PPT VISION INC, 424B1, 1996-06-20

PPT VISION INC
424B1, 1996-06-20
INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL

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<PAGE>

Filed Pursuant to Rule 424(b)(1)
File No. 333-3755

1,600,000 Shares

[LOGO OF PPT VISION, INC.]

Common Stock

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

All of the shares offered hereby are being sold by PPT Vision, Inc. ("PPT
VISION" or the "Company"). The Company's Common Stock is traded on the Nasdaq
National Market under the symbol "PPTV." On June 18, 1996, the last reported
sale price as quoted on the Nasdaq National Market was $14.00 per share. See
"Price Range of Common Stock."

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

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $12.00 $.84 $11.16
- ------------------------------------------------------------------------------------------
Total(2)......................... $19,200,000 $1,344,000 $17,856,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Before deducting expenses of the offering estimated at $200,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
240,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $22,080,000,
$1,545,600 and $20,534,400, respectively. See "Underwriting."

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

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It
is expected that delivery of the shares of Common Stock will be made at the
offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland on or about
June 24, 1996.

Alex. Brown & Sons Piper Jaffray inc.
INCORPORATED

THE DATE OF THIS PROSPECTUS IS JUNE 18, 1996
<PAGE>

[Pictures]

[In upper left-hand corner, next to the name "PPT VISION", is a photo containing
pictures of individuals using PPT VISION systems]

[At the left margin, the following text appears:

Machine Vision Systems

PPT VISION is a leading designer, manufacturer, marketer and integrator of a
complete family of machine vision systems for end user manufacturers, system
integrators and machine builders. The Company's machine vision systems are used
for a broad range of manufacturing applications, including electronic and
mechanical assembly verification, verification of printed characters, packaging
integrity, surface flaw detection and gauging and measurement tasks. The
Company's systems are sold principally throughout North America, Europe and the
Far East to various industries, including electronics, pharmaceutical, medical,
automotive, consumer products and plastics.

[Series of three photos appear along right-hand side of page under the caption
"Three Complete Systems" - Top photo is picture of Passport 440 machine vision
system; Middle photo is picture of Passport 240 machine vision system; Bottom
photo is picture of Scout machine vision system]

The following text accompanies the photos:

Three Complete Systems

All PPT VISION machine vision systems are capable of operating at inspection
speeds of over 12,000 parts per minute.

Passport(TM) 440
PPT VISION's top-of-the-line industrial-cased system. Designed to operate with
up to four asynchronously functioning cameras for multiple inspection views and
complex imaging tasks.

Passport(TM) 240
PPT VISION's industrial-cased two camera system. Passport 240 is widely used in
the electronic connector, metal stamping, and automotive components industries.

Scout(TM)
The Scout is designed for industrial applications that do not require rugged
enclosures. Scout is capable of running two cameras with similar speed and power
to the Passport 240.

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

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF
1934. SEE "UNDERWRITING."

PPT VISION(R), Passport(TM) and Scout(TM) are trademarks of the Company.

2
<PAGE>

[Across middle of the gatefold, under the heading "How Machine Vision Works" and
a series of numbered headings pointing to various features on the photo (text is
provided below), is a photo of the machine vision inspection process]

How Machine Vision Works

PPT VISION's machine vision systems consist of a combination of proprietary
computer software and hardware, cameras and lighting, working together to
capture and analyze images of moving parts to determine the quality of
manufactured parts and control manufacturing processes.

Lighting and Optics
Camera, lens and lighting options are configured to capture a high definition
image of each part as it passes the camera.
PPT VISION Capabilities:

. Image parts that vary in size, shape, surface texture, color, etc.
. Provide cost effective, flexible and long lasting lighting solutions.
. Integrate high precision lens and camera for accurate measurement of intricate
part details.

Image Acquisition
The camera's image of the part is sent electronically to the vision system
framegrabber where it is converted to a digital image ready for processing.
PPT VISION Capabilities:
. High-speed image capture of parts "on-the-fly".
. Ability to capture up to four images at the same time.
. Ability to capture only a part of the image if required.

