UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-QSB

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended April 30, 2005

Commission File Number 0-11518

PPT VISION, INC.

(Exact name of Small Business Issuer as specified in its charter)

MINNESOTA		41-1413345
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

12988 Valley View Road		Eden Prairie, Minnesota 55344
(Address of principal executive offices)		(Zip Code)

(952) 996-9500
(Issuer’s telephone number, including area code)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 last 90 days. Yes ý No o

Shares of $.10 par value common stock outstanding at May 31, 2005: 2,996,805

PPT VISION, INC.

BALANCE SHEETS

	April 30, 2005			October 31, 2004
	(unaudited)			(audited)
ASSETS
Current assets
Cash and cash equivalents	$	1,357,000		$	2,617,000
Accounts receivable, net	1,311,000			1,912,000
Inventories:
Manufactured and purchased parts	865,000			828,000
Work-in-process	85,000			105,000
Finished goods	39,000			44,000
Total inventories, net	989,000			977,000
Other current assets	162,000			243,000
Assets of discontinued operations	—			200,000
Total current assets	3,819,000			5,949,000

Fixed assets, net	256,000			323,000
Intangible assets, net	87,000			109,000
Other assets	193,000			53,000
Total assets	$	4,355,000		$	6,434,000

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	439,000		$	944,000
Accrued expenses	458,000			513,000
Deferred revenue – customer advances	12,000			54,000
Total current liabilities	909,000			1,511,000

Shareholders’ equity
Common stock	300,000			300,000
Capital in excess of par value	36,078,000			36,075,000
Accumulated deficit	(32,932,000		)	(31,452,000		)
Total shareholders’ equity	3,446,000			4,923,000
Total liabilities and shareholders’ equity	$	4,355,000		$	6,434,000

See accompanying notes to condensed financial statements

PPT VISION, INC.

STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended						Six Months Ended
	April 30,						April 30,
	2005			2004			2005			2004

Revenues	$	1,567,000		$	2,084,000		$	3,092,000		$	4,060,000
Cost of revenues	803,000			970,000			1,532,000			2,043,000
Gross profit	764,000			1,114,000			1,560,000			2,017,000

Expenses:
Sales and marketing	659,000			706,000			1,345,000			1,340,000
General and administrative	269,000			300,000			560,000			582,000
Research and development	336,000			414,000			710,000			824,000
Non-recurring charges	390,000			—			390,000			—
Total expenses	1,654,000			1,420,000			3,005,000			2,746,000

Interest and other Income	20,000			2,000			20,000			2,000
Loss from continuing operations	(870,000		)	(304,000		)	(1,425,000		)	(727,000		)
Income (loss) from discontinued operations	—			81,000			(55,000		)	158,000
Net loss	$	(870,000	)	$	(223,000	)	$	(1,480,000	)	$	(569,000	)
Per share data:
Weighted average basic shares outstanding	2,997,000			2,951,000			2,996,000			2,951,000
Weighted average diluted shares outstanding	2,997,000			2,951,000			2,996,000			2,951,000
Basic and diluted loss per common share
Loss from continuing operations	$	(0.29	)	$	(0.10	)	$	(0.47	)	$	(0.25	)
Income (loss) from discontinued operations	$	—		$	0.02		$	(0.02	)	$	0.06
Net loss	$	(0.29	)	$	(0.08	)	$	(0.49	)	$	(0.19	)

See accompanying notes to condensed financial statements

PPT VISION, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months			Six Months
	Ended			Ended
	April 30, 2005			April 30, 2004
Net loss	$	(1,480,000	)	$	(569,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	127,000			247,000
Loss (income) from discontinued operations	55,000			(158,000		)

Change in assets and liabilities:
Accounts receivable	601,000			67,000
Inventories	(12,000		)	(187,000		)
Other assets	81,000			58,000
Accounts payable	(505,000		)	218,000
Accrued expenses	(55,000		)	65,000
Deferred revenue - customer advances	(42,000		)	(55,000		)
Total adjustments	250,000			255,000
Net cash used in operating activities	(1,230,000		)	(314,000		)

