**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-K**





x
      ANNUAL REPORT PURSUANT
      TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For
      the
      fiscal year ended December 31, 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**
            **(I.R.S.
                Employer Identification No.)****of
                Incorporation or Organization)****One
                Landmark Square, Stamford, Connecticut**
            **06901****(Address
                of Principal Executive Offices)**
            **(Zip
                Code)**




**(203)
      428-2040**


**(Registrant’s
      telephone number, including area code)**





**Securities
      registered pursuant to Section 12(b) of the Act:**





**Title
                of each class**
            **Name
                of each exchange on which registered**None
            Not
                applicable





**Securities
      registered Pursuant to Section 12(g) of the Act:**





**Common
      Stock, par value $.0001 per share**


**(Title
      of class)**





**Preferred
      Stock Purchase Rights**


**(Title
      of class)**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


YES o NO x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange


Act.
      YES
o NO x





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 if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of Registrant's knowledge, in the definitive proxy or information statement
      incorporated by reference in Part III
      of
      this Form 10-K or any amendment to this Form 10-K. x





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 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





The
      aggregate market value of voting and non-voting stock held by non-affiliates
      of
      the Registrant, based upon the last sale price of the Registrant’s Common Stock,
      par value $0.0001 per share, reported on the OTC Pink Sheets Electronic
      Quotation Service on June 30, 2006 was $19,085,712 .





As
      of
      March 20, 2007, there were outstanding 32,708,167 shares of the Registrant’s
      Common Stock, $0.0001 par value.





**DOCUMENT
      INCORPORATED BY REFERENCE**




Portions
      of our Proxy Statement for the 2007 Annual Meeting of Stockholders to be filed
      with the Securities and Exchange Commission within 120 days of the Registrant's
      2006 fiscal year end are incorporated by reference into Part III of this report.












**NET
      PERCEPTIONS, INC.**


**ANNUAL
      REPORT ON FORM 10-K**


**FOR
      THE YEAR ENDED DECEMBER 31, 2006**





**TABLE
      OF CONTENTS**





**Page****PART
                I**ITEM
                1.
            BUSINESS
            1ITEM
                1A.
            RISK
              FACTORS
            7ITEM
                1B.
            UNRESOLVED
              STAFF COMMENTS
            12ITEM
                2.
            PROPERTIES
            13ITEM
                3.
            LEGAL
              PROCEEDINGS
            13ITEM
                4.
            SUBMISSION
              OF MATTERS TO A VOTE OF SECURITY HOLDERS
            14**PART
                II**ITEM
                5.
            MARKET
              FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
              PURCHASES OF EQUITY SECURITIES
            15ITEM
                6.
            SELECTED
              CONSOLIDATED FINANCIAL DATA
            18ITEM
                7.
            MANAGEMENT'S
              DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
              OPERATIONS
            19ITEM
                7A.
            QUANTITATIVE
              AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            29ITEM
                8.
            FINANCIAL
              STATEMENTS
            30ITEM
                9.
            CHANGES
              IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
              DISCLOSURE
            54ITEM
                9A.
            CONTROLS
              AND PROCEDURES
            54**PART
                III**ITEM
                10.
            DIRECTORS
              AND EXECUTIVE OFFICERS OF THE REGISTRANT AND RELATED STOCKHOLDER
              MATTERS
            54ITEM
                11.
            EXECUTIVE
              COMPENSATION
            55ITEM
                12.
            SECURITY
              OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            55ITEM
                13.
            CERTAIN
              RELATIONSHIPS AND RELATED TRANSACTIONS
            55ITEM
                14.
            PRINCIPAL
              ACCOUNTANT FEES AND SERVICES
            55**PART
                IV**ITEM
                15.
            EXHIBITS,
              FINANCIAL STATEMENT SCHEDULES
            56**SIGNATURES**
            59**EXHIBIT
                INDEX**
            60










**FORWARD-LOOKING
      STATEMENTS**





This
      Annual Report on Form 10-K contains certain forward-looking statements,
      including information about or related to our future results, certain
      projections and business trends. Assumptions relating to forward-looking
      statements involve judgments with respect to, among other things, future
      economic, competitive and market conditions and future business decisions,
      all
      of which are difficult or impossible to predict accurately and many of which
      are
      beyond our control. When used in this report, the words "estimate," "project,"
      "intend," "believe," "expect" and similar expressions are intended to identify
      forward-looking statements. Although we believe that our assumptions underlying
      the forward-looking statements are reasonable, any or all of the assumptions
      could prove inaccurate, and we may not realize the results contemplated by
      the
      forward-looking statements. Management decisions are subjective in many respects
      and susceptible to interpretations and periodic revisions based upon actual
      experience and business developments, the impact of which may cause us to alter
      our business strategy or capital expenditure plans that may, in turn, affect
      our
      results of operations. In light of the significant uncertainties inherent in
      the
      forward-looking information included in this report, you should not regard
      the
      inclusion of such information as our representation that we will achieve any
      strategy, objectives or other plans. The forward-looking statements contained
      in
      this report speak only as of the date of this report, and we have no obligation
      to update publicly or revise any of these forward-looking statements.





These
      forward-looking and other statements, which are not historical facts, are based
      largely upon our current expectations and assumptions and are subject to a
      number of risks and uncertainties that could cause actual results to differ
      materially from those contemplated by such forward-looking statements. These
      risks and uncertainties include, among others, our inability to implement our
      acquisition growth strategy and integrate and successfully manage any businesses
      that we acquire, our inability to continue to generate revenues at historic
      levels in our newly acquired operating divisions, changes in the demand for
      counterweights, changes in the elevator or construction industries and to use
      our net operating loss carry forward, and the risks and uncertainties set forth
      in the section headed “Risk Factors” of Part I, Item 1A of this report and
      described in “Management's Discussion and Analysis of Financial Condition and
      Results of Operations” of Part II of this report. The Company cannot guarantee
      its future performance. We cannot assure you that we will be successful in
      the
      implementation of our growth strategy or that any such strategy will result
      in
      Net Perception’s future profitability. Our failure to successfully implement our
      growth strategy could have a material adverse effect on the market price of
      our
      common stock and our business, financial condition and results of
      operations.





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




**PART
      I**




**ITEM
      1.****BUSINESS**




**Net
      Perceptions**





**Overview**





Net
      Perceptions, Inc. was established to provide marketing software solutions.
      In
      2003, as a result of continuing losses and the decline of its software business,
      the Company began exploring various strategic alternatives, including sale
      or
      liquidation. On April 21, 2004, the Company announced an investment into the
      Company by Olden Acquisition LLC (“Olden”), an affiliate of Kanders &
Company, Inc., an entity owned and controlled by the Company’s Non-Executive
      Chairman, Warren B. Kanders, for the purpose of initiating a strategy to
      redeploy the Company’s assets and use its cash, cash equivalent assets and
      marketable securities to enhance stockholder value. As part of this strategy,
      on
      October 3, 2006, the Company, through its wholly-owned subsidiary, SIG
      Acquisition Corp. (“SIG”), acquired the assets of CRC Acquisition Co. LLC
      (“CRC”), a manufacturer of steel counterweights doing business as Concord Steel
      (“Concord”). With this initial acquisition, management is now focused on
      building a diversified global industrial manufacturing group through both
      organic and acquisition growth initiatives that are expected to complement
      and
      diversify existing business lines.




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




1




**Industry
      Overview**




Management
      believes that the North American counterweight and related steel weldments
      industry, including captive in-house and independent operations, is worth over
      $300 million.




We
      believe that growth of the construction equipment markets we target will be
      driven by increasing demand for construction equipment and by increasing
      government spending. By 2008, it is estimated that non-residential and
      infrastructure construction spending in the United States will grow from
      approximately $560 billion today, to more than $678 billion. We believe that
      these increased construction spending levels will drive higher demand for
      construction related equipment on which our counterweights are ultimately used.
      It is anticipated that as the United States’ highways and infrastructures
      continue to grow older; local, state and federal municipalities will be required
      to increase spending on repairing, maintaining and rebuilding such highways
      and
      infrastructures. The Company believes that U.S. federal government initiatives
      such as the renewal of the six-year federal highway-funding plan continue to
      provide favorable conditions for highway and infrastructure construction
      spending. By 2008, it is estimated that government spending on repairing and
      rebuilding infrastructures, will grow from approximately $55 billion today,
      to
      more than $65 billion. It is expected that increased spending in government
      related construction and infrastructure programs should drive increased demand
      for construction related equipment, which should in turn increase demand for
      our
      counterweight products.




We
      believe that growth of the elevator industry we target will be driven by
      increasing demand for elevators. By 2009, it is estimated that global demand
      for
      elevator products and services will grow from approximately $50 billion today,
      to more than $60 billion. The increased growth in the elevator market is
      expected to result in increased growth in counterweights. Part of this growth
      is
      attributable to the low-rise elevator market segment (four floors or less)
      assessing a change in technology that may drive a switch from hydraulic
      elevators to traction or cable and weight. Management believes that this may
      increase the demand for elevator counterweights as a cost efficient
      substitution. This switch is primarily being driven by manufacturing and service
      cost considerations and environmental risk factors. Additionally, there are
      several other inter-related factors supporting growth within this industry,
      including demographic and socio-economic development, desire for efficient
      use
      of space, increasing movement of people and goods through airports and metros,
      and safety requirements.




**Growth
      Strategy**




*Acquire
      Complementary Businesses* .  The
      Company is working to build a diversified global industrial manufacturer through
      acquisitions that complement and diversify our existing business. The Company
      also intends to continue its program of targeted acquisitions, subject to the
      availability of financing, to gain access to new sales channels, acquire new
      product lines, increase penetration of our existing markets, and gain entry
      into
      new market sectors.




*Introduce
      New Products and Product Enhancements and Improve Manufacturing
      Operations* .  
      We are working to improve our manufacturing processes in an effort to improve
      cycle times and production and output consistency, reduce work-in-progress
      inventory and lower unit production costs. We believe that new product
      introductions and product enhancements and operational manufacturing
      improvements will further enhance growth and provide an advantage over our
      competitors in the future.




*Gain
      Access to New Sales Channels and Leverage Customer
      Relationships* .  
      We are focused on expanding our customer base, offering an increasing array
      of
      products and distribution channels to improve profitability. We believe this
      diversification will facilitate access to a new customer base for our historical
      products, as well as provide the opportunity to offer new products to our
      existing customers.




**Competitive
      Strengths**




*Cost
      Savings to Customers.* Concord
      has built its core business around being able to demonstrate manufacturing
      cost
      savings to customers that currently manufacture their counterweights in-house
      or
      purchase from less competitive external suppliers. In many cases, these
      manufacturers used less cost effective materials in their production than are
      used by Concord in the production of its counterweights. Management believes
      that the cost savings alternatives offered by Concord have led to increased
      outsourcing of counterweights by customers that have traditionally manufactured
      their counterweights in-house.




*Leadership
      Team* .  
      Our leadership team has been involved in the acquisition and integration of
      a
      substantial number of companies. Our Non-Executive Chairman of the Board of
      Directors, Warren B. Kanders has extensive experience building public companies
      through strategic acquisitions to enhance organic growth. The Company’s Chief
      Executive Officer, Al Weggeman, has had over 20 years of strategic and
      operational leadership experience in multinational industrial manufacturing
      companies, such as General Electric, Asea Brown Boveri Ltd., and Saint Gobain.
      Our Chief Financial Officer, Jon LaBarre, has more than 12 years of diverse
      financial management and executive leadership experience in the manufacturing,
      aerospace, specialty manufacturing, construction equipment and professional
      services industries.




2




*Service
      & Delivery* .  
      Concord has established itself as a high level service provider in terms of
      both
      service and delivery. The Company also works with its customers to develop
      more
      cost effective counterweight and weldment design options for their existing
      and
      new products. We believe that Concord’s manufacturing locations are also
      beneficial in terms of being able to provide its customers with cost effective
      and timely deliveries.




**Products
      and Services**




Concord
      primarily produces three styles of counterweights: profile cut, stack and weld,
      and box enclosures. Profile cut is the most prevalent method whereby the plate
      is cut into a specified configuration, de-slagged and staged. The counterweight
      can either be shipped in its original form or may require added processing
      (i.e.
      painting, drilling or shot blasting). Stack and weld products involve various
      pieces and shapes welded together to create the fabricated end-product. Box
      enclosures, mainly sold to crane OEM’s, are fabricated and welded boxes filled
      with predetermined weights of material and closed with a welded lid. Profile
      cut
      products are typically individual counterweights or weldment components that
      are
      sold into aerial work platform, material telehandler, and elevator OEM’s. Stack
      and weld products are generally for crane and heavy vehicle
      applications.




Concord
      also manufactures steel weldments in a variety of shapes and sizes as specified
      by its customers. Weldments are typically steel components that serve as both
      a
      counterweight and as part of the structure of an OEM’s end product. Typical
      weldments could include vehicle body parts such as panels, bumpers, beams,
      and
      plates. Since weldments frequently serve the purpose of providing counterweight
      to a product, the Company typically refers to weldments as counterweights.




The
      following table shows Concord’s percentage of sales revenue by major product
      lines for 2006, 2005 and 2004:




**Percentage of Revenue****Product
                  Line**
              
              
              **2006**
              
              
              **2005**
              
              
              **2004**Profile
                  Cut
              
              
              69
              %
              
              71
              %
              
              68
              %Box
                  Enclosure
              
              
              18
              
              
              15
              
              
              13Stack
                  and Weld
              
              
              7
              
              
              9
              
              
              10Other
              
              
              6
              
              
              5
              
              
              9Total
              
              
              100
              %
              
              100
              %
              
              100
              %




The
      majority of the products sold by Concord are processed. Concord uses techniques
      such as cutting to length, leveling, milling, boring, flame and laser cutting,
      fabricating, welding, polishing, shearing and grinding to process materials
      to
      specified thickness, length, width, shape and surface quality pursuant to
      specific customer orders.




The
      plate
      burning and fabrication processes are particularly important to the Company.
      These processes require sophisticated and expensive processing equipment. As
      a
      result, many OEM’s have chosen not to make ongoing significant investments in
      such equipment and have increasingly outsourced these processes to specialty
      companies such as Concord.




As
      part
      of securing customer orders, Concord also provides technical services to its
      customers designed to assure cost effective product application while
      maintaining or improving the customer’s product quality. Concord’s services
      include: just-in-time inventory programs, production of kits containing multiple
      products for ease of assembly by the customer, and technical assistance.




3




**Customers**




Concord’s
      customer base numbers over 300, but is concentrated. In 2006, the Company’s top
      three customers represented approximately 57% of our revenue while our top
      10
      customers represented approximately 83% of revenue. Concord has maintained
      a
      consistent customer base with the average customer relationship of the top
      10
      customers being approximately 10 years in duration and the top three customers
      being approximately 15 years in duration. Many of Concord’s end customers are
      dependent on construction spending and the capital expenditures of national
      and
      global equipment rental companies who acquire fleets of construction equipment
      to either lease or rent to construction companies.




The
      North
      American equipment rental industry has been consolidating since the mid-1990s,
      resulting in a number of larger national and regional companies. The
      consolidation in the equipment rental industry has contributed to a significant
      reduction in the number of equipment manufacturers as the larger equipment
      rental companies have sought to reduce the number of suppliers from which they
      purchase equipment. Since 1997, the number of significant North American and
      European broad-line aerial work platform manufacturers has decreased and the
      number of significant North American and European telehandler manufacturers
      has
      also decreased. Given that our counterweight products are used on the
      manufacturers’ end-product, management believes that this consolidation has
      significantly contributed to its customer consolidation as well. Concord’s
      customer base services a number of construction related end-markets, most of
      which are cyclical.






The
      following table shows Concord’s percentage of sales revenue by class of customer
      for 2006, 2005 and 2004:




**Percentage of Revenue****Class
                of Customer**
              
              
              **2006**
              
              
              **2005**
              
              
              **2004**Aerial
                  Work Platforms (AWP)
              
              
              47
              %
              
              48
              %
              
              49
              %Cranes
              
              
              19
              
              
              15
              
              
              15Elevator
              
              
              13
              
              
              15
              
              
              15Other
              
              
              21
              
              
              22
              
              
              21Total
              
              
              100
              %
              
              100
              %
              
              100
              %





**Sales,
      Marketing and Distribution**




The
      Company’s sales, marketing and distribution are managed through a combination of
      approximately 8 sales representatives, which include technical personnel, who
      are regionally and nationally based. The Company’s sales representatives, who
      also develop advertising materials and schedules trade shows targeting
      industries serviced by Concord, have extensive knowledge of our product
      offerings and our customer base. The Company intends to manage its sales and
      marketing efforts in a unified effort, and it plans to take advantage of
      opportunities to leverage relationships to increase sales and utilize resources
      most effectively to increase the opportunity and visibility of its product
      offerings.




**Manufacturing
      and Sourcing**




The
      Company manufactures its products in its manufacturing facilities located in Warren,
      Ohio, Chicago Heights, Illinois and Essington, Pennsylvania. The Pennsylvania
      facility was recently leased on December 1, 2006 and we are in the process
      of
      establishing production capacity capabilities to meet future anticipated demand,
      however,
      no assurance can be made that we will be successful in increasing our
      manufacturing capacity or that any such increase will be sufficient to meet
      our
      future production needs. The
      Company is
      currently in the process of working toward ISO compliance at these facilities,
      however, no assurance can be made that such compliance can be obtained and
      maintained. Concord has on occasion out-sourced select production operations
      in
      order to increase production capacity and maintain customer-shipping
      requirements.




**Competition**




Concord
      operates in the United States as a supplier of counterweights to multinational
      construction, maintenance, and industrial equipment OEM’s. Its competitors are
      primarily domestic and range from mid-size steel processors to small
      single-product niche manufacturers. Within this market, Concord faces
      competition principally from two mid-size counterweight manufacturers, as well
      as numerous other smaller niche manufacturers of competitive products. Certain
      of our competitors in the markets we compete may have more resources and
      experience than us.




4




Management
      believes that competition from Chinese and other foreign-based competitors
      is
      prevalent for products sold within their local markets. However, given the
      high
      costs associated with shipping counterweights, imports to the United States
      from
      these foreign-based manufacturers remains minimal. As customers continually
      assess new materials and product designs and configurations, there is always
      a
      risk of counterweight products being developed by a lower cost overseas
      manufacturer.




**Suppliers**




In
      2006,
      Concord purchased approximately 200 million tons of materials from many
      suppliers, including steel mills located throughout the United States and
      Canada. The Company’s top 10 suppliers accounted for approximately 59 percent of
      2006 purchase dollars. No supplier accounted for 20% or more of the 2006
      purchase dollars. Concord’s
      primary raw material is secondary carbon steel plate. Secondary material is
      a
      steel mill product that typically is either dimensionally or materially
      non-conforming so the mill cannot sell it to its customers that require
      certified production material.




Concord
      purchases the majority of its inventories at prevailing market prices from
      key
      suppliers with which it has had long-standing, established relationships.
      Concord is generally able to meet its materials requirements because it uses
      many suppliers, there is a substantial overlap of product offerings from these
      suppliers, and there are a number of other suppliers able to provide identical
      or similar materials. Due to the competitive nature of the steel business,
      metal
      prices may increase as a result of product demand, mill surcharges, supplier
      consolidation or other factors that in turn lead to supply constraints or longer
      mill lead times, Concord may not be able to pass its increased material costs
      fully to customers. In recent years and continuing in 2006, there have been
      significant consolidations among suppliers of carbon steel. This trend may
      lead
      to disruptions in Concord’s ability to meet its material requirements. Concord
      anticipates it will be able to meet its material requirements because it
      believes it has good relationships with its suppliers and believes it will
      continue to be among the largest customers of secondary steel from its
      suppliers. We cannot assure you that we will continue to maintain satisfactory
      terms with our suppliers. Our inability to maintain such terms, the loss of
      any
      of our key suppliers, or any other interruption or delay in the supply of our
      required materials, or our inability to obtain these materials at acceptable
      prices or within a reasonable amount of time could impair our ability to meet
      scheduled product deliveries to our customers and could hurt our reputation
      and
      cause customers to cancel orders.




**Environmental,
      Health and Safety Matters**




Concord’s
      operations are subject to many federal, state and local regulations relating
      to
      the protection of the environment and to workplace health and safety. In
      particular, its operations are subject to federal, state and local laws and
      regulations governing waste disposal, air and water emissions, the handling
      of
      hazardous substances, environmental protection, remediation, workplace exposure
      and other matters. Management believes that Concord’s operations are presently
      in substantial compliance with all such laws and does not presently anticipate
      that it will be required to expend any material amounts in the foreseeable
      future in order to meet present environmental, workplace health or safety
      requirements. However, additional costs and liabilities may be incurred to
      comply with future requirements, which costs and liabilities could have a
      material adverse effect on Concord’s results of operations, financial condition
      or cash flows. Some of the properties owned or leased by Concord are located
      in
      industrial areas or have a history of heavy industrial use. Concord may incur
      environmental liabilities with respect to these properties in the future that
      could have a material adverse effect on the Concord’s financial condition or
      results of operations. See “Risk
      Factors - 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” for
      additional information.




