**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 March 31, 2007****OR****o
                  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
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              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 a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large
      accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act) YES [  ] NO [ X ]





**As
      of April 27, 2007, there were outstanding 41,275,422 shares of the registrant’s
      Common Stock, $0.0001 par value.**









**NET
      PERCEPTIONS, INC.**


FORM
      10-Q


For
      the
      Quarter Ended March 31, 2007









**TABLE
      OF CONTENTS**







******Page****PART
                I. FINANCIAL INFORMATION**Item 1. Financial Statements (unaudited)Consolidated
                Balance Sheets as of March 31, 2007 and December 31, 2006
            
            
            1Consolidated
                Statements of Operations for the Three Months Ended March 31, 2007
                and
                2006 and March 31, 2006 (Predecessor)
            
            
            2Consolidated
                Statements of Cash Flows for the Three Months Ended March 31,
                2007
              and
                2006 and March 31, 2006 (Predecessor)
            
            
            3Notes
                to the Consolidated Financial Statements
            
            
            4Item 2. Management’s Discussion and Analysis of Financial Condition and
                Results of Operations
            
            
            14Item 3. Quantitative and Qualitative Disclosures about Market
                Risk
            
            
            18Item 4. Controls and Procedures
            
            
            19**PART
                II. OTHER INFORMATION**Item
                1A. Risk Factors
            
            
            20Item
                6. Exhibits
            
            
            21**SIGNATURES**
            
            
            22**EXHIBIT
                INDEX**
            
            
            23











**PART
      I.**  **FINANCIAL
      INFORMATION**




**Item
      1.**   **Financial
      Statements**


**NET
                  PERCEPTIONS, INC.****CONSOLIDATED
                  BALANCE SHEETS****(in
                  thousands, except per share
                  amounts)**
  **March
                  31,**
                **2007**
                **(unaudited)**
              
              **December
                  31,**
                **2006****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              744
              
              $
              3,703Accounts
                  receivable, net
              
              
              12,715
              
              
              9,276Inventory
              
              
              11,466
              
              
              14,094Deferred
                  tax asset
              
              
              2,323
              
              
              2,684Prepaid
                  expenses and other current assets
              
              
              410
              
              
              561Total
                  current assets
              
              
              27,658
              
              
              30,318Property,
                  plant and equipment, net
              
              
              4,360
              
              
              3,773Deferred
                  financing costs, net
              
              
              759
              
              
              797Intangible
                  assets, net
              
              
              21,095
              
              
              21,572Deferred
                  tax asset
              
              
              5,368
              
              
              5,368Other
                  assets
              
              
              307
              
              
              297Total
                  assets
              
              $
              59,547
              
              $
              62,125**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilities:Notes
                  payable
              
              $
              3,286
              
              $
              3,286Current
                  portion of long-term debt
              
              
              4,000
              
              
              3,500Accounts
                  payable
              
              
              7,535
              
              
              9,596Accrued
                  expenses and other liabilities
              
              
              2,706
              
              
              3,205Total
                  current liabilities
              
              
              17,527
              
              
              19,587Long-term
                  debt, less current portion
              
              
              25,033
              
              
              27,033Total
                  liabilities
              
              
              42,560
              
              
              46,620Commitments
                  and contingencies (Note 11)Stockholders’
                  equity:Preferred
                  stock — $.0001 par value; 5,000 shares authorized; no shares issued or
                  outstanding
              
              
              —
              
              
              —Common
                  stock — $.0001 par value; 100,000 shares authorized; 41,676 shares issued
                  and outstanding
              
              
              3
              
              
              3Additional
                  paid-in capital
              
              
              245,967
              
              
              245,237Accumulated
                  deficit
              
              
              (228,983
              )
              
              (229,735
              )Total
                  stockholders’ equity
              
              
              16,987
              
              
              15,505Total
                  liabilities and stockholders’ equity
              
              $
              59,547
              
              $
              62,125
  See
                  accompanying notes to the consolidated financial
                  statements.
  1
 **NET
                    PERCEPTIONS, INC.****CONSOLIDATED
                    STATEMENTS OF OPERATIONS (UNAUDITED)****(in
                    thousands, except per share
                    amounts)**
  **Three
                    Months Ended****March
                    31,**
                  **2007**
                
                **March
                    31,**
                  **2006**
                
                **Predecessor
                    Company (1)**
                  **March
                    31, 2006**Revenues:Product
                
                $
                27,904
                
                $
                —
                
                $
                18,168Service,
                    maintenance and royalty
                
                
                —
                
                
                19
                
                
                —Total
                    revenues
                
                
                27,904
                
                
                19
                
                
                18,168Cost
                    of revenues:Product
                
                
                22,566
                
                
                —
                
                
                14,368Total
                    cost of revenues
                
                
                22,566
                
                
                —
                
                
                14,368Gross
                    margin
                
                
                5,338
                
                
                19
                
                
                3,800Operating
                    expenses:Sales
                    and marketing
                
                
                372
                
                
                —
                
                
                248General
                    and administrative
                
                
                2,857
                
                
                88
                
                
                466Total
                    operating expenses
                
                
                3,229
                
                
                88
                
                
                714Income
                    (loss) from operations
                
                
                2,109
                
                
                (69
                )
                
                3,086Other
                    income (expense):Interest
                    income
                
                
                6
                
                
                159
                
                
                —Interest
                    expense
                
                
                (671
                )
                
                (13
                )
                
                (155
                )Other
                    expense
                
                
                (122
                )
                
                (16
                )
                
                (91
                )Total
                    other income (expense), net
                
                
                (787
                )
                
                130
                
                
                (246
                )Income
                    before taxes
                
                
                1,322
                
                
                61
                
                
                2,840Provision
                    for income taxes
                
                
                570
                
                
                —
                
                
                62Net
                    income
                
                $
                752
                
                $
                61
                
                $
                2,778Basic
                    net income per share
                
                $
                0.02
                
                $
                0.00Shares
                    used in basic calculation
                
                
                41,676
                
                
                28,992Diluted
                    net income per share
                
                $
                0.02
                
                $
                0.00Shares
                    used in diluted calculation
                
                
                49,554
                
                
                34,810
  (1)  
                    Because the Company had no operations at the time of the Concord
                    Steel
                    acquisition (see Notes 1 and 13), Concord Steel is considered
                    to be the
                    “Predecessor” of the Company for accounting purposes and, therefore
                    relevant prior year financial information regarding the Predecessor
                    has
                    been presented herein.See
                    accompanying notes to the consolidated financial
                    statements.
  2
  **NET
                    PERCEPTIONS, INC.****CONSOLIDATED
                    STATEMENTS OF CASH FLOWS (UNAUDITED)****(in
                    thousands)**
  **Three
                    Months Ended****March
                    31,**
                  **2007**
                
                **March
                    31,**
                  **2006**
                
                **Predecessor
                    Company (1)**
                  **March
                    31, 2006**Cash
                    flows from operating activities:Net
                    income
                
                $
                752
                
                $
                61
                
                $
                2,778Reconciliation
                    of net income to net cash (used in) provided by operating
                    activities:Depreciation
                
                
                79
                
                
                —
                
                
                111Amortization
                    of intangibles
                
                
                477
                
                
                —
                
                
                —Amortization
                    of discount on investments, net
                
                
                —
                
                
                (120
                )
                
                —Amortization
                    of debt issuance costs
                
                
                38
                
                
                8
                
                
                —Deferred
                    income taxes
                
                
                361
                
                
                —
                
                
                —Provision
                    for doubtful accounts
                
                
                3
                
                
                —
                
                
                —Deferred
                    stock-based compensation
                
                
                730
                
                
                26
                
                
                —Changes
                    in assets and liabilities:Accounts
                    receivable
                
