**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 September 30, 2006**


**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 o





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 o Accelerated
      filer o 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 o NO x





**As
      of November 3, 2006, there were outstanding 32,608,167 shares of the
      registrant’s Common Stock, $0.0001 par value.**










**NET
      PERCEPTIONS, INC.**


FORM
      10-Q


For
      the
      Quarter Ended September 30, 2006







**TABLE
      OF CONTENTS**










******Page****PART
                I. FINANCIAL INFORMATION**Item
                1.    Financial StatementsConsolidated
                Balance Sheets as of September 30, 2006 and December 31,
                2005
            1Consolidated
                Statements of Operations for the Three and Nine Months Ended September
                30,
                2006 and 2005
            2Consolidated
                Statements of Cash Flows for the Nine Months Ended September 30,
                2006and
                2005
            3Notes
                to the Consolidated Financial Statements
            4Item
                2.    Management’s Discussion and Analysis of Financial
                Condition and Results of Operations
            12Item
                3.    Quantitative and Qualitative Disclosures about Market
                Risk
            19Item
                4.    Controls and Procedures
            19**PART
                II. OTHER INFORMATION**Item
                1A. Risk Factors
            20Item
                6.   Exhibits
            24**SIGNATURES**
            26**EXHIBIT
                INDEX**
            27










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




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





**NET
      PERCEPTIONS, INC.**





CONSOLIDATED
      BALANCE SHEETS


(in
      thousands)







September
                30,
              2006
            
            December
                31,
              2005(Unaudited)**Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            14,569
            
            $
            203Marketable
                securities
            
            
            --
            
            
            14,659Prepaid
                expenses and other current assets
            
            
            74
            
            
            123Total
                current assets
            
            
            14,643
            
            
            14,985Property
                and equipment, net
            
            
            2
            
            
            --Other
                assets
            
            
            516
            
            
            210Total
                assets
            
            $
            15,161
            
            $
            15,195**Liabilities
                and Stockholders’ Equity**Current
                liabilities:Accounts
                payable and accrued liabilities
            
            $
            349
            
            $
            267Total
                current liabilities
            
            
            349
            
            
            267Accrued
                interest payable
            
            
            126
            
            
            87Note
                payable
            
            
            2,533
            
            
            2,533Total
                liabilities
            
            
            3,008
            
            
            2,887Commitments
                and contingenciesStockholders’
                equity:Common
                stock
            
            
            3
            
            
            2Additional
                paid-in capital
            
            
            241,854
            
            
            234,400Unearned
                stock compensation
            
            
            --
            
            
            (108
            )Accumulated
                other comprehensive income (loss)
            
            
            2
            
            
            (4
            )Accumulated
                deficit
            
            
            (229,706
            )
            
            (221,982
            )Total
                stockholders’ equity
            
            
            12,153
            
            
            12,308Total
                liabilities and stockholders’ equity
            
            $
            15,161
            
            $
            15,195







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
            
            Nine
                Months EndedSeptember
                30,
            
            September
                30,**2006**
            
            **2005**
            
            **2006**
            
            **2005**Revenues:Service,
                maintenance and royalties
            
            $
            --
            
            $
            17
            
            $
            20
            
            $
            60Total
                revenues
            
            
            --
            
            
            17
            
            
            20
            
            
            60Cost
                of revenues:Service
                and maintenance
            
            
            --
            
            
            --
            
            
            --
            
            
            --Total
                cost of revenues
            
            
            --
            
            
            --
            
            
            20
            
            
            --Gross
                margin
            
            
            --
            
            
            17
            
            
            20
            
            
            60Operating
                expenses:General
                and administrative
            
            
            219
            
            
            108
            
            
            568
            
            
            277Related
                party stock compensation
            
            
            7,542
            
            
            --
            
            
            7,542
            
            
            --(Gain)
                loss on litigation settlement
            
            
            --
            
            
            5
            
            
            --
            
            
            (224
            )Transaction
                expenses
            
            
            16
            
            
            --
            
            
            66
            
            
            --Total
                operating expenses
            
            
            7,777
            
            
            113
            
            
            8,176
            
            
            53Operating
                (loss) income
            
            
            (7,777
            )
            
            (96
            )
            
            (8,156
            )
            
            7Other
                income (expense):Interest
                income
            
            
            184
            
            
            125
            
            
            519
            
            
            312Interest
                expense
            
            
            (13
            )
            
            (13
            )
            
            (39
            )
            
            (55
            )Other
                income (expense), net
            
            
            (15
            )
            
            2
            
            
            (48
            )
            
            74Total
                other income (expense), net
            
            
            156
            
            
            114
            
            
            432
            
            
            331Net
                (loss) income
            
            $
            (7,621
            )
            $
            18
            
            $
            (7,724
            )
            $
            338Net
                (loss) income per share:Basic
            
            $
            (0.25
            )
            $
            0.00
            
            $
            (0.26
            )
            $
            0.01Diluted
            
            $
            (0.25
            )
            $
            0.00
            
            $
            (0.26
            )
            $
            0.01Shares
                used in computing basic and diluted net (loss) income per
                share:Basic
            
            
            29,908
            
            
            28,918
            
            
            29,320
            
            
            28,918Diluted
            
            
            29,908
            
            
            34,894
            
            
            29,320
            
            
            32,987





See
      accompanying notes to the consolidated financial statements.




2





**NET
      PERCEPTIONS, INC.**





CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Unaudited,
      in thousands)







Nine
                Months Ended
              September
                30,2006
            
            2005**Cash
                flows from operating activities:**Net
                (loss) income
            
            $
            (7,724
            )
            $
            338Reconciliation
                of net (loss) income to net cash (used in) provided by operating
                activities:Amortization
                of debt issuance costs
            
            
            22
            
            
            21Amortization
                of discount on debt
            
            
            --
            
            
            16Stock-based
                compensation
            
            
            77
            
            
            57Related
                party stock compensation
            
            
            7,542
            
            
            --Accretion
                of discounts on securities, net
            
            
            (353
            )
            
            (64
            )Changes
                in assets and liabilities:Prepaid
                expenses and other current assets
            
            
            49
            
            
            (54
            )Accounts
                payable and accrued liabilities
            
            
            65
            
            
            (42
            )Other
                assets
            
            
            (30
            )
            
            --Net
                cash (used in) provided by operating activities
            
            
            (352
            )
            
            272**Cash
                flows from investing activities:**Proceeds
                from sale of marketable securities
            
            
            2,848
            
            
            --Proceeds
                from maturity of marketable securities
            
            
            26,585
            
            
            --Purchase
                of marketable securities
            
            
            (14,415
            )
            
            (11,367
            )Purchases
                of property and equipment
            
            
            (2
            )
            
            --Capitalized
                direct business acquisition costs
            
            
            (298
            )
            
            --Net
                cash provided by (used in) investing activities
            
            
            14,718
            
            
            (11,367
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            14,366
            
            
            (11,095
            )Cash
                and cash equivalents at beginning of period
            
            
            203
            
            
            14,444Cash
                and cash equivalents at end of period
            
            $
            14,569
            
            $
            3,349SUPPLEMENTAL
                DISCLOSURE:Deferred
                compensation
            
            $
            77
            
            
            56Restricted
                stock
            
            
            (56
            )
            
            50Related
                party stock compensation
            
            
            7,542
            
            
            50Cash
                paid for taxes
            
            
            132
            
            
            2







See
      accompanying notes to the consolidated financial statements.




3




NET
      PERCEPTIONS, INC.





NOTES
      TO
      THE CONSOLIDATED FINANCIAL STATEMENTS


(dollars
      in thousands, except per share amounts)








**Note
      1. 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 and nine months ended September 30, 2006 and
      2005, have been prepared in accordance with accounting principles generally
      accepted 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 accounting principles generally accepted 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 and nine months ended September 30,
      2006
      are not necessarily indicative of the results to be obtained for the year ending
      December 31, 2006. 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, 2005, filed with the Securities and Exchange
      Commission on March 31, 2006.





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 reclassed to conform with
      current period presentation.





**Note
      2. Stock-based compensation**




On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123 (revised 2004), “Share-Based Payment” (“FAS 123R”), requiring
      recognition of expense related to the fair value of stock option awards. The
      Company recognizes the cost of the share-based awards on a straight-line basis
      over the requisite service period of the award. Prior to January 1, 2006, the
      Company accounted for stock option plans under the recognition and measurement
      provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock
      Issued to Employees” (“APB 25”) and related interpretations, as permitted by
      Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based
      Compensation” (“SFAS 123”). Effective January 1, 2006, the Company adopted the
      fair value provisions of FAS 123R, using the modified prospective transition
      method. Under this transition method, compensation cost recognized during the
      first nine months of 2006 includes compensation cost for all share-based
      payments granted prior to, but not yet vested as of January 1, 2006, based
      on
      the grant date fair value estimated in accordance with the original provisions
      of SFAS 123. Results for prior periods have not been restated.