**Patents
      and Trademarks**




Concord
      does not own any United States or foreign patents, trademarks or licenses that
      are material to its business. However, it does rely on certain data and
      processes, including trade secrets and know-how, and the success of our business
      depends, to some extent, on such information remaining confidential. Each of
      our
      executive officers is subject to a non-competition and confidentiality agreement
      that seeks to protect this information. Concord protects
      its trade secrets by, among other things, entering into confidentiality
      agreements with key employees regarding such matters and implementing measures
      to restrict access to sensitive data. While Concord considers all of its
      intellectual property rights as a whole to be important, it does not consider
      any single right to be essential to its operations as a whole.




**Employees**




As
      of
      December 31, 2006, Concord employed approximately 245 people in the United
      States, of whom 26 were office employees and approximately 219 were plant
      employees. Approximately 50% of the plant employees are members of the United
      Steelworkers Union. None
      of
      our union
      contracts will expire during the year ended December 31, 2007. On August 31,
      2008, a union contract covering approximately 100 employees at our Warren,
      Ohio
      facility will expire.  We have not experienced a work stoppage during the
      past five years and management believes that our relationships with our
      employees and unions are satisfactory.




5




**Seasonal
      Nature of Business**




A
      portion
      of Concord’s customers experience seasonal slowdowns. Concord’s revenues in the
      months of July, November and December traditionally have been lower than in
      other months because of a reduced number of shipping days, plant shutdowns
      and
      holiday or vacation closures for some customers. Consequently, Concord’s sales
      in the first two quarters of the calendar year are usually higher than in the
      third and fourth quarters.




**Available
      Information**





Our
      Internet address is www.netperceptions.com. We make available free of charge
      on
      or through our Internet website our annual reports on Form 10-K, quarterly
      reports on Form 10-Q, current reports on Form 8-K, and amendments to those
      reports, and the proxy statement for our annual meeting of stockholders as
      soon
      as reasonably practicable after we electronically file such material with,
      or
      furnish it to, the Securities and Exchange Commission. Forms 3, 4 and 5 filed
      with respect to our equity securities under section 16(a) of the Securities
      Exchange Act of 1934, as amended, are also available on our Internet website.
      All of the foregoing materials are located at the ‘‘SEC Filings’’ tab. The
      information found on our website shall not be deemed incorporated by reference
      by any general statement incorporating by reference this report into any filing
      under the Securities Act of 1933, as amended, or under the Securities Exchange
      Act of 1934, as amended, and shall not otherwise be deemed filed under such
      Acts.





We
      have
      adopted a Code of Ethics for Senior Executive Officers and Senior Financial
      Officers, a Code of Business Conduct and Ethics for directors, officers,
      employees, agents, representatives, subsidiaries and affiliates, an Audit
      Committee Charter, Complaint Procedures for Accounting and Auditing Matters,
      a
      Compensation Committee Charter, a Nominating/Corporate Governance Committee
      Charter, and Corporate Governance Guidelines, all of which are available at
      our
      Internet website at the tab ‘‘Investor Relations.’’ We will provide to any
      person without charge, upon request, a copy of the foregoing materials. We
      intend to disclose future amendments to the provisions of the foregoing
      documents, policies and guidelines and waivers therefrom, if any, on our
      Internet website and/or through the filing of Current Reports on Form 8-K with
      the Securities and Exchange Commission.





Materials
      we file with the Securities and Exchange Commission may be read and copied
      at
      the Securities and Exchange Commission’s Public Reference Room at 100 F Street,
      N.E., Washington, D.C. 20549. You may obtain information on the operation of
      the
      Securities and Exchange Commission’s Public Reference Room by calling the
      Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
      Exchange Commission also maintains an Internet website that contains reports,
      proxy and information statements, and other information regarding issuers that
      file electronically with the Securities and Exchange Commission at www.sec.gov.
      In addition, you may request a copy of any such materials, without charge,
      by
      submitting a written request to: Net Perceptions, c/o the Secretary, One
      Landmark Square, 22nd Floor, Stamford, Connecticut 06901.





Information
      on our Internet website does not constitute a part of this Annual Report on
      Form
      10-K.




**Executive
      Officers of the Registrant**




Pursuant
      to General Instruction G(3), the information regarding our executive officers
      called for by Item 401(b) of Regulation S-K is hereby included in Part I of
      this Annual Report on Form 10-K.





The
      executive officers of our Company as of March 29, 2007 are as
      follows:





*Albert
      W. Weggeman* who
      is 43
      years of age ** joined
      Net Perceptions in 2006. Mr. Weggeman has served as President and Chief
      Executive Officer since October 3, 2006. From 2005 until 2006, he served as
      President of Tyden Group, Inc. a global manufacturer of cargo security and
      product identification and traceability technology. From 2001 until 2005 Mr.
      Weggeman was Chief Operating Officer for Key Components, Inc. LLC a company
      specializing in the design and manufacture of engineered components for a broad
      range of OEM applications and customers. From 1999 until 2001 Mr. Weggeman
      was
      President of a General Electric Company subsidiary focused on the manufacture
      and sale of outdoor electrical products. Mr. Weggeman also served in various
      leadership roles in M&A, Marketing, Operations and Strategic Planning
      functions for multinational manufacturing companies. Mr. Weggeman graduated
      with
      an Electrical Engineering degree from Northeastern University in 1988 and an
      MBA
      from Kellogg Graduate School of Management in Chicago in 1992. He is a graduate
      of General Electric Company’s Manufacturing Management Program.




6




*Jonathan
      LaBarre* who is
      37 years of age ** joined
      Net Perceptions in 2006. Mr. LaBarre has served as our Chief Financial
      Officer since December 1, 2006. Prior to Net Perceptions, he served
      as
      a Senior Finance Manager and Global SOX Leader with Terex Corporation, a
      diversified global manufacturer, where he was responsible for corporate
      accounting, mergers and acquisitions due diligence and integration, financial
      planning, and internal compliance functions from February 2002 to November
      2006.
      From April 1999 until January 2002, Mr. LaBarre held various management
      leadership positions in accounting and finance at Pratt & Whitney's
      International Product Center, an operating company of United Technologies
      Corporation and The Stanley Works. Before that, Mr. LaBarre served with the
      U.S.
      Army as a Medical Supply Logistics Non-Commissioned Officer, with eight years
      of
      procurement and management of medical supply warehouses located in Texas, South
      Korea, and the Middle East. He is a CPA and graduated with a B.S. in accounting
      degree from Central Connecticut State University in 1984 and an MBA degree
      from
      Western New England College in 2000.





*Paul
      Vesey* who
      is 51
      years of age ** has
      served as the President
      of Concord since October 3, 2006 and previously served as Concord’s Vice
      President from 1991 to 2006. Since 1980 Mr. Vesey has been employed by Concord
      in a variety of positions including Plant and General Manager with
      responsibilities that have included product development, sales and
      marketing.




**ITEM
      1A. RISK FACTORS**




In
      addition to other information in this annual report on Form 10-K, 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. However, the risks and uncertainties
      described below are not the only ones we face. 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 non-prime (or secondary) 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 will have a negative impact
      on
      our operating results.





**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.




7




**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 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, could adversely affect our financial results.





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





In
      fiscal
      2006, our three largest customers accounted for approximately 57% of our gross
      sales, with our top customer accounting for a significant portion of that
      number, and our ten largest customers accounted for approximately 83% of our
      gross sales. A significant loss of or decrease in business from one or more
      of
      our largest customers could have an adverse effect on our sales and financial
      results 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 adversely affect our financial results.
      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
      harm our business and adversely affect our financial results.





**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.





**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 its financial position, results of operations or cash flows.




8




**Disruptions
      to our business or the business of our customers or suppliers, could 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 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 can
      have an adverse effect on our operations and financial results.





**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 coverage; 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 have a material adverse effect on the market price of our common stock
      and our business, financial condition and results of operations.




**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.**





Net
      Perceptions had no active operations between April 11, 2004 and October 3,
      2006,
      the date on which Net Perceptions acquired assets and certain liabilities of
      Concord. 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. If we are unable to successfully
      address these risks and difficulties, our business and operating results could
      be materially adversely affected.





**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.




9




The
      above
      risks could have a material adverse effect on the market price of our common
      stock and our business, financial condition and results of
      operations.





**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. 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 its
      business.





**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 as
      well
      as our manufacturing capacity capabilities. 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 as
      well
      as our ability to increase and maintain our manufacturing capacity capabilities
      to meet the needs of our current and future customers. Any failure to
      adequately manage our growth could have a material adverse effect on the market
      price of our common stock and our business, financial condition and results
      of
      operations.





**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 contain, 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, the Company’s 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, the
      Company’s 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.




**We
      may be unable to realize the benefits of our net operating loss ("NOL") and
      tax
      credit carryforwards.**





NOL’s
      may be carried
      forward to offset federal and state taxable income in future years and eliminate
      income taxes otherwise payable on such taxable income, subject to certain
      adjustments. Based on current federal corporate income tax rates, our NOL and
      other carryforwards could provide a benefit to us, if fully utilized, of
      significant future tax savings. However, our ability to use these tax benefits
      in future years will depend upon the amount of our otherwise taxable income.
      If
      we do not have sufficient taxable income in future years to use the tax benefits
      before they expire, we will lose the benefit of these NOL carryforwards
      permanently. Consequently, our ability to use the tax benefits associated with
      our substantial NOL will depend significantly on our success in integrating
      Concord Steel, identifying additional suitable merger partners and/or
      acquisition candidates, and once identified, successfully consummate a merger
      with and/or acquisition of these candidates.




10




Additionally,
      if we undergo an ownership change, the NOL carryforward limitations would impose
      an annual limit on the amount of the taxable income that may be offset by our
      NOL generated prior to the ownership change. If an ownership change were to
      occur, we may be unable to use a significant portion of our NOL to offset
      taxable income. In general, an ownership change occurs when, as of any testing
      date, the aggregate of the increase in percentage points of the total amount
      of
      a corporation's stock owned by "5-percent stockholders" within the meaning
      of
      the NOL carryforward limitations whose percentage ownership of the stock has
      increased as of such date over the lowest percentage of the stock owned by
      each
      such "5-percent stockholder" at any time during the three-year period preceding
      such date is more than 50 percentage points. In general, persons who own 5%
      or
      more of a corporation's stock are "5-percent stockholders," and all other
      persons who own less than 5% of a corporation's stock are treated, together,
      as
      a single, public group "5-percent stockholder," regardless of whether they
      own
      an aggregate of 5% of a corporation's stock.





The
      amount of NOL and tax credit carryforwards that we have claimed have not been
      audited or otherwise validated by the U.S. Internal Revenue Service (“IRS”). The
      IRS could challenge our calculation of the amount of our NOL or our
      determinations as to when a prior change in ownership occurred and other
      provisions of the Internal Revenue Code may limit our ability to carry forward
      our NOL to offset taxable income in future years. If the IRS were successful
      with respect to any such challenge, the potential tax benefit of the NOL
      carryforwards to us could be substantially reduced.





**RISKS
      RELATED TO OUR COMMON STOCK**





**Our
      common stock is no longer listed on the NASDAQ Small Cap
      Market.**





On
      September 3, 2004, our common stock was delisted from the NASDAQ Small Cap
      Market. The delisting followed a determination by the NASDAQ Listing
      Qualifications Panel that the Company was a "public shell" and should be
      delisted due to policy concerns raised under NASDAQ Marketplace Rules 4300
      and
      4300(a)(3). Additional information concerning the delisting is set forth in
      the
      Company's Report on Form 8-K filed with the Securities and Exchange Commission
      on September 1, 2004. The Company's common stock is now quoted on the OTC Pink
      Sheets Electronic Quotation Service under the symbol "NETP.PK." As a result
      of
      the delisting, stockholders may find it more difficult to dispose of, or to
      obtain accurate quotations as to the price of our common stock, the liquidity
      of
      our stock may be reduced, making it difficult for a stockholder to buy or sell
      our stock at competitive market prices or at all, we may lose support from
      institutional investors and/or market makers that currently buy and sell our
      stock and the price of our common stock could decline.





**We
      are vulnerable to volatile market conditions.**





The
      market prices of our common stock have been highly volatile. The market has
      from
      time to time experienced significant price and volume fluctuations that are
      unrelated to the operating performance of particular companies. Please see
      the
      table contained in Part II, Item 5 of this report which sets forth the range
      of
      high and low closing prices of our common stock for the calendar quarters
      indicated.





**We
      do not expect to pay dividends on our common stock in the foreseeable future.**





Although
      our stockholders may receive dividends if, as and when declared by our Board
      of
      Directors, we do not intend to pay dividends on our common stock in the
      foreseeable future. Therefore, you should not purchase our common stock if
      you
      need immediate or future income by way of dividends from your investment.





**Our
      amended and restated certificate of incorporation authorizes the issuance of
      shares of preferred stock.**





Our
      Amended and Restated Certificate of Incorporation provides that our Board of
      Directors will be authorized to issue from time to time, without further
      stockholder approval, up to 5,000 shares of preferred stock in one or more
      series and to fix or alter the designations, preferences, rights and any
      qualifications, limitations or restrictions of the shares of each series,
      including the dividend rights, dividend rates, conversion rights, voting rights,
      terms of redemption, including sinking fund provisions, redemption price or
      prices, liquidation preferences and the number of shares constituting any series
      or designations of any series. Such shares of preferred stock could have
      preferences over our common stock with respect to dividends and liquidation
      rights. We may issue additional preferred stock in ways which may delay, defer
      or prevent a change in control of the Company without further action by our
      stockholders. Such shares of preferred stock may be issued with voting rights
      that may adversely affect the voting power of the holders of our common stock
      by
      increasing the number of outstanding shares having voting rights, and by the
      creation of class or series voting rights.




11




**We
      may issue a substantial amount of equity and cash compensation and other shares
      of our common stock in the future which could cause dilution to old investors
      and otherwise adversely affect our stock price.**





A
      key
      element of our growth strategy is to make acquisitions. As part of our
      acquisition strategy, we may issue additional shares of common stock as
      consideration for such acquisitions. In addition, we have limited cash
      compensation to management pending consummation of a redeployment transaction
      and expect to award cash and equity compensation to management in connection
      with such a transaction. These issuances could be significant. To the extent
      that we make acquisitions and issue our shares of common stock as consideration
      or as compensation to management, your equity interest in us will be diluted.
      Any such issuance will also increase the number of outstanding shares of common
      stock that will be eligible for sale in the future. Persons receiving shares
      of
      our common stock in connection with these acquisitions may be more likely to
      sell off their common stock, which may influence the price of our common stock.
      In addition, the potential issuance of additional shares in connection with
      anticipated acquisitions could lessen demand for our common stock and result
      in
      a lower price than might otherwise be obtained. We may issue common stock in
      the
      future for other purposes as well, including in connection with financings,
      for
      compensation purposes, in connection with strategic transactions or for other
      purposes. Cash payments as compensation or otherwise can also significantly
      diminish cash that is available to the Company for working capital and other
      purposes, which could have a material adverse effect on the
      Company.




**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





None.




12




**ITEM
      2. PROPERTIES**





The
      following table lists the principal manufacturing and office facilities and
      the
      primary use of the property at each of the facilities:




**Location**
            
            **Approximate
                Square Footage**
            
            **Owned/Leased**
            
            **Use
                of Property****Corporate**Stamford,
                Connecticut(1)(2)
            
            7,100
            
            —
            
            Headquarters
                and administrative**Concord
                Steel**Warren,
                Ohio
            
            133,000
            
            Owned
            
            Manufacturing
                and administrativeChicago
                Heights, Illinois
            
            187,000
            
            Leased
            
            ManufacturingEssington,
                Pennsylvania
            
            82,800
            
            Leased
            
            Manufacturing


(1)
            Our
                corporate headquarters is currently located in Stamford, Connecticut,
                where we occupy space made available to us by Kanders & Company, Inc.,
                an entity owned and controlled by the Company's Non-Executive Chairman,
                Warren B. Kanders. This arrangement is subject to termination at
                any
                time. (2)
            The
                Company has entered into a ten year lease with Reckson Operating
                Partnership, L.P. for approximately 4,600 square feet of additional
                office
                space.




The
      Company believes that its current manufacturing and office facilities are
      suitable and adequate for its present and anticipated near-term
      needs.





**ITEM
      3. LEGAL PROCEEDINGS**





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.




13




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





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No
      matters were submitted to a vote of security holders, through the solicitation
      of proxies or otherwise, during the quarter ended December 31,
      2006.





14


**PART
      II**





**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
      AND**  **ISSUER
      PURCHASES OF EQUITY SECURITIES**





**Common
      Stock Information**





Our
      common stock was listed on the NASDAQ National Market System on April 23, 1999
      until September 3, 2004, when our common stock was delisted from the NASDAQ
      Small Cap Market following a determination by the NASDAQ Listing Qualifications
      Panel that the Company was a "public shell" and should be delisted due to policy
      concerns raised under NASDAQ Marketplace Rules 4300 and 4300(a) (3). Additional
      information concerning the delisting is set forth in the Company's Current
      Report on Form 8-K filed with the Securities and Exchange Commission on
      September 1, 2004. The Company's common stock is now quoted on the OTC Pink
      Sheets Electronic Quotation Service under the symbol "NETP.PK".





The
      following table sets forth, for the indicated periods, the high and low closing
      sales prices for our common stock as reported by the OTC Pink Sheets Electronic
      Quotation Service. The quotes listed below reflect inter-dealer prices or
      transactions solely between market-makers, without retail mark-up, mark-down
      or
      commission and may not represent actual transactions.




**Price
                Range of**
              **Common
                Stock****High**
            
            **Low****2007**First
                quarter
              (through
                March 20, 2007)
            
            $
            2.92
            
            $
            1.92**2006**First
                Quarter
            
            $
            0.75
            
            $
            0.55Second
                Quarter
            
            $
            0.66
            
            $
            0.55Third
                Quarter
            
            $
            1.80
            
            $
            0.63Fourth
                Quarter
            
            $
            2.76
            
            $
            1.72**2005**First
                Quarter
            
            $
            0.86
            
            $
            0.70Second
                Quarter
            
            $
            1.00
            
            $
            0.62Third
                Quarter
            
            $
            1.14
            
            $
            0.72Fourth
                Quarter
            
            $
            0.78
            
            $
            0.60




**Recent
      Sales of Unregistered Securities**





On October
      3, 2006, at the closing of the acquisition of Concord, the Company sold
      3,529,412 shares (the "CRC Shares") of the Company’s authorized but theretofore
      unissued common stock to CRC Acquisition Co. LLC; the seller of the assets
      acquired by the Company in the acquisition of Concord, at a price of $0.85
      per
      share. There were no underwriters, underwriting discounts or commissions payable
      on account of the sale. The CRC Shares were sold pursuant to a stock purchase
      agreement dated as of October 3, 2006, which provides for (i) one demand
      registration, provided that the demand may not be made within 90 days after
      the
      effectiveness of registration of an underwritten public offering by the Company
      or registration of shares pursuant to any other demand registration right,
      and
      the demand registration may deferred if the Company has determined to effect
      an
      underwritten offering or there is material non-public information or a
      significant business opportunity which the Company’s Board of Directors does not
      want to disclose, and (ii) unlimited piggyback registration rights, subject
      to underwriters' cutback rights ***.*** The
      shares are also subject to a lock-up agreement that expires April 3, 2007.
      The
      sale of the CRC Shares is exempt from registration pursuant to Section 4(2)
      of
      the Securities Act of 1933, as amended.





**Recent
      Purchases Of Our Registered Equity Securities**





We
      did
      not purchase any shares of our common stock during the Company’s fourth quarter
      of 2006.




15




**Performance
      Graph**





Set
      forth
      below is a line graph comparing the yearly percentage change in the cumulative
      total stockholder return on our common stock to the cumulative total return
      of
      the NASDAQ National Market Composite and the Russell 2000 Index for the period
      commencing on December 31, 2001 and ending December 31, 2006 (the “Measuring
      Period”). The graph assumes that the value of the investment in our common stock
      and each index was $100 on December 31, 2001. The yearly change in cumulative
      total return is measured by dividing (1) the sum of (i) the cumulative amount
      of
      dividends for the Measuring Period, assuming dividend reinvestment, and (ii)
      the
      change in share price between the beginning and end of the Measuring Period,
      by
      (2) the share price at the beginning of the Measuring Period.





The
      Company considered providing a comparison consisting of a group of peer
      companies in an industry or line-of business similar to ours, but could not
      reasonable identify a group of comparable peer companies that the Company
      believed would provide our stockholders with a meaningful comparison. The stock
      price performance on the following graph is not necessarily indicative of future
      stock price performance.





**Comparison
      of five-year cumulative return among NETP, NASDAQ and Russell 2000 Composite
      Index**





**12/31/2001**
            
            **12/31/2002**
            
            **12/31/2003**
            
            **12/31/2004**
            
            **12/31/2005**
            
            **12/31/2006**Net
                Perceptions
            
            $
            100.00
            
            $
            81.18
            
            $
            23.53
            
            $
            43.53
            
            $
            36.47
            
            $
            144.12NASDAQ
            
            $
            100.00
            
            $
            68.47
            
            $
            102.72
            
            $
            111.54
            
            $
            113.08
            
            $
            123.84Russell
                2000
            
            $
            100.00
            
            $
            78.42
            
            $
            114.00
            
            $
            133.38
            
            $
            137.81
            
            $
            161.24









16




**STOCKHOLDERS**





On
      March
      20, 2007, the last reported sales price for our common stock was $2.57 per
      share. As of March 20, 2007, there were 212 holders of record of our common
      stock.





