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 January 31, 2006

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		55344
Eden Prairie, Minnesota		(Zip Code)
(Address of principal executive offices)

(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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Shares of $.10 par value common stock outstanding at February 21, 2006: 2,998,747

PPT VISION, INC.

BALANCE SHEETS


	January 31, 2006			October 31, 2005
	(unaudited)			(audited)
ASSETS
Current assets
Cash and cash equivalents	$	519,000		$		778,000
Accounts receivable, net	1,403,000			1,197,000
Inventories:
Manufactured and purchased parts	445,000			454,000
Work-in-process	35,000			34,000
Finished goods	4,000			2,000

Total inventories	484,000			490,000
Other current assets	146,000			160,000

Total current assets	2,552,000			2,625,000

Fixed assets, net	406,000			438,000
Intangible assets	61,000			68,000
Other assets	22,000			22,000

Total assets	$	3,041,000		$		3,153,000

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	495,000		$		367,000
Accrued expenses	178,000			223,000
Deferred revenue — customer advances	17,000			9,000

Total current liabilities	690,000			599,000

Shareholders’ equity
Common stock	300,000			300,000
Capital in excess of par value	36,082,000			36,081,000
Accumulated deficit	(34,031,000		)	(33,827,000			)

Total shareholders’ equity	2,351,000			2,554,000

Total liabilities and shareholders’ equity	$	3,041,000		$	3,153,000

See accompanying notes to condensed financial statements

PPT VISION, INC.

STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended January 31,

	2005			2006

Revenues	$	1,582,000		$	1,525,000
Cost of revenues	702,000			729,000
Gross profit	880,000			796,000

Expenses:
Sales and marketing	559,000			686,000
General and administrative	236,000			291,000

Research and development	329,000			374,000


Total expenses	1,124,000			1,351,000

Interest and other income	40,000			9,000

Loss from continuing operations	(204,000		)	(546,000		)

Loss from discontinued operations	—			(64,000		)

Net loss	$	(204,000	)	$	(610,000	)

Per share data:
Weighted average basic shares outstanding	2,999,000			2,996,000

Weighted average diluted shares outstanding	2,999,000			2,996,000

Basic and diluted loss per common share

Loss from continuing operations	$	(0.07	)	$	(0.18
						)
Loss from discontinued operations	$	—		$	(0.02
						)

Net loss	$	(0.07	)	$	(0.20	)

See accompanying notes to condensed financial statements

PPT VISION, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months			Three Months
	Ended			Ended
	January 31, 2006			January 31, 2005

Net loss	$	(204,000	)	$	(610,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock option expense	1,000			—
Depreciation and amortization	44,000			66,000
Loss from discontinued operations	—			55,000

Change in assets and liabilities:
Accounts receivable	(206,000		)	466,000
Inventories	6,000			(196,000		)
Other current assets	14,000			22,000
Accounts payable	128,000			(192,000		)
Accrued expenses	(45,000		)	(33,000		)
Deferred revenue - customer advances	8,000			(27,000		)

Total adjustments	(50,000		)	161,000

Net cash used in operating activities	(254,000		)	(449,000		)

Cash flows from investing activities:
Purchase of fixed assets	(5,000		)	(22,000		)

Net cash used in investing activities	(5,000		)	(22,000		)

Cash flows from financing activities:
Proceeds from the exercise of stock options	—			3,000

Net cash provided by financing activities	—			3,000

Net cash provided by discontinued operations	—			105,000

Net decrease in cash and cash equivalents	(259,000		)	(363,000		)

Cash and cash equivalents at beginning of year	778,000			2,617,000

Cash and cash equivalents at end of period	$	519,000		$	2,254,000

See accompanying notes to condensed financial statements

PPT VISION, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

January 31, 2006

(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, 2005 has been derived from the Company’s audited financial statements for the fiscal year ended October 31, 2005 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, 2005.

NOTE C — REVENUE RECOGNITION

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. Service revenue is less than 10% of total revenues for the three-months ended January 31, 2006 and 2005.

NOTE D — LIQUIDITY AND CAPITAL RESOURCES

The Company had a loss from continuing operations for the three months ended January 31, 2006 of $204,000. Cash used in operations was $254,000 for the three months ended January 31, 2006. 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 received a reduction in its base rental rates and its leased facility decreased 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 and capitalized $140,000 for certain leasehold improvements associated with the reconfigured space which will be amortized over the revised lease term and also paid approximately $300,000 in accrued deferred rent. The Company also agreed to pay a $240,000 lease termination fee (which was expensed) in equal monthly installments over a twelve-month period that started on May 1, 2005 and to extend the current lease term by two years through May, 2011.

