect the  reported
amounts of revenues  and  expenses  during the  reporting  periods.  The Company
continually  evaluates its estimates and assumptions  including those related to
contingences  and  litigation.  The Company  bases its  estimates on  historical
experience and other  assumptions  that are believed to be reasonable  under the
circumstances. Actual results may differ from these estimates.


                                       9
<PAGE>


A description of the Company's  critical  accounting polices was provided in the
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  section  of the  Company's  Annual  Report on Form 10-K for the year
ended  December 31,  2004.  There were no changes to these  accounting  policies
during the quarter and period ended June 30, 2005.

RESULTS OF OPERATIONS  FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND JUNE
30, 2004

The  following  table sets forth  certain  items in the  Company's  consolidated
statements  of  operations  as a  percentage  of total  revenues for the periods
indicated:


<TABLE>
<CAPTION>
                                               Three Months Ended             Six Months Ended
                                                     June 30,                      June 30,
                                              -------------------           -------------------
                                              2005           2004           2005           2004
================================================================================================
<S>                                            <C>             <C>           <C>             <C>
Revenues:
    Product                                    --%             14%           --%             46%
    Service maintenance and royalties          100             86            100             54
------------------------------------------------------------------------------------------------
            Total revenues                     100            100            100            100
Cost of revenues:
    Service and maintenance                     --             28             --             24
------------------------------------------------------------------------------------------------
            Total cost of revenues              --             28             --             24

Gross margin                                   100             72            100             76

Operating expenses:
    Research and development                    --             --             --             28
    General and administrative                 341            241            393            221
    Gain on sale of patents                     --             --             --           (206)
   Gain on litigation settlement                --             --           (532)            --
    Restructuring related charges               --             --             --             (1)
------------------------------------------------------------------------------------------------
            Total operating expenses           341            241           (139)            42
------------------------------------------------------------------------------------------------

Income (loss) from operations                 (241)          (169)           239             34

  Interest income                              325             --            434             --
  Interest expense                             (47)            --            (98)            --
  Other income, net:                           153             10            169             10
------------------------------------------------------------------------------------------------
Net income (loss)                              190%          (159)%          744%            44%
================================================================================================
</TABLE>


REVENUES

Total  revenues.  Total  revenues  decreased 91% to $32,000 for the three months
ended June 30, 2005 from  $372,000 for the same period in 2004.  Total  revenues
decreased  95% to $43,000 for the six months  ended June 30, 2005 from  $872,000
for the same period in 2004.  Revenues in the United  States were $32,000 in the
second  quarter  of 2005  compared  to  $352,000  in the  same  period  of 2004,
representing  100%  and 95% of total  revenues,  respectively.  Revenues  in the
United States were $43,000 for the six month period ended June 30, 2005 compared
to  $893,000  in the same  period  of 2004,  representing  100% and 93% of total
revenues  respectively.  There were no revenues from international  sales in the
second  quarter of 2005 compared to $20,000,  or 5% of total  revenues,  for the
same period of 2004.  Revenues from international sales for the six months ended
June 30, 2005 were zero compared to $48,000, or 7% of total revenues in the same
period of 2004. As a result of our downsizing of our business and operations, we
no  longer  maintain  a direct  sales  force  and  there  currently  is no sales
generating  activity.  International  sales have generally  been  denominated in
United States dollars.


                                       10
<PAGE>


As  described  in  this  Item 2  under  "Overview",  we are no  longer  directly
marketing  our  products,  and we do not expect that future  revenues from these
products or services related to these products will be significant.

Product  revenues.  Product  revenues  decreased  100% to zero for the three-and
six-month periods ended June 30, 2005,  compared to $51,000 and $405,000 for the
same periods in 2004.  Product revenues  comprised 14% and 46% of total revenues
for the three-and six-month periods ended June 30, 2004. The decrease in product
revenues is primarily  attributable to the termination of the Company's  revenue
generating  operations in connection  with its efforts to redeploy its assets as
discussed above. Therefore, we expect there will be no product revenues in 2005.