**DIVIDENDS**





We
      currently anticipate that we will retain our cash and all potential future
      earnings for use in our business and do not anticipate that we will pay any
      cash
      dividends in the foreseeable future. The payment of any future dividends will
      be
      at the discretion of our Board of Directors and will depend upon, among other
      things, our results of operations, capital requirements, general business
      conditions, contractual restrictions on payment of dividends, if any, legal
      and
      regulatory restrictions on the payment of dividends, and other factors our
      Board
      of Directors deems relevant.





17


**ITEM
      6. SELECTED CONSOLIDATED FINANCIAL DATA**





In
      2004
      the Company ceased previous operations as a developer of marketing solutions
      software. On October 3, 2006, as a result of the Company’s, through SIG
      Acquistion Corp., its wholly-owned subsidiary, acquisition of the assets of
      CRC Acquisition Co. LLC (“CRC”), a manufacturer of steel counterweights, CRC is
      considered to be the predecessor company (the “Predecessor”) from an accounting
      treatment perspective. To assist in the understanding of the results of
      operations, balance sheet data of the Company, relevant prior year financial
      information regarding the Predecessor is, therefore, presented
      herein.





The
      statement of operations data for each of the years ended December 31, 2006,
      2005, and 2004, and the balance sheet data at December 31, 2006 and 2005, are
      derived from, and are qualified by reference to, the audited financial
      statements included elsewhere in this report. The statement of operations data
      for the years ended December 31, 2003 and 2002 and the balance sheet data at
      December 31, 2004, 2003 and 2002 represents the pre-acquisition operating
      results of Net Perceptions, Inc., and are derived from audited financial
      statements not included in this report. The data appearing in the table below
      should be read in conjunction with “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” and the consolidated financial
      statements and the related notes thereto included elsewhere herein.





**NET
      PERCEPTIONS, INC.**


**FIVE
      YEAR CONSOLIDATED FINANCIAL DATA**




**Years
                Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****(in
                thousands, except per share amounts)****Statement
                of Operations Data**Revenues
            
            $
            24,078
            
            $
            118
            
            $
            927
            
            $
            2,584
            
            $
            5,244Gross
                margin
            
            
            4,277
            
            
            118
            
            
            707
            
            
            1,817
            
            
            2,851Operating
                expenses (1) (2) (4)
            
            
            11,576
            
            
            553
            
            
            2,671
            
            
            7,971
            
            
            20,726Loss
                from operations
            
            
            (7,299
            )
            
            (435
            )
            
            (1,964
            )
            
            (6,154
            )
            
            (17,875
            )Other
                income (expense), net
            
            
            (231
            )
            
            642
            
            
            1,903
            
            
            861
            
            
            1,141Net
                income/(loss)
            
            $
            (7,753
            )
            $
            207
            
            $
            (61
            )
            $
            (5,293
            )
            $
            (16,734
            )Basic
                net income/(loss) per share
            
            $
            (0.24
            )
            $
            0.01
            
            $
            -
            
            $
            (0.19
            )
            $
            (0.61
            )Shares
                used in basic calculation
            
            
            32,577
            
            
            28,918
            
            
            28,574
            
            
            27,683
            
            
            27,216Diluted
                net income/(loss) per share
            
            $
            (0.24
            )
            $
            0.01
            
            $
            -
            
            $
            (0.19
            )
            $
            (0.61
            )Shares
                used in diluted calculation
            
            
            32,577
            
            
            33,438
            
            
            28,574
            
            
            27,683
            
            
            27,216Cash
                distributions paid (3)
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            1.50
            
            $
            —**Balance
                Sheet Data**Cash
                and cash equivalents
            
            $
            3,703
            
            $
            203
            
            $
            14,444
            
            $
            11,932
            
            $
            62,959Marketable
                securities
            
            $
            —
            
            $
            14,659
            
            $
            —
            
            $
            —
            
            $
            —Working
                capital
            
            $
            8,047
            
            $
            14,631
            
            $
            14,306
            
            $
            11,600
            
            $
            57,031Total
                assets
            
            $
            62,125
            
            $
            15,195
            
            $
            14,723
            
            $
            12,803
            
            $
            65,796Long-term
                liabilities, net of current portion
            
            $
            27,033
            
            $
            2,533
            
            $
            2,517
            
            $
            —
            
            $
            510Total
                stockholders’ equity
            
            $
            15,505
            
            $
            12,308
            
            $
            12,028
            
            $
            11,635
            
            $
            58,342




(1)
            In
                2002, the Company incurred a restructuring related charge of $0.8
                million
                consisting primarily of charges relating to employee terminations.
                In
                2003, the Company incurred a restructuring related charge of $2.3
                million,
                consisting of charges relating to facility consolidation, lease
                terminations and employee terminations.





(2)
            At
                December 31, 2002, the Company performed an impairment assessment
                of the
                remaining goodwill and other intangible assets recorded in connection
                with
                the acquisition of Knowledge Discovery One, Inc. in 2003, which related
                to
                Net Perceptions’ prior software business. As a result of its review, the
                Company recorded a $6.5 million impairment charge to reduce goodwill
                and
                other intangible assets to zero
                value.





(3)
            On
                September 2, 2003, the Company paid a return of capital cash distribution
                to stockholders of record as of August 18, 2003 in the amount of
                $1.50 per
                share.





(4)
            On
                September 30, 2006, the Company recorded a non-cash compensation
                expense
                of $7.5 million. The expense was for grants of restricted common
                stock to
                the Company’s board of directors and Kanders & Company. See Note 15 to
                the Consolidated Financial
                Statements.




18




In
      the
      table below, we have provided selected historical financial data of
      the Predecessor to assist in the understanding of the results of
      operations and balance sheet data of the Company. The Predecessor’s statement of
      operations data for each of the years in the periods ended December 31, 2005,
      2004 and 2003, respectively and the balance sheet data at December 31, 2005
      and
      2004 are derived from audited financial statements not included in this report.
      The selected financial data for the period January 1, 2006 through October
      3,
      2006 represents the pre-acquisition operating results of the Predecessor in
      2006
      and are unaudited.




**PREDECESSOR’S SELECTED
      FINANCIAL DATA** **(1)**





**Years
                Ended December 31,****January
                1, 2006**
              **to**
              **October
                3, 2006**
              **(unaudited)**
            
            **2005**
            
            **2004**
            
            **2003****(in
                thousands, except per share amounts)****Statement
                of Operations Data**Revenues
            
            $
            61,625
            
            $
            64,404
            
            $
            45,911
            
            $
            20,661Gross
                margin
            
            
            13,274
            
            
            10,693
            
            
            8,204
            
            
            1,529Operating
                expenses
            
            
            2,509
            
            
            2,816
            
            
            2,515
            
            
            2,271Income
                (loss) from operations
            
            
            10,765
            
            
            7,877
            
            
            5,689
            
            
            (742
            )Other
                expense
            
            
            4,043
            
            
            593
            
            
            512
            
            
            393Net
                income/(loss)
            
            $
            6,511
            
            $
            7,228
            
            $
            5,012
            
            $
            (1,107
            )**Balance
                Sheet Data**Cash
                and cash equivalents
            
            $
            —
            
            $
            1,003
            
            $
            79Marketable
                securities
            
            $
            —
            
            $
            —
            
            $
            —Working
                capital
            
            $
            2,966
            
            $
            6,576
            
            $
            3,943Total
                assets
            
            $
            29,103
            
            $
            20,208
            
            $
            14,740Long-term
                liabilities, net of current portion
            
            $
            641
            
            $
            796
            
            $
            1,095Total
                stockholders’ equity
            
            $
            8,976
            
            $
            9,792
            
            $
            6,512




(1)
            The
                information provided was derived from the audited financial statements
                of
                the Predecessor included in the Company’s amended Current Report on Form
                8-K/A filed with the Securities and Exchange Commission on December
                18,
                2006.





**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS**  **OF
      OPERATIONS**





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.




19




**OVERVIEW**




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





The
      following management’s discussion and analysis of financial condition and
      results of operations of Net Perceptions and its Predecessor should be read
      in
      conjunction with the historical financial statements and footnotes of Net
      Perceptions included elsewhere in this report and of CRC as Predecessor,
      included in the Company’s amended Current Report on Form 8-K/A filed with the
      Securities and Exchange Commission on December 18, 2006. Our future results
      of
      operations may change materially from the historical results of operations
      reflected in Net Perceptions, and the Predecessors, historical financial
      statements.





Management’s
      discussion and analysis of financial condition and results of operations is
      based on the historical financial condition and results of operations of CRC
      as
      Predecessor, rather than those of Net Perceptions, prior to October 3,
      2006.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





The
      Company’s discussion and analysis of financial condition and results of
      operations is based upon our consolidated financial statements, which have
      been
      prepared in accordance with accounting principles generally accepted in the
      United States. The preparation of these financial statements requires us to
      make
      estimates and judgments that affect the reported amounts of assets, liabilities,
      revenues and expenses, and related disclosure of contingent assets and
      liabilities. On an on-going basis, the Company evaluates its estimates,
      including those related to bad debts, investments, intangible assets,
      restructuring liabilities, contingencies and litigation. The Company bases
      its
      estimates on historical experience and on various other assumptions that are
      believed to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      from
      these estimates under different assumptions or conditions.





The
      Company believes the following critical accounting policies affect significant
      judgments and estimates used in the preparation of its consolidated financial
      statements. Events occurring subsequent to the preparation of the consolidated
      financial statements may cause the Company to re-evaluate these
      policies.





*Use
      of estimates.* The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States of America requires management to
      make estimates and assumptions that affect the reported amounts therein.
      Management’s estimates are based on historical experience and on various other
      assumptions that are believed to be reasonable under the circumstances. Estimates
      inherent in the preparation of the accompanying Consolidated Financial
      Statements include the carrying value of long-lived assets, valuation allowances
      for receivables, inventories and deferred income tax assets, liabilities for
      potential litigation claims and settlements, and potential liabilities related
      to tax filings in the ordinary course of business. Management’s
      estimates and assumptions are evaluated on an on-going basis. Due to the
      inherent uncertainty involved in making estimates, actual results may differ
      from those estimates.





*Revenue
      Recognition.* The
      Company’s revenue recognition policy requires the recognition of sales when
      there is evidence of a sales agreement, the delivery of goods has occurred,
      the
      sales price is fixed or determinable and the collectibility of revenue is
      reasonably assured. The Company generally records sales upon shipment of product
      to customers and transfer of title under standard commercial terms. When
      the
      Company estimates that a contract with one of its customers will result in
      a
      loss, it will accrue the entire loss as soon as it is probable and estimable.





*Allowance
      for doubtful accounts.* The
      Company maintains allowances for doubtful accounts for estimated losses resulting from
      the inability of its customers to make required payments. If the financial
      condition of our customers deteriorates, resulting in an impairment of their
      ability to make payments, additional allowances will be required.





*Litigation.* The
      Company has not recorded an estimated liability related to the pending class
      action lawsuit in which it was named. For a discussion of this matter, see
      “Legal Proceedings,” in Part I, Item 3 of this report. Due to the uncertainties
      related to both the likelihood and the amount of any potential loss, no estimate
      was made of the liability that could result from an unfavorable outcome. As
      additional information becomes available, the Company will assess the potential
      liability and make or revise its estimate(s) accordingly, which could materially
      impact its results of operations and financial position.





20





*Income
      taxes.* Deferred
      income taxes are provided on the liability method whereby deferred tax assets
      are recognized for deductible temporary differences and operating loss and
      tax
      credit carryforwards and deferred tax liabilities are recognized for taxable
      temporary differences. Temporary differences are the differences between the
      reported amounts of assets and liabilities and their income tax bases. Deferred
      tax assets are reduced by a valuation allowance when, in the opinion of
      management, it is more likely than not that some portion or all of the deferred
      tax assets will not be realized. The recognition of a valuation allowance for
      deferred taxes requires management to make estimates about the Company’s future
      profitability. The estimates associated with the valuation of deferred taxes
      are
      considered critical due to the amount of deferred taxes recorded on the
      consolidated balance sheet and the judgment required in determining the
      Company’s future profitability. Deferred tax assets were $8.1 million and $0 at
      December 31, 2006 and 2005, respectively.




21




COMPARISON
      OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND
      2004




**Combined
      Operating Results for the Year Ended December 31, 2006**





In
      2004
      the Company ceased previous operations as a developer of marketing solutions
      software. On October 3, 2006, as a result of the Company’s, through SIG, its
      wholly-owned subsidiary, acquisition of the assets of CRC, a
      manufacturer of steel counterweights, CRC is considered to be the Predecessor
      from an accounting treatment perspective and CRC’s historical results are
      therefore presented.  For
      the
      purpose of management’s discussion and analysis of financial condition and
      results of operations, we have combined the Company’s results for the year ended
      December 31, 2006 with that of the Predecessor for the period January 1, 2006
      to
      October 3, 2006 and compared that to the results of the Predecessor for the
      year
      ended December 31, 2005. Management believes that this provides the most
      meaningful analysis of the Company’s results for the year ended December 31,
      2006. No proforma adjustments have been included in the table below. Our future
      operating results may change materially from the historical results of
      operations reflected in the Company’s and the Predecessor’s historical financial
      statements.




**Net
                Perceptions**
              **Year
                Ended**
              **December
                31,**
              **2006**
            
            **Predecessor
                Company**
              **January
                1, 2006**
              **to**
              **October
                3, 2006**
            
            **Combined
                Total**
            
            
            **Predecessor**
              **Company**
              **Year
                Ended**
              **December
                31, 2005**
            
            **Variance****(1)**Revenues:Product
            
            $
            24,058
            
            $
            61,625
            
            $
            85,683
            
            
            $
            64,404
            
            $
            21,279Service,
                maintenance androyalty
            
            
            20
            
            
            —
            
            
            20
            
            
            
            —
            
            
            20Total
                revenues
            
            
            24,078
            
            
            61,625
            
            
            85,703
            
            
            
            64,404
            
            
            21,299Cost
                of revenues:Product
            
            
            19,801
            
            
            48,351
            
            
            68,152
            
            
            
            53,711
            
            
            14,441Total
                cost of revenues
            
            
            19,801
            
            
            48,351
            
            
            68,152
            
            
            
            53,711
            
            
            14,441Gross
                margin
            
            
            4,277
            
            
            13,274
            
            
            17,551
            
            
            
            10,693
            
            
            6,858Operating
                expenses:Sales
                and marketing
            
            
            322
            
            
            912
            
            
            1,234
            
            
            
            999
            
            
            235General
                and administrative
            
            
            3,712
            
            
            1,597
            
            
            5,309
            
            
            
            1,817
            
            
            3,492Related
                party stock compensation
            
            
            7,542
            
            
            —
            
            
            7,542
            
            
            
            —
            
            
            7,542Total
                operating expenses
            
            
            11,576
            
            
            2,509
            
            
            14,085
            
            
            
            2,816
            
            
            11,269(Loss)
                income from operations
            
            
            (7,299
            )
            
            10,765
            
            
            3,466
            
            
            
            7,877
            
            
            (4,411
            )Other
                income (expense):Interest
                income
            
            
            566
            
            
            —
            
            
            566
            
            
            
            —
            
            
            566Interest
                expense
            
            
            (775
            )
            
            (507
            )
            
            (1,282
            )
            
            
            (270
            )
            
            (1,012
            )Management
                and loan guaranty fees
            
            
            —
            
            
            (710
            )
            
            (710
            )
            
            
            (323
            )
            
            (387
            )Other
                income (expense)
            
            
            (22
            )
            
            (2,826
            )
            
            (2,848
            )
            
            
            —
            
            
            (2,848
            )Total
                other income (expense), net
            
            
            (231
            )
            
            (4,043
            )
            
            (4,274
            )
            
            
            (593
            )
            
            (3,681
            )(Loss)
                income before taxes
            
            
            (7,530
            )
            
            6,722
            
            
            (808
            )
            
            
            7,284
            
            
            (8,092
            )Provision
                for income taxes
            
            
            223
            
            
            211
            
            
            434
            
            
            
            56
            
            
            378Net
                (loss) income
            
            $
            (7,753
            )
            $
            6,511
            
            $
            (1,242
            )
            
            $
            7,228
            
            $
            (8,470
            )




(1)
      Variance represents the difference between Combined Total and Predecessor
      Company at December 31, 2006 and has been presented to assist the reader in
      evaluating our Financial Statements.





22




REVENUES





On
      a
      combined basis, revenue increased $21.3 million or 33.1% to $85.7 million for
      the total period as compared to $64.4 million for the Predecessor for the year
      ended December 31, 2005. The increase of $21.3 million is primarily due to
      higher sales volume resulting from increased demand for our products from
      existing customers of approximately $16.3 million, as a result of increased
      spending in the commercial and industrial construction, and infrastructure
      building end markets, the addition of several new customers within the elevator
      market and theatrical market for $3.6 million and an increase in scrap metal
      sales of $1.4 million.





GROSS
      MARGIN





Gross
      margin as a percentage of sales increased to 20.5% for the year ended December
      31, 2006 as compared to 16.6% in 2005. The 20.5% increase in margin was due
      to
higher
      fixed cost absorption primarily driven by increased revenue.





OPERATING
      EXPENSES





Combined
      operating expenses for the year ended December 31, 2006 increased $11.3 million
      or 403.6% to $14.1 million as compared to $2.8 million for
      the
      Predecessor for the year ended December 31, 2005 .





*Sales
      and marketing* .
      Sales
      and marketing expenses consisted primarily of salaries, other employee-related
      costs, commissions and other incentive compensation, travel and entertainment
      and expenditures for marketing programs such as collateral materials, trade
      shows, public relations and creative services. For the year ended December
      31,
      2006, sales and marketing expenses increased $0.2 million or 20.0% to $1.2
      million as compared to $1.0 million for the Predecessor year ended December
      31,
      2005. The increase is primarily the result of increased revenues.





*General
      and administrative* .
      General
      and administrative expenses consist primarily of employee compensation,
      insurance, legal, accounting and other professional fees as well as public
      company expenses such as transfer agent expenses and costs related to the
      transition of the Company in October 2006. At December 31, 2006, general and
      administrative expenses increased $3.5 million or 194.4% to $5.3 million as
      compared to $1.8 million for the Predecessor for the year ended December 31,
      2005. The increase is primarily the result of non-recurring charges related
      to
      the sale of CRC.





*Related
      party stock compensation.* The
      Company incurred $7.5 million of compensation expense for the year ended
      December 31, 2006. The increase in related party stock compensation expense
      during the period was primarily due to non-cash compensation expense incurred
      for the grants of restricted common stock to members of the Company’s Board of
      Directors and Kanders & Company, as discussed in Note 15 to the financial
      statements. ** There
      is
      no comparable number for the period ended December 31, 2005.





*Amortization
      of intangibles* .
      The
      Company had amortization expense of $0.3 million for the year ended December
      31,
      2006. The amortization is related to intangible assets acquired as part of
      the
      Concord acquisition.





*Interest
      expense.* Interest
      expense was $1.3 million for the year ended December 31, 2006. The expense
      was
      primarily from the issuance of long-term debt used to finance the purchase
      of
      Concord. The Predecessor had interest expense of $0.3 million in
      2005.








**Predecessor
      Year Ended December 31, 2005 Compared to Predecessor Year Ended December 31,
      2004**





Operating
      results for the Predecessor business for the years ended December 31, 2005
      and
      2004 are as follows:




**(in
                thousands)**
            
            **2005**
            
            **2004**
            
            **Variance**Revenues
            
            $
            64,404
            
            $
            45,911
            
            $
            18,493Gross
                margin
            
            $
            10,693
            
            $
            8,204
            
            $
            2,489Operating
                expenses
            
            $
            2,816
            
            $
            2,515
            
            $
            301Operating
                income
            
            $
            7,877
            
            $
            5,689
            
            $
            2,188Provision
                for income taxes
            
            $
            270
            
            $
            252
            
            $
            18Net
                income
            
            $
            7,228
            
            $
            5,012
            
            $
            2,216




23




REVENUES





Revenues
      increased $18.5 million or 40.3% to $64.4 million for the period ended December
      31, 2005 as compared to $45.9 million for the year ended December 31, 2004.
      The
      increase of $18.5 million is primarily attributable to increased demand for
      Aerial Work Platform equipment to serve the commercial and industrial
      construction markets and the additional capacity added to the Chicago Heights
      facility.





GROSS
      MARGIN





Gross
      margin as a percentage of sales decreased to 16.6% for the year ended December
      31, 2005 as compared to 17.9% in 2004.  The
      decrease is primarily attributable to an increase in material costs, outside
      labor, manufacturing supplies and maintenance.





OPERATING
      EXPENSES





Combined
      operating expenses for the year ended December 31, 2005 increased $0.3 million
      or 12.0% to $2.8 million as compared to $2.5 million for the Predecessor for
      the
      year ended December 31, 2004. The increase in general and administrative
      expenses was due to an increase in employee related expenses partially offset
      by
      a reduction in professional fees.





*Sales
      and marketing* .
      Sales
      and marketing expenses consisted primarily of salaries, other employee-related
      costs, commissions and other incentive compensation, travel and entertainment
      and expenditures for marketing programs such as collateral materials, trade
      shows, public relations and creative services. For both of the years ended
      December 31, 2005 and 2004, marketing expenses were $1.0 million.