                
                (3,442
                )
                
                —
                
                
                (1,437
                )Inventory
                
                
                2,628
                
                
                —
                
                
                1,800Prepaid
                    expenses and other current assets
                
                
                151
                
                
                30
                
                
                (19
                )Other
                    assets
                
                
                (10
                )
                
                (30
                )
                
                —Accounts
                    payable
                
                
                (2,061
                )
                
                —
                
                
                719Accrued
                    expenses and other liabilities
                
                
                (499
                )
                
                (9
                )
                
                (461
                )Net
                    cash (used in) provided by operating activities
                
                
                (793
                )
                
                (34
                )
                
                3,491Cash
                    flows from investing activities:Purchase
                    of marketable securities
                
                
                —
                
                
                (11,620
                )
                
                —Proceeds
                    from sale of marketable securities
                
                
                —
                
                
                11,650
                
                
                —Capital
                    expenditures for property and equipment
                
                
                (666
                )
                
                —
                
                
                (256
                )Net
                    cash (used in) provided by investing activities
                
                
                (666
                )
                
                30
                
                
                (256
                )Cash
                    flows from financing activities:Proceeds
                    from line of credit
                
                
                —
                
                
                —
                
                
                2,950Principal
                    payments on long-term debt
                
                
                (1,500
                )
                
                —
                
                
                (69
                )Distributions
                    to members
                
                
                —
                
                
                —
                
                
                (6,928
                )Net
                    cash used in financing activities
                
                
                (1,500
                )
                
                —
                
                
                (4,047
                )Net
                    decrease in cash and cash equivalents
                
                
                (2,959
                )
                
                (4
                )
                
                (812
                )Cash
                    and cash equivalents at beginning of year
                
                
                3,703
                
                
                203
                
                
                1,003Cash
                    and cash equivalents at end of year
                
                $
                744
                
                $
                199
                
                $
                191Supplemental
                    cash flow disclosure:Interest
                    paid
                
                $
                702
                
                $
                —
                
                $
                128Taxes
                    paid
                
                $
                252
                
                $
                5
                
                $
                —
  (1) 
                     Because the Company had no operations at the time of the Concord
                    Steel acquisition (see Notes 1 and 13), Concord Steel is considered
                    to be
                    the “Predecessor” of the Company for accounting purposes and, therefore
                    relevant prior year financial information regarding the Predecessor
                    has
                    been presented herein.




3





NET
      PERCEPTIONS, INC.





NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


(dollars
      in thousands, except per share amounts)





**Note
      1. Overview and Basis of Presentation**





***Overview***





Net
      Perceptions, Inc. (“Company”) was initially established as a provider of
      marketing software solutions in 1996. In 2003, as a result of continuing losses
      and the decline of its software business, the Company began exploring various
      strategic alternatives, including sale or liquidation, and ceased the marketing
      and development of its marketing solutions software business in 2004. On April
      21, 2004, the Company announced 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 Non-Executive Chairman, Warren B.
      Kanders, for the purpose of initiating a strategy to redeploy the Company’s
      assets and use its cash, cash equivalent assets and marketable securities to
      enhance stockholder value. As part of this strategy, on October 3, 2006, the
      Company, through its wholly-owned subsidiary, SIG Acquisition Corp. (“SIG”),
      acquired the assets of CRC Acquisition Co. LLC (“CRC”), a manufacturer of steel
      counterweights doing business as Concord Steel (“Concord”). With this initial
      acquisition, management is now focused on building a diversified global
      industrial manufacturing group through both organic and acquisition growth
      initiatives that are expected to complement and diversify existing business
      lines. As a result, the Concord business is considered to be a predecessor
      company (“Predecessor”). Accordingly, relevant financial information regarding
      the Predecessor has been presented (see Note 13 for a more detailed explanation
      of the acquisition).




Concord
      is a leading independent manufacturer of steel counterweights and structural
      weldments. Concord sells its products primarily in the United States to original
      equipment manufacturers (“OEM”) of certain construction and industrial related
      equipment that employ counterweights which are used to provide stability through
      counterweight leverage in the operation of equipment used to hoist heavy loads,
      such as elevators and cranes. The counterweight market Concord targets is
      primarily comprised of OEMs within the (i) commercial and industrial
      construction equipment industry that manufactures aerial work platforms,
      telehandlers, scissor lifts, cranes, and a variety of other construction related
      equipment and vehicles; and (ii) the elevator industry, that incorporates
      counterweights as part of the overall elevator operating mechanism to balance
      the weight of the elevator cab and load.




***Basis
      of Presentation***





The
      accompanying unaudited consolidated financial statements of Net Perceptions,
      Inc. (“Net Perceptions” or the “Company” which may be referred to as “we”, “us”
or “our”) as of and for the three months ended March 31, 2007 and 2006, have
      been prepared in accordance with generally accepted accounting principles in
      the
      United States of America and instructions to Form 10-Q and Article 10 of
      Regulation S-X. Accordingly, they do not include all of the information in
      notes
      required by generally accepted accounting principles in the United States of
      America for complete financial statements. In the opinion of management, all
      adjustments (consisting of normal recurring accruals) necessary for a fair
      presentation of the unaudited consolidated financial statements have been
      included. The results of the three months ended March 31, 2007 are not
      necessarily indicative of the results to be obtained for the year ending
      December 31, 2007. These interim financial statements should be read in
      conjunction with the Company’s audited consolidated financial statements and
      footnotes thereto included in the Company’s Annual Report on Form 10-K for the
      fiscal year ended December 31, 2006, filed with the Securities and Exchange
      Commission on April 2, 2007.





The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries. All inter-company accounts and transactions have
      been
      eliminated. Certain prior period balances have been reclassified to
      conform to current period presentation.





4




***Critical
      Accounting Policies***




During
      the three months ended March 31, 2007, there have been no significant changes
      to
      the Company’s critical accounting policies and estimates as disclosed in the
      Company’s Form 10-K for the year ended December 31, 2006 except as noted
      below.




*Derivatives
      and hedging activities*




The
        Company recognizes all derivatives on the balance sheet as either an asset
        or
        liability measured at fair value. Changes in the derivative’s fair value are
        recognized currently in income unless specific hedge accounting criteria
        are
        met. Special accounting for qualifying hedges allows a derivative’s gains and
        losses to offset related results on the hedged item in statement of income
        and
        requires the Company to formally document, designate and assess effectiveness
        of
        transactions that receive hedge accounting. Derivatives that are not hedges
        are
        adjusted to fair value through income. If the derivative qualifies as a hedge,
        depending on the nature of the hedge, changes in the fair value of derivatives
        are either offset against the change in fair value of hedged assets,
        liabilities, or firm commitments through earnings, or recognized in other
        comprehensive income until the hedged item is recognized in earnings. The
        ineffective portion of a derivative’s change in fair value is immediately
        recognized in earnings.


***Recent
      Accounting Pronouncements***




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, Fair Value Measurements, (FAS 157”) and No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities, (“FAS 159”). These Standards define
      fair value, establishes a framework for measuring fair value under generally
      accepted accounting principles and expands disclosures about fair value
      measurement. FAS 157 and FAS 159 are effective for financial statements issued
      for fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. The adoption of FAS 157 and FAS 159 are not expected to
      have
      a material impact on the Company’s financial position, results of operations and
      cash flows.