We
      will
      continue to estimate the fair value of our option awards granted after January
      1, 2006, using a Black-Scholes option pricing model. No options were granted
      during the three- or nine-month periods ended September 30, 2006. As of
      September 30, 2006, there were 143 unvested shares and compensation expense
      of
      $5 was recognized from these unvested stock options. The remaining compensation
      expense for these unvested options is $75 as of September 30, 2006. The expected
      life of the options granted is management’s estimate and represents the period
      of time that options granted are expected to be outstanding. We currently do
      not
      pay dividends. Volatility is based on the historical volatility of our stock
      price. The risk-free interest rate for periods within the contractual life
      of
      the option is based on the U.S. Treasury yield curve in effect at the time
      of
      grant. The fair value of each option grant during the nine months ended
      September 30, 2005 is estimated on the date of grant with the following
      weighted-average assumptions:


Expected
                  life of option
              
              
              5
                  yearsDividend
                  yield
              
              
              0.0
              %Volatility
              
              
              57.0
              %Risk
                  free interest rate
              
              
              4.0
              %




4




The
      weighted average fair value of options granted during the nine months ended
      September 30, 2005 is as follows:


Fair
                  value of each option grant
              
              $
              0.39Total
                  number of options granted
              
              
              65Total
                  fair value of all options granted
              
              $
              25




Outstanding
      options, consisting of incentive and non-qualified stock options, generally
      vest
      and become exercisable over a one- to three-year period from the date of grant.
      The outstanding options generally expire ten years from date of grant or upon
      retirement from the Company and are contingent upon continued employment during
      the applicable ten-year period. The following assumptions were utilized under
      FAS 123R for the outstanding options as of September 30, 2006:


Expected
                  life of options
              
              
              5.40
                  yearsDividend
                  yield
              
              
              0.0
              %Volatility
              
              
              52.8
              %Risk
                  free interest rate
              
              
              3.4
              %Fair
                  value of each option grant
              
              $
              0.28




The
      following table shows what the effect on net income and income per share if
      we
      had applied the fair value recognition provisions of SFAS 123, to options
      granted under our stock option plans during the three- and nine-month periods
      ended September 30, 2005. For purposes of this pro forma disclosure, the value
      of the options is amortized to expense on a straight-line basis over the vesting
      period and forfeitures are recognized as they occur.





Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30, 2005
            
            September
                30, 2005Net
                income, as reported
            
            $
            18
            
            $
            338Add:
                Stock-based employee compensation expense included in reported net
                income
            
            
            21
            
            
            57Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards
            
            
            (23
            )
            
            (69
            )Pro
                forma net income
            
            $
            16
            
            $
            326Net
                income per share:BasicAs reported
            
            $
            0.00
            
            $
            0.01Pro forma
            
            $
            0.00
            
            $
            0.01DilutedAs reported
            
            $
            0.00
            
            $
            0.01Pro forma
            
            $
            0.00
            
            $
            0.01




5


A
      summary
      of the status of stock option grants as of September 30, 2006, and changes
      during the nine months ended September 30, 2006, is presented
      below:





WeightedAverageOptions
              
              Exercise
                  PriceOutstanding
                  at December 31, 2005
              
              
              321
              
              $
              0.68Granted
              
              
              --
              
              
              --Exercised
              
              
              --
              
              
              --Forfeited
              
              
              --
              
              
              --Outstanding
                  at September 30, 2006
              
              
              321
              
              $
              0.68Options
                  exercisable at September 30, 2006
              
              
              178
              
              $
              0.65


The
      following table summarizes information about stock options outstanding as of
      September 30, 2006:


WeightedRemaining
                  Life
              
              AverageExercise
                  Price Range
              
              Outstanding
              
              Exercisable
              
              In
                  Years
              
              Exercise
                  Price$0.23
              
              
              6
              
              
              6
              
              
              4.50
              
              $
              0.23$0.48
              
              
              50
              
              
              50
              
              
              7.56
              
              $
              0.48$0.69
              
              
              100
              
              
              --
              
              
              9.11
              
              $
              0.69$0.74
                  - $0.75
              
              
              165
              
              
              122
              
              
              7.95
              
              $
              0.74Total
              
              
              321
              
              
              178
              
              
              7.28
              
              $
              0.65


Remaining
      non-exercisable options as of September 30, 2006, become exercisable as
      follows:


Remainder
                  of 2006
              322007
              552008
              56


The
      fair
      value of unvested shares is determined based on the market price of our shares
      on the grant date.




**Note
      3. Per Share Data**




Basic
      earnings per share is computed using net income (loss) and the weighted average
      number of common shares outstanding. Diluted earnings per share reflects the
      weighted average number of common shares outstanding plus any potentially
      dilutive shares outstanding during the period. Potentially dilutive shares
      consist of shares issuable upon the exercise of stock options, convertible
      notes
      and restricted stock awards. Diluted net loss per share does not differ from
      basic net loss per share since potential shares of common stock from conversion
      of stock options, convertible note and restricted stock are anti-dilutive for
      the three and nine months ended September 30, 2006. Shares used in the diluted
      net income (loss) per share for the three and nine months ended September 30,
      2006, exclude the impact of 57 and 28, respectively, common shares issuable
      upon
      the exercise of stock options, 5,628 common shares issuable upon the conversion
      of the convertible note and 151 and 141, respectively, common shares issuable
      pursuant to restricted stock awards.




Shares
      used in computing the diluted net income (loss) per share for the three and
      nine
      months ended September 30, 2005, include the impact of 67 and 60, respectively,
      common shares issuable upon the exercise of stock options, 5,628 and 3,752,
      respectively, common shares issuable upon the conversion of the convertible
      note
      and 281 and 257, respectively, common shares issuable pursuant to restricted
      stock awards.




6


Three
                  Months Ended September 30,
              
              Nine
                  Months Ended September 30,2006
              
              2005
              
              2006
              
              2005**Basic
                  earnings per share calculation:**Net
                  (loss) income
              
              $
              (7,621
              )
              $
              18
              
              $
              (7,724
              )
              $
              338Weighted
                  average common shares - basic
              
              
              29,908
              
              
              28,918
              
              
              29,320
              
              
              28,918Basic
                  net (loss) income per share
              
              $
              (0.25
              )
              $
              0.00
              
              $
              (0.26
              )
              $
              0.01**Diluted
                  earnings per share
                  calculation:**Net
                  (loss) income
              
              $
              (7,621
              )
              $
              18
              
              $
              (7,724
              )
              $
              338Weighted
                  average common shares - basic
              
              
              29,908
              
              
              28,918
              
              
              29,320
              
              
              28,918Effect
                  of dilutive stock options
              
              
              --
              
              
              67
              
              
              --
              
              
              60Effect
                  of restricted stock awards
              
              
              --
              
              
              281
              
              
              --
              
              
              257Effect
                  of convertible note
              
              
              --
              
              
              5,628
              
              
              --
              
              
              3,752Weighted
                  averagecommon shares diluted
              
              
              29,908
              
              
              34,894
              
              
              29,320
              
              
              32,987Diluted
                  net (loss) income per share
              
              $
              (0.25
              )
              $
              0.00
              
              $
              (0.26
              )
              $
              0.01
  **Note
        4. Commitments and Contingencies**





Contingencies





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





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.




7




On
      August
      31, 2005, the Court gave preliminary approval to a settlement reached by the
      plaintiffs and issuer defendants in the Coordinated Class Actions. A fairness
      hearing took place April 24, 2006, but the Court has not yet made a final
      determination whether to approve the settlement as fair, adequate and
      reasonable.  In the opinion of management, the ultimate disposition of this
      matter will not have a material effect on the Company’s financial position,
      results of operation or cash flows.





**Note
      5. Income Taxes**





The
      Company has incurred significant operating losses for all periods from inception
      through September 30, 2006. For income tax purposes, the Company has available
      federal net operating loss carryforwards of approximately $121,300 and research
      and development credit carryforwards of $151 at September 30, 2006. The net
      operating loss and research and development credit carryforwards expire in
      2011
      through 2022 if not previously utilized. The utilization of these carryforwards
      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, it is likely that this would limit the ability to use a significant
      portion of these carryforwards. Future tax benefits have not been recognized
      in
      the financial statements, as their utilization has not been considered more
      likely than not based on the weight of available information. See Note 13.
      Subsequent Events.