Cash flows from investing activities:
Purchase of fixed assets	(36,000		)	(76,000		)
Net investment in other long-term assets	(142,000		)	(5,000		)
Net cash used in investing activities	(178,000		)	(81,000		)

Cash flows from financing activities:
Proceeds from the exercise of stock options	3,000			1,000
Net cash provided by financing activities	3,000			1,000
Net cash provided by discontinued operations	145,000			366,000

Net decrease in cash and cash equivalents	(1,260,000		)	(28,000		)

Cash and cash equivalents at beginning of year	2,617,000			2,086,000
Cash and cash equivalents at end of period	$	1,357,000		$	2,058,000

See accompanying notes to condensed financial statements

PPT VISION, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

April 30, 2005

(UNAUDITED)

NOTE A - DESCRIPTION OF BUSINESS

PPT VISION, Inc. (“The Company”) designs, manufactures, and markets camera-based intelligent systems for automated inspection in manufacturing applications. The Company’s products, commercially known as machine vision systems, enable manufacturers to realize significant economic paybacks by increasing the quality of manufactured parts and improving the productivity of manufacturing processes. The Company’s machine vision product line is sold on a global basis to end-users, system integrators, distributors and original equipment manufacturers (OEM’s) primarily in the electronic and semiconductor component, automotive, medical device, and packaged goods industries.

NOTE B - BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or of the results for any future periods.

The Balance Sheet at October 31, 2004 has been derived from the Company’s audited financial statements for the fiscal year ended October 31, 2004 but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-KSB for the year ended October 31, 2004.

NOTE C - REVENUE RECOGNITION AND COST OF REVENUES

The Company typically recognizes revenue on product sales upon shipment to the end user customers if contractual obligations have been substantially met and title and risk of loss have passed to the customer, which is generally the case for sales of machine vision systems, spare parts and accessories. The Company also recognizes revenue on products sold to distributors upon shipment because contracts with distributors do not include post-shipment obligations or any right of return provisions and pricing is fixed at the time of sale. Revenue related to application engineering, product development and customer training services is recognized when the services are performed.

Costs of revenues include the cost of products sold and the cost of third-party application engineers who perform certain installation services at our request for customers. Cost of revenues does not include any costs associated with engineering services performed by PPT employees as these costs are a fixed component of our operating cost structure and an allocation of a portion of these costs to cost of revenues would be arbitrary and lead to inconsistent presentation of gross margins and operating costs.

NOTE D – LIQUIDITY AND CAPITAL RESOURCES

The Company had a loss from continuing operations for the three and six months ended April 30, 2005 of $870,000 and $1,425,000 respectively. Cash used in operations was $1,230,000 for the six months ended April 30, 2005. Effective May 1, 2005 the Company finalized an agreement with its current landlord to restructure the Company’s lease obligation with respect to its headquarters facility in Eden Prairie, Minnesota. Under the amended lease terms, the Company will receive a reduction in its base rental rates and its facility will shrink from approximately 64,000 square feet to approximately 35,000 square feet resulting in a savings of approximately $120,000 per quarter. In exchange for these amended lease terms, the Company paid $140,000 for certain leasehold improvements associated with the reconfigured space and also paid approximately $300,000 in accrued deferred rent. The Company also agreed to pay a $240,000 lease termination fee in equal monthly installments over a 12 month period starting May 1, 2005 and extend the current lease term by two years through May, 2011. As a result, cash balances dropped to $1,357,000 as of April 30, 2005 from $2,617,000 at October 31, 2004.

The Company believes that existing cash balances and available sources of capital will enable the Company to meet its operating, working capital and capital resource obligations through the next twelve months.

The other sources of financing that are available to the Company include sales of its common or preferred stock, external borrowing, customer or vendor financing, customer sponsored research and development projects or investments by strategic partners.

There can be no assurance that the Company will not incur additional losses for a longer period of time, will generate positive cash flow from operations, or that the Company will attain or thereafter sustain profitability in any future period.