In
      July
      2006, the Financial Accounting Standards Board (‘‘FASB’’) issued FASB
      Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”).
      This Interpretation prescribes a recognition threshold and measurement attribute
      for the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return. This Interpretation also provides
      guidance on derecognition, classification, interest and penalties, accounting
      interim periods, disclosure, and transition. The Company adopted the provisions
      of FIN 48 on January 1, 2007. The impact of FIN 48 on the Company’s financial
      position is discussed in Note 8 to the financial statements




**Note
      2. Inventories**




Inventories,
      net of inventory reserves at March 31, 2007 and December 31, 2006 are as
      follows:


**March
                  31,**
                **2007**
              
              **December
                  31,**
                **2006**Finished
                  goods
              
              $
              117
              
              $
              89Work-in-process
              
              
              639
              
              
              613Raw
                  materials
              
              
              10,710
              
              
              13,392$
              11,466
              
              $
              14,094




**Note
      3** **.
      Property, Plant and Equipment**




Property,
      plant and equipment, net as of March 31, 2007 and December 31, 2006 are as
      follows:




5


**March
                  31,**
                **2007**
              
              **December
                  31,**
                **2006**Land
              
              $
              350
              
              $
              350Building
                  and improvements
              
              
              990
              
              
              883Machinery
                  and equipment
              
              
              1,910
              
              
              1,514Office
                  equipment
              
              
              229
              
              
              196Transportation
                  equipment
              
              
              420
              
              
              364Construction
                  in progress
              
              
              611
              
              
              5374,510
              
              
              3,844Less:
                  Accumulated depreciation
              
              
              (150
              )
              
              (71
              )Property,
                  plant and equipment, net
              
              $
              4,360
              
              $
              3,773




**Note
      4. Intangible assets**





Intangible
      assets are amortized over their expected useful lives which are between 3 and
      12
      years using the straight-line method.





Intangible
      assets, net of amortization at March 31, 2007 and December 31, 2006 are as
      follows:





**March
                  31, 2007****Gross**
              
              **Other
                  Adjustments**(1)****
              
              **Accumulated**
                **Amortization**
              
              **Net**
              
              **Life**Intangibles
                  subject to amortization:Customer
                  relationships
              
              $
              12,399
              
              $
              (26
              )
              $
              (517
              )
              $
              11,856
              
              
              12
                  yrsNon-compete
                  agreements
              
              
              37
              
              
              
              
              
              (6
              )
              
              31
              
              
              3
                  yrsIntangibles
                  not subject to amortization:Trade
                  name
              
              
              9,397
              
              
              (189
              )
              
              
              
              
              9,208Intangibles,
                  net
              
              $
              21,833
              
              $
              (215
              )
              $
              (523
              )
              $
              21,095




(1)
      The
      acquisition of Concord resulted in tax deductible intangibles which are not
      being amortized for book purposes. The intangible assets were reduced by $0.2
      million as the result of the tax benefit generated for tax purposes during
      the
      three months ended March 31, 2007.





**December
                  31, 2006****Gross**
              
              **Other
                  Adjustments**
              
              **Accumulated**
                **amortization**
              
              **Net**
              
              **Life**Intangibles
                  subject to amortization:Customer
                  relationships
              
              $
              12,399
              
              $
              —
              
              $
              (258
              )
              $
              12,141
              
              
              12
                  yrsNon-compete
                  agreements
              
              
              37
              
              
              —
              
              
              (3
              )
              
              34
              
              
              3
                  yrsIntangibles
                  not subject to amortization:Trade
                  name
              
              
              9,397
              
              
              —
              
              
              —
              
              
              9,397Intangibles,
                  net
              
              $
              21,833
              
              $
              —
              
              $
              (261
              )
              $
              21,572




6




**Note
      5. Accrued expenses and other liabilities**





Accrued
      expenses and other liabilities of the Company as of March 31, 2007 and December
      31, 2006 are
      as
      follows :


**March
                  31,**
                **2007**
              
              **December
                  31,**
                **2006**Accrued
                  compensation, benefits andcommissions
              
              $
              900
              
              $
              706Accrued
                  interest payable
              
              
              779
              
              
              840Accrued
                  professional services
              
              
              112
              
              
              25Accrued
                  insurance
              
              
              137
              
              
              216Accrued
                  property taxes
              
              
              47
              
              
              41Accrued
                  other liabilities
              
              
              731
              
              
              1,377$
              2,706
              
              $
              3,205




**Note
      6. Long-term Debt and Notes Payable**





In
      connection with the Company’s, through SIG, its wholly-owned subsidiary,
      acquisition of the assets of CRC, a manufacturer of steel counterweights, SIG entered
      into a senior secured credit facility (the “Credit Agreement”) with LaSalle Bank
      National Association, as administrative agent (the “Agent”) and the lenders
      party thereto.





The
      Credit Agreement establishes a commitment to SIG to provide up to $40.0 million
      in the aggregate of loans and other financial accommodations consisting of
      (i) a
      five-year senior secured term loan in an aggregate principal amount of $28.0
      million (ii) a five year senior secured revolving credit facility in the
      aggregate principal amount of $10.0 million (the “Revolving Facility”) and (iii)
      a five-year senior secured capital expenditure facility in the aggregate
      principal amount of $2.0 million. The Revolving Facility is further subject
      to a
      borrowing base consisting of up to 85% of eligible accounts receivable and
      up to
      55% of eligible inventory. The Revolving Facility includes a sublimit of up
      to
      an aggregate amount of $5.0 million in letters of credit and a sublimit of
      up to
      an aggregate amount of $2.5 million in swing line loans. The capital expenditure
      facility permits the Company to draw funds for the purchase of machinery and
      equipment during the 6-month period ending March 3, 2007, and then converts
      into
      a 4.5-year term loan. Immediately following the closing of the Concord
      acquisition, the Company drew down approximately $31.3 million and had
      additional availability under the Revolving Facility of approximately $6.7
      million. There
      were no amounts drawn under the capital expenditure facility at the time of
      closing of the credit facility nor were there any amounts drawn down prior
      to
      March 3, 2007.  The
      capital expenditure facility expired on March 3, 2007.  At
      March
      31, 2007 and December 31, 2006 the outstanding balance from the revolving credit
      facility amounted to $3.3. At March 31, 2007 the Company had $5.1 million
      available in additional borrowings net of $1.6 million in outstanding letters
      of
      credit. The balance under the term loan at March 31, 2007 and December 31,
      2006
      was $26.5 million and $28.0 million, respectively. At March 31, 2007, the
      Company had $4.0 million classified as current and $22.5 million classified
      as
      long-term .
      During
      the period ended March 31, 2007 the Company was in compliance with all covenants
      under the credit facility.





Borrowings
      under the Credit Agreement will bear interest, at the Company’s election, at
      either (i) a rate equal to London
      Interbank Offer Rate (“LIBOR”) ,
      plus an
      applicable margin ranging from 1.25% to 2.5%, depending on certain conditions,
      or (ii) an alternate base rate which will be the greater of (a) the Federal
      Funds rate plus 0.5% or (b) the prime rate publicly announced by the Agent
      as
      its prime rate, plus, in both cases, an applicable margin ranging from 0% to
      1.0%, depending on certain conditions. At March 31, 2007 and December 31, 2006,
      respectively, the applicable interest rate for the outstanding borrowings under
      the Credit Agreement was 7.86% and 7.87%.





The
      Credit Agreement is guaranteed by the Company and its direct and indirect
      subsidiaries and is secured by, among other things, (a) (i) all of the equity
      interests of SIG’s subsidiaries and (ii) a pledge of all of the issued and
      outstanding shares of stock of SIG by Net Perceptions and (b) a first priority
      perfected security interest on substantially all the assets of the Company
      and
      its direct and indirect subsidiaries pursuant to a guaranty and collateral
      agreement dated October 3, 2006 and delivered in connection with the Credit
      Agreement (the “Guaranty Agreement”). In addition, LaSalle acting as the Agent,
      for the benefit of the lenders, has a mortgage on all owned real estate of
      the
      Company and its direct and indirect subsidiaries, as well as deposit account
      control agreements with respect to funds on deposit in bank accounts of the
      Company and its direct and indirect subsidiaries.