The Company closed on a $400,000 private placement of common stock on February 17, 2006 in an effort to further strengthen its balance sheet and provide for future working capital requirements. The private placement was funded by the Company’s current largest shareholder, Mr. Peter R. Peterson. In the private placement, the Company issued 800,000 shares of common stock at a price of $0.50 per share. The Company believes it has sufficient cash to fund its operations, working capital and capital resource needs through fiscal 2006.

The Company believes that a variety of financing alternatives are available including external borrowing against accounts receivable and inventory, customer or vendor financing, the issuance of additional stock to the public or to strategic partners, or customer-sponsored research and development projects.

There can be no assurance, however, that additional capital will be available on acceptable terms or at all, and the failure to obtain additional capital as needed may have an adverse effect on the Company’s ability to continue to take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could adversely affect its business, financial position, results of operations and cash flows.

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 presented in this report have been restated to give effect to the 1-for-4 reverse split.

At January 31, 2006, options to purchase 331,330 shares of the Company’s common stock were not considered in the calculation of diluted earnings per share. At January 31, 2005, options to purchase 243,580 shares and warrants to purchase

6,250 shares of the Company’s common stock were not considered in the calculation of diluted earnings per share. As the Company had a net loss for both periods, the inclusion of outstanding options and warrants would have been anti-dilutive.

NOTE F — STOCK-BASED COMPENSATION

The Company uses the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for employee stock options. Under the intrinsic value method, compensation expense is recorded only to the extent that the market price of the common stock exceeds the exercise price of the stock option on the date of grant.

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure.” SFAS No. 148 is an amendment to SFAS No. 123 providing alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and also provides required additional disclosures about the method of accounting for stock-based employee compensation. The Company adopted the annual disclosure provision of SFAS No. 148 during the year ended October 31, 2003. The Company chose to not adopt the voluntary change to the fair value based method of accounting for stock-based employee compensation, pursuant to SFAS No. 148.

During fiscal 2005, the Company granted 2,500 of seven-year options to purchase shares of the Company’s common stock to a consultant with an exercise price of $1.43 per share. Pursuant to Emerging Issues Task Force 96-18 (EITF 96-18), “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” the Company will value and record an expense related to the options on the earlier of the date a performance commitment is met or the date the performance is complete. The Company recorded an expense of $1,000 for the three months ended January 31, 2006 in accordance with EITF 96-18.

The Company has adopted the disclosure-only provisions of SFAS No. 148, Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized with respect to stock options. Had compensation cost for stock options been determined based on the fair value methodology prescribed by SFAS 123, the Company’s net loss and net loss per share would have been reduced to the pro forma amounts indicated below:

Three Months Ended January 31,		2006					2005
Net loss	As reported	$		(204,000		)	$			(610,000	)
	Pro forma	$		(248,000		)	$	(637,000			)

Stock based compensation	As reported	$			1,000		$	—
	Pro forma	$	(44,000			)	$		(27,000		)

Basic and diluted loss per share	As reported	$	(0.07			)	$		(0.20		)
	Pro forma	$	(0.08			)	$		(0.21		)

For Periods Ended January 31,	2006	2005
Risk free interest rates	N/A	4.0	%
Expected lives	N/A	6 years
Expected volatility	N/A	115	%
Expected dividends	N/A	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 months ended January 31, 2006 and 2005:

Three Months Ended January 31	2006		2005
United States	39	%	51	%
Europe and Canada	34	%	30	%
Asia-Pacific	27	%	18	%
South America	0	%	1	%
	100	%	100	%

In the three-month period ended January 31, 2006, revenues from one customer represented approximately 18% of total revenue. In the three-month period ended January 31, 2005, revenues from two customers each represented approximately 14% of the total revenue.

NOTE H — NEW ACCOUNTING PRONOUNCEMENTS

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.

In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151 “Inventory Costs,” (SFAS No. 151) which amends the guidance in ARB No. 43 (ARB 43), Chapter 4 “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and re-handling costs may be so abnormal as to require treatment as current period charges. SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity

of the production facilities. SFAS No. 151 shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after the date SFAS No. 151 was issued. SFAS No. 151 shall be applied prospectively. The adoption of SFAS No. 151 did not have a material effect on the Company’s financial statements.

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 “loss from discontinued operations.” Below is a Condensed Statement of Operations for the discontinued operations for the three month periods ended January 31, 2005 and 2006.