Service,  maintenance and royalties.  Service and maintenance revenues consisted
primarily of professional and maintenance  services.  Our  professional  service
revenues included business  consulting,  implementation  support and educational
services and were generally  offered on a time and materials basis.  Maintenance
revenues  were  generally  derived  from  annual  service  agreements  and  were
recognized ratably over the term of the agreement.  On April 1, 2004, we entered
into an agreement with Tornago,  Inc. to fulfill our existing  prepaid  customer
support obligations. Royalty revenues are derived from resales of our product by
Tornago, Inc. Service, maintenance and royalty revenues decreased 90% to $32,000
for the quarter ended June 30, 2005 from $321,000 for the quarter ended June 30,
2004. Service, maintenance and royalty revenues decreased 91% to $43,000 for the
six-month  period  ended June 30, 2004 from  $467,000 for the  six-month  period
ended June 30, 2004.  Service,  maintenance and royalty revenues  comprised 100%
and 86% of  total  revenues  for the  quarters  ended  June 30,  2005 and  2004,
respectively.  Service,  maintenance and royalty revenues comprised 100% and 54%
of total  revenues  for the  six-month  period  ended  June 30,  2005 and  2004,
respectively.  We  do  not  anticipate  entering  into  additional  service  and
maintenance  agreements  with  customers as the Company  terminated  its revenue
generating operations as discussed above.  Therefore, we expect there will be no
service and maintenance  revenues in 2005. The agreement with Tornago,  Inc. has
the potential to generate royalty revenue through April 2006.

COST OF REVENUES

Cost of product revenues.  Cost of product revenues  consisted  primarily of the
cost of  royalties  paid to  third-party  vendors and  amortization  of acquired
technology costs. No royalties were payable to third parties and no amortization
expense existed during the periods  presented related to intangible assets which
historically  represented  the costs of product  revenues.  We do not expect any
future costs of product revenues.

Cost of  service  and  maintenance  revenues.  Cost of service  and  maintenance
revenues  consisted  primarily of  personnel-related  and  infrastructure  costs
incurred in providing  telephone and Web-based support of our software products,
as  well  as  professional,  consulting  and  educational  related  services  to
customers.  Cost of service and maintenance  revenues decreased 100% to zero for
the quarter  ended June 30, 2005 from  $103,000  for the quarter  ended June 30,
2004.  Cost of service and maintenance  revenues  decreased 100% to zero for the
six-month  period  ended June 30, 2005 from  $205,000 for the  six-month  period
ended June 30,  2004.  Cost of service  and  maintenance  revenue for the second
quarter of 2005 and 2004  represented  0%, and 28% of the  related  service  and
maintenance revenues,  respectively. Cost of service and maintenance revenue for
the six-month  periods ending June 30, 2005 and 2004  represented 0%, and 24% of
the related service and maintenance revenues, respectively. The decrease in cost
of  services  and  maintenance  revenues is a result of the  termination  of the
Company's  revenue  generating  operations  in  connection  with its  efforts to
redeploy  its assets as  discussed  above.  We do not  expect to incur  costs of
product revenues for the foreseeable future.

OPERATING EXPENSES

In the first part quarter of 2003, we reduced our operating expenses through the
closure of three  remote  offices  and a reduction  in  workforce  affecting  22
employees.  On August 6, 2003,  we reduced our  workforce  by an  additional  12
employees.  At December 31, 2003,  we had nine  full-time  employees,  which was
determined to be the minimum number  necessary at that time to serve  customers,
preserve  the value of our  intellectual  property  and  administer  our limited
ongoing  business  affairs.  In March 2004, we terminated  the employment of the
remaining members of our engineering staff. As of December 31, 2004, we had five
employees,  two of whom are executive officers and all of who are located in our
Stamford,   Connecticut  headquarters.   As  described  in  this  Item  2  under
"Overview",  we are no longer actively  marketing our products and do not expect
to incur any  operating  expenses in 2005 relating to sales and marketing of our
products.