NOTE E – LOSS PER SHARE

On March 10, 2005, the Company announced that its Board of Directors approved a 1-for-4 reverse split of its common stock effective as of the close of business on March 31, 2005 and the conversion to book-entry share registration also effective as of March 31, 2005. In connection with the reverse split, the Board of Directors also approved an amendment to Article 4.1 of the Company’s Articles of Incorporation to proportionately reduce the number of shares of common stock authorized from 20,000,000 shares to 5,000,000 shares. All share numbers

Three Months Ended April 30,		2005			2004
Net loss	As reported	$	(870,000	)	$	(223,000	)
	Pro forma	$	(893,000	)	$	(273,000	)

Stock based compensation	As reported	$	—		$	—
	Pro forma	$	(23,000	)	$	(50,000	)

Basic and diluted loss per share	As reported	$	(0.29	)	$	(0.08	)
	Pro forma	$	(0.30	)	$	(0.09	)

Six Months Ended April 30,		2005			2004
Net loss	As reported	$	(1,480,000	)	$	(569,000	)
	Pro forma	$	(1,530,000	)	$	(670,000	)

Stock based compensation	As reported	$	—		$	—
	Pro forma	$	(50,000	)	$	(101,000	)

Basic and diluted loss per share	As reported	$	(0.49	)	$	(0.19	)
	Pro forma	$	(0.51	)	$	(0.23	)

For All Periods Ended April 30,	2005		2004
Risk free interest rates	4.0	%	4.0	%
Expected lives	6.0		6.0
Expected volatility	115	%	115	%
Expected dividends	0	%	0	%

NOTE G – CUSTOMER AND GEOGRAPHIC DATA

The following tables set forth the percentage of the Company’s net revenues (including sales delivered through international distributors) by geographic location for the three and six months ended April 30, 2005 and 2004:

Three Months Ended April 30	2005		2004
United States	42	%	40	%
Europe and Canada	30	%	16	%
Asia-Pacific	26	%	43	%
South America	2	%	1	%

Six Months Ended April 30	2005		2004
United States	46	%	37	%
Europe and Canada	30	%	18	%
Asia-Pacific	23	%	44	%
South America	1	%	1	%

In the three month period ended April 30, 2005, revenues from two customers represented approximately 14% and 12% of total revenue, respectively. In the

three month period ended April 30, 2004, revenues from three customers accounted for 30%, 13%, and 10% of total revenue, respectively. In the six month period ended April 30, 2005, revenues from two customers represented approximately 11% and 11% of total revenue, respectively. In the six month period ended April 30, 2004, revenues from one customer accounted for 32% of total revenue.

NOTE H – NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, FASB issued SFAS No. 153 “Exchanges of Nonmonetary Assets,” which amends APB Opinion No. 29, “Accounting for Nonmonetary Transactions.” APB No. 29 is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. SFAS No. 153 amends APB No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date SFAS No. 153 was issued. SFAS No. 153 is to be applied prospectively. The Company does not expect the adoption of SFAS No. 153 to have a material effect on its financial statements.

In December 2004, FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”, that focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Beginning with our quarterly period that begins November 1, 2006, we will be required to expense the fair value of employee stock options and similar awards. As a public company, we are allowed to select from two alternative transition methods, each having different reporting implications. We have not yet determined the impact of SFAS No. 123R on us.

NOTE I – DISCONTINUED OPERATIONS

In the fourth quarter of fiscal 2004, the Company implemented a strategy to focus all of its resources on its core 2D machine vision business. In accordance with this plan, in the fourth quarter of fiscal 2004, the Company initiated and completed the sale of its 3D business unit, together with all the related patents, intellectual property, inventory and equipment. The terms of the sale included cash payments of $1.0 million and the opportunity to receive royalties on sales of certain products by the buyer for the next five years. The royalties, which will be recorded as a part of discontinued operations, are anticipated to be minimal, if any. To date there have been no royalties. As a result of the sale, in accordance with appropriate accounting principles, the Company has revised the financial results for all periods presented to include the 3D business as a discontinued operation. Accordingly, all 3D related revenue and expenses have been removed from continuing operations and presented in a separate line in the statement of operations entitled “income or loss from discontinued operations.”