*General
      and administrative* .
      General
      and administrative expenses consist primarily of employee compensation,
      insurance, legal, accounting and other professional fees. For the year ended
      December 31, 2005, general and administrative expenses increased $0.3 million
      or
      20.0% to $1.8 million as compared to $1.5 million for the year ended December
      31, 2004. The increase in general and administrative expenses was due to an
      increase in employee related expenses partially offset by a reduction in
      professional fees.





*Interest
      expense.* Interest
      expense was $0.3 million for both of the years ended December 31, 2005 and
      2004.





PROVISION
      FOR INCOME TAXES





We
      have
      incurred significant operating losses for all periods from inception through
      December 31, 2006. For income tax purposes, the Company has available federal
      net operating loss carry-forwards of approximately $125.5 million and research
      and development credit carry-forwards of approximately $0.2 million at December
      31, 2006. The net operating loss and research and development credit
      carry-forwards expire in 2011 through 2026 if not previously utilized. The
      utilization of these carry-forwards may be subject to limitations based on
      past
      and future changes in ownership of the Company pursuant to Internal Revenue
      Code
      Section 382. If the Company were to be acquired at its recent stock value such
      that Section 382 is applicable, this would eliminate the ability to use a
      substantial majority of these carry-forwards. The recognition of a valuation
      allowance for deferred taxes requires management to make estimates about the
      Company’s future profitability. The estimates associated with the valuation of
      deferred taxes are considered critical due to the amount of deferred taxes
      recorded on the consolidated balance sheet and the judgment required in
      determining the Company’s future profitability. Deferred tax assets were $8.1
      million and $0 at December 31, 2006 and 2005, respectively, net of valuation
      allowance of $34.9 million and $43.8 million, respectively.





24




SELECTED
      CONSOLIDATED AND COMBINED QUARTERLY OPERATING RESULTS





The
      following table sets forth quarterly unaudited financial data for 2006 and
      2005
      for Net Perceptions, which ceased previous operations as a developer of
      marketing solutions software in 2004. As a result of Net Perceptions, through
      SIG, its wholly-owned subsidiary, acquiring the assets of CRC, CRC is considered
      to be the Predecessor from an accounting treatment perspective and therefore,
      Net Perceptions’ quarterly
      results
      for the years ended December 31, 2006 and 2005 have been combined with quarterly
      results of the Predecessor. This unaudited financial data has been prepared
      on
      the same basis as the audited financial statements included in this report
      and
      includes all adjustments, consisting only of normal recurring accruals that
      are
      considered necessary for a fair presentation of such information when read
      in
      conjunction with our audited financial statements and notes thereto appearing
      elsewhere in this report. The information appearing below is not indicative
      of
      the results that may be expected for any subsequent period and should be read
      in
      conjunction with the pre-acquisition operating results of CRC, as Predecessor,
      which are included elsewhere in this report.




**NET
                PERCEPTIONS, INC. AND PREDECESSOR**
              **THREE
                MONTHS ENDED****2006**
            
            **2005****Dec.
                31**
            
            **Sep.
                30**
            
            **Jun.
                30**
            
            **Mar.
                31**
            
            **Dec.
                31**
            
            **Sep.
                30**
            
            **Jun.
                30**
            
            **Mar.
                31****(Amounts
                in thousands, except per share amounts)****(Unaudited)****Results
                of Operations:**Revenues:Product
            
            $
            24,945
            
            $
            22,095
            
            $
            20,475
            
            $
            18,168
            
            $
            15,671
            
            $
            16,421
            
            $
            16,451
            
            $
            15,861Service,
                maintenance and royalty
            
            
            —
            
            
            —
            
            
            1
            
            
            19
            
            
            59
            
            
            17
            
            
            32
            
            
            10Total
                revenues
            
            
            24,945
            
            
            22,095
            
            
            20,476
            
            
            18,187
            
            
            15,730
            
            
            16,438
            
            
            16,483
            
            
            15,871Cost
                of revenues:Product
            
            
            20,285
            
            
            18,072
            
            
            15,427
            
            
            14,368
            
            
            13,200
            
            
            13,190
            
            
            13,785
            
            
            13,536Total
                cost of revenues
            
            
            20,285
            
            
            18,072
            
            
            15,427
            
            
            14,368
            
            
            13,200
            
            
            13,190
            
            
            13,785
            
            
            13,536Gross
                margin
            
            
            4,660
            
            
            4,023
            
            
            5,049
            
            
            3,819
            
            
            2,530
            
            
            3,248
            
            
            2,698
            
            
            2,335Operating
                expenses:Sales
                and Marketing
            
            
            329
            
            
            338
            
            
            319
            
            
            248
            
            
            300
            
            
            238
            
            
            242
            
            
            219General
                and administrative
            
            
            3,177
            
            
            859
            
            
            719
            
            
            554
            
            
            1,004
            
            
            595
            
            
            394
            
            
            377Related
                party stock compensation
            
            
            —
            
            
            7,542
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —(Gain)
                loss from litigation settlement
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            1
            
            
            5
            
            
            —
            
            
            (229
            )Total
                operating expenses
            
            
            3,506
            
            
            8,739
            
            
            1,038
            
            
            802
            
            
            1,305
            
            
            838
            
            
            636
            
            
            367Income
                (loss) from operations
            
            
            1,154
            
            
            (4,716
            )
            
            4,011
            
            
            3,017
            
            
            1,225
            
            
            2,410
            
            
            2,062
            
            
            1,968Interest
                income
            
            
            47
            
            
            184
            
            
            176
            
            
            159
            
            
            142
            
            
            125
            
            
            104
            
            
            83Interest
                expense
            
            
            (780
            )
            
            (162
            )
            
            (171
            )
            
            (168
            )
            
            (93
            )
            
            (88
            )
            
            (74
            )
            
            (83
            )Other
                (expense) income, net
            
            
            (1,462
            )
            
            (1,865
            )
            
            (124
            )
            
            (107
            )
            
            (78
            )
            
            (108
            )
            
            (43
            )
            
            (61
            )(Loss)
                income before income taxes
            
            
            (1,041
            )
            
            (6,559
            )
            
            3,892
            
            
            2,901
            
            
            1,196
            
            
            2,339
            
            
            2,049
            
            
            1,907Provision
                for income taxes
            
            
            223
            
            
            36
            
            
            114
            
            
            62
            
            
            46
            
            
            —
            
            
            4
            
            
            6Net
                (loss) income
            
            $
            (1,264
            )
            $
            (6,595
            )
            $
            3,778
            
            $
            2,839
            
            $
            1,150
            
            $
            2,339
            
            $
            2,045
            
            $
            1,901





25




**LIQUIDITY
      AND CAPITAL RESOURCES**





**Liquidity**





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





The
      Credit Agreement establishes a commitment by the lenders to SIG to provide
      up to $40.0 million in the aggregate of loans and other financial accommodations
      consisting of (i) a five-year senior secured term loan in an aggregate principal
      amount of $28.0 million, (ii) a five-year senior secured revolving credit
      facility in the aggregate principal amount of $10.0 million (the “Revolving
      Facility”) and (iii) a five-year senior secured capital expenditure facility in
      the aggregate principal amount of $2.0 million. The Revolving Facility is
      further subject to a borrowing base consisting of up to 85% of eligible accounts
      receivable and up to 55% of eligible inventory. The Revolving Facility includes
      a sublimit of up to an aggregate amount of $5.0 million in letters of credit
      and
      a sublimit of up to an aggregate amount of $2.5 million in swing line loans.
      The
      capital expenditure facility permits the Company to draw funds for the purchase
      of machinery and equipment during the 6-month period ending March 3, 2007,
      and
      then converts into a 4.5-year term loan. Immediately following the closing
      of
      the Concord Acquisition, the Company drew down approximately $31.3 million
      and
      had additional availability under the Revolving Facility of approximately $6.7
      million. There were no amounts drawn under the capital expenditure facility
      at
      the time of closing of the credit facility nor were there any amounts drawn
      down
      prior to March 3, 2007. At
      December 31, 2006, the outstanding balance from the revolving credit facility
      amounted to $3.3 million with $5.1 million available in additional borrowings
      net of $1.6 million in outstanding letters of credit. The balance under the
      term
      loan at December 31, 2006 was $28.0 million of which $3.5 million is classified
      as current and $24.5 million is classified as long-term .
      During
      the period ended December 31, 2006 and as of March 3, 2007 the Company was
      in
      compliance with all covenants under the credit facility.





Borrowings
      under the Credit Agreement bear interest, at the Company’s election, at either
      (i) a rate equal to London
      Interbank Offer Rate (“LIBOR”) ,
      plus an
      applicable margin ranging from 1.25% to 2.5%, depending on certain conditions,
      or (ii) an alternate base rate which will be the greater of (a) the Federal
      Funds rate plus 0.5% or (b) the prime rate publicly announced by the Agent
      as
      its prime rate, plus, in both cases, an applicable margin ranging from 0% to
      1.0%, depending on certain conditions. 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 the Company and (b) a first priority
      perfected security interest on substantially all the assets of the Company
      and
      its direct and indirect subsidiaries pursuant to a guaranty and collateral
      agreement dated October 3, 2006 and delivered in connection with the Credit
      Agreement (the “Guaranty Agreement”). In addition, LaSalle Bank acting as the
      Agent, for the benefit of the lenders, has a mortgage on all owned real estate
      of the Company and its direct and indirect subsidiaries, as well as deposit
      account control agreements with respect to funds on deposit in bank accounts
      of
      the Company and its direct and indirect subsidiaries.





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





On
      April
      21, 2004, the Company closed on an investment into the Company by Olden
      Acquisition LLC (“Olden”) ,
      an
      affiliate of Kanders & Company, Inc., for
      the
      purpose of initiating a strategy to redeploy the Company’s assets and use the
      Company’s cash, cash equivalent assets and marketable securities to enhance
      stockholder value. The Company issued and sold to Olden a 2% ten-year
      Convertible Subordinated Note, which is convertible after one year (or
      earlier upon a call by the Company and in certain other circumstances) at
      a
      conversion price of $0.45 per share of Company common stock into approximately
      19.9% of the outstanding common equity of the Company as of the closing date.
      Proceeds to the Company from this transaction totaled approximately $2.5 million
      before transaction costs of $0.3 million. The transaction costs are being
      amortized over ten years, the term of the debt. Interest on the note accrues
      semi-annually but is not payable currently or upon conversion of the note.
      The
      note matures on April 21, 2014. The convertible subordinated note was deemed
      to
      include a beneficial conversion feature. At the date of issuance, the Company
      allocated $0.1 million to the beneficial conversion feature and amortized the
      beneficial conversion feature over one year (the period after which the note
      is
      convertible). As of December 31, 2005, zero remained to be amortized of the
      note
      discount due to the beneficial conversion feature. Also in connection with
      this
      transaction, the Company entered into a registration rights agreement (the
      “Rights Agreement”), which requires the Company, upon request of the purchaser
      of the note or its assignee, to register under the Securities Act of 1933,
      as
      amended, the resale of the shares of common stock into which the note is
      convertible. In connection with this transaction, the Board of Directors adopted
      an amendment to the Company’s Rights Agreement such that the transaction would
      not trigger the rights thereunder. As of December 31, 2006 and 2005,
      respectively the outstanding balance on the note payable amounted to $2.5
      million and is classified as long-term debt.




26




**Operating
      Activities**





Net
      cash
      provided by operating activities was $1.0 million for the year ended December
      31, 2006, reflecting the net loss of $7.8 million, which includes non-cash
      related party stock compensation expenses of $7.5 million. Net cash provided
      by
      operating activities for the Predecessor was $4.3 million for the year ended
      December 31, 2005, reflecting the net income of $7.2 million, which includes
      depreciation and amortization expenses of $0.4 million. Net cash provided by
      operating activities for the Predecessor was $2.0 million for the year ended
      December 31, 2004, reflecting net income of $5.0 million, which includes
      depreciation and amortization expenses of $0.4 million.





**Investing
      Activities**





Net
      cash
      used in investing activities was $31.3 million for the year ended December
      31,
      2006. Cash paid for acquisitions and related costs were $45.3 million partially
      offset by $14.7 million of proceeds from the sale of marketable securities
      used
      to purchase Concord. Capital expenditures were $0.6 million. Net cash used
      in
      investing activities for the Predecessor was $0.8 million for the year ended
      December 31, 2005, primarily resulting from capital expenditures. Net cash
      used
      in investing activities for the Predecessor was $0.3 million for the year ended
      December 31, 2004, primarily resulting from capital expenditures.





**Financing
      Activities**





Net
      cash
      provided by financing activities was $33.7 million for the year ended December
      31, 2006. The net proceeds were from the issuance of long-term debt of $28.0
      million, $3.3 million of borrowings under the short-term revolving facility
      as a
      result of the acquisition of Concord Steel, $3.0 million investment from CRC
      Acquisition Co. LLC offset by debt issuance costs of $0.6 million. Net cash
      used
      in financing activities for the Predecessor was $2.5 million for the year ended
      December 31, 2005. The cash was used to pay down long-term debt of $0.3 million,
      to make distributions to members in the amount of $3.9 million and was offset
      by
      proceeds of $1.7 million from the line of credit. Net cash used in financing
      activities for the Predecessor was $1.9 million for the year ended December
      31,
      2004. The cash was used to pay down the revolving line of credit for $0.9
      million, pay down long-term debt of $0.3 million and to make distributions
      to
      members in the amount of $0.7 million.





We
      believe that existing cash and investments will be sufficient to meet our
      expected working capital needs for at least the next twelve months.




**Capital
      Expenditures**




The
      Company anticipates capital expenditures, excluding acquisitions, of $2.9
      million for fiscal 2007. The Company expects capital expenditures will be funded
      from cash generated by operations and/or from a capital expenditure facility
      with LaSalle Bank. The primary driver of increased capital expenditures in
      2007
      is related to the machinery and equipment for the new Essington, Pennsylvania
      manufacturing facility.




**CONTRACTUAL
      OBLIGATIONS**





In
      addition to our scheduled maturities of debt, we have future cash obligations
      under various types of contracts. We lease office space, manufacturing
      facilities and equipment under long-term operating leases. We have also entered
      into long-term employment agreements with certain of our executives and other
      key employees. These contracts typically contain provisions that allow us to
      terminate the contract with good cause.





27




The
      following summarizes the Company's contractual obligations and commercial
      commitments at December 31, 2006 with initial or remaining terms of one or
      more
      years, and the effect such obligations are expected to have on our liquidity
      and
      cash flow in future periods:





**Contractual
                Obligations**
            
            **Total**
            
            **Less
                than**
              **1
                year**
            
            **1
                - 3**
              **years**
            
            **3
                - 5**
              **years**
            
            **More
                Than**
              **5
                years**Long-term
                debt and notes payable
            
            $
            33,819
            
            $
            6,786
            
            $
            8,000
            
            $
            16,500
            
            $
            2,533Estimated
                interest on long-term debt(1)
                (2)
            
            
            7,481
            
            
            2,176
            
            
            3,428
            
            
            1,759
            
            
            118Non-cancelable
                operating leases
            
            
            6,878
            
            
            648
            
            
            1,319
            
            
            1,345
            
            
            3,566Total
            
            $
            48,178
            
            $
            9,610
            
            $
            12,747
            
            $
            19,604
            
            $
            6,217





(1)
            Variable
                rates used were those in effect atDecember
                31, 2006.


(2)
            Interest
                paymentsrelated
                to our short-term debt are not included in the table as they do not
                represent a significant obligation as of December 31,
                2006.





The
      Company does not engage in any transactions or have relationships or other
      arrangements with unconsolidated entities. These include special purpose and
      similar entities or other off-balance sheet arrangements. The Company also
      does
      not engage in the trading of energy, weather or other commodity-based
      contracts.





**RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS**





In
      September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” which
      provides enhanced guidance for using fair value to measure assets and
      liabilities. The standard also expands the amount of disclosure regarding the
      extent to which companies’ measure assets and liabilities at fair value, the
      information used to measure fair value, and the effect of fair value
      measurements on earnings. The standard applies whenever other standards require
      (or permit) assets or liabilities to be measured at fair value but does not
      expand the use of fair value in any new circumstances. This statement is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. The Company
      does not anticipate any material impact to its financial statements from the
      adoption of this standard.





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. 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. We
      adopted this accounting standard in the fourth quarter of the year ended
      December 31, 2006. Adoption of SAB No. 108 did not have a material impact
      on our financial statements.





In
      July
      2006, the Financial Accounting Standards Board (‘‘FASB’’) issued FASB
      Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an
      interpretation of FASB Statement No. 109 (‘‘FIN 48’’), which clarifies the
      accounting for uncertainty in tax positions. The provisions of FIN 48 are
      effective for fiscal years beginning after December 15, 2006. We are currently
      evaluating the impact of FIN 48 on our financial statements and currently plan
      to adopt this interpretation in the first quarter of 2007.





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
      period ended December 31, 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.





28





**ITEM
      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





Through
      December 31, 2006, the majority of our recognized revenues were denominated
      in
      United States dollars and were primarily from customers in the United States,
      and our exposure to foreign currency exchange rate changes has been immaterial.
      As described elsewhere in this report, we are no longer actively marketing
      our
      products. Accordingly, we do not consider significant our exposure to foreign
      currency exchange rate changes arising from revenues being denominated in
      foreign currencies.





***Interest
      Rate Risk***





The
      Company’s primary exposure to market risk is interest rate risk associated with
      our senior credit facilities. The
      Company has a long-term credit facility that bears interest, at the Company’s
      election, at either (i) a rate equal to three month variable London
      Interbank Offer Rate (“LIBOR”) ,
      plus an
      applicable margin ranging from 1.25% to 2.5%, depending on certain conditions,
      or (ii) an alternate base rate which will be the greater of (a) the Federal
      Funds rate plus 0.5% or (b) the prime rate publicly announced by the Agent
      as
      its prime rate, plus, in both cases, an applicable margin ranging from 0% to
      1.0%, depending on certain conditions. At December 31, 2006 the applicable
      interest rate for the outstanding borrowings under the Credit Agreement was
      7.9%.





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





The
      Company’s exposure to market risk is limited to interest income sensitivity,
      which is affected by changes in the general level of United States interest
      rates because all of our investments are in debt securities issued by the United
      States government. The Company’s investments consist of United
      States Government Agency and Treasury Securities in order to preserve
      principal, liquidity and stabilize interest income. Therefore, due to the
      conservative nature of our investments, our future interest income sensitivity
      and risk are limited.





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







29




**ITEM
      8. FINANCIAL STATEMENTS**




**NET
      PERCEPTIONS, INC.**





**Index
      to Consolidated Financial Statements**




******Page**Reports
                of Independent Registered Public Accounting Firms
            31Consolidated
                Balance Sheets - December 31, 2006 and 2005 and December 31, 2005
                (Predecessor)
            34Consolidated
                Statements of Operations - Years ended December 31, 2006,
              2005
                and 2004, the period January 1, 2006 to October 3, 2006 (Predecessor)
                and
                the years ended December 31, 2005 and 2004 (Predecessor)
            35Consolidated
                Statement of Stockholders’ Equity and Comprehensive Income
              (Loss)
                - Years Ended December 31, 2006, 2005 and 2004
            36Consolidated
                Statements of Cash Flows - Years Ended December 31, 2006,
              2005
                and 2004, the period January 1, 2006 to October 3, 2006 (Predecessor)
                and
                the years ended December 31, 2005 and 2004 (Predecessor)
            37Notes
                to the Consolidated Financial Statements
            38





30


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and Stockholders


Net
      Perceptions, Inc.


Stamford,
      Connecticut





We
      have
      audited the consolidated balance sheet of Net Perceptions, Inc. and subsidiaries
      as of December 31, 2006, and the related consolidated statements of operations,
      stockholders’ equity and comprehensive income (loss), and cash flows for the
      year then ended. These financial statements are the responsibility of the
      Company's management. Our responsibility is to express an opinion on these
      financial statements based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Net Perceptions, Inc. and
      subsidiaries as of December 31, 2006, and the results of their operations and
      their cash flows for the year then ended in conformity with U.S. generally
      accepted accounting principles.







/s/
      McGladrey & Pullen LLP


McGladrey
      & Pullen, LLP


Stamford,
      Connecticut


March
      29,
      2007




31




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and Stockholders


Net
      Perceptions, Inc.


Stamford,
      Connecticut





We
      have
      audited the balance sheet of CRC Acquisition Co., LLC (the “predecessor
      company”- see Note 1) as of December 31, 2005, and the related statements of
      operations and cash flows for the period from January 1, 2006 to October 3,
      2006, and for the years ended December 31, 2005 and 2004. These financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of CRC Acquisition Co., LLC as of
      December 31, 2005, and the results of its operations and its cash flows for
      the
      period from January 1, 2006 to October 3, 2006, and for the years ended December
      31, 2005 and 2004, in conformity with U.S. generally accepted accounting
      principles.