Image Processing
The vision system image processor measures critical part features and compares
the digital image to a preset standard that has been programmed into the system.
PPT VISION Capabilities:
. Provide a wide range of inspection algorithms for many different applications.
. Process the image in a few thousandths of a second.
. Make the system easy and intuitive to program through a proprietary graphical
user interface.

Outputs
The results of the inspection are sent to the production-line controller which
may mark or reject the failed part or shut down the production line.
PPT VISION Capabilities:
. Provide output signals to a wide variety of production line controllers.
. Output the results at high speed to keep up with the production line.
. Provide data to the host manufacturing control system to enable improvement in
the production process over time.

Results
Increase in cost-effective and efficient manufacturing through:
. 100% inspection to eliminate shipping of defective product and reduce scrap
product.
. Removal of defective parts from the assembly process.
. Continuous data collection to spot trends in the production process and adjust
equipment before defective products are produced.
. Ongoing improvement of the manufacturing process and product quality.

[To the right of such photo is a diagram of charts showing results of machine
vision inspection process]

[Across the bottom of the page, under the heading "Where PPT VISION Systems Are
Used", is a series of four photos, each depicting a PPT VISION machine vision
system inspecting parts, with the following text below such photos:]

Where PPT VISION Systems Are Used

By meeting industry demands for 100% inspection of stamped parts at speeds of
over 12,000 parts per minute, PPT VISION sets the industry standard for
processing power. Subpixel accuracy is achieved with the Line Gauge Tool.

PPT VISION's new, proprietary line of LED lighting products are an example of
the Company's commitment to innovation and providing complete solutions for end-
users. Lighting is a critical element of a complete on-line machine vision
solution.

Date, lot code and mark verification for the pharmaceutical, medical, and
electronics industries is a rapidly emerging application for machine vision. PPT
VISION's Optical Character Verification (OCV) Tool is employed to meet industry
standards for 100% on-line inspection.

Inspection of electronic connectors using the Connector Tool is one of the
Company's most widely applied technologies.

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and financial statements and notes
thereto appearing elsewhere or incorporated by reference in this Prospectus.

THE COMPANY

PPT VISION is a leading designer, manufacturer, marketer and integrator of a
complete family of machine vision systems for end user manufacturers, system
integrators and machine builders. The Company's machine vision systems consist
of a combination of proprietary computer software and hardware, cameras and
lighting, working together to capture and analyze images of moving parts to
determine the quality of manufactured parts and control manufacturing
processes. PPT VISION's systems enable manufacturers to achieve 100% on-line
inspection, thus achieving zero defect production, in situations where
previously only random sampling or less precise human inspection was used as a
means of monitoring quality. In addition to functioning as a quality control
tool, PPT VISION systems provide manufacturers a window on their manufacturing
processes by producing real-time statistical process control feedback. This
allows manufacturers to take earlier corrective action to improve their
manufacturing process.

The Company's machine vision systems are used for a broad range of
manufacturing applications, including electronic and mechanical assembly
verification, verification of printed characters, packaging integrity, surface
flaw detection and gauging and measurement tasks. The Company's systems are
sold principally throughout North America, Europe and the Far East to various
industries, including electronics, pharmaceutical, medical, automotive,
consumer products and plastics. Major manufacturing end users of PPT VISION
systems include AMP, Abbott Labs, Berg Electronics, Chrysler, the Delphi
Electronic Division of General Motors, Imation, Johnson & Johnson, Kemet,
Molex, Siemens and 3M.

PPT VISION believes that it has a leadership position as the most vertically
integrated developer of machine vision systems and solutions for a wide range
of manufacturing applications. Through this approach, PPT VISION can rapidly
and cost-effectively provide machine vision system solutions to a wide variety
of manufacturing end users while enabling them to concentrate their engineering
and manufacturing expertise on the products they manufacture. PPT VISION's
library of machine vision software tools enables end users to implement machine
vision solutions to a growing number of manufacturing applications quickly and
cost effectively.