**Note
      6. Recently Issued Accounting Pronouncements**





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”),
      which provides interpretive guidance on the consideration of the effects of
      prior year misstatements in quantifying current year misstatements for the
      purpose of a materiality assessment. The Company must adopt SAB 108 in the
      fourth quarter of 2006. SAB 108 allows a one-time transitional cumulative effect
      adjustment to beginning retained earnings as of January 1, 2006 for errors
      that
      were not previously deemed material, but are material under the guidance in
      SAB
      108. The Company is currently evaluating the impact of adopting SAB 108.





**Note
      7. Gain on litigation settlement**





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





**Note
      8. Note Payable**





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




8




**Note
      9. Restricted Stock**





Effective
      September 22, 2006, the Company entered into a Restricted Stock Award Agreement
      (the "RSA Agreement") with Mr. David A. Jones, a director of the Company, and
      an
      identical agreement with Mr. Nicholas Sokolow, also a director of the Company.
      Under each agreement, the directors have been awarded 100,000 shares of
      restricted stock under the Company's 1999 Equity Incentive Plan, which vested
      immediately but are subject to prohibitions on transfer which expire in eight
      consecutive quarterly tranches of 12,500 shares each, commencing September
      30,
      2006 and expiring June 30, 2008. The aggregate value of the awards was $178,
      which was based upon the Company’s closing stock price of $0.89 per share on
      September 22, 2006, the date of the grant. The Company recorded compensation
      expense of $178 relating to the restricted stock during the three- and
      nine-month periods ended September 30, 2006.





On
      April
      1, 2005, Mr. Nigel Ekern, the Company’s Chief Administrative Officer, received a
      restricted stock grant of 66,667 shares of the Company’s common stock under the
      Company’s 1999 Equity Plan, having an aggregate value of $50 based upon the
      average stock price of the Company’s closing stock on such date of $0.75 per
      share. The shares underlying the grant vest in two years. On April 21, 2004,
      Mr.
      Ekern received a restricted stock grant of 364,583 shares of the Company’s
      common stock under the Company’s 1999 Equity Plan, having an aggregate value of
      $175 based upon the closing price of the Company’s common stock on such date of
      $0.48 per share. The shares underlying the grant vest over three years. The
      Company recorded compensation expense of $21 and $62 relating to the restricted
      stock during the three- and nine-month periods ended September 30, 2006,
      respectively. The Company recorded compensation expense of $21 and $57 relating
      to the restricted stock during the three- and nine-month periods ended September
      30, 2005, respectively.





**Note
      10. Equity Compensation Agreement**





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 current 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, par value $0.0001 per share (the “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 $7,364, which was based upon the Company’s closing stock
      price of $0.89 per share on September 22, 2006, the date of the grant. The
      Company recorded compensation expense of $7,364 relating to the grant of stock
      during the three- and nine-month periods ended September 30, 2006. ****Effective
      with the closing of the Concord Acquisition (as described in Note 13), 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.





**Note
      11. Consulting Agreement**





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 13) on
      October 3, 2006. As discussed above, 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.





9


The
      Consulting Agreement provides for Kanders & Company to receive a fee equal
      to (i) $500 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 $60,000, payable in shares of common stock
      of
      the Company 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.





**Note
      12. Related Party Transactions**





We
      occupy
      space made available to us by Kanders & Company, Inc., an entity owned and
      controlled by the Company's Non-Executive Chairman of the Board, Warren B.
      Kanders. This arrangement can be terminated at any time.





Certain
      telecommunication, professional and general office expenses are incurred on
      behalf of Net Perceptions by Clarus Corporation (“Clarus”). Warren B. Kanders,
      our Non-Executive Chairman of the Board, also serves as the Executive Chairman
      of the Board of Directors of Clarus. Such expenses aggregated $13 and under
      $1
      during each of the quarters ended September 30, 2006 and 2005, respectively;
      and
      $19 and $10 for the nine months ended September 30, 2006 and 2005,
      respectively.





As
      of
      September 30, 2006, the Company had an outstanding payable of $13 to Clarus.
      The
      amount due to Clarus is included in accounts payable and accrued liabilities
      in
      the accompanying consolidated balance sheet. The outstanding amount was paid
      in
      October 2006. As of December 31, 2005, the Company had an outstanding payable
      of
      $25 to Clarus. The amount due to Clarus is included in accounts payables and
      accrued liabilities in the accompanying consolidated balance sheet. The
      outstanding amount was paid in March 2006.





**Note
      13. Subsequent Events**





On
      September 22, 2006, the Company entered into an Asset Purchase Agreement (the
      “Purchase Agreement”) with CRC Acquisition Co., LLC (doing business as Concord
      Steel) (“Concord”) to acquire, through SIG Acquisition Corp. (“SIG”), a
      wholly-owned subsidiary, substantially all of the assets and to assume certain
      of the liabilities of Concord upon the terms and subject to the conditions
      contained in the Purchase Agreement (the “Concord Acquisition”). The aggregate
      purchase price for the Concord Acquisition is approximately $45,200, subject
      to
      certain adjustments as set forth in the Purchase Agreement.





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.





Simultaneously
      with the closing of the Concord Acquisition, which occurred on October 3, 2006,
      the Company entered into a $40,000 senior credit facility with a group of
      lenders led by LaSalle Bank National Association, and entered into employment
      agreements with certain executives of Concord. The Purchase Agreement included
      representations, covenants, seller non-competition arrangements **,** indemnification
      obligations and other customary provisions for transactions of this nature,
      and
      provided for $2,000 of the purchase price to be held in escrow to secure certain
      obligations of Concord. In addition, pursuant to the Purchase Agreement the
      seller reinvested $3,000 of its proceeds from the Concord Acquisition to
      purchase 3,529 unregistered shares of the common stock of the Company at the
      closing at a 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.





The
      Company paid for the Concord Acquisition through cash on hand and funds provided
      by the credit facility.





Prior
      to
      the execution of the Purchase Agreement, there was no material relationship
      between Concord, on the one hand, and the Company or any of its affiliates,
      or
      any director or officer of the Company, or any associate of any such director
      or
      officer, on the other hand.





10


On
      the
      closing date, SIG Acquisition Corp. (“SIG”), the wholly owned subsidiary of the
      Company, which made the Concord Acquisition, 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 $40,000 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 $28,000,
      (ii)
      a five year senior secured revolving credit facility in the aggregate principal
      amount of $10,000 (the “Revolving Facility”) and (iii) a five year senior
      secured capital expenditure facility in the aggregate principal amount of
      $2,000. 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 $5,000 in letters of credit and a sublimit of up to an aggregate
      amount of $2,500 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 $31,286 and had additional availability under the
      Revolving Facility of approximately $6,713. There were no amounts drawn under
      the capital expenditure facility at the time of closing of the credit
      facility.





Loans
      outstanding under the Credit Agreement are subject to mandatory prepayment
      under
      certain circumstances, including issuance of debt and equity securities by
      the
      Company or its subsidiaries (of 100% of the net cash proceeds received from
      any
      such issuances), sale or disposition of assets by the Company or its
      subsidiaries (of 100% of the net cash proceeds from any such sale or
      disposition), receipt of insurance proceeds due to certain losses (of 100%
      of
      such insurance proceeds under certain circumstances), or, under certain
      circumstances, 50% of any excess cash flows of the Company on a consolidated
      basis.





All
      borrowings under the Credit Agreement will bear interest, at the Company’s
      election, at either (i) a rate equal to 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. The applicable interest rate for the outstanding borrowings under
      the Credit Agreement is currently 7.87%.





The
      Credit Agreement is guaranteed by the Company and its current and future 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 current and future 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 Bank acting as the Agent, for the benefit of the lenders, has a mortgage
      on all owned real estate of the Company and its current and future 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 current
      and
      future direct and indirect subsidiaries.