7




The
      Company is exposed to interest rate volatility with regard to existing issuances
      of variable rate debt. Primary exposure includes movements in the U.S. prime
      rate and LIBOR. The Company uses interest rate swaps to reduce interest rate
      volatility. On January 2, 2007, the Company entered into an interest rate
      protection agreement that has approximately $14 million of interest rate swaps
      fixing interest rates between 5.0% and 5.8%.





On
      April
      21, 2004, the Company closed on an investment into the Company by Olden
      Acquisition LLC (“Olden”) , an
      affiliate of Kanders & Company, Inc., for
      the
      purpose of initiating a strategy to redeploy the Company’s assets and use the
      Company’s cash, cash equivalent assets and marketable securities to enhance
      stockholder value. The Company issued and sold to Olden a 2% ten-year
      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 Company 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 $2.5 million
      before transaction costs of $0.3 million. 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
      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 $0.1 million to the beneficial conversion feature and amortized the
      beneficial conversion feature over one year (the period after which the note
      is
      convertible). As of December 31, 2005, zero remained to be amortized of the
      note
      discount due to the beneficial conversion feature. Also in connection with
      this
      transaction, the Company entered into a Registration Rights Agreement (the
      “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. As of March 31, 2007 and December 31, 2006,
      respectively, the outstanding balance on the note payable amounted to $2.5
      million and is classified as long-term debt.





**Note
      7. Per Share Data**




Basic
      earnings per share is computed using net income 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, convertible
      notes
      and restricted stock awards. Shares used in the diluted net income per share
      for
      the three months ended March 31, 2007 and 2006, exclude the impact of 250 and
      265 potential common shares issuable upon the exercise of stock options,
      respectively, which
      were anti-dilutive .


**Three
                  Months Ended**
                **March
                  31,****2007**
              
              **2006****Basic
                  income per share calculation:**Net
                  income
              
              $
              752
              
              $
              61Weighted
                  average common shares - basic
              
              
              41,676
              
              
              28,992Basic
                  net income per share
              
              $
              0.02
              
              $
              0.00**Diluted
                  income per share calculation:**Net
                  income
              
              $
              752
              
              $
              61Weighted
                  average common shares - basic
              
              
              41,676
              
              
              28,992Effect
                  of dilutive stock options
              
              
              2,017
              
              
              14Effect
                  of restricted stock awards
              
              
              140
              
              
              176Effect
                  of convertible note
              
              
              5,628
              
              
              5,628Effect
                  of stock fee
              
              
              93
              
              
              —Weighted
                  average common shares - diluted
              
              
              49,554
              
              
              34,810**Diluted
                  net income per share**
              
              $
              0.02
              
              $
              0.00




8




**Note
      8. Income Taxes**





For
      federal income tax purposes, the Company has available net operating loss
      carry-forwards of approximately $123.6 million and research and development
      credit carry-forwards of $0.2 million at March 31, 2007. The net operating
      loss
      and research and development credit carry-forwards expire in 2011 through 2026,
      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. The recognition of a
      valuation allowance for deferred taxes requires management to make estimates
      about the Company’s future profitability. Deferred tax assets are reduced by
      valuation allowance when, in the opinion of management, it is more likely than
      not that some portion or all of the deferred tax assets will not be realized.
      The estimates associated with the valuation of deferred taxes are considered
      critical due to the amount of deferred taxes recorded on the consolidated
      balance sheet and the judgment required in determining the Company’s future
      profitability. The Company reduced $8.1 million of valuation allowance as a
      reduction of goodwill and intangible assets acquired from the Concord
      acquisition, based on the expectation that these deferred tax assets are more
      likely than not to be realized. Deferred tax assets were $7.7 million and $8.1
      million at March 31, 2007 and December 31, 2006, respectively.





Because
      the majority of the Company’s deferred tax asset consists of net operating loss
      carryforwards for federal tax purposes, the key to the Company’s ability to
      realize the deferred tax asset will be to generate sufficient income in future
      years to utilize the loss carryforwards prior to expiration.





The
      following table contains a schedule of NOL amounts by year and their respective
      expiration dates:


**Expiration
                  Dates**
                **December
                  31,**
              
              **Net
                  Operating Loss**
                **Amount**2007
                  to 2016
              
              $
              —2017
              
              
              6,7132018
              
              
              8,0182019
              
              
              15,7342020
              
              
              29,2632021
              
              
              31,0152022
              
              
              11,9872023
              
              
              14,3942024
              
              
              2,0202025
              
              
              —2026
              
              
              4,476Total
              
              $
              123,620Section
                  382 Limitation
              
              
              —After
                  Limitations
              
              $
              123,620
  *
                  Assumes compliance with Section 382 of the Internal Revenue
                  Service




9




The
      Company has an effective tax rate of 43% which consists of a federal tax rate
      of
      34% and a state and other tax rate of 9%. The Company expects to pay an
      alternate minimum tax federal rate of 2% on taxable income as a result of its
      net operating loss carryforwards.




The
      Company files income tax returns in the U.S. federal jurisdiction and various
      state jurisdictions.




The
      Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes,” on January 1, 2007. Upon the adoption of FIN 48,
      the Company commenced a review of all open tax years in all jurisdictions.
      The
      Company does not believe it has included any “uncertain tax positions” in its
      federal income tax return or any of the state income tax returns it is currently
      filing, and has no significant unrecognized tax benefits recorded. The Company
      has made an evaluation of the potential impact of additional state taxes being
      assessed by jurisdictions in which the Company does not currently consider
      itself liable. The Company does not anticipate that such additional taxes,
      if
      any, would result in a material change to its financial position.





**Note
      9. Employee Benefit Plan**





The
      Company sponsors a 401(k) Plan (the "Plan"), covering substantially all
      employees of the Company. Under this Plan, eligible employees who elect to
      participate in the Plan may contribute between 2% and 20% of eligible
      compensation (as defined herein) to the Plan. For the three months ended March
      31, 2007 and 2006, respectively the Company made matching contributions of
      approximately $28 thousand and $31 thousand respectively. ****





**Note
      10. Stockholders’ equity**





In
      2006,
      the Company adopted SFAS No. 123R, *Share-Based Payment (“SFAS 123R”),*which requires all companies to measure compensation costs for all
      share-based payments (including employee stock options) at fair value and
      recognize such costs in the statement of operations. The Company estimates
      the
      fair value of share-based payments using the Black Scholes model for stock
      options and the market price of the Company’s common stock for restricted stock
      awards. Total share based compensation expense for the three months ended March
      31, 2007 was $0.7 million, including restricted stock award based compensation
      expense of $0.1 million. Total share based compensation expense for the three
      months ended March 31, 2006 was $26 thousand, including restricted stock award
      based compensation expense of $21 thousand.





In
      February 1999, the Company’s Board of Directors adopted the 1999 Equity
      Incentive Plan (the “1999 Plan”), which provides for the issuance of both
      incentive and non-qualified stock options. The options allow the holder to
      purchase shares of the Company’s common stock at fair market value on the date
      of the grant. For options granted to holders of more than 10% of the outstanding
      common stock, the option price at the date of the grant must be at least equal
      to 110% of the fair market value of the stock. The total number of options
      available for future grants under the 1999 Plan was 965 at March 31, 2007 and
      1,090 at December 31, 2006. Stock options granted under the 1999 Plan typically
      vest when performance conditions are met or over three years and generally
      expire ten years from the date of grant.