Condensed Statement of Operations	Quarter Ended April 30, 2005				Quarter Ended April 30, 2004
Revenues	$	—			$	536,000
Cost of revenues	—				118,000
Gross profit	—				418,000
Total operating expenses	—				337,000
Income from discontinued operations	$		—		$		81,000

Condensed Statement of Operations	Six-Month Ended April 30, 2005				Six-Month Ended April 30, 2004
Revenues	$	169,000			$	991,000
Cost of revenues	56,000				176,000
Gross profit	113,000				815,000
Total operating expenses	168,000				657,000
Income from discontinued Operations	$	(55,000		)	$	158,000

Assets	April 30, 2005				October 31, 2004
Accounts receivable	$	—			$	200,000

NOTE J – Restructuring Actions

In the second quarter of fiscal 2005, the Company completed a three part corporate restructuring in an effort to bring the Company’s cost structure into closer alignment with current revenues. The first part of this plan involved the closing of the Company’s Michigan office. The functions of the Michigan office have been transferred to several of the Company’s system integration partners. The second part of the plan involved the restructuring of the Company’s lease obligation with respect to its headquarters facility in Eden Prairie, Minnesota. Under the amended lease terms signed on April 29, 2005, the Company will receive a reduction in its base rental rates and its facility will shrink from approximately 64,000 square feet to approximately 35,000 square feet resulting in a savings of approximately $120,000 per quarter. In exchange for these amended lease terms, the Company paid $140,000 for certain leasehold improvements associated with the reconfigured space and also paid approximately $300,000 in accrued deferred rent. The Company will also pay a $240,000 lease termination fee, which was accrued in the second quarter of fiscal 2005, in equal monthly installments over a 12 month period starting May 1, 2005 and extend the current lease term by two years through May, 2011. The third part of the plan included certain other operating expense reductions which primarily consisted of an approximately 15% workforce reduction. When taken together, the three parts of this restructuring will result in a reduction of the Company’s total cost structure by over $1,200,000 per year.

An analysis of the components of the nonrecurring charge related to these restructuring actions is as follows:

Lease termination fee and related costs	$	280,000
Michigan office closure costs	60,000
Severance costs	50,000
Total	$	390,000

Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Overview

PPT VISION, Inc. designs, manufactures, and markets camera-based intelligent systems for automated inspection in manufacturing applications. The Company’s products, commercially known as machine vision systems, enable manufacturers to realize significant economic paybacks by increasing the quality of manufactured parts and improving the productivity of manufacturing processes. The Company’s machine vision product line is sold on a global basis to end-users, system integrators, distributors and original equipment manufacturers (OEM’s) primarily in the electronic and semiconductor component, automotive, medical device, and packaged goods industries.

The Company’s revenues decreased 25% to $1,567,000 during the second quarter ended April 30, 2005 compared to sales of $2,084,000 in the prior year’s second quarter. The Company’s loss for the quarter ended April 30, 2005 increased to $870,000 or $.29 per share compared to $223,000 or $.08 per share in the prior year’s period. The decrease in revenues in the second quarter resulted from the discontinuation of sales of our older analog vision units to a large OEM customer, which accounted for approximately $620,000 of revenue in the second quarter of fiscal 2004. Sales to other customers approximated $1.5 million in the second quarter of last year. The increase in the net loss for the quarter is due in large part to the $390,000 non-recurring restructuring charge recorded in the quarter.

Revenues decreased 24% to $3,092,000 during the six-month period ended April 30, 2005 compared to the prior year’s six-month period and the loss increased to $1,480,000 or $0.49 per share compared to a loss of $569,000 or $0.19 per share in the prior year’s period. Again, the decrease in revenues in the six-month period ended April 30, 2005 resulted from the discontinuation of sales of our older analog vision units to a large OEM customer, which accounted for approximately $1,280,000 of revenue in the six-month period ended April 30, 2004. Sales to other customers approximated $2.8 million in the six-month period of last year.