                                       11
<PAGE>


As part of our asset redeployment strategy, we are currently working to identify
suitable  merger or acquisition  opportunities  that can serve as a platform for
future growth.  Although we are not targeting  specific business  industries for
potential  mergers or  acquisitions,  we plan to seek businesses with cash flow,
experienced  management teams, and operations in markets offering  stability and
growth  potential.  We  anticipate  that we may incur  significant  expenses  in
connection with this process,  consisting  principally of professional  fees and
expenses,  as well as costs  associated  with  maintaining  our  public  company
status.

Research and development.  Research and development expenses consisted primarily
of salaries,  other  employee-related  costs and consulting  fees related to the
development of our products. Research and development expenses decreased 100% to
$0 for the three months ended June 30, 2005 and 2004, respectively. Research and
development  expenses  decreased  100% to zero for the six months ended June 30,
2005  compared to $250,000 for the six months ended June 30, 2004.  Research and
development  expenses were 0%, of total revenues for the three months ended June
30, 2005 and 2004, respectively.  Research and development expenses were 0%, and
28% of  total  revenues  for the six  months  ended  June  30,  2005  and  2004,
respectively.  The decrease in research and  development  expenses is due to our
restructuring  efforts.  We do not expect to incur any research and  development
expenses for the foreseeable future.

General  and  administrative.   General  and  administrative   expenses  consist
primarily  of  employee-related  costs,  provision  for  doubtful  accounts  and
professional  service fees and expenses.  Current  executive  management did not
receive  salaries  in the quarter  ended June 30,  2005 or during the  six-month
period ended June 30, 2005. General and administrative expenses decreased 88% to
$109,000 for the three  months ended June 30, 2005  compared to $898,000 for the
three months ended June 30, 2004. General and administrative  expenses decreased
91% to $169,000 for the six months ended June 30, 2005  compared to $1.9 million
for the six months ended June 30, 2004. General and administrative expenses were
341% and 241% of total  revenue  for the three  months  ended June 30,  2005 and
2004,  respectively.  General and administrative  expenses were 393% and 221% of
total revenue for the six months ended June 30, 2005 and 2004, respectively. The
decrease in general and administrative  expenses during the three and six months
ended  June 30,  2005 was  primarily  due to the lack of  salaries  for  current
executive  management  and a  significant  reduction  in  professional  fees and
expenses and  administrative  costs that were  associated with our evaluation of
strategic alternatives.  Although we expect  personnel-related and other general
and administrative expenses to decline in 2005, compared to 2004, continued high
levels of outside  professional fees, and other costs associated with continuing
as a  public  reporting  company,  such  as  directors  and  officers  liability
insurance, may offset some of these decreases.

Gain on sale of patents.  On March 31, 2004,  the Company  completed the sale of
its patent  portfolio to Thalveg  Data Flow LLC for $1.8  million  pursuant to a
patent purchase agreement entered into on December 30, 2003 and amended on March
31, 2004. The patent purchase agreement  includes a royalty-free,  non-exclusive
license back to the  Company.  The license is  transferable,  subject to certain
restrictions  applicable  to the  transferee  relating to  revenues  that can be
generated by products covered by the license.

Gain on litigation  settlement.  In February 2005, the Company received $229,000
from the  settlement  of its  lawsuit  for a breach of  contract  claim  with i2
Technologies  Inc. The Company recorded the gain on this settlement in the first
quarter of 2005.

Restructuring  related charges.  There were no restructuring related charges for
the three-and six-month periods ended June 30, 2005.

Interest income. Interest income increased 225% to $104,000 for the three months
ended June 30, 2005  compared to $32,000 for the  three-month  period ended June
30, 2004. For the period ended June 30, 2005,  interest income increased 222% to
$187,000  compared to $58,000 for the same period in June 30, 2004. The increase
in interest  income was due to an increase in the interest  rates we received on
our cash and cash equivalents and marketable securities.