A
      summary
      of option activity under the Plans as of March 31, 2007, and changes during
      the
      period ended is presented below:


**Options**
              
              **Shares**
                **(000)**
              
              **Weighted-Average
                  Exercise Price**
              
              **Weighted-Average
                  Remaining Contractual Term**
              
              **Aggregate
                  Intrinsic Value**
                **(000)**Outstanding
                  at January 1, 2007
              
              
              1,591
              
              $
              0.80Granted
              
              
              63
              
              $
              2.33Exercised
              
              
              -
              
              
              -Forfeited
                  or expired
              
              
              -
              
              
              -Outstanding
                  at March 31, 2007
              
              
              1,654
              
              $
              0.85
              
              
              8.0
              
              $
              2,737Vested
                  or expected to vest at March 31, 2007
              
              
              1,654
              
              $
              0.85
              
              
              8.0
              
              $
              2,737Exercisable
                  at March 31, 2007
              
              
              307
              
              $
              0.63
              
              
              7.5
              
              $
              574




A
      summary
      of the activity under the performance plans as of March 31, 2007, and changes
      during the period then ended is presented below:




10


**Performance
                  Options**
              
              **Shares**
                **(000)**
              
              **Average
                  Exercise Price**
              
              **Remaining
                  Contractual Term**
              
              **Intrinsic
                  Value ($000)**Outstanding
                  at January 1, 2007
              
              
              1,371
              
              $
              0.81Granted
              
              
              62
              
              $
              2.33Exercised
              
              
              -Forfeited
                  or expired
              
              
              -Outstanding
                  at March 31, 2007
              
              
              1,433
              
              $
              0.88
              
              
              9.68
              
              $
              2,328Vested
                  or expected to vest at March 31, 2007
              
              
              1,433
              
              $
              0.88
              
              
              9.68
              
              $
              2,328Exercisable
                  at March 31, 2007
              
              
              -
              
              $
              -
              
              
              -
              
              $
              -





**Note
      11. Commitments and Contingencies**





Contingencies





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





Public
      Offering Securities 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 then chief financial officer. The lawsuit was filed in the United
      States District Court for the Southern District of New York and was assigned
      to
      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
      action against the Company was thereafter coordinated with the other
      substantially similar class actions as *In
      re
      Initial Public Offering Securities Litigation* ,
      21 MC
      (SAS) (the “Coordinated Class Actions”).





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
      August
      31, 2005, the Court gave preliminary approval to a settlement reached by the
      plaintiffs and issuer defendants in the Coordinated Class Actions. On December
      5, 2006, the United States Court of Appeals for the Second Circuit overturned
      the District Court's certification of the class of plaintiffs who are pursuing
      the claims that would be settled in the settlement against the underwriter
      defendants. Plaintiffs filed a Petition for Rehearing and Rehearing En Banc
      with
      the Second Circuit on January 5, 2007 in response to the Second Circuit's
      decision, and have informed the District Court that they would like to be heard
      as to whether the settlement may still be approved even if the decision of
      the
      Court of Appeals is not reversed. The District Court indicated that it would
      defer consideration of final approval of the settlement pending plaintiffs'
      request for further appellate review. On April 6, 2007, plaintiffs' Petition
      for
      Rehearing of the Second Circuit's decision was denied. 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.




11




**Note
      12. Related Party Transactions**





The
      Company occupies space made available to it at no cost by Kanders & Company,
      Inc., an entity owned and controlled by the Company's Non-Executive Chairman,
      Warren B. Kanders. This arrangement can be terminated at any time.





On
      September 22, 2006, the Company entered into an Equity Compensation Agreement
      (the “Compensation Agreement”) with Kanders & Company, Inc. (“Kanders &
Company”), the sole stockholder of which is Warren B. Kanders, who was then the
      Company’s Executive Chairman of the Board of Directors, for prior strategic,
      consulting, investment banking and advisory services to the Company in
      connection with Company’s asset redeployment strategy. As compensation for such
      past services, the Company agreed to issue to Kanders & Company 8,274,000
      shares of its common stock. Kanders & Company will receive no cash payment
      for its services pursuant to the Compensation Agreement. Pursuant to the terms
      and conditions of the Compensation Agreement, the Company granted “demand” and
“piggyback” registration rights to Kanders & Company with respect to the
      shares of common stock that are issuable under the Compensation Agreement.
      The
      aggregate value of the awards was $7.4 million, which was based upon the closing
      price of the Company’s common stock of $0.89 on September 22, 2006, the date of
      the grant. The Company recorded compensation expense of $7.4 million relating
      to
      the grant of stock during the fourth quarter of the year ended December 31,
      2006.





On
      September 22, 2006, the Company entered into a five-year consulting agreement
      (the “Consulting Agreement”) with Kanders & Company, which became effective
      as of the closing of the Concord Acquisition (as described in Note 16) on
      October 3, 2006. In addition, effective with the closing of the Concord
      Acquisition, Mr. Kanders resigned as Executive Chairman of the Company’s Board
      of Directors upon being nominated and elected to the position of Non-Executive
      Chairman of the Board of Directors. The Consulting Agreement provides that
      Kanders & Company will render investment banking and financial advisory
      services to the Company on a non-exclusive basis, including strategic planning,
      assisting in the development and structuring of corporate debt and equity
      financings, introductions to sources of capital, guidance and advice as to
      (i)
      potential targets for mergers and acquisitions, joint ventures, and strategic
      alliances, including facilitating the negotiations in connection with such
      transactions, (ii) capital and operational restructuring, and
      (iii) shareholder relations.





The
      Consulting Agreement provides for Kanders & Company to receive a fee equal
      of (i) $0.5 million in cash per year during the term of the Consulting
      Agreement, payable monthly, and (ii) 1% of the amount by which the Company’s
      revenues as reported in the Company’s Form 10-K, or if no such report is filed
      by the Company, as reflected in the Company’s audited financial statements for
      the applicable fiscal year, exceeds $60.0 million, payable in shares of common
      stock of the Company (the “Stock Fee”) valued at the weighted average price of
      the Company’s Common Stock for the applicable fiscal year. Upon a
“change-in-control” (as defined in the Consulting Agreement), Kanders &
Company will be entitled to a one-time lump sum cash payment equal to three
      times the average amount Kanders & Company received during each of the two
      fiscal years preceding such “change-in-control,” subject to certain limitations
      as set forth in the Consulting Agreement. Upon the death or permanent disability
      of Mr. Kanders, the Company has agreed to make a one-time lump sum cash payment
      to Kanders & Company equal to that amount Kanders & Company would be
      entitled to receive upon a “change-in-control”. Upon payment of the amounts due
      to Kanders & Company either upon the occurrence of a “change-in-control”, or
      upon the death or permanent disability of Mr. Kanders, the Consulting Agreement
      will terminate. For the three months ended March 31, 2007, the Company accrued
      $0.3 million related to the consulting agreement.





For
      the
      three months ended March 31, 2007 and 2006, the Company reimbursed Clarus
      Corporation (“Clarus”) an aggregate of $45 thousand and less than $1 thousand
      for telecommunication, professional and general office expenses which Clarus
      incurred on behalf of the Company. Warren B. Kanders, our Non-Executive
      Chairman, also serves as the Executive Chairman of Clarus.





On
      April
      21, 2004, the Company closed on an investment into the Company by Olden
      Acquisition LLC (“Olden”) , an
      affiliate of Kanders & Company, Inc., for
      the
      purpose of initiating a strategy to redeploy the Company’s assets and use the
      Company’s cash, cash equivalent assets and marketable securities to enhance
      stockholder value. The Company issued and sold to Olden a 2% ten-year
      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 Company 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 $2.5 million
      before transaction costs of $0.3 million. 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
      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 $0.1 million to the beneficial conversion feature and amortized the
      beneficial conversion feature over one year (the period after which the note
      is
      convertible). As of December 31, 2006, zero remains to be amortized of the
      note
      discount due to the beneficial conversion feature. 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. As of March 31, 2007 and December 31, 2006, respectively the
      outstanding balance on the note payable amounted to $2.5 million and is
      classified as long-term debt.