The Company has pioneered the development of an icon-based, graphical user
interface programming system for machine vision applications operating in the
Microsoft(R) Windows(TM) environment through its Vision Program Manager
("VPM"). VPM enables users to program PPT VISION systems to perform desired
image analysis and processing functions by creating a flowchart of icons linked
together, thereby enabling reduced implementation cost and time, as well as
increased flexibility in operation. In contrast, other machine vision systems
require users to write a computer program in a programming language such as C
or to use a complex, pull-down menu-based system. The Company's proprietary
hardware architecture is capable of capturing and processing full frame video
images at a rate of 3,600 images per minute in both strobed and shuttered
modes. Most competitors are limited to capturing full frame images at 1,800
images per minute, which is the industry standard. Much higher inspection rates
are achieved through the use of the Company's exclusive partial scanning
technology and split-screen imaging, which enables inspection speeds of over
12,000 parts per minute.

The machine vision market is rapidly growing and highly fragmented. Key
drivers of the expansion in the machine vision market include the growth and
demand for machine vision systems in the semiconductor and electronics
industries and global competitive trends which have led manufacturers worldwide
to dramatically redesign manufacturing processes in order to reduce costs and
increase

3
<PAGE>

productivity and quality. The Automated Imaging Association ("AIA") estimates
that the North American market for machine vision systems in 1995 was
approximately $900 million, with worldwide levels estimated at approximately
$2.3 billion. The AIA expects this market to grow at approximately 15% per year
through the year 2000. The AIA estimates that there are over 200 machine vision
companies based in North America, over 70% of which had annual revenues of less
than $5.0 million in 1995.

PPT VISION was incorporated in Minnesota in 1981. The Company's executive
offices are located at 10321 West 70th Street, Eden Prairie, MN 55344. Its
telephone number is (612) 996-9500.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered hereby............ 1,600,000 shares
Common Stock to be outstanding after
the offering.......................... 5,330,662 shares(1)
Use of proceeds........................ For working capital associated with
expanded sales and international
distribution, research and product
development and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol.......... PPTV
</TABLE>

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL
YEAR ENDED OCTOBER 31, 30,
------------------------------------ -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues.............. $2,889 $4,294 $5,935 $6,587 $9,750 $3,995 $6,347
Gross profit.............. 1,454 2,439 3,396 3,561 5,308 2,108 3,776
Income (loss) from
operations............... (205) 296 439 (253) 879 66 1,127
Net income (loss)......... (207) 338 435 (213) 1,347 89 1,178
Net income (loss) per
share.................... $(0.10) $ 0.12 $ 0.13 $(0.06) $ 0.37 $ 0.03 $ 0.31
Weighted average common
and common equivalent
shares outstanding....... 1,982 2,899 3,236 3,455 3,650 3,497 3,825
</TABLE>

<TABLE>
<CAPTION>
APRIL 30, 1996
---------------------
ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $5,351 $23,007
Total assets............................................ 7,404 25,060
Long-term debt.......................................... -0- -0-
Shareholders' equity.................................... 6,530 24,186
</TABLE>
- --------
(1) Does not include 235,299 shares of Common Stock issuable upon exercise of
outstanding options under the Company's 1988 Stock Option Plan as of April
30, 1996, of which 193,936 are currently exercisable. See "Capitalization,"
"Description of Capital Stock--Outstanding Stock Options" and Note 6 of
Notes to Financial Statements.
(2) Adjusted to reflect the sale of 1,600,000 shares offered by the Company
hereby and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."

Unless otherwise indicated, all information in this Prospectus (i) assumes
that the Underwriters' over-allotment option is not exercised and (ii) gives
effect to a three-for-two stock split which occurred on April 5, 1996. As used
herein, a "fiscal year" means a year ending October 31.

4
<PAGE>

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus.

Technological Change and New Product Development. The market for the
Company's products is characterized by rapidly changing technology. The
Company's future success will continue to depend upon its ability to enhance
its current products and to develop and introduce new products that keep pace
with technological developments and evolving industry standards, respond to
changes in customer requirements and achieve market acceptance. Any failure by
the Company to anticipate or respond adequately to technological developments
and customer requirements, or any significant delays in product development or
introduction, could have a material adverse effect on the Company's business,
results of operations, financial condition and liquidity. In addition, there
can be no assurance the new products and services or product and service
enhancements, if any, developed by the Company will achieve market acceptance.
See "Business--PPT VISION Strategy" and "--Research and Product Development."