/s/
      McGladrey & Pullen LLP


McGladrey
      & Pullen, LLP


Stamford,
      Connecticut


March
      29,
      2007





32




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To the
        Board
        of Directors and Stockholders
 Net
        Perceptions, Inc.
 Stamford,
        Connecticut
  In
        our
        opinion, the consolidated balance sheet as of December 31, 2005 and the related
        consolidated statements of operations, of stockholders' equity and comprehensive
        income/(loss) and of cash flows for each of two years in the period ended
        December 31, 2005 present fairly, in all material respects, the financial
        position of Net Perceptions, Inc. and its subsidiaries (the Company) at December
        31, 2005, and the results of their operations and their cash flows for each
        of
        the two years in the period ended December 31, 2005, in conformity with
        accounting principles generally accepted in the United States of America.
        These
        financial statements are the responsibility of the Company's management.
        Our
        responsibility is to express an opinion on these financial statements based
        on
        our audits. We conducted our audits of these statements in accordance with
        the
        standards of the Public Company Accounting Oversight Board (United States).
        Those standards require that we plan and perform the audit to obtain reasonable
        assurance about whether the financial statements are free of material
        misstatement. An audit includes examining, on a test basis, evidence supporting
        the amounts and disclosures in the financial statements, assessing the
        accounting principles used and significant estimates made by management,
        and
        evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
  During
        the year ended December 31, 2004 the Company curtailed substantially all
        of its
        previous business operations as a provider of marketing solutions
        software.
   /s/ PricewaterhouseCoopers
        LLP
 PricewaterhouseCoopers
        LLP
 Charlotte,
        North Carolina
 March
        31,
        2006


33




**NET
      PERCEPTIONS, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(in
      thousands, except per share amounts)**





**Years
                Ended**
            
            
            **Predecessor**
              **Company
                (1)****December
                31,**
              **2006**
            
            **December
                31,**
              **2005**
            
            
            **Year
                Ended**
              **December
                31,**
              **2005****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            3,703
            
            $
            203
            
            
            $
            1,003Marketable
                securities available for sale
            
            
            —
            
            
            14,659
            
            
            
            —Accounts
                reveivable, net
            
            
            9,276
            
            
            —
            
            
            
            4,301Inventory
            
            
            14,094
            
            
            —
            
            
            
            10,743Deferred
                tax asset
            
            
            2,684
            
            
            —
            
            
            
            —Prepaid
                expenses and other current assets
            
            
            561
            
            
            123
            
            
            
            149Total
                current assets
            
            
            30,318
            
            
            14,985
            
            
            
            16,196Property,
                plant and equipment, net
            
            
            3,773
            
            
            —
            
            
            
            3,876Deferred
                financing costs, net
            
            
            797
            
            
            210
            
            
            
            4Intangible
                assets, net
            
            
            21,572
            
            
            —
            
            
            
            —Deferred
                tax asset
            
            
            5,368
            
            
            —
            
            
            
            —Other
                assets
            
            
            297
            
            
            —
            
            
            
            132Total
                assets
            
            $
            62,125
            
            $
            15,195
            
            
            $
            20,208**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Notes
                payable
            
            $
            3,286
            
            $
            —
            
            
            $
            3,450Current
                portion of long-term debt
            
            
            3,500
            
            
            —
            
            
            
            277Accounts
                payable
            
            
            9,596
            
            
            46
            
            
            
            4,583Accrued
                expenses and other liabilities
            
            
            3,029
            
            
            308
            
            
            
            955Income
                taxes payable
            
            
            176
            
            
            —
            
            
            
            355Total
                current liabilities
            
            
            19,587
            
            
            354
            
            
            
            9,620Long-term
                debt, less current portion
            
            
            27,033
            
            
            2,533
            
            
            
            796Total
                liabilities
            
            
            46,620
            
            
            2,887
            
            
            
            10,416Commitments
                and contingencies (Note 12)Stockholders’
                and Members' equity:Members'
                equity
            
            
            —
            
            
            —
            
            
            
            9,792Preferred
                stock — $.0001 par value; 5,000 shares authorized;no shares issued or
                outstanding
            
            
            —
            
            
            —
            
            
            
            —Common
                stock — $.0001 par value; 100,000 shares authorized;41,676 and 29,348
                shares issued and 41,676
                and 28,918outstanding at December 31, 2006 and 2005,
                respectively
            
            
            3
            
            
            2
            
            
            
            —Additional
                paid-in capital
            
            
            245,237
            
            
            234,400
            
            
            
            —Unearned
                stock compensation
            
            
            —
            
            
            (108
            )
            
            
            —Accumulated
                other comprehensive loss - unrealized losson available for sales
                securities
            
            
            —
            
            
            (4
            )
            
            
            —Accumulated
                deficit
            
            
            (229,735
            )
            
            (221,982
            )
            
            
            —Total
                stockholders’ equity
            
            
            15,505
            
            
            12,308
            
            
            
            9,792Total
                liabilities and stockholders’ equity
            
            $
            62,125
            
            $
            15,195
            
            
            $
            20,208





(1)
            Because
                the Company had no operations at the time of the Concord Steel acquisition
                (see Note 1 and 16), Concord Steel is considered to be the
                “Predecessor” of the Company for accounting purposes and, therefore
                relevant prior year financial information regarding the Predecessor
                has
                been presented herein.




See
      accompanying notes to the consolidated financial statements.





34




**NET
      PERCEPTIONS, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(in
      thousands, except per share amounts)**





**Predecessor
                Company (1)****Years
                Ended**
            
            
            
            
            **Years
                Ended****December
                31,**
              **2006**
            
            **December
                31,**
              **2005**
            
            **December
                31,**
              **2004**
            
            
            **January
                1, 2006**
              **to**
              **October
                3, 2006**
              **(unaudited)**
            
            **December
                31,**
              **2005**
            
            **December
                31,**
              **2004**Revenues:Product
            
            $
            24,058
            
            $
            —
            
            $
            405
            
            
            $
            61,625
            
            $
            64,404
            
            $
            45,911Service,
                maintenance androyalty
            
            
            20
            
            
            118
            
            
            522
            
            
            
            —
            
            
            —
            
            
            —Total
                revenues
            
            
            24,078
            
            
            118
            
            
            927
            
            
            
            61,625
            
            
            64,404
            
            
            45,911Cost
                of revenues:Product
            
            
            19,801
            
            
            —
            
            
            —
            
            
            
            48,351
            
            
            53,711
            
            
            37,707Service,
                maintenance androyalty
            
            
            —
            
            
            —
            
            
            220
            
            
            
            —
            
            
            —
            
            
            —Total
                cost of revenues
            
            
            19,801
            
            
            —
            
            
            220
            
            
            
            48,351
            
            
            53,711
            
            
            37,707Gross
                margin
            
            
            4,277
            
            
            118
            
            
            707
            
            
            
            13,274
            
            
            10,693
            
            
            8,204Operating
                expenses:Sales
                and marketing
            
            
            322
            
            
            —
            
            
            —
            
            
            
            912
            
            
            999
            
            
            1,027Research
                and development
            
            
            —
            
            
            —
            
            
            250
            
            
            
            —
            
            
            —
            
            
            —General
                and administrative
            
            
            3,889
            
            
            553
            
            
            2,428
            
            
            
            1,597
            
            
            1,817
            
            
            1,488Related
                party stock compensation
            
            
            7,365
            
            
            —
            
            
            —
            
            
            
            —
            
            
            —
            
            
            —Restructuring
                related chargesand impairments
            
            
            —
            
            
            —
            
            
            (7
            )
            
            
            —
            
            
            —
            
            
            —Total
                operating expenses
            
            
            11,576
            
            
            553
            
            
            2,671
            
            
            
            2,509
            
            
            2,816
            
            
            2,515(Loss)
                income from operations
            
            
            (7,299
            )
            
            (435
            )
            
            (1,964
            )
            
            
            10,765
            
            
            7,877
            
            
            5,689Other
                income (expense):Interest
                income
            
            
            566
            
            
            454
            
            
            172
            
            
            
            —
            
            
            —
            
            
            —Interest
                expense
            
            
            (775
            )
            
            (68
            )
            
            (75
            )
            
            
            (507
            )
            
            (270
            )
            
            (252
            )Management
                and loan guaranty fees
            
            
            —
            
            
            —
            
            
            —
            
            
            
            (710
            )
            
            (323
            )
            
            (277
            )Other
                income (expense)
            
            
            (22
            )
            
            256
            
            
            1,806
            
            
            
            (2,826
            )
            
            —
            
            
            17Total
                other income (expense), net
            
            
            (231
            )
            
            642
            
            
            1,903
            
            
            
            (4,043
            )
            
            (593
            )
            
            (512
            )(Loss)
                income before taxes
            
            
            (7,530
            )
            
            207
            
            
            (61
            )
            
            
            6,722
            
            
            7,284
            
            
            5,177Provision
                for income taxes
            
            
            223
            
            
            —
            
            
            —
            
            
            
            211
            
            
            56
            
            
            165Net
                (loss) income
            
            $
            (7,753
            )
            $
            207
            
            $
            (61
            )
            
            $
            6,511
            
            $
            7,228
            
            $
            5,012Basic
                net (loss) income per share
            
            $
            (0.24
            )
            $
            0.01
            
            $
            0.00Shares
                used in basic calculation
            
            
            32,577
            
            
            28,918
            
            
            28,574Diluted
                net (loss) income per share
            
            $
            (0.24
            )
            $
            0.01
            
            $
            0.00Shares
                used in diluted calculation
            
            
            32,577
            
            
            33,438
            
            
            28,574





(1)
              Because
                  the Company had no operations at the time of the Concord Steel
                  acquisition
                  (see Note 1 and 16), Concord Steel is considered to be the
                  “Predecessor” of the Company for accounting purposes and, therefore
                  relevant prior year financial information regarding the Predecessor
                  has
                  been presented herein.


See
      accompanying notes to the consolidated financial statements.





35




**NET
        PERCEPTIONS, INC.**
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS’ EQUITY
        AND
        COMPREHENSIVE INCOME (LOSS)Years Ended December 31, 2006, 2005 and
        2004**
 **(in
        thousands)**




**Common
                Stock**
            
            **Additional
                Paid-in**
            
            **Accumulated**
              **Other**
              **Comprehensive**
            
            **Unearned**
              **Stock**
            
            **Accumulated**
            
            **Total**
              **Stockholders'**
            
            **Comprehensive****Shares**
            
            
            **Amount**
            
            **Capital**
            
            **Income
                (Loss)**
            
            **Compensation**
            
            **Deficit**
            
            **Equity**
            
            **Income
                (Loss)**Balance,
                December 31, 2003
            
            
            28,145
            
            $
            2
            
            $
            233,761
            
            $
            —
            
            $
            —
            
            $
            (222,128
            )
            $
            11,635Exercise
                of stock options
            
            
            529
            
            
            —
            
            
            153
            
            
            —
            
            
            —
            
            
            —
            
            
            153Discount
                on note payable relatedtobeneficial
                conversion feature
            
            
            —
            
            
            —
            
            
            56
            
            
            —
            
            
            —
            
            
            —
            
            
            56Restricted
                stock grant and related
              compensation
            
            
            608
            
            
            —
            
            
            380
            
            
            —
            
            
            (135
            )
            
            —
            
            
            245Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (61
            )
            
            (61
            )
            $
            (61
            )Balance,
                December 31, 2004
            
            
            29,282
            
            
            2
            
            
            234,350
            
            
            —
            
            
            (135
            )
            
            (222,189
            )
            
            12,028
            
            $
            (61
            )Restricted
                stock grant and
              related
                compensation
            
            
            66
            
            
            —
            
            
            50
            
            
            —
            
            
            27
            
            
            —
            
            
            77Change
                in unrealized loss
              on
                available-for-sale
              securities
            
            
            —
            
            
            —
            
            
            —
            
            
            (4
            )
            
            —
            
            
            —
            
            
            (4
            )
            $
            (4
            )Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            207
            
            
            207
            
            
            207Balance,
                December 31, 2005
            
            
            29,348
            
            
            2
            
            
            234,400
            
            
            (4
            )
            
            (108
            )
            
            (221,982
            )
            
            12,308
            
            $
            203Exercise
                of stock options
            
            
            100
            
            
            —
            
            
            74
            
            
            —
            
            
            —
            
            
            —
            
            
            74Restricted
                stock grant and
              related
                compensation
            
            
            425
            
            
            —
            
            
            399
            
            
            —
            
            
            108
            
            
            —
            
            
            507Registered
                stock issued to CRC
            
            
            3,529
            
            
            —
            
            
            3,000
            
            
            —
            
            
            
            
            
            —
            
            
            3,000Unregistered
                stock issued
            
            
            8,274
            
            
            1
            
            
            7,364
            
            
            —
            
            
            —
            
            
            —
            
            
            7,365Change
                  in unrealized losson
                  available-for-salesecurities
            
            
            —
            
            
            —
            
            
            —
            
            
            4
            
            
            —
            
            
            —
            
            
            4
            
            $
            4Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (7,753
            )
            
            (7,753
            )
            
            (7,753
            )Balance,
                December 31, 2006
            
            
            41,676
            
            $
            3
            
            $
            245,237
            
            $
            —
            
            $
            —
            
            $
            (229,735
            )
            $
            15,505
            
            $
            (7,749
            )




See
      accompanying notes to the consolidated financial statements.





36




**NET
      PERCEPTIONS, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(in
      thousands)**





**Predecessor
                Company (1)****Years
                Ended**
            
            
            
            
            **Years
                Ended****December
                31,**
              **2006**
            
            **December
                31,**
              **2005**
            
            **December
                31,**
              **2004**
            
            
            **January
                1, 2006**
              **to**
              **October
                3, 2006**
              **(unaudited)**
            
            **December
                31,**
              **2005**
            
            **December
                31,**
              **2004**Cash
                flows from operating activities:Net
                (loss) income
            
            $
            (7,753
            )
            $
            207
            
            $
            (61
            )
            
            $
            6,511
            
            $
            7,228
            
            $
            5,012Reconciliation
                of net (loss) income to net cash provided by operating
                activities:Depreciation
            
            
            71
            
            
            —
            
            
            —
            
            
            
            414
            
            
            443
            
            
            387Amortization
            
            
            261
            
            
            —
            
            
            —
            
            
            
            3
            
            
            4
            
            
            4(Recovery)
                provision for doubtful accounts
            
            
            —
            
            
            —
            
            
            (22
            )
            
            
            13
            
            
            (20
            )
            
            54Gain
                on disposal of property and equipment
            
            
            —
            
            
            —
            
            
            —
            
            
            
            —
            
            
            —
            
            
            (16
            )Amortization
                of debt issuance costs
            
            
            60
            
            
            29
            
            
            49
            
            
            
            —
            
            
            —
            
            
            —Amortization
                of discount on notes payable
            
            
            —
            
            
            16
            
            
            40
            
            
            
            —
            
            
            —
            
            
            —Stock-based
                compensation
            
            
            330
            
            
            77
            
            
            245
            
            
            
            —
            
            
            —
            
            
            —Related
                party stock compensation
            
            
            7,542
            
            
            —
            
            
            —
            
            
            
            —
            
            
            —
            
            
            —Restructuring
                related charges andimpairments
            
            
            —
            
            
            —
            
            
            (7
            )
            
            
            —
            
            
            —
            
            
            —Amortization
                of (discount) premium oninvestments, net
            
            
            —
            
            
            (174
            )
            
            —
            
            
            
            —
            
            
            —
            
            
            —Changes
                in assets and liabilities:Accounts
                receivable
            
            
            955
            
            
            —
            
            
            377
            
            
            
            (5,930
            )
            
            (114
            )
            
            (2,206
            )Inventory
            
            
            (1,945
            )
            
            —
            
            
            —
            
            
            
            312
            
            
            (3,986
            )
            
            (3,922
            )Prepaid
                expenses and other current assets
            
            
            (343
            )
            
            (83
            )
            
            441
            
            
            
            122
            
            
            (47
            )
            
            (9
            )Other
                assets
            
            
            (172
            )
            
            —
            
            
            35
            
            
            
            —
            
            
            —
            
            
            —Accounts
                payable
            
            
            2,846
            
            
            —
            
            
            —
            
            
            
            3,408
            
            
            988
            
            
            1,669Accrued
                expenses and other liabilities
            
            
            (798
            )
            
            176
            
            
            (573
            )
            
            
            51
            
            
            385
            
            
            454Deferred
                revenue
            
            
            —
            
            
            —
            
            
            (380
            )
            
            
            —
            
            
            —
            
            
            —Other
                liabilities
            
            
            —
            
            
            —
            
            
            (30
            )
            
            
            —
            
            
            (588
            )
            
            589Net
                cash provided by operatingactivities
            
            
            1,054
            
            
            248
            
            
            114
            
            
            
            4,904
            
            
            4,293
            
            
            2,016Cash
                flows from investing activities:Acquisition
                of Concord Steel, net of cashacquired
            
            
            (45,335
            )
            
            —
            
            
            —
            
            
            
            —
            
            
            —
            
            
            —Purchases
                of short-term investments andmarketable securities
            
            
            —
            
            
            (20,539
            )
            
            —
            
            
            
            (3,312
            )
            
            —
            
            
            —Sales
                and maturities of short-terminvestments and marketable
                securities
            
            
            14,663
            
            
            6,050
            
            
            —
            
            
            
            —
            
            
            —
            
            
            —Capital
                expenditures for property andequipment
            
            
            (624
            )
            
            —
            
            
            —
            
            
            
            (570
            )
            
            (824
            )
            
            (274
            )Proceeds
                from sale of property and equipment
            
            
            —
            
            
            —
            
            
            —
            
            
            
            —
            
            
            —
            
            
            20Net
                cash used in investing activities
            
            
            (31,296
            )
            
            (14,489
            )
            
            —
            
            
            
            (3,882
            )
            
            (824
            )
            
            (254
            )Cash
                flows from financing activities:Net
                proceeds (payments) on line of credit
            
            
            3,286
            
            
            —
            
            
            —
            
            
            
            6,613
            
            
            1,708
            
            
            (905
            )Proceeds
                from long-term debt
            
            
            28,000
            
            
            —
            
            
            —
            
            
            
            —
            
            
            —
            
            
            —Debt
                issuance costs
            
            
            (618
            )
            
            —
            
            
            —
            
            
            
            —
            
            
            —
            
            
            —Principal
                payments on long-term debt
            
            
            —
            
            
            —
            
            
            —
            
            
            
            (208
            )
            
            (305
            )
            
            (283
            )Distributions
                to members
            
            
            —
            
            
            —
            
            
            —
            
            
            
            (8,430
            )
            
            (3,948
            )
            
            (689
            )Proceeds
                from sale of common stock
            
            
            3,000
            
            
            —
            
            
            —
            
            
            
            —
            
            
            —
            
            
            —Proceeds
                from exercise of stock options andwarrants
            
            
            74
            
            
            —
            
            
            153
            
            
            
            —
            
            
            —
            
            
            —Proceeds
                from issuance of convertiblesubordinate note, net of offering costs of
                $288
            
            
            —
            
            
            —
            
            
            2,245
            
            
            
            —
            
            
            —
            
            
            —Net
                cash provided by (used in)financing activities
            
            
            33,742
            
            
            —
            
            
            2,398
            
            
            
            (2,025
            )
            
            (2,545
            )
            
            (1,877
            )Net
                increase (decrease) in cash and cashequivalents
            
            
            3,500
            
            
            (14,241
            )
            
            2,512
            
            
            
            (1,003
            )
            
            924
            
            
            (115
            )Cash
                and cash equivalents at beginning of year
            
            
            203
            
            
            14,444
            
            
            11,932
            
            
            
            1,003
            
            
            79
            
            
            194Cash
                and cash equivalents at end of year
            
            $
            3,703
            
            $
            203
            
            $
            14,444
            
            
            $
            —
            
            $
            1,003
            
            $
            79







Supplemental
                cash flow disclosure:Interest
                paid
            
            $
            73
            
            $
            68
            
            $
            75
            
            $
            —
            
            $
            264
            
            $
            253Taxes
                paid
            
            $
            132
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            14
            
            $
            (6
            )See
              note
              16 for details with regard to Concord
              acquisition




(1)
                  Because
                      the Company had no operations at the time of the Concord Steel
                      acquisition
                      (see Note 1 and 16), Concord Steel is considered to be the
                      “Predecessor” of the Company for accounting purposes and, therefore
                      relevant prior year financial information regarding the Predecessor
                      has
                      been presented herein.


37


**NET
      PERCEPTIONS, INC.**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2006, 2005 and 2004**




**1.
      Organization**





Net
      Perceptions, Inc. (“Company”) was initially established as a provider of
      marketing software solutions in 1996. In 2003, as a result of continuing losses
      and the decline of its software business, the Company began exploring various
      strategic alternatives, including sale or liquidation, and ceased the
      marketing and development of its marketing solutions software business in 2004.
      On April 21, 2004, the Company announced an investment into the Company by
      Olden
      Acquisition LLC (“Olden”), an affiliate of Kanders & Company, Inc., an
      entity owned and controlled by the Company’s Non-Executive Chairman, Warren B.
      Kanders, for the purpose of initiating a strategy to redeploy the Company’s
      assets and use its cash, cash equivalent assets and marketable securities to
      enhance stockholder value. As part of this strategy, on October 3, 2006, the
      Company, through its wholly-owned subsidiary, SIG Acquisition Corp. (“SIG”),
      acquired the assets of CRC Acquisition Co. LLC (“CRC”); a manufacturer of steel
      counterweights doing business as Concord Steel (“Concord”). With this
      initial acquisition, management is now focused on building a diversified global
      industrial manufacturing group through both organic and acquisition growth
      initiatives that are expected to complement and diversify existing business
      lines. As
      a
      result, the Concord business is considered to be a predecessor company
      (“Predecessor”). Accordingly, relevant financial information regarding the
      Predecessor, including financial statements as of and for the years ended
      December 31, 2005 and 2004 and the period from January 1, 2006 through October
      3, 2006 has been presented (see Note 16 for a more detailed explanation of
      the
      acquisition).