Condensed Statement of Operations	Quarter Ended January 31, 2006		Quarter Ended January 31, 2005
Revenues	—		$	169,000
Cost of revenues	—		56,000
Gross profit	—		113,000
Total operating expenses	—		177,000
Loss from discontinued Operations	$	—	$	(64,000	)

Assets	January 31, 2006		October 31, 2005
Accounts receivable	$	—	$	—

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 received a reduction in its base rental rates and its leased facility

decreased 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 is also paying a $240,000 lease termination fee, which was accrued in the second quarter of fiscal 2005, in equal monthly installments over a twelve-month period which started on May 1, 2005. The amended lease terms also extended the current lease term by two years through May, 2011. The third part of the plan included other operating expense reductions 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 restructuring 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 nonrecurring charge	$	390,000
Less: Payment through January 31, 2006	(350,000		)
Amount included in accrued expenses at January 31, 2006	$	40,000
Amount included in accrued expenses at January 31, 2006	$	40,000

NOTE K — SUBSEQUENT EVENT

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 increased 4% to $1,582,000 during the first quarter ended January 31, 2006 compared to sales of $1,525,000 in the prior year’s first quarter. The Company’s loss from continuing operations for the quarter ended January 31, 2006 decreased to $204,000 or $.07 per share compared to $546,000 or

$.18 per share in the prior year’s period. The increase in revenues in the first quarter resulted in increased sales of our IMPACT product line. During the first quarter of fiscal year 2006 approximately 80% of revenue was IMPACT related compared to 69% of revenue during the same period of fiscal year 2005.

During the fiscal 2006 first quarter, revenues from outside the United States accounted for 61% of revenues compared to 49% in the first quarter of fiscal 2005.

Total operating expenses for the three-month period ending January 31, 2006 were $1,124,000, a 17% decrease in comparison to total operating expenses of $1,351,000 in the prior year’s first quarter. This reduction in operating expenses reflect the effect of the restructuring actions implemented in the second quarter ending April 30, 2005 as described in Note J.

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;

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

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

Revenue Recognition

Services revenue, which includes application engineering, product development, customer training and repair services, is recognized when the services are performed. Service revenue is less than 10% of total revenues for the three months ended January 31, 2006 and 2005.

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 allowance for doubtful accounts.

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.

Actual results could differ from these estimates under different assumptions. If the financial condition of one or more of our customers were to deteriorate, or if actual product demand or market conditions are less favorable than anticipated by management, additional reserves may be required.

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 increased 4% to $1,582,000 for the three-month period ended January 31, 2006, compared to net revenues of $1,525,000 for the same period in fiscal 2005. Unit sales of the Company’s machine vision systems increased to 255 for the first quarter of fiscal 2006 versus 221 for the same period in fiscal 2005. In the three-month period ended January 31, 2006, revenues from one customer represented approximately 18% of total revenue. In the three-month period ended January 31, 2005, revenues from two customers each represented approximately 14% of total revenue.

The increase in revenues in the first quarter resulted in increased sales of our IMPACT product line. During the first quarter of fiscal year 2006 approximately 80% of revenue was IMPACT related compared to 69% of revenue during the same period of fiscal year 2005.

During the fiscal 2006 first quarter, revenues from outside the United States accounted for 61% of revenues compared to 49% in the fiscal 2005 first quarter.

We will continue to experience fluctuating quarter-over-quarter revenue comparisons as we transition almost exclusively to product development and sales of the IMPACT family of products. Revenue trends may also be inconsistent given the nature of the machine vision industry and the capital nature of our product.

Gross profit increased 11% to $880,000 for the three-month period ended January 31, 2006, compared to $796,000 for the same period in fiscal 2005. As a percentage of net revenues, the gross profit for the first quarter of fiscal 2006 increased to 56% compared to 52% in the same period of fiscal 2005. The increase in gross margin is a reflection of the increase in revenues along with the fact that the majority of our revenue in 2006 related to our IMPACT product line which has a higher gross margin than our older product lines. Now that a majority of the Company’s revenues consist of its newer, higher gross margin, IMPACT product line, it is expected that future gross margins will trend into the 55% to 60% range as our fixed manufacturing overhead is spread over a higher volume of sales.

Sales and marketing expenses decreased 19% to $559,000 for the three-month period ended January 31, 2006 compared to $686,000 for the same period in fiscal 2005. As a percentage of net revenues, sales and marketing expenses decreased to 35% for the first quarter of fiscal 2006 compared to 45% for the same period in fiscal 2005. The Company expects sales and marketing expenses in absolute dollars to remain relatively flat for the remainder of fiscal 2006. Increases in sales and marketing expenditures may occur to the extent that revenue growth is achieved.

General and administrative expenses decreased 19% to $236,000 for the three-month period ended January 31, 2006, compared to $291,000 for the same period in fiscal 2005. As a percentage of net revenues, general and administrative expenses decreased to 15% for the first quarter of fiscal 2006 versus 19% for the same period in fiscal 2005. The Company expects general and administrative expenses to remain relatively flat during fiscal 2006.

Research and development expenses decreased 12% to $329,000 for the three-month period ended January 31, 2006, compared to $374,000 for the same period in fiscal 2005. As a percentage of net revenues, research and development expenses decreased to 21% for the first quarter of fiscal 2006, compared to 25% for the first quarter of fiscal 2005. Again, the Company expects research and development expenses to remain relatively flat during fiscal 2006.