Dependence Upon Principal Customers. During each of the past several years,
the Company has had one or more customers that accounted for ten percent or
more of its net revenues. During the fiscal year ended October 31, 1995 and
the six months ended April 30, 1996 sales to one customer, Simac Masic B.V., a
European distributor for the Company, represented 17% and 14%, respectively,
of net revenues. In addition, direct sales to AMP, Inc. represented 10% of net
revenues for fiscal 1995. The Company also realizes substantial additional
sales to AMP, Inc. indirectly through other channels, including systems
integrators, machine builders and international distributors. The loss of, or
significant curtailment of purchases by, any of the Company's principal
customers could have a material adverse effect on the Company's results of
operations. See "Business--Markets and Customers."

Cyclicality of Capital Spending by Customers. A significant portion of the
Company's revenues are derived from sales to various segments of the
electronic component industry, such as metal stamping, electronic connectors
and passive components. The markets for these segments, and for the electronic
component industry in general, can be cyclical, resulting in varying amounts
of capital spending. Any significant downturn in capital spending in these
markets, or in any other markets served by the Company's products, could have
a material adverse effect on the Company's business and results of operations.

Management of Growth. The Company's revenues increased 48% in fiscal 1995
compared with fiscal 1994 and have increased at an average annual rate of 30%
over the past five years. The Company's future success will depend on the
ability of its officers and key employees to manage growth successfully
through maintenance of appropriate operational, financial and management
information systems and to attract, retain, motivate and effectively manage
its employees. If the Company's management is unable to manage growth
effectively, the Company's business, results of operations, financial
condition and liquidity could be materially and adversely affected.

Proprietary Technology. The Company relies heavily on its image acquisition
and image processing hardware designs, along with proprietary software
technology. Although the Company has been issued patents in the past on
certain of its technology and has patents pending on new technologies, it
currently relies most heavily on protecting its proprietary information as
trade secrets. There can be no assurance that the steps taken by the Company
will be adequate to prevent misappropriation of its technology by third
parties or will be adequate under the laws of some foreign countries, which
may not protect the Company's proprietary rights to the same extent as do laws
of the United States. In addition, the possibility exists that others may
"reverse engineer" the Company's products in order to determine their method
of operation and then introduce competing products. Further, many high

5
<PAGE>

technology markets, including segments of the machine vision industry, are
characterized by the existence of a large number of patents and frequent
litigation for financial gain that is based on patents with broad, and often
questionable, application. As the number of the Company's products increases,
the markets in which its products are sold expands and the functionality of
those products grows and overlaps with products offered by competitors. As a
result, the Company believes that it may become increasingly subject to
infringement claims in the future. Although the Company does not believe any
of its products or proprietary rights infringe upon the rights of third
parties, there can be no assurance that infringement claims will not be
asserted against the Company in the future or that any such claims will not
require the Company to enter into royalty arrangements or result in costly
litigation. See "Business--Patents and Trademarks."

Quarterly Fluctuations. The Company has experienced quarterly fluctuations
in operating results and anticipates that these fluctuations will continue.
These fluctuations have been caused by various factors, including the order
flow of its principal customers, the timing and acceptance of new product
introductions and enhancements and the timing of product shipments and
marketing. Future operating results may fluctuate as a result of these and
other factors, including the Company's ability to continue to develop
innovative products, the announcement or introduction of new products by the
Company's competitors, the Company's product and customer mix, the level of
competition and overall trends in the economy. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Quarterly
Comparisons."

Dependence on Outside Contractors and Suppliers. The Company currently
contracts with third party assembly houses for a substantial portion of its
components and assembly needs. Although the Company endeavors to inspect and
internally test most components prior to final assembly, reliance on outside
contractors reduces its control over quality and delivery schedules. The
failure by one or more of these subcontractors to deliver quality components
in a timely manner could have a material adverse effect on the Company's
results of operations. In addition, a number of the components integral to the
functioning of the Company's products are available from only a single
supplier or from a limited number of suppliers. Any interruption in or
termination of supply of these components, or a material change in the
purchase terms, including pricing, of any of these components, or a reduction
in their quality or reliability, could have a material adverse effect on the
Company's business or results of operations. See "Business--Manufacturing."