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




**2.
      Summary of significant accounting policies**





*Basis
      of presentation*





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





*Use
      of estimates*





The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States of America requires management to
      make estimates and assumptions that affect the reported amounts therein.
      Management’s estimates are based on historical experience and on various other
      assumptions that are believed to be reasonable under the circumstances. Estimates
      inherent in the preparation of the accompanying consolidated financial
      statements include the carrying value of long-lived assets, valuation allowances
      for receivables, inventories and deferred income tax assets, liabilities for
      potential litigation claims and settlements, and potential liabilities related
      to tax filings in the ordinary course of business. Management’s
      estimates and assumptions are evaluated on an on-going basis. Due to the
      inherent uncertainty involved in making estimates, actual results may differ
      from those estimates.





*Revenue
      recognition*





The
      Company’s revenue recognition policy for the sale of steel counterweights or
      structural weldments requires the recognition of sales when there is evidence
      of
      a sales agreement, the delivery of goods has occurred, the sales price is fixed
      or determinable and the collectibility of revenue is reasonably assured. The
      Company generally records sales upon shipment of product to customers and
      transfer of title under standard commercial terms.




38




As
      a part
      of its former activities as a developer of marketing software solutions, the
      Company recognized revenues in accordance with the American Institute of
      Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2,
“Software Revenue Recognition,” as amended by SOP 98-4, “Deferral of the
      Effective Date of a Provision of SOP 97-2” and SOP 98-9, “Modification of SOP
      97-2, Software Revenue Recognition with Respect to Certain Transactions” and in
      accordance with the Securities and Exchange Commission Staff Accounting Bulletin
      (“SAB”) No. 104, “Revenue Recognition in Financial Statements.” The Company
      derived revenues from software licenses, software maintenance, professional
      services and royalties. Maintenance included telephone and Web-based technical
      support, bug fixes and rights to unspecified upgrades on a when-and-if available
      basis. Professional services included project planning and management,
      implementation and testing, data analysis, data warehousing, user and partner
      training, consulting, product hosting and ongoing customer support. Royalty
      revenues are derived from resales of our product by Tornago, Inc.





For
      software arrangements that included multiple elements ( *e.g* .,
      software products, and/or maintenance or services), the Company allocated the
      total arrangement fee using the residual method. Under the residual method,
      the
      fair value of the undelivered maintenance and service elements, as determined
      by
      vendor-specific objective evidence, was deferred and the remaining (residual)
      arrangement fee was recognized as software product revenue. In software
      arrangements in which the Company did not have vendor-specific objective
      evidence of undelivered elements, revenue was deferred until the earlier of
      when
      vendor-specific objective evidence was determined for the undelivered elements
      or when all elements had been delivered.





Revenues
      from license fees were recognized when a non-cancelable agreement had been
      executed, the product had been shipped or electronically delivered, there were
      no uncertainties surrounding product acceptance, the fee was fixed or
      determinable and collection of the related receivable was considered probable.
      If the fee due from the customer was not fixed or determinable, revenues were
      recognized as payments.





License
      revenues which related to license terms with less than twenty-four months were
      recognized ratably over the term of the license period. When the Company offered
      products and services on a hosted basis, up front set-up fees were deferred
      and
      recognized ratably over the estimated service period.





Revenues
      allocable to maintenance were recognized ratably over the term of the agreement.
      The Company evaluated arrangements that included professional and/or data
      processing services to determine whether those services were essential to the
      functionality of other elements of the arrangement. If professional services
      were considered essential, revenues from the arrangement were recognized using
      contract accounting, generally on a percentage-of-completion basis. When the
      Company did not consider the professional services to be essential, revenues
      allocable to the services were recognized as they were performed.





Under
      general contract terms, the Company included an indemnification clause in its
      software licensing agreement that indemnified the licensee against liability
      and
      damages arising from any claims of patent, copyright, trademark or trade secret
      infringement by the Company’s software. The Company had incurred insignificant
      costs as a result of this type of indemnification clause and the Company did
      not
      maintain a product warranty liability related to such indemnification
      clauses.





*Concentrations
      of credit risk and significant customers*





Financial
      instruments that potentially subject the Company to credit risk consist
      primarily of accounts receivable. The Company grants credit to customers in
      the
      ordinary course of business. Revenues for 2006 were primarily from three major
      customers accounting for 38%, 10% and 9% of total revenues, respectively.
      Revenues for 2005 were primarily from three major customers accounting for
      42%,
      9% and 8% of total revenues, respectively. Three customers accounted for 35%,
      9%
      and 9% of total revenues for 2004. At December 31, 2006, outstanding accounts
      receivable from these customers were $4 million.





*Cash
      and cash equivalents*





The
      Company considers all highly liquid investments purchased with an original
      maturity of three months or less to be cash equivalents.





39




*Marketable
      securities*





Marketable
      securities for the period ended December 31, 2005 consist of government notes
      and bonds. The Company accounts for its marketable securities under the
      provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and
      Equity Securities". Pursuant to the provisions of SFAS No. 115, the Company
      has
      classified its marketable securities as available-for-sale. Available-for-sale
      securities have been recorded at fair value and related unrealized gains and
      losses have been excluded from earnings and are reported as a separate component
      of stockholders’ equity until realized. The Company had no marketable securities
      for the period ended December 31, 2006. At December 31, 2005, marketable
      securities had a fair market value of $14.7 million with an amortized cost
      of
      $14.7 million and unrealized loss of $4 thousand.





*Accounts
      Receivable*





Accounts
      receivable consist of amounts billed and currently due from customers. The
      Company extends credit to customers in the normal course of business and
      maintains an allowance for estimated losses resulting from the inability or
      unwillingness of customers to make required payments. The accrual for estimated
      losses is based on its historical experience, existing economic conditions
      and
      any specific customer collection issues the Company has identified. The
      allowance for doubtful accounts was $0 at December 31, 2006 and
      2005.




*Inventories*




Inventories
      are stated at the lower of cost or market using the first-in, first-out (“FIFO”)
      average cost method. Costs
      included in inventories consist of materials, labor and manufacturing overhead,
      which are related to the purchase and production of inventories.




*Property,
      Plant and Equipment*




Property,
      plant and equipment are recorded at cost and depreciated over their estimated
      useful lives utilizing the straight-line method. The estimated useful lives
      range from 39 years for buildings and improvements, 10 years for machinery
      and
      equipment, 7 years for office equipment and furniture and 5 years for
      transportation equipment. Depreciation expense was $0.1 million, $0.4 million
      and $0.4 million for the years ended December 31, 2006, 2005 and 2004,
      respectively.




*Impairment
      of Long-Lived Assets*




Property,
      plant and equipment and other purchased intangible assets are reviewed for
      impairment whenever events or changes in circumstances indicate that the
      carrying amount may not be recoverable. If the sum of the expected undiscounted
      cash flows is less than the carrying value of the related asset or group of
      assets, a loss is recognized for the difference between the fair value and
      carrying value of the asset or group of assets. Such analyses necessarily
      involve significant judgment.




*Fair
      value of financial instruments*





The
      carrying amounts of the Company’s financial instruments, which include cash and
      cash equivalents, marketable securities, accrued liabilities and note payable,
      approximate their fair values at December 31, 2006 and 2005.





*Deferred
      financing costs*





Deferred
      financing costs are primarily related to the acquisition by the Company, through
      SIG, its wholly-owned subsidiary, of the assets of CRC, a manufacturer of steel
      counterweights, in the fourth quarter of 2006 and costs associated with the
      issuance of long-term debt related to the investment in the Company by Olden
      Acquisition LLC in the second quarter of 2004. Deferred financing costs are
      amortized using the interest method over the term of the debt. Amortization
      expense was $0.1 million in fiscal 2006 and $0 in fiscal 2005 and
      2004.




*Environmental
      Remediation Costs*




The
      Company accrues for losses associated with environmental remediation obligations
      when such losses are probable and reasonably estimable. The liabilities are
      developed based on currently available information and reflect the participation
      of other potentially responsible parties, depending on the parties’ financial
      condition and probable contribution. The accruals are recorded at undiscounted
      amounts and are reflected as liabilities on the accompanying consolidated
      balance sheets. Recoveries of environmental remediation costs from other parties
      are recorded as assets when their receipt is deemed probable. The accruals
      are
      adjusted as further information develops or circumstances change. There are
      no
      amounts accrued by the Company with respect to environmental remediation costs
      at December 31, 2006 and 2005.




40




*Income
      taxes*





The
      Company calculates income taxes in accordance with the provisions of SFAS No.
      109, “Accounting for Income Taxes,” which requires the use of the liability
      method of accounting for income taxes. Income taxes are deferred for all
      temporary differences between the financial statement and income tax basis
      of
      assets and liabilities. Deferred taxes are recorded using the enacted tax rates
      scheduled by tax law to be in effect when the temporary differences are expected
      to settle or be realized. Deferred tax assets are reduced by a valuation
      allowance to the extent that utilization is considered uncertain.





*Research
      and development*





Research
      and development expenditures, which included software development costs, were
      expensed as incurred. SFAS No. 86, “Accounting for the Costs of Computer
      Software to Be Sold, Leased or Otherwise Marketed,” required the capitalization
      of certain software development costs once technological feasibility was
      established, which the Company defined as the completion of a working model.
      The
      period between achieving technological feasibility and the general availability
      of such software had been short and software development costs qualifying for
      capitalization were insignificant. Accordingly, the Company did not capitalize
      any software development costs.





*Income
      per share*




Basic
      income per share is computed using net income (loss) and the weighted average
      number of common shares outstanding. Diluted income 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.





*Comprehensive
      income (loss)*





Comprehensive
      income (loss), as defined by SFAS No. 130, “Reporting Comprehensive Income,”
includes net loss and items defined as other comprehensive income. SFAS No.
      130
      requires that items defined as other comprehensive income (loss), such as
      foreign currency translation adjustments and unrealized gains and losses on
      certain investments in debt securities, be separately classified in the
      financial statements. Such disclosures are included in the accompanying
      consolidated statements of stockholders’ equity and comprehensive income
      (loss).





*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, which is usually the vesting
      period. 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 period ended December 31, 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.





*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 adopted 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 a doption
      of SAB No. 108 did not have a material impact on our financial
      statements.




41




In
      September 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued
      SFAS No. 157 “Fair Value Measurements” which provides enhanced guidance for
      using fair value to measure assets and liabilities. The standard also expands
      the amount of disclosure regarding the extent to which companies measure assets
      and liabilities at fair value, the information used to measure fair value,
      and
      the effect of fair value measurements on earnings. The standard applies whenever
      other standards require (or permit) assets or liabilities to be measured at
      fair
      value but does not expand the use of fair value in any new circumstances. This
      statement is effective for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods within those fiscal
      years. The Corporation does not anticipate any material impact to its financial
      statements from the adoption of this standard.





In
      July
      2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in
      Income Taxes — an interpretation of FASB Statement No. 109 (‘‘FIN 48’’), which
      clarifies the accounting for uncertainty in tax positions. The provisions of
      FIN
      48 are effective for fiscal years beginning after December 15, 2006. We are
      currently evaluating the impact of FIN 48 on our financial statements and
      currently plan to adopt this interpretation in the first quarter of
      2007.





**3.
      Marketable securities**





Pursuant
      to the provisions of SFAS No. 115, the Company has classified all of its
      marketable securities as available-for-sale. At December 31, 2006, the Company
      did not have any marketable securities. At December 31, 2005, marketable
      securities consisted of government notes and bonds with a fair market value
      of
      $14.7 million. The amortized cost of marketable securities at December 31,
      2005
      was $14.7 million with an unrealized loss of $4 thousand.





The
      maturities of all securities are less than 12 months at December 31, 2005.





**4.
      Inventories**





Inventories,
      net of inventory reserves of the Company at December 31, 2006 and for the
      Predecessor Company at December
      31, 2005 are as follows:




**December
                31,**
              **2006**
            
            
            **Predecessor
                Company**
              **December
                31, 2005**Finished
                goods
            
            $
            89
            
            
            $
            354Work-in-process
            
            
            613
            
            
            
            218Raw
                materials
            
            
            13,392
            
            
            
            10,171$
            14,094
            
            
            $
            10,743




**5.
      Property, Plant and Equipment**




Property,
      plant and equipment, net of the Company as of December 31, 2006 and for the
      Predecessor Company at December 31, 2005 are as follows:




**December
                31, 2006**
            
            
            **Predecessor
                Company**
              **December
                31, 2005**Land
            
            $
            350
            
            
            $
            96Building
                and improvements
            
            
            883
            
            
            
            495Machinery
                and equipment
            
            
            1,514
            
            
            
            4,217Office
                equipment
            
            
            196
            
            
            
            238Transportation
                equipment
            
            
            364
            
            
            
            123Construction
                in progress
            
            
            537
            
            
            
            —3,844
            
            
            
            5,169Less:
                Accumulated depreciation
            
            
            (71
            )
            
            
            (1,293
            )Property,
                plant and equipment, net
            
            $
            3,773
            
            
            $
            3,876




42




**6.
      Intangible assets**





As
      part
      of the acquisition of Concord, the Company allocated a portion of the purchase
      cost to intangible assets consisting of trade names, customer relationships
      and
      non-compete agreements. These intangible assets are amortized over their
      expected useful lives which are between 3 and 12 years using the straight-line
      method (see Note 16 for further explanation of the acquisition).





Other
      intangible assets, net of amortization at December 31, 2006 are as
      follows:




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




The
      following table shows the expected amortization of other intangible assets
      over
      the next five years:




2007
            
            2008
            
            2009
            
            2010
            
            2011Intangibles
                subject to amortization:Customer
                relationships
            
            $
            1,033
            
            $
            1,033
            
            $
            1,033
            
            $
            1,033
            
            $
            1,033Non-compete
                agreements
            
            
            12
            
            
            12
            
            
            10
            
            
            —
            
            
            —$
            1,045
            
            $
            1,045
            
            $
            1,043
            
            $
            1,033
            
            $
            1,033




**7.
      Accrued expenses and other liabilities**





Accrued
      expenses and other liabilities of the Company include the following as of
      December 31, 2006 and 2005 ,
      and for
      the Predecessor Company as of December 31, 2005 are as follows :




**December
                31,**
              **2006**
            
            **December
                31,**
              **2005**
            
            
            **Predecessor
                Company**
              **December
                31, 2005**Accrued
                compensation, benefits and commissions
            
            $
            706
            
            $
            100
            
            
            $
            511Accrued
                interest payable
            
            
            840
            
            
            87
            
            
            
            24Accrued
                professional services
            
            
            25
            
            
            67
            
            
            
            10Accrued
                insurance
            
            
            216
            
            
            —
            
            
            
            187Accrued
                property taxes
            
            
            41
            
            
            —
            
            
            
            43Accrued
                franchise taxes
            
            
            —
            
            
            44
            
            
            
            —Accrued
                other liabilities
            
            
            1,201
            
            
            10
            
            
            
            180$
            3,029
            
            $
            308
            
            
            $
            955




43




**8.
      Long-term Debt and Notes Payable**





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





The
      Credit Agreement establishes a commitment to SIG to provide up to $40.0 million
      in the aggregate of loans and other financial accommodations consisting of
      (i) a
      five-year senior secured term loan in an aggregate principal amount of $28.0
      million (ii) a five-year senior secured revolving credit facility in the
      aggregate principal amount of $10.0 million (the “Revolving Facility”) and (iii)
      a five-year senior secured capital expenditure facility in the aggregate
      principal amount of $2.0 million. The Revolving Facility is further subject
      to a
      borrowing base consisting of up to 85% of eligible accounts receivable and
      up to
      55% of eligible inventory. The Revolving Facility includes a sublimit of up
      to
      an aggregate amount of $5.0 million in letters of credit and a sublimit of
      up to
      an aggregate amount of $2.5 million in swing line loans. The capital expenditure
      facility permits the Company to draw funds for the purchase of machinery and
      equipment during the 6-month period ending March 3, 2007, and then converts
      into
      a 4.5 year term loan. Immediately following the closing of the Concord
      acquisition, the Company drew down approximately $31.3 million and had
      additional availability under the Revolving Facility of approximately
      $6.7million. There were no amounts drawn under the capital expenditure facility
      at the time of closing of the credit facility nor were there any amounts drawn
      down prior to March 3, 2007. At
      December 31, 2006, the outstanding balance from the revolving credit facility
      amounted to $3.3 million with $5.1 million available in additional borrowings
      net of $1.6 million in outstanding letters of credit. The balance under the
      term
      loan at December 31, 2006 was $28.0 million, of which $3.5 million is classified
      as current and $24.5 million is classified as long-term .
      During
      the period ended December 31, 2006 and as of March 3, 2007 the Company was
      in
      compliance with all covenants under the credit facility.





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





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





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





On
      April
      21, 2004, the Company closed on an investment into the Company by Olden
      Acquisition LLC (“Olden”) , an
      affiliate of Kanders & Company, Inc., for
      the
      purpose of initiating a strategy to redeploy the Company’s assets and use the
      Company’s cash, cash equivalent assets and marketable securities to enhance
      stockholder value. The Company issued and sold to Olden a 2% ten-year
      Convertible Subordinated Note, which is convertible after one year (or
      earlier upon a call by the Company and in certain other circumstances) at
      a
      conversion price of $0.45 per share of Company common stock into approximately
      19.9% of the outstanding common equity of the Company as of the closing date.
      Proceeds to the Company from this transaction totaled approximately $2.5 million
      before transaction costs of $0.3 million. The transaction costs are being
      amortized over ten years, the term of the debt. Interest on the note accrues
      semi-annually but is not payable currently or upon conversion of the note.
      The
      note matures on April 21, 2014. The convertible subordinated note was deemed
      to
      include a beneficial conversion feature. At the date of issue, the Company
      allocated $0.1 million to the beneficial conversion feature and amortized the
      beneficial conversion feature over one year (the period after which the note
      is
      convertible). As of December 31, 2005, zero remained to be amortized of the
      note
      discount due to the beneficial conversion feature. Also in connection with
      this
      transaction, the Company entered into a Registration Rights Agreement (the
      “Rights Agreement”), which requires the Company, upon request of the purchaser
      of the note or its assignee, to register under the Securities Act of 1933,
      as
      amended, the resale of the shares of common stock into which the note is
      convertible. In connection with this transaction, the Board of Directors adopted
      an amendment to the Company’s Rights Agreement such that the transaction would
      not trigger the rights thereunder. As of December 31, 2006 and 2005,
      respectively, the outstanding balance on the note payable amounted to $2.5
      million and is classified as long-term debt.





44




As
      of
      December 31, 2006 and 2005, the Company had long-term debt and notes payable
      consisting of the following:




**December
                31,****2006**
            
            **2005**Five-Year
                Senior Secured Term Loan Due June 30, 2011
            
            $
            28,000
            
            $
            —2%
                Convertible Note Due April 21, 2014
            
            
            2,533
            
            
            2,533Total
                long-term debt and notes payable
            
            
            30,533
            
            
            2,533Less:
                Current portion of long-term debt
            
            
            3,500
            
            
            —Long-term
                debt and notes payable less current portion
            
            $
            27,033
            
            $
            2,533





Aggregate
      maturities of long-term debt and notes payable at December 31, 2006 are
      summarized below:




2007
            
            $
            3,5002008
            
            
            4,0002009
            
            
            4,0002010
            
            
            4,0002011
            
            
            12,500Thereafter
            
            
            2,533Total
            
            $
            30,533





At
      December 31, 2005, the Predecessor Company had notes payable of $3.5 million
      and
      long-term debt of $1.1 million, of which $0.3 million was classified as current.
      Subsequently, all balances were paid off at the close of the acquisition of
      Concord on October 3, 2006.





**9.
      Per Share Data**




Basic
      (loss) income per share is computed using net income (loss) and the weighted
      average number of common shares outstanding. Diluted income 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. For the year ended December 31, 2006, 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. Shares used in the diluted net income (loss)
      per share for the period ended December 31, 2006 exclude the impact of 513
      common shares issuable upon the exercise of stock options, 5,628 common shares
      issuable upon the conversion of the convertible note and 141 common shares
      issuable pursuant to restricted stock awards. The diluted net income (loss)
      per
      share computation for the year ended December 31, 2005, includes the impact
      of
      299 potential common shares from the exercise of stock options and restricted
      stock awards and 4,221 potential common shares from the convertible note all
      of
      which were dilutive. Shares used in the diluted net income (loss) per share
      computation for the year ended December 31, 2004 exclude the impact of 367
      potential common shares from the exercise of stock options and restricted
      stock.




45




The
      following table shows the computation of the Company’s basic and diluted
      earnings per share for the years ended December 31, 2006, 2005 and
      2004.