12




**Note
      13. Acquisition**





On
      October 3, 2006, the Company, through its wholly-owned subsidiary, SIG
      Acquisition Corp. (“SIG”), acquired the assets of CRC Acquisition Co. LLC
      (“CRC”), a manufacturer of steel counterweights doing business as Concord Steel
      (“Concord”). Concord is one of the nation’s leading independent manufacturers of
      steel counterweights that are incorporated into a variety of industrial
      equipment including aerial work platforms, cranes, elevators and material
      handling equipment. As a result, the Concord business is considered to be a
      predecessor company (“Predecessor”). Accordingly, relevant financial information
      regarding the Predecessor has been presented.





The
      acquisition was accounted for under the purchase method of accounting with
      assets acquired and liabilities assumed recorded at their estimated fair values.
      Accordingly, the results of operations of Concord are included in the Company’s
      statement of operations since the date of acquisition. Goodwill was generated
      to
      the extent that the purchase price consideration exceeded the fair value of
      net
      assets acquired.





The
      total
      purchase price of the acquisition was $45.3 million, including transaction
      costs
      of approximately $3 million. In addition, CRC invested $3.0 million of their
      proceeds from the sale of CRC to purchase 3,529,412 unregistered shares of
      the
      common stock of the Company at the closing price per share of $0.85. Such shares
      are subject to a six-month lock-up agreement and a registration rights agreement
      containing customary “demand” and “piggyback” registration rights. In addition,
      pursuant to the purchase agreement, a final working capital adjustment of $0.5
      million was returned to SIG as the opening balance sheet working capital was
      reconciled with CRC.




13





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




**Forward-Looking
      Statements**





This
      report on Form 10-Q 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
      forward-looking 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 inability to implement our
      acquisition growth strategy and integrate and successfully manage any businesses
      that we acquire, our inability to continue to generate revenues at historic
      levels in our newly acquired operating divisions, changes in the demand for
      counterweights, changes in the elevator or construction industries and to use
      our net operating loss carry forward, and the risks and uncertainties set forth
      in the section headed “Risk Factors” of Part I, Item 1A of our Annual Report on
      Form 10-K, for the fiscal year ended December 31, 2006 and described below.
      The
      Company cannot guarantee its future performance. We cannot assure you that
      we
      will be successful in the implementation of our growth strategy or that any
      such
      strategy will result in Net Perception’s future profitability. Our failure to
      successfully implement our growth strategy could have a material adverse effect
      on the market price of our common stock and our business, financial condition
      and results of operations.





References
      in this report to “Net Perceptions,” the “Company,” “we,” “our” and “us” refer
      to Net Perceptions, Inc. and, if so indicated or the context requires, includes
      our wholly-owned subsidiary, SIG Acquisition Corp. (which is doing business
      as
      Concord Steel and is referred to in this report as “Concord”).




**OVERVIEW**





In
      2004
      the Company ceased previous operations as a developer of marketing solutions
      software. On October 3, 2006, as a result of Net Perceptions’, through SIG
      Acquisition Corp. (“SIG”), its wholly-owned subsidiary, acquisition of the
      assets of CRC Acquisition Co., LLC (“CRC”), a manufacturer of steel
      counterweights, CRC is considered to be the Predecessor from an accounting
      treatment perspective, and therefore, Net Perceptions’ consolidated results for
      the three months ended March 31, 2007 have been compared with the combined
      results of Net Perceptions’ results for the three months ended March 31, 2006
      and CRC for the three months ended March 31, 2006 and relevant and prior year
      financial information regarding CRC is presented herein.





The
      following management’s discussion and analysis of financial condition and
      results of operations of Net Perceptions and its Predecessor should be read
      in
      conjunction with the historical financial statements and footnotes of Net
      Perceptions included elsewhere in this report and of CRC as Predecessor,
      included in the Company’s 2006 Annual Report on Form 10-K filed with the
      Securities and Exchange Commission. Our future results of operations may change
      materially from the historical results of operations reflected in Net
      Perceptions’, and the Predecessors’, historical financial statements.





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




14




**Consolidated
      Operating Results for the Three Months Ended March 31, 2007 Compared to Combined
      Three Months Ended March 31, 2006**





For
      the
      purpose of management’s discussion and analysis of financial condition and
      results of operations, we have compared the Company’s consolidated results for
      the three months ended March 31, 2007 to the Company’s results of operations for
      the three months ended March 31, 2006 combined with that of the Predecessor
      for
      the three months ended March 31, 2006 (“Combined”). Management believes that
      this provides the most meaningful analysis of the Company’s results for the
      three months ended March 31, 2007 and 2006. No proforma adjustments have been
      included in the table below. Our future operating results may change materially
      from the historical results of operations reflected in the Company’s and the
      Predecessor’s historical financial statements.


**NET
                  PERCEPTIONS, INC.****CONSOLIDATED
                  STATEMENTS OF OPERATIONS (UNAUDITED)****(in
                  thousands, except per share
                  amounts)**
  **Net
                  Perceptions**
                **Three
                  Months Ended**
                **March
                  31,**
                **2007**
              
              **Net
                  Perceptions**
                **Three
                  Months Ended**
                **March
                  31,**
                **2006**
              
              **Predecessor
                  Company**
                **Three
                  Months Ended**
                **March
                  31, 2006**
              
              **Combined
                  Total**
              
              **Variance****(1)**Revenues:Product
              
              $
              27,904
              
              $
              —
              
              $
              18,168
              
              $
              18,168
              
              $
              9,736Service,
                  maintenance and royalty
              
              
              —
              
              
              19
              
              
              —
              
              
              19
              
              
              (19
              )Total
                  revenues
              
              
              27,904
              
              
              19
              
              
              18,168
              
              
              18,187
              
              
              9,717Cost
                  of revenues:Product
              
              
              22,566
              
              
              —
              
              
              14,368
              
              
              14,368
              
              
              8,198Total
                  cost of revenues
              
              
              22,566
              
              
              —
              
              
              14,368
              
              
              14,368
              
              
              8,198Gross
                  margin
              
              
              5,338
              
              
              19
              
              
              3,800
              
              
              3,819
              
              
              1,519Operating
                  expenses:Sales
                  and marketing
              
              
              372
              
              
              —
              
              
              248
              
              
              248
              
              
              124General
                  and administrative
              
              
              2,857
              
              
              88
              
              
              466
              
              
              554
              
              
              2,303Total
                  operating expenses
              
              
              3,229
              
              
              88
              
              
              714
              
              
              802
              
              
              2,427Income
                  (loss) from operations
              
              
              2,109
              
              
              (69
              )
              
              3,086
              
              
              3,017
              
              
              (908
              )Other
                  income (expense):Interest
                  income
              
              
              6
              
              
              159
              
              
              —
              
              
              159
              
              
              (153
              )Interest
                  expense
              
              
              (671
              )
              
              (13
              )
              
              (155
              )
              
              (168
              )
              
              (503
              )Other
                  expense
              
              
              (122
              )
              
              (16
              )
              
              (91
              )
              
              (107
              )
              
              (15
              )Total
                  other income (expense), net
              
              
              (787
              )
              
              130
              
              
              (246
              )
              
              (116
              )
              
              (671
              )Income
                  before taxes
              
              
              1,322
              
              
              61
              
              
              2,840
              
              
              2,901
              
              
              (1,579
              )Provision
                  for income taxes
              
              
              570
              
              
              —
              
              
              62
              
              
              62
              
              
              508Net
                  income
              
              $
              752
              
              $
              61
              
              $
              2,778
              
              $
              2,839
              
              $
              (2,087
              )





(1)
      Variance represents the difference between consolidated results of operations
      for the three months ended March 31, 2007 and Combined Total for the three
      months ended March 31, 2006 and has been presented to assist the reader in
      evaluating our financial statements.