During the second quarter of fiscal 2005 the Company completed a three part corporate restructuring in an effort to bring the Company’s cost structure into closer alignment with current revenues. The first part of this plan involved the closing of the Company’s Michigan office. The functions of the Michigan office have been transferred to several of the Company’s system integration partners. The second part of the plan involved the restructuring of the Company’s lease obligation with respect to its headquarters facility in Eden

Prairie, Minnesota. The third part of the plan included certain other operating expense reductions which primarily consisted of an approximately 15% workforce reduction. The Company recorded a non-recurring expense of $390,000 related to these actions in the second quarter. When taken together, the three parts of this restructuring will result in a reduction of the Company’s total cost structure by over $1,200,000 per year.

During the fiscal 2005 second quarter, revenues from outside the United States accounted for 58% of revenues compared to 60% in the fiscal 2004 second quarter. During the first six months of fiscal 2005, revenues from outside the United States accounted for 54% compared to 63% in the first six months of fiscal 2004.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of its financial condition and results of operations are based on the Company’s accompanying unaudited condensed financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information required by accounting principles generally accepted in United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The preparation of these financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported revenues and expenses during the reporting period. Management bases its estimates on historical experience and 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. Actual results could differ from these estimates.

Management believes the Company’s critical accounting policies and areas that require more significant judgments and estimates used in the preparation of its financial statements to be:

• revenue recognition and cost of revenues;

• estimating valuation allowances, specifically the allowance for doubtful accounts and inventory; and

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

Revenue Recognition and Costs of Revenues

The Company typically recognizes revenue on product sales upon shipment to the end user customers if contractual obligations have been substantially met and title and risk of loss have passed to the customer, which is generally the case for sales of 2D machine vision systems, spare parts and accessories. The Company also recognizes revenue on products sold to distributors upon shipment because contracts with distributors do not include post-shipment obligations or any right of return provisions and pricing is fixed at the time of sale. Services revenue, which includes application engineering, product development,

customer training and repair services, is recognized when the services are performed.

Costs of revenues include the cost of products sold and the cost of third party application engineers who perform certain installation services at our request for customers. Cost of revenues does not include any costs associated with engineering services performed by PPT employees as these costs are a fixed component of our operating cost structure and an allocation of a portion of these costs to cost of revenues would be arbitrary and lead to inconsistent presentation of gross margins and operating costs.

Valuation Allowances

Management estimates the allowance for doubtful accounts by analyzing accounts receivable balances by age and considering specific factors about the individual customer’s financial condition. When it is deemed probable that all or a portion of a customer’s account is uncollectible, a corresponding amount is added to the reserve.

The Company’s inventory primarily consists of parts and other materials that are used in the manufacture of vision systems. The Company generally only builds systems based on customer orders and as a result maintains only a minor amount of finished goods inventory. Management establishes valuation reserves on inventory for estimated excess and obsolete inventory equal to the difference between the cost of inventory and its estimated market value based on assumptions about future product demand and market conditions. In view of the rapid pace of technological change in the machine vision industry, the Company generally considers inventory that has had no usage for one year to be obsolete. In addition, changes in the Company’s product offerings or those of the Company’s competitors, may also result in excess or obsolete inventory levels. Accordingly, these factors will also be considered in the determination of the market value of inventory.

Long-Lived and Intangible Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. If these assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

RESULTS OF OPERATIONS

Revenues

Net revenues decreased 25% to $1,567,000 for the three-month period ended April 30, 2005, compared to net revenues of $2,084,000 for the same period in fiscal 2004. For the six-month period ended April 30, 2005, revenues decreased 24% to $3,092,000 from $4,060,000 for the same period in fiscal 2004. Unit sales of the Company’s machine vision systems decreased to 191 for the second quarter of fiscal 2005 versus 204 for the same period in fiscal 2004. Unit sales for the first half of fiscal 2005 increased to 412 from 393 in the first half of fiscal

2004. In the three month period ended April 30, 2005, revenues from two customers represented approximately 14% and 12% of total revenue, respectively. In the three month period ended April 30, 2004, revenues from three customers accounted for 30%, 13%, and 10% of total revenue, respectively. In the six month period ended April 30, 2005, revenues from two customers represented approximately 11% and 11% of total revenue, respectively. In the six month period ended April 30, 2004, revenues from one customer accounted for 32% of total revenue.