International Revenue. In the years ended October 31, 1993, 1994 and 1995
and the six months ended April 30, 1996, sales of the Company's products to
customers outside North America accounted for approximately 13%, 27%, 33% and
34%, respectively, of the Company's net revenues. The Company anticipates that
international revenue will continue to account for a significant portion of
its net revenues. The Company's operating results are subject to the risks
inherent in international sales, including various regulatory requirements,
political and economic changes and disruptions, transportation delays and
difficulties in staffing and managing foreign sales operations and distributor
relationships. In addition, fluctuations in exchange rates may render the
Company's products less price competitive relative to local product offerings.
There can be no assurance that these factors will not have a material adverse
effect on the Company's future international sales and, consequently, on the
Company's operating results. See "Business--Sales, Marketing and Customer
Support."

Competition. The Company competes with other vendors of machine vision
systems, many of which may have greater financial and other resources than the
Company. There can be no assurance that the Company will be able to compete
successfully in the future or that the Company will not be required to incur
significant costs in connection with its engineering research, development,
marketing and customer service efforts to remain competitive. Competitive
pressures may result in price erosion or other factors which will adversely
affect the Company's financial performance. See "Business--Competition."

6
<PAGE>

Dependence on Key Personnel. The Company's success depends in large part
upon the continued services of many of its highly skilled personnel involved
in management, research and product development and sales, and upon its
ability to attract and retain additional highly qualified employees. The loss
of services of these key personnel could have a material adverse effect on the
Company. The Company does not have key-person life insurance on any of its
employees. See "Management."

Possible Volatility of Stock Price. The Company believes that factors such
as the announcement of new products by the Company or its competitors, market
conditions in the machine vision industry generally and quarterly fluctuations
in financial results could cause the market price of the Common Stock to vary
substantially. In recent years, the stock market has experienced price and
volume fluctuations that have particularly affected the market prices for many
high technology companies and which often have been unrelated to the operating
performance of such companies. The market volatility may adversely affect the
market price of the Company's Common Stock. See "Price Range of Common Stock."

Anti-Takeover Considerations. Certain anti-takeover provisions of the
Minnesota Business Corporation Act and the ability of the Board of Directors
to issue preferred stock without shareholder approval may have the effect of
delaying or preventing a change in control or merger of the Company, which
could operate to the detriment of other shareholders. See "Description of
Capital Stock--Anti-Takeover Provisions of Minnesota Business Corporation
Act."

7
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be $17.7 million, after
deducting underwriting discounts and commissions and estimated offering
expenses. The Company intends to use the net proceeds for working capital
associated with expanded sales and international distribution, research and
product development and other general corporate purposes. The Company may use a
portion of the net proceeds for acquisitions, joint ventures or licensing
agreements associated with businesses, technologies or products complementary
to the Company's business, although no such acquisition, joint venture or
licensing agreement is being negotiated or planned as of the date of this
Prospectus. Pending such uses, the net proceeds are expected to be invested in
short-term, investment grade securities.

PRICE RANGE OF COMMON STOCK

Since December 28, 1995, the Common Stock of the Company has been listed on
the Nasdaq National Market under the symbol "PPTV." Prior to that time, the
Common Stock was traded on the Nasdaq Small Cap Market under the same symbol.
The following table sets forth the high and low sales prices of the Company's
Common Stock on the Nasdaq National Market for the period beginning December
28, 1995, and the high and low closing bid prices for the Company's Common
Stock on the Nasdaq Small Cap Market for the periods prior to December 28,
1995, each as reported by Nasdaq. The Nasdaq Small Cap Market quotations listed
below indicate inter-dealer prices without retail mark-up, mark-down or
commissions, and may not represent actual transactions.