11


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




**Forward-Looking
      Statements**





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





These
      and
      other statements, which are not historical facts, are based largely upon our
      current expectations and assumptions and are subject to a number of risks and
      uncertainties that could cause actual results to differ materially from those
      contemplated by such forward-looking statements. These risks and uncertainties
      include, among others, our planned effort to redeploy our assets and use our
      substantial cash, cash equivalent assets and marketable securities to enhance
      stockholder value following the sale of substantially of all our electronic
      commerce business, which represented substantially all of our revenue generating
      operations and related assets, and the risks and uncertainties set forth in
      the
      section headed "Factors That May Affect Our Future Results" of Part 1 of our
      Annual Report on Form 10-K, as amended, for the fiscal year ended December
      31,
      2005 and described below. The Company cannot guarantee its future performance.





**OVERVIEW**





**PRIOR
      TO SEPTEMBER 22, 2006, OUR PRINCIPAL STRATEGY, AS PREVIOUSLY ANNOUNCED, WAS
      TO
      REDEPLOY OUR ASSETS AND LIMIT OUR OPERATING LOSSES. ON SEPTEMBER 22, 2006,
      OUR
      WHOLLY OWNED SUDSIDIARY, SIG ACQUISITION CORPORATION, ENTERED INTO A PURCHASE
      AGREEMENT (“THE PURCHASE AGREEMENT”) WITH CRC ACQUISITION CO. LLC (“CRC”) TO
      PURCHASE SUBSTANTIALLY ALL OF CRC’S ASSETS USED IN THE MANUFACTURE OF INDUSTRIAL
      COUNTERWEIGHTS (“THE CONCORD ACQUISITION”). THE PURCHASE AGREEMENT CLOSED
      ON OCTOBER 3, 2006 AND THE COMPANY HAS THEREFORE REDEPLOYED SUBSTANTIALLY ALL
      ITS ASSETS. THE INFORMATION APPEARING BELOW IS THEREFORE NOT INDICATIVE OF
      THE
      RESULTS THAT MAY BE EXPECTED FOR ANY SUBSEQUENT PERIODS. THE THREE- AND
      NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2006 PRIMARILY REFLECT GENERAL AND
      ADMINISTRATIVE EXPENSES AND TRANSACTION EXPENSES ASSOCIATED WITH THE CONTINUING
      ADMINISTRATION OF THE COMPANY PRIOR TO THE REDPLOYMENT OF THE COMPANY’S ASSETS
      THAT WAS EFFECTED BY THE CLOSING OF THE PURCHASE AGREEMENT ON OCTOBER 3, 2006.
      THE DISCUSSION OF RISKS RELATING TO THE COMPANY’S NEW INDUSTRY AND
      BUSINESS AND OWNERSHIP OF OUR COMMON STOCK, AS SET FORTH IN PART II, ITEM
      1A OF THIS QUARTERLY REPORT AND AS SET FORTH IN PART I OF OUR ANNUAL REPORT
      ON
      FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005, SHOULD BE RECONSIDERED
      IN
      LIGHT OF THE COMPANY’S RECENT ACQUISITION OF CONCORD STEEL.**





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





CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES





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





12


A
      description of the Company’s critical accounting polices was provided in the
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations section of the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2005. There were no changes to these accounting policies
      during the quarter and period ended September 30, 2006 except for the adoption
      of FAS 123R.





On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123 (revised 2004), “Share-Based Payment” (“FAS 123R”), requiring
      recognition of expense related to the fair value of stock option awards. The
      Company recognizes the cost of the share-based awards on a straight-line basis
      over the requisite service period of the award. Prior to January 1, 2006, the
      Company accounted for stock option plans under the recognition and measurement
      provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock
      Issued to Employees” (“APB 25”) and related interpretations, as permitted by
      Statement of Financial Accounting Standard No. 123, “Accounting for Stock-Based
      Compensation” (“SFAS 123”). Effective January 1, 2006, the Company adopted the
      fair value provisions of FAS 123R, using the modified prospective transition
      method. Under this transition method, compensation cost recognized during the
      first nine months of 2006 includes compensation cost for all share-based
      payments granted prior to, but not yet vested as of January 1, 2006, based
      on
      the grant date fair value estimated in accordance with the original provisions
      of SFAS 123. Results for prior periods have not been restated.





We
      will
      continue to estimate the fair value of our option awards granted after January
      1, 2006, using a Black-Scholes option pricing model. No options were granted
      during the three- or nine-month periods ended September 30, 2006. As of
      September 30, 2006, there were 143 unvested shares and compensation expense
      of
      $5 recognized from these unvested stock options. The remaining compensation
      expense for these unvested options is $75 as of September 30, 2006. The expected
      life of the options granted is management’s estimate and represents the period
      of time that options granted are expected to be outstanding. We currently do
      not
      pay dividends. Volatility is based on the historical volatility of our stock
      price. The risk-free interest rate for periods within the contractual life
      of
      the option is based on the U.S. Treasury yield curve in effect at the time
      of
      grant. The fair value of each option grant during the nine months ended
      September 30, 2005 is estimated on the date of grant with the following
      weighted-average assumptions:


Expected
                  life of option
              
              
              5
                  yearsDividend
                  yield
              
              
              0.0
              %Volatility
              
              
              57.0
              %Risk
                  free interest rate
              
              
              4.0
              %




The
      weighted average fair value of options granted during the nine months ended
      September 30, 2005 is as follows:


Fair
                  value of each option grant
              
              $
              0.39Total
                  number of options granted
              
              
              65Total
                  fair value of all options granted
              
              $
              25




Outstanding
      options, consisting of incentive and non-qualified stock options, generally
      vest
      and become exercisable over a one- to three-year period from the date of grant.
      The outstanding options generally expire ten years from date of grant or upon
      retirement from the Company and are contingent upon continued employment during
      the applicable ten-year period. The following assumptions were utilized under
      FAS 123R for the outstanding options as of September 30, 2006:


Expected
                  life of options
              
              
              5.40
                  yearsDividend
                  yield
              
              
              0.0
              %Volatility
              
              
              52.8
              %Risk
                  free interest rate
              
              
              3.4
              %Fair
                  value of each option grant
              
              $
              0.28




13




The
      following table shows what the effect on net income and income per share if
      we
      had applied the fair value recognition provisions of SFAS 123, to options
      granted under our stock option plans during the three- and nine-month period
      ended September 30, 2005. For purposes of this pro forma disclosure, the value
      of the options is amortized to expense on a straight-line basis over the vesting
      period and forfeitures are recognized as they occur.





Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30, 2005
            
            September
                30, 2005Net
                income, as reported
            
            $
            18
            
            $
            338Add:
                Stock-based employee compensation expense included in reported net
                income
            
            
            21
            
            
            57Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards
            
            
            (23
            )
            
            (69
            )Pro
                forma net income
            
            $
            16
            
            $
            326Net
                income per share:BasicAs reported
            
            $
            0.00
            
            $
            0.01Pro forma
            
            $
            0.00
            
            $
            0.01DilutedAs reported
            
            $
            0.00
            
            $
            0.01Pro forma
            
            $
            0.00
            
            $
            0.01




A
      summary
      of the status of stock option grants as of September 30, 2006, and changes
      during the nine months ended September 30, 2006, is presented
      below:


WeightedAverageOption
                  Exercise
              
              PriceOutstanding
                  at December 31, 2005
              
              
              321
              
              $
              0.68Granted
              
              
              --
              
              
              --Exercised
              
              
              --
              
              
              --Forfeited
              
              
              --
              
              
              --Outstanding
                  at September 30, 2006
              
              
              321
              
              $
              0.68Options
                  exercisable at September 30, 2006
              
              
              178
              
              $
              0.65
  The
        following table summarizes information about stock options outstanding as
        of
        September 30, 2006:





Exercise
                Price Range
            
            Outstanding
            
            Exercisable
            
            Remaining
                Life In Years
            
            Weighted
                Average Exercise Price$
                0.23
            
            
            6
            
            
            6
            
            
            4.50
            
            $
            0.23$
                0.48
            
            
            50
            
            
            50
            
            
            7.56
            
            $
            0.48$
                0.69
            
            
            100
            
            
            --
            
            
            9.11
            
            $
            0.69$0.74
                - $0.75
            
            
            165
            
            
            122
            
            
            7.95
            
            $
            0.74Total
            
            
            321
            
            
            178
            
            
            7.28
            
            $
            0.65




14


Remaining
      non-exercisable options as of September 30, 2006, become exercisable as
      follows:




Remainder of 2006
            322007
            552008
            56




The
      fair
      value of unvested shares is determined based on the market price of our shares
      on the grant date.