**December
                31,****2006**
            
            **2005**
            
            **2004****Basic
                (loss) income per share calculation:**Net
                (loss) income
            
            $
            (7,753
            )
            $
            207
            
            $
            (61
            )Weighted
                average common shares - basic
            
            
            32,577
            
            
            28,918
            
            
            28,574Basic
                net (loss) income per share
            
            $
            (0.24
            )
            $
            0.01
            
            $
            0.00**Diluted
                (loss) income per share calculation:**Net
                (loss) income
            
            $
            (7,753
            )
            $
            207
            
            $
            (61
            )Weighted
                average common shares - basic
            
            
            32,577
            
            
            28,918
            
            
            28,574Effect
                of dilutive stock options
            
            
            —
            
            
            47
            
            
            —Effect
                of restricted stock awards
            
            
            —
            
            
            252
            
            
            —Effect
                of convertible note
            
            
            —
            
            
            4,221
            
            
            —Weighted
                average common shares - diluted
            
            
            32,577
            
            
            33,438
            
            
            28,574**Diluted
                net (loss) income per share**
            
            $
            (0.24
            )
            $
            0.01
            
            $
            0.00





**10.
      Income taxes**




The
        Company files a consolidated federal income tax return with its
        wholly-owned subsidiaries. The components of income tax expense are as
        follows (in thousands):
  **For
                  The Years Ended****December
                  31,****2006**
              
              **2005**
              
              **2004**Current:Federal
              
              $
              —
              
              $
              —
              
              $
              —State
              
              
              223
              
              
              —
              
              
              —$
              223
              
              $
              —
              
              $
              —


Deferred
      income taxes reflect the tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes. Significant components of the
      Company’s deferred tax assets are as follows:




**December
                31,****2006**
            
            **2005**Deferred
                tax assets:Net
                operating loss carry-forwards
            
            $
            42,675
            
            $
            43,511Research
                and development credit carry-forwards
            
            
            151
            
            
            151Accrued
                vacation and other current liabilities
            
            
            170
            
            
            114Total
                deferred tax assets
            
            
            42,996
            
            
            43,776Valuation
                allowance
            
            
            (34,944
            )
            
            (43,776
            )Total
                net deferred income taxes
            
            $
            8,052
            
            $
            —






46




For
        federal income tax purposes, the Company has available net operating loss
        carry-forwards of approximately $125.5 million and research and development
        credit carry-forwards of $0.2 million at December 31, 2006. The net operating
        loss and research and development credit carry-forwards expire in 2011 through
        2026, if not previously utilized. The utilization of these carry-forwards
        may be
        subject to limitations based on past and future changes in ownership of the
        Company pursuant to Internal Revenue Code Section 382. The recognition of
        a
        valuation allowance for deferred taxes requires management to make estimates
        about the Company’s future profitability. Deferred tax assets are reduced by a
        valuation allowance when, in the opinion of management, it is more likely
        than
        not that some portion or all of the deferred tax assets will not be realized.
        The estimates associated with the valuation of deferred taxes are considered
        critical due to the amount of deferred taxes recorded on the consolidated
        balance sheet and the judgment required in determining the Company’s future
        profitability. As described in note 16 in conjunction with the acquisition
        of
        Concord, the Company reduced $8.1 million of valuation allowance as a reduction
        of goodwill and intangible assets acquired from Concord acquisition, based
        on
        the expectation that these deferred tax assets are more likely than not to
        be
        realized. Deferred tax assets were $8.1 million and $0 at December 31, 2006
        and 2005, respectively.
  The
        following is a summary of the items that caused
        recorded income taxes to differ from income taxes computed using the statutory
        federal income tax rate:


**For
                The Years Ended****December
                31,****2006**
            
            **2005**
            
            **2004**Computed
                "expected" income taxexpense (benefit)
            
            
            (34.0
            )%
            
            (34.0
            )%
            
            (34.0
            )%Increase
                (decrease) in income taxesresulting from:State
                income taxes, net of federalincome taxes
            
            
            —
            
            
            (5.0
            )
            
            (4.5
            )Capital
                loss carryforward adjustment
            
            
            —
            
            
            8.4
            
            
            813.7Non-cash
                stock compensation
            
            
            12.7
            
            
            —
            
            
            —Permanent
                item-various
            
            
            —
            
            
            —
            
            
            2.9(Decrease)
                Increase in valuationallowance and other items
            
            
            21.3
            
            
            30.6
            
            
            (778.1
            )Income
                tax expense (benefit)
            
            
            —
            %
            
            —
            %
            
            —
            %




**11.
      Employee Benefit Plan**





The
      Company sponsors a 401(k) Plan (the "Plan"), covering substantially all
      employees of the Company. Under this Plan, eligible employees who elect to
      participate in the Plan may contribute between 2% and 20% of eligible
      compensation (as defined therein) to the Plan. The Company made matching
      contributions of approximately $0.1 million for the year ended December 31,
      2006
      and $0 million for the years ended December 31, 2005 and 2004,
      respectively. ****





**12.
      Stockholders’ equity**





The
      Company is authorized to issue two classes of stock designated as common and
      preferred. As of December 31, 2006, the total number of shares that the Company
      was authorized to issue was 105,000 shares, of which 100,000 were common stock
      and 5,000 were preferred stock.





*Stock
      option plans*




In
        April
        2000, the Company’s Board of Directors adopted the 2000 Stock Plan (the “2000
        Plan”), which provides for the issuance of non-qualified stock options to
        employees who are not officers. The options allow the holder to purchase
        shares
        of the Company’s common stock at fair market value on the date of the grant. The
        total number of options available for future grants under the 2000 Plan was
        490
        at December 31, 2006. Stock options granted under the 2000 Plan typically
        vest
        over three years and generally expire ten years from the date of
        grant.
 
 In
        February 1999, the Company’s Board of Directors adopted the 1999 Equity
        Incentive Plan (the “1999 Plan”), which provides for the issuance of both
        incentive and non-qualified stock options. The options allow the holder to
        purchase shares of the Company’s common stock at fair market value on the date
        of the grant. For options granted to holders of more than 10% of the outstanding
        common stock, the option price at the date of the grant must be at least
        equal
        to 110% of the fair market value of the stock. During fiscal year 2003, 1,000
        options were granted under the 1999 Plan. Each year, beginning January 1,
        2000
        and ending January 1, 2002, the number of shares of common stock reserved
        for
        issuance under the 1999 Plan will, in accordance with the terms of the 1999
        Plan, be increased automatically by the lesser of 5% of the total number
        of
        common shares then outstanding or 1,500 shares. Accordingly, the number of
        shares of common stock reserved for issuance under the 1999 Plan increased
        by 0
        and 1,356 shares in 2003 and 2002, respectively. The total number of options
        available for future grants under the 1999 Plan was 1,090 at December 31,
        2006
        and 1,846 at December 31, 2005. Stock options granted under the 1999 Plan
        typically vest when performance conditions are met or over three years and
        generally expire ten years from the date of grant.
 
 Stock
        compensation expense recorded in general and administrative expense category
        within operating expenses in 2006, 2005 and 2004, was $0.4 million, $0.1
        million
        and $0.2 million, respectively.


The
      Company estimates the fair value of our option awards granted after January
      1,
      2006, using a Black-Scholes option pricing model. 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. The Company currently
      does 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. 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 for
      the
      options granted during the years ended as of December 31, 2006, 2005, and
      2004.




Upon
        the
        closing of the Concord Acquisition, the Company issued and granted to Mr.
        Weggeman options to purchase 2,491,419 shares of the Company’s Common Stock,
        having an exercise price equal to $0.64 per share, of which (i) 1,245,709
        shall
        vest in three equal installments commencing on the first anniversary of the
        date
        of grant; and (ii) 1,245,710 shall vest upon satisfaction of certain performance
        targets set forth in the Employment Agreement. In addition, the Employee
        may be entitled, during the term of this Agreement, to receive additional
        options, at such exercise prices and other terms as the Compensation Committee
        of the Board may, in its sole and absolute discretion,
        determine.




47


**2006**
              
              **2005**
              
              **2004**Expected
                  Volatility
              
              
              50.0
              %
              
              57.0
              %
              
              50.0
              %Expected
                  dividends
              
              
              0.0
              %
              
              0.0
              %
              
              0.0
              %Expeted
                  term (in years)
              
              
              5
              
              
              5
              
              
              5Risk
                  free rate
              
              
              4.7
              %
              
              4.0
              %
              
              3.0
              %Weighted-average
                  fair value of options granted
              
              $
              0.80
              
              $
              0.37
              
              $
              0.31




A
      summary
      of option activity under the Plans as of December 31, 2006, and changes during
      the year ended is presented below:


**Options**
              
              **Shares**
                **(000)**
              
              **Weighted-**
                **Average**
                **Exercise**
                **Price**
              
              **Weighted-**
                **Average**
                **Remaining
                  Contractual**
                **Term**
              
              **Aggregate**
                **Intrinsic**
                **Value**
                **(000)**Outstanding
                  at January 1, 2006
              
              
              321
              
              $
              0.68Granted
              
              
              1,370
              
              $
              0.81Exercised
              
              
              (100
              )
              $
              0.75Forfeited
                  or expired
              
              
              -
              
              
              -Outstanding
                  at December 31, 2006
              
              
              1,591
              
              $
              0.80
              
              
              8.2
              
              $
              2,625Vested
                  or expected to vest at December 31, 2006
              
              
              1,591
              
              $
              0.80
              
              
              8.2
              
              $
              2,625Exercisable
                  at December 31, 2006
              
              
              186
              
              $
              0.61
              
              
              8.0
              
              $
              342




The
        total
        intrinsic value of options exercised during the years ended December 31,
        2006,
        2005, and 2004, was $0.2 million, $0, and $0.1 million,
        respectively.
  A
          summary of the status of the Company’s non
          vested
          shares as of December 31, 2006, and changes during the year ended December
          31,
          2006, is presented below:


**Nonvested
                  Shares**
              
              **Shares**
                **(000)**
              
              **Weighted-**
                **Average**
                **Grant
                  Date**
                **Fair
                  Value**Nonvested
                  at January 1, 2006
              
              
              310
              
              $
              0.54Granted
              
              
              506
              
              $
              1.44Vested
              
              
              (356
              )
              
              0.77Forfeited
              
              
              -
              
              
              -Nonvested
                  at December 31, 2006
              
              
              460
              
              $
              1.35




As
      of December 31, 2006, there were $0.6 million of
      total unrecognized compensation cost related to nonvested share-based
      compensation arrangements granted under the Plans. The cost is expected to
      be
      recognized over a weighted-average period of 1 year. The total fair value of
      the
      shares vested during the years ended December 31, 2006, 2005, and 2004 was
      $7.7
      million, $0.1 million, and $0.2 million, respectively.




A
      summary of the activity under the performance plans
      as of December 31, 2006, and changes during the year then ended is present
      below:




**Performance
                    Options**
                
                **Shares**
                  **(000)**
                
                **Average**
                  **Exercise**
                  **Price**
                
                **RemainingContractual**
                  **Term**
                
                **Intrinsic**
                  **Value**
                  **($000)**Outstanding
                    at January 1, 2006
                
                
                -Granted
                
                
                1,371
                
                $
                0.81Exercised
                
                
                -Forfeited
                    or expired
                
                
                -Outstanding
                    at December 31, 2006
                
                
                1,371
                
                $
                0.81
                
                
                9.75
                
                $
                2,255Vested
                    or expected to vest at December 31, 2006
                
                
                -
                
                $
                -
                
                
                -
                
                $
                -Exercisable
                    at December 31, 2006
                
                
                -
                
                $
                -
                
                
                -
                
                $
                -




The
      weighted-average grant-date fair value of options granted during the years
      2006,
      2005, 2004 was $1.1 million, $0, and $0, respectively. The total intrinsic
      value
      of options exercised during the years ended December 31, 2006, 2005, and 2004
      was $0 for all three years. As of December 31, 2006, there was $1.1 million
      of
      total unrecognized compensation cost related to nonvested share-based
      compensation arrangements granted under the performance plans that may be
      recognized over a period of three years if performance conditions are
      met.




The
      following table shows the effect on net loss and earnings per share if the
      fair
      value method of accounting had been applied. For purposes of this pro forma
      disclosure, the estimated fair value of an option utilizing the Black-Scholes
      option-pricing model is assumed to be amortized to expense over the option's
      vesting periods:




**Years
                  Ended**
                **December
                  31,****2005**
              
              **2004**Net
                  income/(loss), as reported
              
              $
              207
              
              $
              (61
              )Add:
                  Stock-based employee compensation expense included in reportednet
                  income (loss)
              
              
              77
              
              
              245Deduct:
                  Total stock-based employee compensation expense determinedunder fair
                  value based method for all awards
              
              
              (96
              )
              
              (277
              )Pro
                  forma net income/(loss)
              
              $
              188
              
              $
              (93
              )Basic
                  net income/(loss) per share:As
                  reported
              
              $
              0.01
              
              $
              0.00Pro
                  forma
              
              $
              0.01
              
              $
              0.00Diluted
                  net income/(loss) per share:As
                  reported
              
              $
              0.01
              
              $
              0.00Pro
                  forma
              
              $
              0.01
              
              $
              0.00


48




Cash
      received from exercises under all stock-based compensation arrangements for
      the
      year ended December 31, 2006 was approximately $0. The Company did not realize
      any windfall tax benefits for the tax deductions resulting from option exercises
      during the year ended December 31, 2006. The Company issues newly certificated
      shares upon exercise of options granted under stock-based compensation
      arrangements.





The
      Company did not capitalize stock-based compensation expense as part of the
      cost
      of an asset for any periods presented.





*Stockholders’
      rights plan*





In
      June
      2001, the Company entered into a Rights Agreement (the “Rights Agreement”),
      commonly known as a “poison pill.” Under the Rights Agreement, stockholders of
      record on June 14, 2001 were distributed Rights (the “Rights”) to acquire one
      one-thousandth of a share of the Company’s Series A Junior Participating
      Preferred Stock (the “Preferred Stock”), at a rate of one Right for each share
      of the Company’s common stock held by stockholders on such date. Each share of
      common stock issued after the June 14, 2001 record date has an attached Right.
      The Rights trade together with the common stock and generally become exercisable
      on the tenth day after a person or group (i) acquires 15% of more of the
      outstanding common stock or (ii) commences a tender offer or exchange offer
      that
      would result in such a person or group owning 15% or more of the common stock.
      In the event that a person or group acquires 15% or more of the Common Stock
      (a
“Stock Acquisition”), each Right not owned by the 15% or more stockholder (the
“Acquiring Person”) and its affiliates would become exercisable for, upon
      payment of the exercise price of the Right (currently, $15), either Preferred
      Stock or common stock in an amount equal to the then current exercise price
      of
      the Right divided by one half the then current market price of the common stock.
      Alternatively, in the event of certain business combinations following a Stock
      Acquisition, each Right not owned by the Acquiring Person and its affiliates
      would become exercisable for, upon payment of the exercise price of the Right,
      common stock of the Acquiring Person in an amount equal to the then current
      exercise price of the Right divided by one half the market price of the
      Acquiring Person’s common stock. At any time until ten days following a Stock
      Acquisition, the Rights are redeemable by the Company’s board of directors at a
      price of $.01 per Right. The Rights have no voting privileges. The Rights will
      terminate upon the earlier of the date of their redemption or ten years from
      the
      date of issuance.





On
      December 22, 2003, the Company’s Board of Directors adopted an amendment to the
      Rights Agreement. The amendment provides, in effect, that the rights issued
      under the Rights Agreement will not be separately distributed to the Company’s
      stockholders and become exercisable solely as a result of the commencement
      of a
      tender offer or exchange offer for all outstanding shares of the Company’s
      common stock. In addition, the amendment provides that the rights will not
      “flip-in” and entitle a holder to purchase shares of the Company’s common stock
      at a discount upon consummation of such an offer that results in the bidder
      beneficially owning at least 85% of the outstanding shares of the Company’s
      common stock, excluding for purposes of determining the number of shares of
      common stock outstanding those shares owned by directors who are also officers
      of the Company and shares owned by stock plans sponsored by the Company in
      which
      Company employee participants do not have the right to determine confidentially
      whether shares of Company common stock held subject to such stock plan(s) will
      be tendered in a tender offer or exchange offer. Also, pursuant to the
      amendment, the rights will not be triggered by a subsequent merger of the
      Company with such a bidder in which the Company’s stockholders receive the same
      consideration as was paid or issued in the tender offer or exchange offer.
      The
      amendment was intended to remove the Rights Agreement as an impediment to a
      bidder completing its offer and a subsequent merger, while also affording
      protection to stockholders who did not tender their shares in the bidder’s
      first-step tender or exchange offer, if the holders of a substantial majority
      of
      the Company’s stock elected to accept the bidder’s offer. The amendment also
      clarified that stockholders who entered into voting agreements or understandings
      solely regarding voting on the plan of liquidation would not be deemed, for
      purposes of the Rights Agreement, to beneficially own the shares owned by the
      other parties to such agreements or understandings. This aspect of the amendment
      was intended to allow stockholders to freely consult with one another, form
      groups, and enter into agreements, with respect to voting at the special meeting
      on the plan of liquidation, without triggering the rights under the Rights
      Agreement. However, since the plan of liquidation did not receive the requisite
      stockholder vote required for approval, this aspect of the amendment is no
      longer applicable.





On
      April
      21, 2004, in connection with closing of the Olden investment, the Company’s
      Board of Directors adopted an amendment to the Company’s Rights Agreement such
      that the transaction would not trigger the rights thereunder. Additionally,
      o n
      September 22, 2006, in connection with the Company entering into an equity
      compensation agreement with Kanders & Company, Inc., the
      Company’s Board of Directors adopted an amendment to the Company’s Rights
      Agreement such that the transaction would not trigger the rights
      thereunder.





49




*Restricted
      stock*





On
      October 3, 2006, in connection with the acquisition of the assets of Concord,
      the Company entered into an employment agreement with Mr. Paul Vesey, who will
      serve as president of SIG, the Company's wholly-owned subsidiary which carried
      out the acquisition. Under the employment agreement, Mr. Vesey received a
      restricted stock award under the Company's 1999 Equity Incentive Plan, of which
      11,765 shares are fully vested, and 147,059 shares will vest if the Company
      achieves, in the fiscal year ending December 31, 2007, (i) revenue of $90.0
      million, (ii) gross profit of at least $18.6 million, or (iii) EBITDA
      of at least $14.8 million. The aggregate value of the award was $0.3 million,
      which was based upon the Company’s closing stock price of $1.80 per share on
      October 3, 2006, the date of the grant.





On
        October 3, 2006, in connection with the acquisition of the assets of Concord,
        the Company entered into an employment agreement with a key employee
        (“employee”). Under the employment agreement the employee has received a
        restricted stock award under the Company's 1999 Equity Incentive Plan, of
        147,059 shares that will vest if the Company achieves, in the fiscal year
        ending
        December 31, 2007, (i) revenue of $90.0 million or (ii) gross profit of at
        least
        $18.6 million. The aggregate value of the award was $0.3 million, which was
        based upon the Company’s closing stock price of $1.80 per share on October 3,
        2006, the date of the grant.




On
      September 22, 2006, the Company entered into an employment agreement with Albert
      W. Weggeman which became effective on the closing of the Company’s acquisition
      of Concord Steel on October 3, 2006. Under the employment agreement, the Company
      agreed to issue and grant to Mr. Weggeman the following amounts (in equivalent
      restricted shares) of the Company’s common stock: (i) $1.0 million upon the
      Company achieving annual earnings before interest, taxes, depreciation and
      amortization, as computed by the Company on or prior to its filing of its annual
      report on Form 10-K, on a consistent basis (“EBITDA”) of at least $25.0 million
      in a fiscal year of the Company; (ii) $1.0 million shall be granted upon the
      Company achieving annual EBITDA of at least $50.0 million in a fiscal year
      of
      the Company; and (iii) $1.0 million shall be granted upon the Company achieving
      annual EBITDA of at least $75.0 million in a fiscal year of the Company. Each
      of
      the grants specified in (i)-(iii) above are one-time grants which vest on the
      date on which the Company’s Form 10-K is filed in respect of the fiscal year for
      which the grant is being made and the grant price will be the closing price
      of
      the common stock of the Company on the principal exchange on which it is traded
      on such date. For the period ended December 31, 2006 no amounts have been
      accrued under this agreement.





On
      September 22, 2006, the Company entered into a Restricted Stock Award 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, commencing September 30, 2006 and expiring June 30, 2008. The
      aggregate value of the awards was $0.2 million, which was based upon the closing
      price of the Company’s common stock of $0.89 on September 22, 2006, the date of
      the grant. The Company recorded compensation expense of $0.2 million relating
      to
      these restricted stock awards for the year ended December 31, 2006.





On
      April
      1, 2005, the Company issued restricted stock to Nigel Ekern, the Company’s then
      Chief Administrative Officer, in the amount of 66,667 shares of the Company’s
      common stock under the Company’s incentive plans, vesting over three years. The
      fair value of $0.1 million for the restricted stock will be amortized over
      the
      three-year vesting period.