Interest  expense.  Interest  expense  decreased  32% to $15,000 for the quarter
ended June 30, 2005 compared to $22,000 in the quarter ended June 30, 2004.  For
the six months ended June 30, 2005  interest  expense  increased  91% to $42,000
compared  to $22,000  for the same  period in 2004.  The  increase  in  interest
expense was due to the issuance of long-term  debt related to the  investment in
the Company in the second quarter of 2004 by Olden Acquisition LLC, an affiliate
of Kanders & Company,  Inc.,  an entity owned and  controlled  by the  Company's
Executive Chairman, Warren B. Kanders.


                                       12
<PAGE>


Other income,  net.  Other income  consists of tax refunds  partially  offset by
other  miscellaneous  expenses.  Net other income  increased 70% for the quarter
ended June 30, 2005 to $49,000 from $29,000 in 2004. Net other income  increased
35% for the six month  period  ended June 30,  2005 to $72,000  from  $54,000 in
2004.

PROVISION FOR INCOME TAXES

We have incurred  significant  operating losses from inception  through June 30,
2005. For income tax purposes,  the Company has available  federal net operating
loss carry-forwards of approximately $123.0 million and research and development
credit  carry-forwards  of  approximately  $151,000  at June 30,  2005.  The net
operating loss and research and development credit carry-forwards expire in 2011
through 2022 if not previously utilized. The utilization of these carry-forwards
may be subject to  limitations  based on past and future changes in ownership of
the Company  pursuant to Internal  Revenue Code Section 382. If the Company were
to be acquired at its recent  stock value such that  Section 382 is  applicable,
this  would  eliminate  the  ability  to use a  substantial  majority  of  these
carry-forwards.  Future tax benefits  have not been  recognized in the financial
statements,  as their utilization is not considered probable based on the weight
of available information.

LIQUIDITY AND CAPITAL RESOURCES

Since inception,  we have financed our operations  primarily through the sale of
equity  securities.  At June 30,  2005,  we had $11.7  million  of cash and cash
equivalents  compared to $14.7  million for the same period of 2004.  Marketable
securities totaled $3.0 million at June 30, 2005. There was no comparable number
at June 30,  2004.  The  decrease  in cash and cash  equivalents  was due to the
investment in marketable securities during the quarter ended June 30, 2005.

Cash provided by  operations  was $0.2 million for the six months ended June 30,
2005, compared to cash used in operations of $1.5 million for the same period of
2004.  Cash  provided  by  operations  for the six months  ended  June 30,  2005
resulted  primarily  from net income,  as adjusted for  non-cash  expenses and a
decrease in prepaid and other  current  assets and accrued  expenses.  We do not
expect to receive any significant amounts of cash from current operations and we
expect that we will  continue to incur legal fees,  transaction  costs and other
ongoing costs that will constitute a material use of cash.

A total of $3.0 million in net cash was used by investing activities for the six
months  ended June 30, 2005,  compared to $1.8  million of net cash  provided by
investing  activities  in the same  period  for  2004.  Cash  used by  investing
activities  during the  quarter  ended  June 30,  2005 was for the  purchase  of
marketable  securities.   Cash  provided  by  investing  activities  during  the
six-month  period ended June 30, 2004 was primarily  attributable to the sale of
our patent portfolio to Thalveg as described in this Item 2 under "Overview".

There was no cash used or provided by financing  activities for the period ended
June 30, 2005 compared to cash provided by financing  activities of $2.4 million
for the six months  ended June 30,  2004.  Net cash was  provided  by  financing
activities in the six-month period ended June 30, 2004 through the issuance of a
convertible  subordinated  note in the amount of $2.5 million net of $288,000 of
transaction costs and by proceeds received from the exercise of stock options.