**RESULTS
      OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
      SEPTEMBER 30, 2005**




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







Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30,
            
            September
                30,2006
            
            2005
            
            2006
            
            2005Revenues:Service,
                maintenance and royalties
            
            
            100
            %
            
            100
            %
            
            100
            %
            
            100
            %Total
                revenues
            
            
            100
            
            
            100
            
            
            100
            
            
            100Cost
                of revenues:Service
                and maintenance
            
            
            --
            
            
            --
            
            
            --
            
            
            --Total
                cost of revenues
            
            
            --
            
            
            --
            
            
            --
            
            
            --Gross
                margin
            
            
            100
            
            
            100
            
            
            100
            
            
            100Operating
                expenses:General
                and administrative
            
            
            54,750
            
            
            635
            
            
            2,784
            
            
            462Related
                party stock compensation
            
            
            1,885,500
            
            
            --
            
            
            36,971
            
            
            --(Gain)
                loss on litigation settlement
            
            
            --
            
            
            30
            
            
            --
            
            
            (373
            )Transaction
                expenses
            
            
            4,000
            
            
            --
            
            
            324
            
            
            --Total
                operating expenses
            
            
            1,944,250
            
            
            665
            
            
            40,079
            
            
            89Operating
                (loss) income
            
            
            (1,944,150
            )
            
            (565
            )
            
            (39,979
            )
            
            11Interest
                income
            
            
            46,000
            
            
            735
            
            
            2,544
            
            
            520Interest
                expense
            
            
            (3,250
            )
            
            (76
            )
            
            (191
            )
            
            (91
            )Other
                income, net:
            
            
            (3,750
            )
            
            12
            
            
            (235
            )
            
            123Net
                (loss) income
            
            
            (1,905,150
            )%
            
            106
            %
            
            (37,861
            )%
            
            563
            %




REVENUES




*Total
      revenues* .
      Total
      revenues decreased 98% to $400 for the three months ended September 30, 2006
      from $17,000 for the same period in 2005. Total revenues decreased 67% to
      $20,000 for the nine months ended September 30, 2006 from $60,000 for the same
      period in 2005. There were no revenues from international sales for the three
      and nine months ended September 30, 2006 or 2005. As a result of our downsizing
      of our business and operations, we no longer maintain a direct sales force
      and
      there currently is no sales generating activity.





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





15





*Service,
      maintenance and royalties.* Service
      and maintenance revenues consisted primarily of professional and maintenance
      services. Our professional service revenues included business consulting,
      implementation support and educational services and were generally offered
      on a
      time and materials basis. Maintenance revenues were generally derived from
      annual service agreements and were recognized ratably over the term of the
      agreement. On April 1, 2004, we entered into an agreement with Tornago, Inc.
      to
      fulfill our existing prepaid customer support obligations. Royalty revenues
      are
      derived from resales of our product by Tornago, Inc. Service, maintenance and
      royalty revenues decreased 98% to $400 for the quarter ended September 30,
      2006
      from $17,000 for the quarter ended September 30, 2005. Service, maintenance
      and
      royalty revenues decreased 67% to $20,000 for the nine-month period ended
      September 30, 2006 from $60,000 for the nine-month period ended September 30,
      2005. Service, maintenance and royalty revenues comprised 100% of total revenues
      for the quarters ended September 30, 2006 and 2005, respectively *.* Service,
      maintenance and royalty revenues comprised 100% of total revenues for the
      nine-month periods ended September 30, 2006 and 2005, respectively. ** We
      do not
      anticipate entering into additional service and maintenance agreements with
      customers as the Company terminated its revenue generating operations as
      discussed above. Therefore, we expect there will be no service and maintenance
      revenues in 2006. The agreement with Tornago, Inc. expired April
      2006.





COST
      OF
      REVENUES





*Cost
      of service and maintenance revenues* .
      Cost of
      service and maintenance revenues consisted primarily of personnel-related and
      infrastructure costs incurred in providing telephone and Web-based support
      of
      our software products, as well as professional, consulting and educational
      related services to customers. As we had no service and maintenance revenues
      in
      the three- and nine-month periods ended September 30, 2006 and 2005,
      respectively, cost of service and maintenance revenues for all periods were
      zero. We do not expect to incur costs of product revenues for the foreseeable
      future.





OPERATING
      EXPENSES





At
      September 30, 2006, we had six employees, two of whom are executive officers.
      As
      described in this Item 2 under "Overview", we are no longer actively marketing
      our products and do not expect to incur any operating expenses in 2006 relating
      to sales and marketing of our products.





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





*General
      and administrative* .
      General
      and administrative expenses consist primarily of salaries, other
      employee-related costs, professional service fees and expenses. General and
      administrative expenses increased 103% to $219,000 for the three months ended
      September 30, 2006 compared to $108,000 for the three months ended September
      30,
      2005. General and administrative expenses increased 105% to $568,000 for the
      nine months ended September 30, 2006 compared to $277,000 for the nine months
      ended September 30, 2005. General and administrative expenses were 54,750%
      and
      635% of total revenue for the three months ended September 30, 2006 and 2005,
      respectively. General and administrative expenses were 2,784% and 462% of total
      revenue for the nine months ended September 30, 2006 and 2005, respectively.
      The
      increase in general and administrative expenses during the three and nine months
      ended September 30, 2006 was primarily due to an increase in professional fees
      for accounting, legal and employee related costs.





*Transaction
      expenses.* The
      Company incurred approximately $16,000 of transaction expenses during the
      quarter ended September 30, 2006, arising out of an acquisition negotiation
      and
      due diligence process that resulted in the consummation of the Concord Steel
      Acquisition. There was no comparable expense during the quarter ended September
      30, 2005. Transaction expenses increased to $66,000 during the nine-month period
      ended September 30, 2006. There was no comparable expense during the nine-month
      period ended September 30, 2005. Transaction expenses represent the costs
      incurred during due diligence and negotiation of potential acquisitions, such
      as
      legal, accounting, appraisal and other professional fees and related
      expenses.





*Related
      party stock compensation* The
      Company incurred $7.5 million of compensation expense for the three- and nine-
      month periods ended September 30, 2006. The increase in related party stock
      compensation expense during the three and nine months ended September 30, 2006
      was due to compensation expense incurred for the grants of stock to members
      of
      the Board of Directors and Kanders & Company, as discussed in Note 9 and
      10. ** There
      is
      no comparable number for the same periods in 2005.





16


*Gain
      on litigation settlement.* In
      February 2005, the Company received $229,000 from the settlement of its lawsuit
      for a breach of contract claim with i2 Technologies Inc. The Company recorded
      the gain on this settlement in the first quarter of 2005. During the third
      quarter of 2005, the Company incurred $5,000 in additional costs associated
      with
      the litigation settlement.





*Interest
      income.* Interest
      income increased 47% to $184,000 for the three months ended September 30, 2006
      compared to $125,000 for the three-month period ended September 30, 2005. For
      the nine months ended September 30, 2006, interest income increased 66% to
      $519,000 compared to $312,000 for the same period in September 30, 2005. The
      increase in interest income was due to an increase in the interest rates we
      received on our cash, cash equivalent assets and marketable securities.





*Interest
      expense.* Interest
      expense remained the same at $13,000 for the quarters ended September 30, 2006
      and 2005. For the nine months ended September 30, 2006 interest expense
      decreased 29% to $39,000 compared to $55,000 for the same period in 2005. The
      decrease in interest expense was due to the beneficial conversion portion of
      the
      note to Olden Acquisition LLC being fully amortized during fiscal 2005.





*Other
      income (expense), net* .
      Other
      income (expense) consists of miscellaneous non income based tax expenses
      partially offset by other miscellaneous income. Net other income (expense)
      increased 650% for the quarter ended September 30, 2006 to $15,000 from $2,000
      in 2005. Net other income decreased 35% for the nine-month period ended
      September 30, 2006 to $48,000 from $74,000 in 2005.





PROVISION
      FOR INCOME TAXES





The
      Company has incurred significant operating losses for all periods from inception
      through September 30, 2006. For income tax purposes, the Company has available
      federal net operating loss carry-forwards of approximately $121.3 million and
      research and development credit carryforwards of $151,000 at September 30,
      2006.
      The net operating loss and research and development credit carryforwards expire
      in 2011 through 2022 if not previously utilized. The utilization of these
      carryforwards 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, it is likely that this would limit the ability to use a
      significant portion of these carryforwards. Future tax benefits have not been
      recognized in the financial statements, as their utilization has not been
      considered more likely than not based on the weight of available information.
      See Note 13. Subsequent Events to financial statements.