On
      April
      21, 2004, the Company granted restricted stock to Nigel Ekern, the Company’s
      then Chief Administrative Officer, and Gray Hudkins, formerly the Company’s
      Director of Corporate Development, in the amount of 364,583 and 243,705 shares,
      respectively, of the Company’s common stock under the Company’s incentive plans,
      vesting over three years. The fair value of $0.3 million for the restricted
      stock will be amortized over the three-year vesting period. On October 1, 2004,
      Gray Hudkins resigned and the Company accelerated the vesting of his restricted
      stock grant resulting in additional compensation expense of $0.1 million as
      well
      as immediate expensing of the remaining unamortized balance of the original
      grant. The Company recorded total compensation expense of $0.1 million, $0.1
      million, and $0.2 million relating to restricted stock grants during the years
      ended December 31, 2006, 2005, and 2004, respectively.




See
      Note 15 regarding Equity Compensation Agreement
      with Kanders & Company, Inc. and Note 16 for CRC’s investment
      in
      the Company.





**13.
      Commitments and contingencies**





*Operating
      leases*





The
      Company acquired several non-cancelable operating lease obligations as a result
      of the acquisition of Concord. These lease obligations are for facilities and
      equipment that expire at various dates through 2017 (see note 16 for more
      information regarding the acquisition).





The
      Company’s corporate
      headquarters is currently located in Stamford, Connecticut, where it occupies
      space made available at no cost by Kanders & Company, Inc., an entity owned
      and controlled by the Company’s Non-Executive
      Chairman, Warren B. Kanders. This arrangement is subject to termination at
      any
      time.




50




As
      of
      December 31, 2006, future minimum lease payments under non-cancelable operating
      leases are as follow:




**Operating**
              **Leases**2007
            
            $
            6482008
            
            
            6562009
            
            
            6632010
            
            
            6692011
            
            
            676Thereafter
            
            
            3,566$
            6,878





Rent
      expense totaled $0.2 million for the year ended December 31, 2006 and $0 for
      the
      years ended December 31, 2005 and 2004.





*Contingencies*





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





*Public
      Offering Securities Litigation*





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





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





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




51




**14.
      Segment data**





The
      Company views its operations and manages its business as one segment. Factors
      used to identify the Company’s single operating segment include the
      organizational structure of the Company and the financial information available
      for evaluation by the chief operating decision maker in making decisions about
      how to allocate resources and assess performance. In addition, the Company
      does
      not allocate operating expenses to any segments, nor does it allocate specific
      assets to any segments. Therefore, segment information is identical to the
      consolidated balance sheet and consolidated statement of
      operations.





**15.
      Related Party Transactions**





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





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





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





The
      Consulting Agreement provides for Kanders & Company to receive a fee equal
      of (i) $0.5 million in cash per year during the term of the Consulting
      Agreement, payable monthly, and (ii) 1% of the amount by which the Company’s
      revenues as reported in the Company’s Form 10-K, or if no such report is filed
      by the Company, as reflected in the Company’s audited financial statements for
      the applicable fiscal year, exceeds $60.0 million, payable in shares of common
      stock of the Company (the “Stock Fee”) valued at the weighted average price of
      the Company’s Common Stock for the applicable fiscal year. Upon a
“change-in-control” (as defined in the Consulting Agreement), Kanders &
Company will be entitled to a one-time lump sum cash payment equal to three
      times the average amount Kanders & Company received during each of the two
      fiscal years preceding such “change-in-control,” subject to certain limitations
      as set forth in the Consulting Agreement. Upon the death or permanent disability
      of Mr. Kanders, the Company has agreed to make a one-time lump sum cash payment
      to Kanders & Company equal to that amount Kanders & Company would be
      entitled to receive upon a “change-in-control”. Upon payment of the amounts due
      to Kanders & Company either upon the occurrence of a “change-in-control”, or
      upon the death or permanent disability of Mr. Kanders, the Consulting Agreement
      will terminate. For the three months ended December 31, 2006, the Company paid
      Kanders and Company $0.1 million and accrued and additional amount of $0.1
      million related to the consulting agreement.





During
      the years ended December 31, 2006 and 2005, the Company reimbursed Clarus
      Corporation (“Clarus”) an aggregate of $65,000 and $35,000 for
      telecommunication, professional and general office expenses which Clarus
      incurred on behalf of the Company. Warren B. Kanders, our Non-Executive
      Chairman, also serves as the Executive Chairman of Clarus.





On
      April
      21, 2004, the Company closed on an investment into the Company by Olden
      Acquisition LLC (“Olden”) , an
      affiliate of Kanders & Company, Inc., for
      the
      purpose of initiating a strategy to redeploy the Company’s assets and use the
      Company’s cash, cash equivalent assets and marketable securities to enhance
      stockholder value. The Company issued and sold to Olden a 2% ten-year
      Convertible Subordinated Note, which is convertible after one year (or
      earlier upon a call by the Company and in certain other circumstances) at
      a
      conversion price of $0.45 per share of Company common stock into approximately
      19.9% of the outstanding common equity of the Company as of the closing date.
      Proceeds to the Company from this transaction totaled approximately $2.5 million
      before transaction costs of $0.3 million. The transaction costs are being
      amortized over ten years, the term of the debt. Interest on the note accrues
      semi-annually but is not payable currently or upon conversion of the note.
      The
      note matures on April 21, 2014. The convertible subordinated note was deemed
      to
      include a beneficial conversion feature. At the date of issue, the Company
      allocated $0.1 million to the beneficial conversion feature and amortized the
      beneficial conversion feature over one year (the period after which the note
      is
      convertible). As of December 31, 2006, zero remains to be amortized of the
      note
      discount due to the beneficial conversion feature. Also in connection with
      this
      transaction, the Company entered into a Registration Rights Agreement, which
      requires the Company, upon request of the purchaser of the note or its assignee,
      to register under the Securities Act of 1933, as amended, the resale of the
      shares of common stock into which the note is convertible. In connection with
      this transaction, the board of directors adopted an amendment to the Company’s
      Rights Agreement such that the transaction would not trigger the rights
      thereunder. As of December 31, 2006 and 2005, respectively the outstanding
      balance on the note payable amounted to $2.5 million and is classified as
      long-term debt.




52




**16.
      Acquisition**





On
      October 3, 2006, the Company, through its wholly-owned subsidiary, SIG
      Acquisition Corp. (“SIG”), acquired the assets of CRC Acquisition Co. LLC
      (“CRC”), a manufacturer of steel counterweights doing business as Concord Steel
      (“Concord”). Concord is one of the nation’s leading independent manufacturers of
      steel counterweights that are incorporated into a variety of industrial
      equipment including aerial work platforms, cranes, elevators and material
      handling equipment.





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




The
        total
        purchase price of the acquisition was $45.3 million, including transaction
        costs
        of approximately $3 million. In addition, CRC invested $3.0 million of
        their proceeds from the sale of CRC to purchase 3,529,412 unregistered shares
        of
        the common stock of the Company at the closing price per share of $0.85.
        Such
        shares are subject to a six-month lock-up agreement and a registration rights
        agreement containing customary “demand” and “piggyback” registration rights. In
        addition, pursuant to the purchase agreement, a final working capital adjustment
        of $0.5 million was returned to SIG as the opening balance sheet working
        capital
        was reconciled with CRC.
 
 The
        funding of the consideration paid for the acquisition was as
        follows:
 
 Cash,
                  net
              
              $
              10,981Notes
                  payable from bank
              
              
              31,286Transaction
                  costs
              
              
              3,068Total purchase
                  price
              
              $
              45,335


The
      total
      purchase price of $45.3 million was allocated as follows:




Assets
                acquired:Accounts
                receivable
            
            $
            10,231Inventory
            
            
            12,149Property,
                plant and equipment
            
            
            3,220Goodwill
            
            
            3,154Intangible
                assets
            
            
            24,516Other
                assets
            
            
            86854,138Liabilities
                assumed:Accounts
                payable
            
            
            (6,704
            )Accrued
                expenses and other liabilities
            
            
            (1,034
            )Other
                current liabilities
            
            
            (1,065
            )(8,803
            )Net
                purchase price
            
            $
            45,335




As
      a result of this business combination, the Company
      assessed the impact of Concord’s operations in the determination of its required
      valuation allowance for deferred tax assets. As a result of this assessment,
      the
      Company reduced its deferred tax valuation allowance by approximately $8
      million. As a result of the Company’s estimated deferred tax asset valuation,
      goodwill was eliminated and intangible assets were reduced by $2.6
      million




The
      following unaudited proforma consolidated results
      are presented to show the results on a proforma basis as if the 2006 acquisition
      of Concord had been completed as of January 1, 2005.




**Years
                Ended December
                31,****2006**
            
            **2005**Net
              (loss) income
            
            $
            (1,461
            )
            $
            3,550Basic
              net (loss) income per share:
            
            $
            (0.04
            )
            $
            0.11Diluted
              net (loss) income per share
            
            $
            (0.04
            )
            $
            0.10




Pro
        Forma
        Results ** including
        historical financial statements and footnotes of Concord were included in
        the
        Company’s amended Current Report on Form 8-K/A filed with the Security and
        Exchange Commission on December 18, 2006.


53




**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND**  **FINANCIAL
      DISCLOSURE**




On
      October 17, 2006, Net Perceptions, Inc. filed a Current Report on Form 8-K
      with
      the Securities and Exchange Commission reporting that on October 11, 2006,
      the
      Audit Committee of the Board of Directors approved a change in the independent
      accountants of the Company.




During
      the fiscal years ended December 31, 2005 and 2004 and through October 11, 2006,
      there were no disagreements with PricewaterhouseCoopers LLP on any matter of
      accounting principles or practices, financial statement disclosure or auditing
      scope or procedure, which disagreements, if not resolved to the satisfaction
      of
      PricewaterhouseCoopers LLP, would have caused it to make reference to the
      subject matter of such disagreements in connection with its audit report on
      the
      financial statements for such years. During the fiscal years ended December
      31,
      2005 and 2004 and through October 11, 2006, there were no reportable events
      as
      defined in Item 304(a)(1)(v) of Regulation S-K.




**ITEM
      9A. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





The
      Company’s Chief Executive Officer and Chief Financial Officer, its principal
      executive officer and principal financial officer, respectively carried out
      an
      evaluation, of the effectiveness of the design and operation of the Company’s
      disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
      and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as
      of December 31, 2006, pursuant to Exchange Act Rule 13a-15. Such disclosure
      controls and procedures are designed to ensure that information required to
      be
      disclosed by the Company is accumulated and communicated to the appropriate
      management on a basis that permits timely decisions regarding disclosure. Based
      upon that evaluation, the Company’s Chief Executive Officer and Chief Financial
      Officer concluded that the Company’s disclosure controls and procedures as of
      December 31, 2006 are effective.





**Changes
      in Internal Control Over Financial Reporting**





In
      the
      fourth quarter of 2006, management implemented additional oversight and review
      procedures designed to strengthen the internal control at Concord and are
      confident that, as of the date of this filing, the Company has substantially
      completed the process of fully integrating Concord into management’s review
      process.





No
      other
      changes in the Company’s internal control over financial reporting have come to
      management’s attention during the fourth quarter ended December 31, 2006 that
      have materially affected, or are reasonably likely to materially affect the
      Company’s internal control over financial reporting.




**PART
      III**





**ITEM
      10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT** **AND
      RELATED STOCKHOLDER MATTERS**





Information
      regarding executive officers is included in Part I of this Form 10-K as
      permitted by General Instruction G (3).





The
      Company has adopted a code of ethics that applies to its principal executive
      officer and principal financial officer, and to all of its other officers,
      directors and employees. The code of ethics may be accessed at www.netperceptions.com ,
      our
      Internet website, at the tab “Corporate Governance”. The Company intends to
      disclose future amendments to, or waivers from, certain provisions of its code
      of ethics, if any, on the above website within four business days following
      the
      date of such amendment or waiver.





Other
      information required by Item 10, including information regarding directors,
      membership and function of the audit committee, including the financial
      expertise of its members, and Section 16(a) compliance, appearing under the
      captions “Election of Directors”, “Information Regarding Board of Directors and
      Committees” and “Other Matters” Security Ownership of Certain Beneficial Owners
      and Management in our Proxy Statement used in connection with the 2007 Annual
      Meeting of Stockholders, is incorporated herein by reference.




54




**ITEM
      11. EXECUTIVE COMPENSATION**





The
      information set forth under the caption "Executive Compensation" in our Proxy
      Statement used in connection with our 2007 Annual Meeting of Stockholders,
      is
      incorporated herein by reference.





**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





The
      information set forth under the caption "Principal Stockholders" in our Proxy
      Statement used in connection with our 2007 Annual Meeting of Stockholders,
      is
      incorporated herein by reference.




**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





The
      information set forth under the caption "Certain Relationships and Related
      Transactions" in our Proxy Statement used in connection with our 2007 Annual
      Meeting of Stockholders, is incorporated herein by reference.




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





The
      information set forth under the caption “Principal Accountant Fees and Services”
in our Proxy Statement used in connection with our 2007 Annual Meeting of
      Stockholders, is incorporated herein by reference.




55


**PART
      IV**





**ITEM
      15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES**





*(a)*  *Financial
      Statements*





*1.* The
      financial statements filed as part of this report are listed on the Index to
      Consolidated Financial Statements under Item 8 of Part II of this Form
      10-K.





*2.* All
      schedules for which provision is made in the applicable accounting regulations
      of the Securities and Exchange Commission are not required. The information
      required to be set forth therein is not applicable or is shown in the
      Consolidated Financial Statements or notes thereto included in this
      report.





*3.*
            **The
                following Exhibits are hereby filed as part of this Annual Report
                on Form
                10-K:




**Exhibit**
              **Number**
            
            **Description**2.1
            
            Patent
                Purchase Agreement, dated December 30, 2003, between Thalveg Data
                Flow LLC
                and Net Perceptions, Inc., as amended on March 31, 2004
                (1)3.1(a)
            
            Amended
                and Restated Certificate of Incorporation (2).3.1(b)
            
            Certificate
                of Amendment to the Amended and Restated Certificate of Incorporation
                (3).3.2
            
            Amended
                and Restated Bylaws as amended through August 5, 2003
                (4).4.1
            
            Amended
                and Restated Investor’s Rights Agreement, dated December 18, 1997, among
                Net Perceptions, Inc. and the investors and founders named therein,
                as
                amended (2).4.2
            
            Specimen
                common stock certificate (2).4.3
            
            Specimen
                common stock certificate (including Rights Agreement Legend)
                (5).4.4
            
            Rights
                Agreement between Net Perceptions, Inc. and Wells Fargo Bank Minnesota,
                as
                Rights Agent (6).4.5
            
            Amendment
                No. 1 to Rights Agreement dated as of December 22, 2003
                (7).4.6
            
            Form
                of Certificate of Designation of Series A Junior Participating Preferred
                Stock (attached as Exhibit A to the Rights Agreement filed as Exhibit
                4.4
                hereto) (6).4.7
            
            Form
                of Rights Certificate (attached as Exhibit B to the Rights Agreement
                filed
                as Exhibit 4.4 hereto) (6).10.1*
            
            Form
                of Indemnification Agreement entered into between Net Perceptions,
                Inc.
                and its directors and officers (2).10.2*
            
            1996
                Stock Plan (2).10.3*
            
            1999
                Equity Incentive Plan (2).10.4*
            
            Amended
                and Restated 1999 Non-Employee Director Option Plan, as amended through
                April 2, 2001 (8).10.5*
            
            Employee
                Stock Purchase Plan (2).10.8*
            
            2000
                Stock Plan (9).10.9*
            
            Change
                in Control Severance Plan and Summary Plan Description
                (2).10.10*
            
            2%
                Convertible Subordinated Note Due April 21, 2014 (10)10.11*
            
            Form
                of Net Perceptions, Inc. 1999 Equity Incentive Plan Stock Option
                Agreement
                (11)10.12*
            
            Form
                of Net Perceptions, Inc. 2000 Stock Plan Stock Option Agreement
                (11)10.13*
            
            Employment
                Agreement dated as of May 1, 2006, between Net Perceptions, Inc.
                and Nigel
                P. Ekern, (filed as Exhibit 10.1 to our Current Report on Form 8-K
                filed
                with the Securities and Exchange Commission on May 4,
                2006).10.14*
            
            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).10.15*
            
            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).





56




10.16*
            
            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).10.17*
            
            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).10.18*
            
            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).10.19*
            
            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).10.2
            
            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).10.21
            
            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).10.22
            
            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).10.23
            
            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).10.24
            
            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).10.25*
            
            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).10.26
            
            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).10.27
            
            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).10.28
            
            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).10.29
            
            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).10.30
            
            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).10.31*
            
            Employment
                Agreement dated as of December 1, 2006 between Net Perceptions, Inc.
                and
                Jonathan LaBarre (filed as Exhibit 10.1 to our Current Report on
                Form 8-K
                filed with the Securities and Exchange Commission on December 5,
                2006).10.32**
            
            Lease
                dated as of November 30, 2006, between SIG Acquisition Corp., and
                Castleway Properties, LLC.




57




21.1**
            
            Subsidiaries
                of the Registrant23.1
            
            Consent
                of McGladrey & Pullen, LLP, independent registered public accounting
                firm.23.2
            
            Consent
                of PricewaterhouseCoopers LLP, independent registered public accounting
                firm.31.1
            
            Certification
                of principal executive officer pursuant to Exchange Act Rules Rule
                13(a)-14(a) and15(a)-14(a), as adopted pursuant to Section 302 of
                the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of principal financial officer pursuant to Exchange Act Rules Rule
                13(a)-14(a) and15(a)-14(a), as adopted pursuant to Section 302 of
                the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of principal executive officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            
            Certification
                of principal financial officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.








*  Represents
      a management contract or compensatory plan or arrangement.


**
      filed
      herewith.





(1)
      Incorporated by reference to Net Perceptions’ Current Report on Form 8-K filed
      April 1, 2004.


(2)  Incorporated by reference to Net Perceptions’ Registration Statement on Form S-1
      (Registration No. 333-71919).


(3)  Incorporated
      by reference to Net Perceptions’ Annual Report on Form 10-K for the Fiscal Year
      Ended December 31, 2002.


(4)  Incorporated
      by reference to Net Perceptions’ Quarterly Report on Form 10-Q for the Quarter
      Ended June 30, 2003.


(5)  Incorporated
      by reference to Net Perceptions’ Quarterly Report on Form 10-Q for the Quarter
      Ended June 30, 2001.


(6)  Incorporated
      by reference to Net Perceptions’ Registration Statement on Form 8-A filed June
      6, 2001.


(7)  Incorporated
      by reference to Net Perceptions’ Current Report on Form 8-K filed December 23,
      2003.


(8)  Incorporated
      by reference to Net Perceptions’ Quarterly Report on Form 10-Q for the Quarter
      Ended March 31, 2001.


(9)  Incorporated
      by reference to Net Perceptions’ Quarterly Report on Form 10-Q for the Quarter
      Ended June 30, 2000.


(10)
      Incorporated by reference to Net Perceptions’ Quarterly Report on Form 10-Q for
      the Quarter Ended March 31, 2004.


(11)
      Incorporated by reference to Net Perceptions’ Quarterly Report on Form 10-Q for
      the Quarter Ended September 30, 2005.





*(b)*
            The
                exhibits are listed in Item 15. (a)(3)
                above.





*(c)*
            None.




58




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, as amended, the registrant has caused this report to be signed on its
      behalf by the undersigned, thereunto duly authorized.




NET
              PERCEPTIONS,
              INC.By:
            */s/
              ALBERT W. WEGGEMAN, JR*Albert
              W. Weggeman, JrPresident
              and
              Chief Executive Officer


Date:
      March 29, 2007




Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, this
      report has been signed below by the following persons on behalf of the
      registrant in the capacities indicated on March 29, 2007.





**Signature**
            
            **Title***/s/
                ALBERT W. WEGGEMAN, JR***
              Albert W. Weggeman, Jr
            
            President
                and Chief Executive Officer*/s/
                JONATHAN LABARRE***
              Jonathan LaBarre
            
            Chief
                Financial Officer*/s/
                WARREN B. KANDERS*
              Warren B. Kanders
            
            Non-Executive
                Chairman of the Board of Directors*/s/
                DAVID A. JONES*
              David A. Jones
            
            Director*/s/
                NICHOLAS SOKOLOW*
              Nicholas Sokolow
            
            Director





59


EXHIBIT
      INDEX





**Exhibit**
              **Number**
            
            **DESCRIPTION******10.32**
            
            Lease
                dated as of November 30, 2006, between SIG Acquisition Corp., and
                Castleway Properties, LLC.21.1**
            
            Subsidiaries
                of the Registrant23.1**
            
            Consent
                of McGladrey & Pullen, LLP, independent registered public accounting
                firm.23.2**
            
            Consent
                of PricewaterhouseCoopers LLP, independent registered public accounting
                firm.31.1**
            
            Certification
                of principal executive officer pursuant to Exchange Act Rules Rule
                13(a)-14(a) and15(a)-14(a), as adopted pursuant to Section 302 of
                the
                Sarbanes-Oxley Act of 200231.2**
            
            Certification
                of principal financial officer pursuant to Exchange Act Rules Rule
                13(a)-14(a) and15(a)-14(a), as adopted pursuant to Section 302 of
                the
                Sarbanes-Oxley Act of 200232.1**
            
            Certification
                of principal executive officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2**
            
            Certification
                of principal financial officer pursuant to 18 U.S.C. Section 1350,
                as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




60