The decrease in revenues in the second quarter and the six-month period ended April 30, 2005 resulted from the discontinuation of sales of our older analog vision units to a large OEM customer, which accounted for approximately $620,000 of revenue in the second quarter of fiscal 2004 and $1,280,000 for the six-month period ended April 30, 2004. Sales to other customers approximated $1.5 million in the second quarter of last year and $2.8 million for the six-month period ended April 30, 2004.

We will continue to experience adverse quarter-over-quarter revenue comparisons as we transition almost exclusively to product development and sales of the IMPACT family of products. In addition, revenue comparisons may be unfavorable for the third quarter as we will no longer be shipping product to the one large OEM customer who was a significant customer in each of the first three quarters of fiscal 2004. Revenue trends may also be inconsistent given the nature of the machine vision industry and the capital nature of our product.

Gross profit decreased 31% to $764,000 for the three-month period ended April 30, 2005, compared to $1,114,000 for the same period in fiscal 2004. For the six-month period ended April 30, 2005, gross profit decreased 23% to $1,560,000 from $2,017,000 for the same period in fiscal 2004. As a percentage of net revenues, the gross profit for the second quarter of fiscal 2005 decreased to 49% compared to 53% in the same period in fiscal 2004. For the six-month periods ended April 30, 2004 and 2005, gross profits as a percentage of net revenues were 50%. The gross margins this year were adversely impacted by the low volume, which resulted in our manufacturing overhead being spread over a smaller number of units. We would expect to see our margins improve slightly in the remainder of the year as our fixed manufacturing costs have decreased due to amendment of our facility lease.

Sales and marketing expenses decreased 7% to $659,000 for the three-month period ended April 30, 2005 compared to $706,000 for the same period in fiscal 2004. For the six-month period ended April 30, 2005, sales and marketing expenses increased slightly to $1,345,000 from $1,340,000 for the same period in fiscal 2004. As a percentage of net revenues, sales and marketing expenses increased to 42% for the second quarter of fiscal 2005 compared to 34% for the same period in fiscal 2004. For the six-month period ended April 30, 2005, sales and marketing expenses as a percentage of net revenues increased to 43% compared to 33% in the same period in fiscal 2004. This increase is the result of sales and marketing expenses remaining relatively flat with a decrease in sales. The Company expects sales and marketing expenses in absolute dollars to decrease on a quarterly basis for the remainder of fiscal 2005 due to our second quarter

restructuring actions. Increases in sales and marketing expenditures may occur to the extent that revenue growth is achieved.

General and administrative expenses decreased 10% to $269,000 for the three-month period ended April 30, 2005, compared to $300,000 for the same period in fiscal 2004. For the six-month period ended April 30, 2005, general and administrative expenses decreased 4% to $560,000 as compared to $582,000 in the same period in fiscal 2004. As a percentage of net revenues, general and administrative expenses increased to 17% for the second quarter of fiscal 2005 versus 14% for the same period in fiscal 2004. For the six-month period ended April 30, 2004, general and administrative expenses as a percentage of net revenues increased to 18% from 14% in the same period in fiscal 2004. The Company expects general and administrative expenses on a quarterly basis to decrease from their current levels due to the second quarter corporate restructuring.

Research and development expenses decreased 19% to $336,000 for the three-month period ended April 30, 2005, compared to $414,000 for the same period in fiscal 2004. For the six-month period ended April 30, 2005, research and development expenses decreased 14% to $710,000 from $824,000 in the same period in fiscal 2004. As a percentage of net revenues, research and development expenses increased slightly to 21% for the second quarter of fiscal 2005, compared to 20% for the second quarter of fiscal 2004. For the six-month period ended April 30, 2005, research and development expenses as a percentage of net revenues increased to 23% from 20% in the same period in fiscal 2004. Again, the Company expects research and development expenses on a quarterly basis to decrease from their current levels due to the second quarter corporate restructuring.