We believe that  existing  cash and  investments  will be sufficient to meet our
expected  working  capital needs for at least the next twelve  months.  However,
uncertainties  exist as to the  costs of  implementing  our  asset  redeployment
strategy.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial  Accounting  Standards Board issued SFAS 123(R),
"Share Based Payment".  SFAS 123(R) requires that the compensation cost relating
to share-based payment transactions be recognized in financial statements.  That
cost  will be  measured  based on the  fair  value of the  equity  or  liability
instruments  issued.  In April  2005,  the SEC  adopted a rule that  amended the
compliance dates for SFAS 123(R) such that the Company will be required to apply
Statement  123(R) in the first  quarter of fiscal  year 2006.  We are  currently
evaluating  the  impact of this  statement.  We  believe  the  adoption  of this
statement,  effective  January 1, 2006, will have an impact on our  consolidated
financial statements.


                                       13
<PAGE>


Item 3. Quantitative and Qualitative Disclosures about Market Risk

We  do  not  hold  derivative   financial   instruments,   derivative  commodity
investments,  engage in  foreign  currency  hedging or other  transactions  that
expose us to material market risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company's  management  carried out an evaluation,  under the supervision and
with  the  participation  of the  Company's  Chief  Administrative  Officer  and
Controller,  its principal  executive officer and principal  financial  officer,
respectively,  of the design and operation of the Company's  disclosure controls
and procedures (as such term is defined in Rules 13a-15 (e) and 15d-15(e)  under
the Securities  Exchange Act of 1934 (the  "Exchange  Act") as of June 30, 2005,
pursuant to Exchange Act Rule 13a-15. Based upon that evaluation,  the Company's
Chief  Administrative  Officer  and  Controller,  concluded  that the  Company's
disclosure controls and procedures as of June 30, 2005 are effective.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company's internal control over financial
reporting  that  have come to  management's  attention  as of the June 30,  2005
evaluation that have materially affected, or are reasonable likely to materially
affect the Company's internal control over financial reporting.

PART II. OTHER INFORMATION


Item 4. Submission of Matters to a Vote of Security Holders.

We held our annual meeting of  stockholders  on June 21, 2005. Of the 28,917,745
shares of common  stock  entitled to vote at the meeting,  26,505,538  shares of
common  stock were  present  in person or by proxy and  entitled  to vote.  Such
number of shares represented  approximately  91.66% of our outstanding shares of
common  stock.  Listed below is the matter  voted upon at our annual  meeting of
stockholders and the voting results:

                                         Voted                  Voted
                                          For                  Against
     Election of Directors
        Warren Kanders                 25,362,454             1,143,084
        Nicholas Sokolow               26,437,144               68,394
        David A. Jones                 26,438,604               66,934
        Gianmaria Delzanno             26,437,444               68,094


                                       14
<PAGE>


Item 6.       Exhibits

Exhibit
Number           Exhibit

31.1  Certification  of Principal  Executive  Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002

31.2  Certification  of Principal  Financial  Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002

32.1  Certification  of Principal  Executive  Officer pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002

32.2  Certification  of Principal  Financial  Officer pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002


                                       15
<PAGE>


                                   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
undersigned thereunto duly authorized.

                                                NET PERCEPTIONS, INC.


                Date: August 12, 2005           By: /s/ Nigel P. Ekern
                                                --------------------------------
                                                Nigel P. Ekern
                                                Chief Administrative Officer
                                                (Principal Executive Officer)


                                                By: /s/ Susan Luckfield
                                                --------------------------------
                                                Susan Luckfield
                                                Controller
                                                (Principal Financial  Officer)


                                       16
<PAGE>


                                  EXHIBIT INDEX


Exhibit
Number                  Exhibit

31.1  Certification  of Principal  Executive  Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002

31.2  Certification  of Principal  Financial  Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002

32.1  Certification  of Principal  Executive  Officer pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002

32.2  Certification  of Principal  Financial  Officer pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002


                                       17