REVENUES





Revenue
      increased $9.7 million or 53.4% to $27.9 million for the three months ended
      March 31, 2007 as compared to $18.2 million for the Combined three months ended
      March 31, 2006. The increase of $9.7 million is primarily due to higher sales
      volume resulting from increased demand for our products from existing customers
      of approximately $8.3 million, as a result of increased spending in the
      commercial and industrial construction, and infrastructure building end markets,
      increased demand in the elevator market and theatrical market for $0.5 million
      and an increase in scrap metal sales of $0.9 million.





GROSS
      MARGIN





Gross
      margin as a percentage of sales decreased to 19.1% for the three months ended
      March 31, 2007 as compared to 21.0% for the Combined three months ended March
      31, 2006. The 9.0% decrease in margin was due to additional outside fabrication
      costs offset by sales volume increases.





OPERATING
      EXPENSES





Operating
      expenses for the three months ended March 31, 2007 increased $2.4 million or
      300.0% to $3.2 million as compared to $0.8 million for the Combined three months
      ended March 31, 2006.




15




*Sales
      and marketing* .
      Sales
      and marketing expenses consisted primarily of freight costs, salaries, other
      employee-related costs, commissions and other incentive compensation, travel
      and
      entertainment and expenditures for marketing programs such as collateral
      materials, trade shows, public relations and creative services. For the three
      months ended March 31, 2007, sales and marketing expenses increased $0.2 million
      or 100.0% to $0.4 million as compared to $0.2 million for the Combined three
      months ended March 31, 2006. The increase is primarily the result of increased
      freight costs related to increased revenues and an increase in employee related
      expenses.





*General
      and administrative* *.* General
      and administrative expenses consist primarily of employee compensation,
      insurance, legal, accounting and other professional fees as well as public
      company expenses such as transfer agent expenses. For the three months ended
      March 31, 2007, general and administrative expenses increased $2.3 million
      or
      367.0% to $2.9 million as compared to $0.6 million for the Combined three months
      ended March 31, 2006. The increase is primarily the result of increases in
      consulting expenses of $0.3 million which relate to the Kanders & Company
      service and stock fee agreements (see note 12 to the consolidated financial
      statements for further discussion), amortization of intangible assets of $0.3
      million related to the acquisition of Concord, deferred compensation expenses
      of
      $0.7 million, employee related expenses of $0.3 million, professional fees
      of
      $0.5 million and other general expenses of $0.2 million.





*Interest
      income.* Interest
      income was $0 for the three months ended March 31, 2007 compared to interest
      income of $0.2 million for the Combined three months ended March 31, 2006.
      The
      primary reason for the decrease is due to the decrease in marketable securities
      which were used to help fund the acquisition of Concord.





*Interest
      expense.* Interest
      expense was $0.7 million for the three months ended March 31, 2007 compared
      to
      interest expense of $0.2 million for the Combined three months ended March
      31,
      2006. The primary reason for the increase is attributable to interest costs
      associated with borrowings incurred to finance the purchase of
      Concord.





PROVISION
      FOR INCOME TAXES





For
      income tax purposes, the Company has available federal net operating loss
      carry-forwards of approximately $123.6 million and research and development
      credit carry-forwards of approximately $0.2 million at March 31, 2007. The
      net
      operating loss and research and development credit carry-forwards expire in
      2011
      through 2026 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. The recognition of a valuation allowance for deferred taxes
      requires management to make estimates about the Company’s future profitability.
      The estimates associated with the valuation of deferred taxes are considered
      critical due to the amount of deferred taxes recorded on the consolidated
      balance sheet and the judgment required in determining the Company’s future
      profitability. Deferred tax assets were $7.4 million and $8.1 million at March
      31, 2007 and December 31, 2006, respectively, net of a valuation allowance
      of
      $35.2 million and $34.9 million, respectively.





LIQUIDITY
      AND CAPITAL RESOURCES





**Liquidity**





In
      connection with the Company’s, through SIG, its wholly-owned subsidiary,
      acquisition of the assets of CRC, a manufacturer of steel counterweights, SIG entered
      into a senior secured credit facility (the “Credit Agreement”) with LaSalle Bank
      National Association, as administrative agent (the “Agent”) and the lenders
      party thereto.





The
      Credit Agreement establishes a commitment to SIG to provide up to $40.0 million
      in the aggregate of loans and other financial accommodations consisting of
      (i) a
      five-year senior secured term loan in an aggregate principal amount of $28.0
      million (ii) a five year senior secured revolving credit facility in the
      aggregate principal amount of $10.0 million (the “Revolving Facility”) and (iii)
      a five-year senior secured capital expenditure facility in the aggregate
      principal amount of $2.0 million. The Revolving Facility is further subject
      to a
      borrowing base consisting of up to 85% of eligible accounts receivable and
      up to
      55% of eligible inventory. The Revolving Facility includes a sublimit of up
      to
      an aggregate amount of $5.0 million in letters of credit and a sublimit of
      up to
      an aggregate amount of $2.5 million in swing line loans. The capital expenditure
      facility permits the Company to draw funds for the purchase of machinery and
      equipment during the 6-month period ending March 3, 2007, and then converts
      into
      a 4.5-year term loan. Immediately following the closing of the Concord
      acquisition, the Company drew down approximately $31.3 million and had
      additional availability under the Revolving Facility of approximately $6.7
      million. There were no amounts drawn under the capital expenditure facility
      at
      the time of closing of the credit facility nor were there any amounts drawn
      down
      prior to March 3, 2007. The
      capital expenditure facility expired on March 3, 2007.  At
      March
      31, 2007 and December 31, 2006, respectively, the outstanding balance from
      the
      revolving credit facility amounted to $3.3. At March 31, 2007 the Company had
      $5.1 million available in additional borrowings net of $1.6 million in
      outstanding letters of credit. The balance under the term loan at March 31,
      2007
      and December 31, 2006 was $26.5 million and $28.0 million, respectively. At
      March 31, 2007 the Company had $4.0 million classified as current and $22.5
      million classified as long-term .
      During
      the period ended March 31, 2007 the Company was in compliance with all covenants
      under the credit facility.




16




Borrowings
      under the Credit Agreement will bear interest, at the Company’s election, at
      either (i) a rate equal to London
      Interbank Offer Rate (“LIBOR”) ,
      plus an
      applicable margin ranging from 1.25% to 2.5%, depending on certain conditions,
      or (ii) an alternate base rate which will be the greater of (a) the Federal
      Funds rate plus 0.5% or (b) the prime rate publicly announced by the Agent
      as
      its prime rate, plus, in both cases, an applicable margin ranging from 0% to
      1.0%, depending on certain conditions. At March 31, 2007 and December 31, 2006,
      respectively, the applicable interest rate for the outstanding borrowings under
      the Credit Agreement was 7.86% and 7.87%.





The
      Credit Agreement is guaranteed by the Company and its direct and indirect
      subsidiaries and is secured by, among other things, (a) (i) all of the equity
      interests of SIG’s subsidiaries and (ii) a pledge of all of the issued and
      outstanding shares of stock of SIG by Net Perceptions and (b) a first priority
      perfected security interest on substantially all the assets of the Company
      and
      its direct and indirect subsidiaries pursuant to a guaranty and collateral
      agreement dated October 3, 2006 and delivered in connection with the Credit
      Agreement (the “Guaranty Agreement”). In addition, LaSalle acting as the Agent,
      for the benefit of the lenders, has a mortgage on all owned real estate of
      the
      Company and its direct and indirect subsidiaries, as well as deposit account
      control agreements with respect to funds on deposit in bank accounts of the
      Company and its direct and indirect subsidiaries.