LIQUIDITY
      AND CAPITAL RESOURCES





From
      inception, we financed our operations primarily through the sale of equity
      securities. As a result of the redeployment of our assets affected by the
      closing of the Concord Acquisition on October 3, 2006, the Company’s liquidity
      and capital requirements are substantially different than they were prior to
      the
      redeployment of our assets. The discussion below under the heading “Prior to
      Redeployment” discusses our liquidity and capital resources historically for
      periods prior to the redeployment of our assets. See also the discussion under
      “Post-redeployment Liquidity and Capital Resources,” which appears
      below.





*Prior
      to Redeployment*





At
      September 30, 2006, we had $14.6 million of cash and cash equivalents compared
      to $0.2 million at December 31, 2005. We had no marketable securities at
      September 30, 2006 compared to $14.7 million at December 31, 2005. The overall
      decrease of $293,000 in cash and cash equivalents and marketable securities
      is
      due to payment of expenses incurred during the nine months ended September
      30,
      2006.





Cash
      used
      in operations was $0.4 million for the nine months ended September 30, 2006,
      compared to cash provided by operations of $0.3 million for the same period
      of
      2005. Cash used in operations for the nine months ended September 30, 2006
      was
      primarily attributable to the Company’s net loss, an increase in non-cash items,
      accrued expenses, other assets and a decrease in prepaids and other current
      assets. Cash provided by operations for the nine months ended September 30,
      2005
      resulted primarily from net income, as adjusted for non-cash expenses and a
      decrease in prepaid and other current assets and accounts payables and accrued
      liabilities. We currently do not expect to receive any significant amounts
      of
      cash from future operations until our assets are redeployed. We expect that
      we
      will continue to incur legal fees, transaction costs and other ongoing costs
      that will constitute a material use of cash.





17


Cash
      provided by investing activities was approximately $14.7 million during the
      nine
      months ended September 30, 2006. A total of $11.4 million in net cash was used
      by investing activities for the nine months ended September 30, 2005. Cash
      provided by investing activities during the nine months ended September 30,
      2006
      was from the maturity and sale of marketable securities partially offset by
      the
      purchase of marketable securities and the payment of deal related expenses.
      Cash
      used by investing activities during the nine months ended September 30, 2005
      was
      for the purchase of marketable securities.





There
      was
      no cash used or provided by financing activities for the periods ended September
      30, 2006 or 2005. There were no options exercised during the periods ended
      September 30, 2006 or 2005.





*Post-redeployment
      Liquidity and Capital Resources*





On
      October 3, 2006, SIG Acquisition Corp. (“SIG”), a wholly owned subsidiary of the
      Company, which made the Concord Acquisition, 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.





Loans
      outstanding under the Credit Agreement are subject to mandatory prepayment
      under
      certain circumstances, including issuance of debt and equity securities by the
      Company or its subsidiaries (of 100% of the net cash proceeds received from
      any
      such issuances), sale or disposition of assets by the Company or its
      subsidiaries (of 100% of the net cash proceeds from any such sale or
      disposition), receipt of insurance proceeds due to certain losses (of 100%
      of
      such insurance proceeds under certain circumstances), or, under certain
      circumstances, 50% of any excess cash flows of the Company on a consolidated
      basis.





All
      borrowings under the Credit Agreement will bear interest, at the Company’s
      election, at either (i) a rate equal to 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. The applicable interest rate for the outstanding borrowings under
      the Credit Agreement is currently 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, 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.





We
      believe that existing cash, investments and available credit facilities
      described above will be sufficient to meet our expected working capital needs
      for at least the next twelve months. Our ability to fund working capital
      requirements and make and integrate acquisitions and anticipated capital
      expenditures and satisfy our debt obligations will depend on our future
      performance, which is subject to general economic, financial and other factors,
      some of which are beyond our control, as well as the availability to us of
      other
      sources of liquidity. We believe that based on current levels of operations
      and
      anticipated growth, our cash flow from operations will be adequate for at least
      the next twelve months to fund our working capital requirements and anticipated
      capital expenditures.  However, there can be no assurance that our business
      will generate cash flow from operations sufficient to enable us to fund our
      liquidity and capital needs.




18


RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”),
      which provides interpretive guidance on the consideration of the effects of
      prior year misstatements in quantifying current year misstatements for the
      purpose of a materiality assessment. The Company must adopt SAB 108 in the
      fourth quarter of 2006. SAB 108 allows a one-time transitional cumulative effect
      adjustment to beginning retained earnings as of January 1, 2006 for errors
      that
      were not previously deemed material, but are material under the guidance in
      SAB
      108. The Company is currently evaluating the impact of adopting SAB 108.





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





The
      Company’s exposure to market rate risk for changes in interest rates relates
      primarily to the Company’s cash, cash equivalent assets and marketable
      securities. There is a market rate risk for changes in interest rates earned
      on
      these investments as well as an inherent rollover risk in the investments as
      they mature and are renewed at current market rates. The extent of this risk
      is
      not quantifiable or predictable because of the variability of future interest
      rates. However, there is no risk of loss of principal in the cash, cash
      equivalent assets or marketable securities, only a risk related to potential
      reduction in future interest income. We do not hold derivative financial
      investments, derivative commodity investments, engage in foreign currency
      hedging or other transactions that expose us to material market risk.





**Item
      4. Controls and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





The
      Company's management carried out an evaluation, under the supervision and with
      the participation of the Company's Chief Administrative Officer and Controller,
      its principal executive officer and principal financial officer, respectively,
      of the design and operation of the Company's disclosure controls and procedures
      (as such term is defined in Rules 13a-15 (e) and 15d-15(e) under the Securities
      Exchange Act of 1934 (the "Exchange Act") as of September 30, 2006, pursuant
      to
      Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief
      Administrative Officer and Controller, concluded that the Company's disclosure
      controls and procedures as of September 30, 2006 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 September 30, 2006
      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**




**FACTORS
      THAT MAY AFFECT OUR FUTURE RESULTS**





In
      addition to other information in this Form 10-Q and the risks and uncertainties
      set forth in the section titled “Factors That May Affect Our Future Results” of
      Part 1 of our Annual Report on Form 10-K for the fiscal year ended December
      31,
      2006, the following risk factors should be carefully considered in evaluating
      our business because such factors may have a significant impact on our business,
      operating results, liquidity and financial condition and the market price of
      our
      common stock. As a result of the risk factors set forth below, actual results
      could differ materially from those projected in any forward-looking statements.
      Additional risks and uncertainties not presently known to us, or that we
      currently consider to be immaterial, may also impact our business, operating
      results, liquidity and financial condition. If any of the following risks occur,
      our business, operating results, liquidity and financial condition could be
      materially adversely affected. In such case, the trading price of our securities
      could decline, and you may lose all or part of your investment.





**RISKS
      RELATED TO OUR INDUSTRY**





**Our
      future operating results may be affected by fluctuations in raw material costs
      and steel prices.**





Our
      principal raw material is carbon steel, which we purchase from multiple primary
      steel producers and steel brokers. A significant by-product of our manufacturing
      process is scrap steel that we resell to scrap brokers and dealers. The steel
      and scrap industries as a whole are very cyclical, and at times availability
      and
      pricing can be volatile due to a number of factors beyond our control. These
      factors include general economic conditions, domestic and worldwide demand,
      curtailed production at major mills due to factors such as equipment breakdowns,
      repairs or catastrophic events, labor costs or problems, competition, import
      duties, tariffs, energy costs, availability and cost of steel inputs (e.g.
      ore,
      scrap, coke, energy, etc.), currency exchange rates and those other factors
      described under “The costs of manufacturing our products and the ability to
      supply our customers could be negatively impacted if we experience interruptions
      in deliveries of needed raw materials or supplies.” This volatility can
      significantly affect our steel costs and scrap prices. In an environment of
      increasing prices for steel and other raw materials, competitive conditions
      may
      impact how much of the price increases we can pass on to our customers and
      to
      the extent we are unable to pass on future price increases in our raw materials
      to our customers, our financial results could be adversely affected. Also,
      if
      steel prices in general decrease, competitive conditions may impact how quickly
      we must reduce our prices to our customers and we could be forced to use
      higher-priced raw materials to complete orders for which the sales prices have
      decreased. If scrap prices in general decrease, we may recoup less scrap dollars
      which could have a material adverse effect on the Company's financial position,
      results of operations or cash flows.