The Company did not record an income tax benefit or expense for the three month periods ended January 31, 2006 or 2005.

The Company’s net loss from continuing operations for the first quarter of fiscal 2006 decreased from year-ago levels to $204,000 or 7 cents per share, as compared with a loss of $546,000 or 18 cents per share for the same period in

fiscal 2005. There were approximately 3.0 million shares outstanding during the three month periods in fiscal 2006 and 2005.

The results of our discontinued operations resulted in no loss for the first quarter of fiscal 2006 and a loss of $64,000 or $0.02 per share in the first quarter of fiscal 2005.

LIQUIDITY AND CAPITAL RESOURCES

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

At January 31, 2006 the Company had cash balances of $519,000, working capital of approximately $1.9 million and no long-term debt.

In the first quarter of fiscal 2006 the Company incurred a net loss from continuing and discontinued operations of $204,000 which included non-cash charges related to depreciation and amortization of $44,000. The net loss for the quarter decreased $406,000 from the $610,000 loss reported in the first quarter of fiscal 2005. For the quarter ended January 31, 2006, cash used in operating activities was $254,000. The decrease in cash used in operations during fiscal 2006 relates to the Company’s second quarter corporate restructuring actions. 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 received a reduction in its base rental rates and its leased facility decreased 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. Future building rent commitments for the next five years are as follows:

Three Months ended Jan 31,	2006	$	71,000
Feb 1, 2006 through Oct 31,	2006	214,000
	2007	285,000
	2008	285,000
	2009	299,000
	2010	313,000
	2011 and thereafter	202,000
	Total	$	1,669,000

The Company has been using its existing cash and cash equivalents to fund the cash needs of its operating activities. The Company believes it has sufficient cash to fund its operations, working capital and capital resource needs through fiscal 2006. The Company closed on a $400,000 private placement of common stock on February 17, 2006 in an effort to further strengthen its balance sheet and provide for future working capital requirements. The private placement was funded by the Company’s current largest shareholder, Mr. Peter R. Peterson. In the private placement, the Company issued 800,000 shares of common stock at a price of $0.50 per share.

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 a variety of financing alternatives are available including external borrowing against

accounts receivable and inventory, customer or vendor financing, the issuance of additional stock to the public or to strategic partners, or customer-sponsored research and development projects. 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.

As of January 31, 2006, the Company had no outstanding debt.

Working capital decreased 8% to $1,861,000 at January 31, 2006 from $2,026,000 at October 31, 2005. The Company financed its operations during the first three months of fiscal 2006 through existing cash and cash equivalents. Net cash used in operating activities during the first three months of fiscal 2006 was $254,000. Accounts receivable increased $206,000 and inventories decreased $6,000 during the first three months of fiscal 2006. Accounts payable increased by $128,000 while accrued expenses decreased by $45,000, respectively.

Net cash used in investing activities was $5,000 during the three months ended January 31, 2006 and related to fixed asset additions. This compares with $22,000 in fixed asset additions for the same period in fiscal 2005. The Company expects that fixed asset additions for the remaining quarters of fiscal 2006 to continue at approximately the same rate as the first quarter of fiscal 2006.

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 January 31, 2006 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, 2005 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 President, Chief Executive Officer and Chief Financial Officer Joseph C. Christenson, has reviewed the Company’s disclosure controls and procedures as of the end of the period covered by this report and concluded that 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

	None.

Item 5:	OTHER INFORMATION

.	None

Item 6:	EXHIBITS

(a)		The following exhibits are included herein:

	31.1	Certification of President, Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a- 14 and 15d-14 of the Exchange Act).

	32.1	Certification pursuant Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).

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: February 24, 2006

	/s/Joseph C. Christenson
	Joseph C. Christenson
	President, Chief Executive Officer and Chief Financial Officer


	INDEX

	PPT VISION, INC.

Part I.	Financial Information	Page

Item 1.	Financial Statements

	Balance Sheets as of January 31, 2006 and
	October 31, 2005	3

	Statements of Operations for the Three Months
	Ended January 31, 2006 and January 31, 2005	4

	Statements of Cash Flows for the Three Months Ended
	January 31, 2006 and January 31, 2005	5

	Notes to Condensed Financial Statements —
	January 31, 2006	6

Item 2.	Management’s Discussion and Analysis or Plan of
	Operation	11

Item 3.	Controls and Procedures	17

Part II.	Other Information	17

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	17

Item 5.	Other Information	18

Item 6.	Exhibits	18

	Signatures	18

Date: February 24, 2006
	/s/ Joseph C. Christenson
	Joseph C. Christenson
	President, Chief Executive Officer and Chief Financial Officer