The Company did not record an income tax benefit or expense for the three and six month periods ended April 30, 2005 or 2004.

The Company’s net loss from continuing operations for the second quarter of fiscal 2005 increased from year-ago levels to $870,000 or 29 cents per share, as compared with a loss of $304,000 or 10 cents per share for the same period in fiscal 2004. The Company’s net loss from continuing operations for the six-month period ended April 30, 2005 increased to $1,425,000 or 47 cents per share, as compared with a loss of $727,000 or 25 cents per share for the same period in fiscal 2004. There were approximately 3.0 million shares outstanding during the three and six month periods in fiscal 2005 and 2004.

The results of our discontinued operations resulted in no loss for the second quarter and income of $81,000 or $0.02 per share in the second quarter of fiscal 2004. Our discontinued operations resulted in a loss of $55,000 or $0.02 for the six-month ended April 30, 2005 compared to income of $158,000 or $0.06 per share in the same period of fiscal 2004.

LIQUIDITY AND CAPITAL RESOURCES

At April 30, 2005 the Company had cash balances of $1.4 million, working capital of approximately $2.9 million and no long-term debt.

In the second quarter of fiscal 2005 the Company incurred a net loss from continuing and discontinued operations of $870,000 which included non-cash charges related to depreciation and amortization of $59,000. The net loss for the quarter increased $647,000 from the $223,000 loss reported in the second

quarter of fiscal 2004. For the quarter ended April 30, 2004, cash used in operating activities was $781,000 and for the six-month period ended April 30, 2005, cash used in operating activities was $1,230,000. For the six-month period, this represents a decrease of $913,000. The increase in cash used in operations during fiscal 2005 relates to the Company’s second quarter corporate restructuring actions. The Company finalized an agreement with its current landlord restructure the Company’s lease obligation with respect to its headquarters facility in Eden Prairie, Minnesota. Under the amended lease terms, the Company will receive a reduction in its base rental rates and its facility will shrink from approximately 64,000 square feet to approximately 35,000 square feet resulting in a savings of approximately $120,000 per quarter. In exchange for these amended lease terms, the Company paid $140,000 for certain leasehold improvements associated with the reconfigured space and also paid approximately $300,000 in accrued deferred rent. The Company expects that the restructuring actions will reduce operating expenses by approximately $1.2 million annually.

The Company has been using its existing cash and cash equivalents to fund the cash needs of its operating activities. We are carefully monitoring our cash position and evaluating the need for additional capital to enable us to achieve our short and long-term objectives. If there was a need for additional capital, the Company believes that other sources of financing are available including sales of its common or preferred stock, external borrowing, customer or vendor financing, customer sponsored research and development projects or investments by strategic partners. The avenues that we take to satisfy our potential capital requirements will depend in large part on the level of our revenues, and we will evaluate these alternatives as we obtain better visibility of our revenue expectations.

There can be no assurance that the Company will not incur additional losses for a longer period of time, will generate positive cash flow from it operations, or that the Company will attain or thereafter sustain profitability in any future period. To the extent that the Company continues to incur losses or achieves revenue growth in the future requiring an increase in working capital, its operating and investing activities may use cash and, consequentially, such losses or growth will require the Company to obtain additional sources of financing to provide for these cash needs.

As of April 30, 2005, the Company had no outstanding debt.

Working capital decreased 34% to $2,910,000 at April 30, 2005 from $4,438,000 at October 31, 2004. The Company financed its operations during the first six months of fiscal 2005 through existing cash and cash equivalents. Net cash used in operating activities during the first six months of fiscal 2005 was $1,230,000. Accounts receivable decreased $601,000 and inventories increased $12,000 during the first six months of fiscal 2005. Accounts payable and accrued expenses decreased by $505,000 and $55,000, respectively.