**The
      costs of manufacturing our products and the ability to supply our customers
      could be negatively impacted if we experience interruptions in deliveries of
      needed raw materials or supplies.**





If
      for
      any reason our supply of carbon steel is curtailed or we are otherwise unable
      to
      obtain the quantities we need at competitive prices, our business could suffer
      and our financial results could be adversely affected. Such interruptions might
      result from a number of factors including events such as a shortage of capacity
      in the supplier base or of the raw materials, energy or the inputs needed to
      make steel or other supplies, financial difficulties of suppliers, significant
      events affecting their facilities, significant weather events, those factors
      listed under “Our future operating results may be affected by fluctuations in
      raw material costs and steel prices” or other factors beyond our control.
      Further, the number of suppliers has decreased in recent years due to industry
      consolidation and the financial difficulties of certain suppliers, and
      consolidation may continue. Accordingly, if delivery from a major supplier
      is
      disrupted, it may be more difficult to obtain an alternative supply than in
      the
      past which could have a material adverse effect on the Company's financial
      position, results of operations or cash flows.





**Downturns
      or weakness in the economy in general or in key industries, such as commercial,
      industrial or residential construction or government and municipal
      infrastructure projects, may adversely affect our customers, which may cause
      the
      demand for our products and services to decline and materially adversely affect
      our financial results.**





Many
      of
      our customers are in industries and businesses that are cyclical in nature
      and
      affected by changes in general economic conditions or conditions specific to
      their respective markets and industries. Product demand in our customers’ end
      markets is based on numerous factors such as interest rates, general economic
      conditions, consumer confidence, and other factors beyond our control. Downturns
      in demand in the metal-consuming industries we serve, or a decrease in the
      margins that we can realize from sales of our products to customers in any
      of
      these industries, which could have a material adverse effect on the Company's
      financial position, results of operations or cash flows.





20


**The
      loss of significant volume from key customers could materially adversely affect
      us.**





In
      fiscal
      2005, our largest three customers accounted for approximately 56% of our gross
      sales, with the top customer accounting for a significant portion of that
      number, and our ten largest customers accounted for approximately 74% of our
      gross sales. A significant loss of or decrease in business from one or more
      of
      our top customers could have a material adverse effect on the Company's
      financial position, results of operations or cash flows if we cannot obtain
      replacement business. Also, due to consolidation in the industries we serve,
      our
      gross sales may be increasingly sensitive to deterioration in the financial
      condition of, or other adverse developments with respect to, one or more of
      our
      top customers.





**Our
      business could be harmed if we fail to maintain proper inventory levels.**





We
      are
      required to maintain substantial inventories to accommodate the needs of our
      customers, including in many cases, short lead times and just-in-time delivery
      requirements. We purchase raw materials on a regular basis in an effort to
      maintain our inventory at levels that we believe are sufficient to satisfy
      the
      anticipated needs of our customers based upon orders, customers volume
      expectations, historic buying practices and market conditions. Inventory levels
      in excess of customer demand may result in the use of higher-priced inventory
      to
      fill orders reflecting lower sales prices, if steel prices have significantly
      decreased. These events could have a material adverse effect on the Company's
      financial position, results of operations or cash flows. Conversely, if we
      underestimate demand for our products or if our suppliers fail to supply quality
      products in a timely manner, we may experience inventory shortages. Inventory
      shortages might result in unfilled orders, negatively impact customer
      relationships, and result in lost revenues, any of which could have a material
      adverse effect on the Company's financial position, results of operations or
      cash flows.





**Our
      business is highly competitive, and increased competition could negatively
      impact our financial results.**





The
      metals processing industry is very fragmented and competitive, consisting of
      a
      large number of small companies and a few relatively large companies.
      Competition is based principally on price, service, quality, production
      capabilities, inventory ability and timely delivery. Competition in the various
      markets in which the Company participate comes from companies of various sizes,
      some of which have greater financial resources than the Company and some of
      which have more established brand names in the local markets served by the
      Company. Increased competition could force the Company to lower its prices
      or to
      offer increased services at a higher cost, which could reduce the Company’s
      profitability and could have a material adverse effect on the Company's
      financial position, results of operations or cash flows.





**The
      Company could incur substantial costs in order to comply with, or to address
      any
      violations under, environmental laws that could significantly increase its
      operating expenses and reduce its operating income.**




The
      Company’s operations are subject to various environmental statutes and
      regulations, including laws and regulations governing materials it uses. In
      addition, certain of its operations are subject to federal, state and local
      environmental laws and regulations that impose limitations on the discharge
      of
      pollutants into the air and water and establish standards for the treatment,
      storage and disposal of solid and hazardous wastes. Failure to maintain or
      achieve compliance with these laws and regulations or with the permits required
      for its operations could result in substantial operating costs and capital
      expenditures, in addition to fines and civil or criminal sanctions, third party
      claims for property damage or personal injury, cleanup costs or temporary or
      permanent discontinuance of operations. Certain of its facilities are located
      in
      industrial areas, have a history of heavy industrial use and have been in
      operation for many years and, over time, the Company and other predecessor
      operators of these facilities have generated, used, handled and disposed of
      hazardous and other regulated wastes. Environmental liabilities could exist,
      including cleanup obligations at these facilities or at off-site locations
      where
      materials from Company operations were disposed of, which could result in future
      expenditures that cannot be currently quantified and which could have a material
      adverse effect on the Company's financial position, results of
      operations or cash flows.





**Disruptions
      to our business or the business of our customers or suppliers, could materially
      adversely impact our operations and financial results.**





Business
      disruptions, including increased costs for or interruptions in the supply of
      energy or raw materials, resulting from severe weather events such as
      hurricanes, floods, blizzards, from casualty events, such as fires or




21


material
      equipment breakdown, from acts of terrorism, or from other events such as
      required maintenance shutdowns, can cause interruptions to our businesses as
      well as the operations of our customers and suppliers. Such interruptions could
      have a material adverse effect on the Company's financial position, results
      of
      operations or cash flows.





**If
      any of the products that the Company sells cause harm to any of its customers,
      the Company could be exposed to product liability lawsuits.**





If
      the
      Company were found liable under product liability claims, it could be required
      to pay substantial monetary damages. We currently maintain product liability
      insurance with coverage limits of $1 million per occurrence and an annual
      aggregate maximum of $2 million with an umbrella coverage of $10 million per
      occurrence and an annual aggregate maximum $10 million. However, we cannot
      assure you that this coverage would be sufficient to cover the payment of any
      potential claim. In addition, we cannot assure you that this or any other
      insurance coverage will continue to be available or, if available, will be
      obtainable at a reasonable cost. Our existing product liability insurance
      coverage may be inadequate to protect us from any liabilities we might incur,
      and we will continue to be exposed to the risk that our claims may be excluded
      and that our insurers may become insolvent. A product liability claim or series
      of claims brought against us for uninsured liabilities or liabilities in excess
      of our insurance coverage could have a material adverse effect on the market
      price of our common stock and our business, financial condition and results
      of
      operations. In addition, as a result of a product liability claim, our
      reputation could be harmed and we may have to recall some of our products,
      which
      could result in significant costs to us and could have a material adverse effect
      on the Company's financial position, results of operations or cash
      flows.







**RISKS
      RELATED TO OUR BUSINESS**





**We
      have a short operating history with respect to our current and proposed
      businesses, so it will be difficult for investors to predict our future
      success.**





The
      Company had no active operations between April 11, 2004 and October 3, 2006,
      the
      date on which the Company acquired the assets of Concord Steel. As a result,
      we
      have a limited operating history for you to evaluate in assessing our future
      prospects. You must consider our business and prospects in light of the risks
      and difficulties we may encounter as a company with a limited operating history
      in our current business. Our failure to successfully address these risks and
      difficulties, could have a material adverse effect on the Company's financial
      position, results of operations or cash flows.





**There
      are significant risks associated with our strategy of acquiring and integrating
      businesses.**





A
      key
      element of our strategy is the acquisition of businesses and assets that will
      complement our current business, increase size, expand our geographic scope
      of
      operations, and otherwise offer growth opportunities. We may not be able to
      successfully identify attractive acquisition opportunities, obtain financing
      for
      acquisitions, make acquisitions on satisfactory terms, or successfully acquire
      and/or integrate identified targets. Additionally, competition for acquisition
      opportunities in our industry may escalate, which would increase the costs
      to us
      of completing acquisitions or prevent us from making acquisitions. Our ability
      to implement our acquisition strategy is also subject to other risks and costs,
      including:





·
            loss
                of key employees, customers or suppliers of acquired
                businesses;





·
            diversion
                of management's time and attention from our core
                businesses;





·
            adverse
                effects on existing business relationships with suppliers and
                customers;





·
            our
                ability to realize operating efficiencies, synergies, or other benefits
                expected from an acquisition;





·
            risks
                associated with entering markets in which we have limited or no
                experience; and





·
            assumption
                of contingent or undisclosed liabilities of acquisition
                targets.