The
      Company is exposed to interest rate volatility with regard to existing issuances
      of variable rate debt. Primary exposure includes movements in the U.S. prime
      rate and LIBOR. The Company uses interest rate swaps to reduce interest rate
      volatility. On January 2, 2007, the Company entered into an interest rate
      protection agreement that has approximately $14 million of interest rate swaps
      fixing interest rates between 5.0% and 5.8%.





On
      April
      21, 2004, the Company closed on an investment into the Company by Olden
      Acquisition LLC (“Olden”) , an
      affiliate of Kanders & Company, Inc., for
      the
      purpose of initiating a strategy to redeploy the Company’s assets and use the
      Company’s cash, cash equivalent assets and marketable securities to enhance
      stockholder value. The Company issued and sold to Olden a 2% ten-year
      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 Company 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 $2.5 million
      before transaction costs of $0.3 million. 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
      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 $0.1 million to the beneficial conversion feature and amortized the
      beneficial conversion feature over one year (the period after which the note
      is
      convertible). As of December 31, 2005, zero remained to be amortized of the
      note
      discount due to the beneficial conversion feature. Also in connection with
      this
      transaction, the Company entered into a Registration Rights Agreement (the
      “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. As of March 31, 2007 and December 31, 2006,
      respectively, the outstanding balance on the note payable amounted to $2.5
      million and is classified as long-term debt.





**Operating
      Activities**





Net
      cash
      used in operating activities was $0.8 million for the three months ended March
      31, 2007, reflecting net income of $0.8 million, depreciation and amortization
      of $0.6 million, a deferred tax provision of $0.4 million, non-cash deferred
      stock-based compensation expenses of $ 0.7 million offset by the impact of
      changes in working capital of $3.3 million. The change in working capital is
      primarily due to the timing difference between increased revenues generated
      and
      cash collections. Net cash used in operating activities was $0 for the three
      months ended March 31, 2006, reflecting net income of $0.1 million primarily
      offset by amortization of $0.1 million. Net cash provided by operating
      activities for the Predecessor was $3.5 million for the three months ended
      March
      31, 2006, reflecting net income of $2.8 million, which includes depreciation
      expense of $0.1 million and a change in working capital of 0.6
      million.




17




**Investing
      Activities**





Net
      cash
      used in investing activities was $0.7 million for the three months ended March
      31, 2007, primarily resulting from the purchase of machinery and equipment.
      Net
      cash provided by investing activities for the three months ended March 31,
      2006
      was due to the maturity of marketable securities primarily offset by the
      purchase of marketable securities. Net cash used in investing activities for
      the
      Predecessor was $0.3 million for the three months ended March 31, 2006,
      resulting from capital expenditures.





**Financing
      Activities**





Net
      cash
      used in financing activities was $1.5 million for the three months ended March
      31, 2007. The net cash was used for an early pay down on long-term debt of
      $1.5
      million. There was no cash used or provided by financing activities for the
      three months ended March 31, 2006. Net cash used in financing activities for
      the
      Predecessor was $4.0 million for the three months ended March 31, 2006,
      resulting from proceeds from a line of credit which were more than offset by
      distributions to members.





We
      believe that our current cash on hand together with the Company’s revolving
      credit facility and cash from operations will be sufficient to meet our expected
      working capital needs for at least the next twelve months.




**Capital
      Expenditures**




The
      Company anticipates capital expenditures, excluding acquisitions, of $2.2
      million for the remainder of fiscal 2007. The Company expects capital
      expenditures will be funded from cash generated by operations and its revolving
      credit facility. The primary driver of increased capital expenditures in 2007
      is
      related to the machinery and equipment for the new Essington, Pennsylvania
      manufacturing facility.





RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, Fair Value Measurements, (FAS 157”) and No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities, (“FAS 159”). These Standards define
      fair value, establishes a framework for measuring fair value under generally
      accepted accounting principles and expands disclosures about fair value
      measurement. FAS 157 and FAS 159 are effective for financial statements issued
      for fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. The adoption of FAS 157 and FAS 159 are not expected to
      have
      a material impact on the Company’s financial position, results of operations and
      cash flows.





In
      July
      2006, the Financial Accounting Standards Board (‘‘FASB’’) issued FASB
      Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”).
      This Interpretation prescribes a recognition threshold and measurement attribute
      for the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return. This Interpretation also provides
      guidance on derecognition, classification, interest and penalties, accounting
      interim periods, disclosure, and transition. The Company adopted the provisions
      of FIN 48 on January 1, 2007. The potential impact of FIN 48 on the Company’s
      financial position is discussed in Note 8 to the financial
      statements .




**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk**





The
      Company’s primary exposure to market risk is interest rate risk associated with
      our senior credit facilities. The
      Company has a long-term credit facility that bears interest, at the Company’s
      election, at either (i) a rate equal to three month variable London
      Interbank Offer Rate (“LIBOR”) ,
      plus an
      applicable margin ranging from 1.25% to 2.5%, depending on certain conditions,
      or (ii) an alternate base rate which will be the greater of (a) the Federal
      Funds rate plus 0.5% or (b) the prime rate publicly announced by the Agent
      as
      its prime rate, plus, in both cases, an applicable margin ranging from 0% to
      1.0%, depending on certain conditions. At March 31, 2007, the applicable
      interest rate for the outstanding borrowings under the Credit Agreement was
      7.9%.




18




The
      Company is exposed to interest rate volatility with regard to existing issuances
      of variable rate debt. Primary exposure includes movements in the United States
      prime rate and LIBOR. The Company uses interest rate swaps to reduce interest
      rate volatility. On January 2, 2007, the Company entered into an interest rate
      protection agreement that has approximately $14 million of interest rate swaps
      fixing interest rates between 5.0% and 5.8%.





The
      Company does not have any derivative financial instruments and do not hold
      any
      such instruments for trading purposes.





**Item
      4. Controls and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





The
      Company’s Chief Executive Officer and Chief Financial Officer, its principal
      executive officer and principal financial officer, respectively, carried out
      an
      evaluation, of the effectiveness 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 March 31, 2007, pursuant to Exchange Act Rule 13a-15. Such disclosure
      controls and procedures are designed to ensure that information required to
      be
      disclosed by the Company is accumulated and communicated to the appropriate
      management on a basis that permits timely decisions regarding disclosure. Based
      upon that evaluation, the Company’s Chief Executive Officer and Chief Financial
      Officer concluded that the Company’s disclosure controls and procedures as of
      March 31, 2007 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 March 31, 2007
      evaluation that have materially affected, or are reasonable likely to materially
      affect the Company’s internal control over financial reporting.




19





**PART
      II. OTHER INFORMATION**







**Item
      1A.**  **Risk
      Factors**




There
      are
      no material changes to the risk factors disclosed in the factors discussed
      in
“Risk Factors” in Part I, Item 1A of the Company’s Annual Report on Form
      10-K for the year ended December 31, 2006, which could materially affect
      the Company’s business, financial condition or future results. The risks
      described in the Company’s Annual Report on Form 10-K are not the only risks
      facing the Company. Additional risks and uncertainties not currently known
      to
      the Company or that the Company currently deems to be immaterial also may
      materially adversely affect the Company’s business, financial condition and/or
      operating results.




20





**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
  21




**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:
              May 10, 2007
            
            By: /s/
              Albert W. Weggeman Jr.Albert W. Weggeman, Jr.*President
              and
              Chief Executive Officer*By: /s/
              Jonathan LaBarreJonathan LaBarre*Chief Financial Officer, Secretary and
              Treasurer*





22





**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
  23