Net cash used in investing activities was $178,000 during the six months ended April 30, 2005 and related to the $140,000 leasehold improvement costs that were paid during the second quarter of fiscal 2005 related to the amended lease agreement of the Company’s corporate office in Eden Prairie, Minnesota along

with fixed asset additions. This compares with $76,000 in fixed asset additions for the same period in fiscal 2004. The Company expects that fixed asset additions for the remaining quarters of fiscal 2005 will be approximately $30,000 for the remainder of fiscal 2005.

The Company does not have relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements. As such, the Company is not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such arrangements.

The Company believes it does not have material exposure to quantitative and qualitative market risks. The carrying amounts reflected in the balance sheets of cash and cash equivalents, trade receivables and trade payables approximate fair value at April 30, 2005 due to the short maturities of these instruments.

NEW ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements is included in the Notes to Condensed Financial Statements.

FORWARD LOOKING STATEMENTS

The discussion above contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the Company’s expectations, beliefs, intentions and strategies regarding the future. Forward-looking statements include, without limitation, statements regarding the extent and timing of future revenues and expenses and customer demand. All forward-looking statements included in this document are based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any such forward-looking statements.

The Company’s actual results are subject to risks and uncertainties and could differ materially from those discussed in the forward-looking statements. These statements are based upon the Company’s expectations regarding a number of factors, including the Company’s ability to obtain additional working capital if necessary to support its operations, changes in worldwide general economic conditions, cyclicality of capital spending by customers, the Company’s ability to keep pace with technological developments and evolving industry standards, worldwide competition, and the Company’s ability to protect its existing intellectual property from challenges from third parties. A detailed description of the factors that could cause future results to materially differ from the Company’s recent results or those projected in the forward-looking statements are contained in the section entitled “Description of Business” under the caption “Important Factors Regarding Forward-Looking Statements” contained in its filing with the Securities and Exchange Commission on Form 10-KSB for the year ended October 31, 2004 and other reports filed with the Securities and Exchange Commission.

Item 3: CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

The Company’s Chief Executive Officer, Joseph C. Christenson and Chief Financial Officer, Timothy C. Clayton have reviewed the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon this review, the Company’s disclosure controls and procedures are effective.

(b) Changes in Internal Control Over Financial Reporting.

There have been no changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1: LEGAL PROCEEDINGS

None.

Item 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company previously reported the results of its Annual Meeting of Sharheolders held on March 10, 2005 in its Form 10-QSB for the quarter needed January 31, 2005, filed with the SEC on March 17, 2005

Item 5: OTHER INFORMATION

Reverse Stock Split

As previously reported by the Company, on March 10, 2005 the Company’s Board of Directors approved a 1-for-4 reverse split of its common stock effective as of the close of business on March 31, 2005 and the conversion to book-entry share registration also effective as of March 31, 2005. In connection with the reverse split, the Board of Directors also approved an amendment to Article 4.1 of the Company’s Articles of Incorporation to proportionately reduce the number of shares of common stock authorized from 20,000,000 shares to 5,000,000 shares. In connection with the conversion to book-entry share registration, the Board of Directors approved amendments to Sections 5.01 and 5.02 of the Company’s Bylaws on March 10, 2005 to allow for the issuance and transfer of shares of the Company’s common stock in uncertificated form.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PPT VISION, INC.


Date: May 31, 2005

	/s/Joseph C. Christenson
	Joseph C. Christenson
	President
	(Principal Executive Officer)


	/s/Timothy C. Clayton
	Timothy C. Clayton
	Chief Financial Officer
	(Principal Financial and
	Accounting Officer)

Part I.		Financial Information

Item 1.		Financial Statements

		Balance Sheets as of April 30, 2005 and October 31, 2004

		Statements of Operations for the Three and Six Months Ended April 30, 2005 and April 30, 2004

		Statements of Cash Flows for the Six Months Ended April 30, 2005 and April 30, 2004

		Notes to Condensed Financial Statements – April 30, 2005

Item 2.		Management’s Discussion and Analysis or Plan of Operation

Item 3.		Controls and Procedures

Part II.		Other Information

Item 1.		Legal Proceedings

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.		Defaults Upon Senior Securities

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

Item 5.		Other Information

Item 6.		Exhibits

		Signatures