The
      above
      risks could have a material adverse effect on the Company's financial position,
      results of operations or cash flows.





22


**The
      loss of services of the Company's executive management team could harm its
      business.**





The
      success of the Company's business depends on the continued services of its
      executive management team which includes Warren B. Kanders, our Non-Executive
      Chairman of the Board of Directors and Albert W. Weggeman, Jr., our Chief
      Executive Officer. The Company may not be able to retain its executive
      management team or attract suitable replacements or additional personnel if
      required. The loss of the services of one or more members of its executive
      management team could have a material adverse effect on the Company's financial
      position, results of operations or cash flows.





**We
      may not be able to adequately manage our growth.**





We
      have
      expanded, and are seeking to continue to expand, our business. This growth
      has
      placed significant demands on our management, administrative, operating and
      financial resources. The continued growth of our customer base, the types of
      products offered and the geographic markets served can be expected to continue
      to place a significant strain on our resources. Personnel qualified in the
      production and marketing of our products are difficult to find and hire, and
      enhancements of information technology systems to support growth are difficult
      to implement. Our future performance and profitability will depend in large
      part
      on our ability to attract and retain additional management and other key
      personnel. Any failure to adequately manage our growth could have a material
      adverse effect on the Company's financial position, results of operations or
      cash flows.





**The
      Company’s existing credit facility contains covenant restrictions that may limit
      its ability to operate its business.**




The
      agreements governing the Company’s credit facility contains, and any of its
      other future debt agreements may contain, covenant restrictions that limit
      its
      ability to operate its business, including restrictions on its ability to:




•
            
            incur
                debt (including secured debt) or issue guarantees;




•
            
            grant
                liens on its assets;




•
            
            make
                certain investments;




•
            
            enter
                into sale and leaseback transactions;




•
            
            enter
                into transactions with its affiliates;




•
            
            sell
                certain assets;




•
            
            repurchase
                capital stock or make other restricted payments;




•
            
            declare
                or pay dividends or make other distributions to stockholders; and




•
            
            enter
                into merger or consolidations or make certain acquisitions.




In
      addition, the Company’s existing credit facility contains other affirmative and
      negative covenants. The Company’s ability to comply with these covenants is
      dependent on its future performance, which will be subject to many factors,
      some
      of which are beyond its control, including prevailing economic conditions.




As
      a
      result of these covenants, its ability to respond to changes in business and
      economic conditions and to obtain additional financing, if needed, may be
      significantly restricted, and the Company may be prevented from engaging in
      transactions that might otherwise be beneficial to it. In addition, its failure
      to comply with these covenants could result in a default under its debt, which
      could permit the holders to accelerate such debt. If any of the Company’s debt
      is accelerated, it may not have sufficient funds available to repay such debt
      which could have a material adverse effect on the Company's financial position,
      results of operations or cash flows.




23




**Item
      6.**  **Exhibits**




**Exhibit**


**Number**  **Exhibit**





4.1
            Amendment
                No. 3 to Rights Agreement, dated September 22, 2006, between Net
                Perceptions, Inc. and Wells Fargo Bank, N.A., as Rights Agent (filed
                as
                Exhibit 4.1 to our Current Report on Form 8-K filed with the Securities
                and Exchange Commission on September 28,
                2006).





10.1
            Equity
                compensation Agreement by and between Net Perceptions, Inc. and Kanders
                & Company, Inc., dated as of September 22, 2006 (filed as Exhibit 10.1
                to our Current Report on Form 8-K filed with the Securities and Exchange
                Commission on September 28, 2006).





10.2
            Consulting
                Agreement by and between Net Perceptions, Inc. and Kanders & Company
                Inc., dated as of September 22, 2006 (filed as Exhibit 10.2 to our
                Current
                Report on Form 8-K filed with the Securities and Exchange Commission
                on
                September 28, 2006).





10.3
            Employment
                Agreement by and between Net Perceptions, Inc. and Albert Weggeman,
                dated
                as of September 22, 2006 (filed as Exhibit 10.3 to our Current Report
                on
                Form 8-K filed with the Securities and Exchange Commission on September
                28, 2006).





10.4
            Restricted
                Stock Award Agreement dated as of September 22, 2006, between Net
                Perceptions, Inc., and Mr. David A. Jones re Restricted Stock Award
                under
                1999 Equity Incentive Plan (filed as Exhibit 10.4 to our Current
                Report on
                Form 8-K filed with the Securities and Exchange Commission on September
                28, 2006).





10.5
            Restricted
                Stock Award Agreement dated as of September 22, 2006, between Net
                Perceptions, Inc., and Mr. Nicholas Sokolow re Restricted Stock Award
                under 1999 Equity Incentive Plan (filed as Exhibit 10.5 to our Current
                Report on Form 8-K filed with the Securities and Exchange Commission
                on
                September 28, 2006).





10.6
            Credit
                Agreement dated October 3, 2006, between the SIG Acquisition Corp.
                and
                Lasalle Bank National Association, as agent, and the lenders named
                therein
                (filed as Exhibit 10.1 to our Current Report on Form 8-K filed with
                the
                Securities and Exchange Commission on October 10,
                2006).





10.7
            Guaranty
                and Security Agreement dated October 3, 2006, among Net Perceptions,
                Inc.,
                SIG Acquisition Corp., and Lasalle Bank National Association, as
                agent,
                and the lenders named therein (filed as Exhibit 10.2 to our Current
                Report
                on Form 8-K filed with the Securities and Exchange Commission on
                October
                10, 2006).





10.8
            Form
                of Revolving Note (filed as Exhibit 10.3 to our Current Report on
                Form 8-K
                filed with the Securities and Exchange Commission on October 10,
                2006).





10.9
            Form
                of Term Note (filed as Exhibit 10.4 to our Current Report on Form
                8-K
                filed with the Securities and Exchange Commission on October 10,
                2006).





10.10
            Form
                of Capital Expenditures Note (filed as Exhibit 10.5 to our Current
                Report
                on Form 8-K filed with the Securities and Exchange Commission on
                October
                10, 2006).





10.11
            Form
                of Swing Loan Note (filed as Exhibit 10.6 to our Current Report on
                Form
                8-K filed with the Securities and Exchange Commission on October
                10,
                2006).





10.12
            Employment
                Agreement dated as of October 3, 2006, between the Company and Paul
                Vesey
                (filed as Exhibit 10.7 to our Current Report on Form 8-K filed with
                the
                Securities and Exchange Commission on October 10,
                2006).





10.13
            Asset
                Purchase Agreement among the Company, SIG Acquisition Corp. and CRC
                Acquisition Co. LLC dated as of September 22, 2006 (without exhibits)
                (filed as Exhibit 10.8 to our Current Report on Form 8-K filed with
                the
                Securities and Exchange Commission on October 10,
                2006).




24




10.14
            Stock
                Purchase Agreement between the Company and CRC Acquisition Co. LLC
                dated
                as of October 3, 2006 (without exhibits) (filed as Exhibit 10.9 to
                our
                Current Report on Form 8-K filed with the Securities and Exchange
                Commission on October 10, 2006).





10.15
            Equityholder
                Registration Rights Agreement dated as of October 3, 2006, between
                Net
                Perceptions, Inc., and CRC Acquisition Co. LLC (filed as Exhibit
                10.10 to
                our Current Report on Form 8-K filed with the Securities and Exchange
                Commission on October 10, 2006).





10.16
            Equityholder
                Lock-up Agreement dated as of October 3, 2006, between Net Perceptions,
                Inc., and CRC Acquisition Co. LLC (filed as Exhibit 10.11 to our
                Current
                Report on Form 8-K filed with the Securities and Exchange Commission
                on
                October 10, 2006).





10.17
            Escrow
                Agreement dated as of October 3, 2006, among CRC Acquisition Co.
                LLC, SIG
                Acquisition Corp., and The Bank of New York (filed as Exhibit 10.12
                to our
                Current Report on Form 8-K filed with the Securities and Exchange
                Commission on October 10, 2006).





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  25


**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: November
              14, 2006
            By:
            /s/ Albert
              W.
              Weggeman, Jr.Albert
              W. Weggeman, Jr.*Chief
              Executive Officer*(Principal Executive
              Officer)


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





26




**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




27