<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL YEAR ENDED OCTOBER 31, 1994
First Quarter............................................. $ 4.17 $3.33
Second Quarter............................................ 3.33 2.83
Third Quarter............................................. 3.33 2.67
Fourth Quarter............................................ 2.67 2.17
FISCAL YEAR ENDED OCTOBER 31, 1995
First Quarter............................................. $ 2.50 $1.67
Second Quarter............................................ 2.75 2.17
Third Quarter............................................. 3.83 2.33
Fourth Quarter............................................ 8.67 3.50
FISCAL YEAR ENDING OCTOBER 31, 1996
First Quarter............................................. $13.17 $8.50
Second Quarter............................................ 16.00 8.83
Third Quarter (through June 18, 1996)..................... 19.00 14.00
</TABLE>

On June 18, 1996, the last reported sales price of the Common Stock on the
Nasdaq National Market was $14.00. The Company estimates that there were
approximately 2,530 beneficial holders of the Company's Common Stock at April
30, 1996.

DIVIDEND POLICY

The Company has never declared or paid any dividends on its Common Stock. The
Company currently intends to retain any earnings for use in its operations and
expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future.

8
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of April
30, 1996 and as adjusted to reflect the sale of 1,600,000 shares of Common
Stock offered by the Company pursuant to this offering and the anticipated use
of the estimated proceeds therefrom. See "Use of Proceeds."

<TABLE>
<CAPTION>
APRIL 30, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt............................................ $ -0- $ -0-
------- -------
Stockholders' equity:
Preferred stock, no par value, 10,000,000 shares
authorized, no shares outstanding....................... -0- -0-
Common stock, $.10 par value, 10,000,000 shares
authorized; 3,679,717 shares issued and outstanding;
5,279,717 shares issued and outstanding, as
adjusted(1)............................................. 368 528
Capital in excess of par value........................... 11,865 29,361
Accumulated deficit...................................... (5,703) (5,703)
------- -------
Total shareholders' equity.............................. 6,530 24,186
------- -------
Total capitalization................................... $ 6,530 $24,186
======= =======
</TABLE>
- --------
(1) Excludes 235,299 shares that may be issued upon exercise of options
outstanding as of April 30, 1996, of which 193,936 are currently
exercisable. See "Description of Capital Stock--Outstanding Stock Options"
and Note 6 of Notes to Financial Statements.

9
<PAGE>

SELECTED FINANCIAL DATA

The balance sheet data at October 31, 1991, 1992, 1993, 1994 and 1995 and the
income statement data for the years then ended are derived from and should be
read in conjunction with the more detailed financial statements of the Company
and the notes thereto, which have been audited by Price Waterhouse LLP. The
reports on the financial position of the Company at October 31, 1994 and 1995
and the results of its operations and cash flows for each of the three fiscal
years in the period ended October 31, 1995 are included elsewhere and
incorporated by reference in this Prospectus, and should be read in conjunction
with the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which follows this section. October 31,
1991, 1992 and 1993 financial information is derived from the audited financial
statements contained in the Company's Forms 10-K as filed for such years. The
balance sheet data at April 30, 1996 and the income statement data for the six
months ended April 30, 1995 and 1996 are derived from the unaudited financial
statements of the Company included elsewhere in this Prospectus. In the opinion
of management, the unaudited financial statements have been prepared on a basis
consistent with the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for such
periods. Results for the six-month period ended April 30, 1996 are not
necessarily indicative of the results that may be expected for any subsequent
period.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL
YEAR ENDED OCTOBER 31, 30,
------------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues.............. $2,889 $4,294 $5,935 $6,587 $9,750 $3,995 $6,347
Cost of sales............. 1,435 1,855 2,539 3,026 4,442 1,887 2,571
------ ------ ------ ------ ------ ------ ------
Gross profit............. 1,454 2,439 3,396 3,561 5,308 2,108 3,776
Selling expenses.......... 692 1,005 1,576 1,970 2,279 1,075 1,231
General and administrative
expenses................. 400 451 550 711 851 359 530
Research and development
expenses................. 567 687 831 1,133 1,299 608 888
------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations.............. (205) 296 439 (253) 879 66 1,127
Other income (expense).... (2) 42 (4) 40 61 23 51
------ ------ ------ ------ ------ ------ ------
Net income (loss) before
taxes................... (207) 338 435 (213) 940 89 1,178
Income tax benefit........ -0- -0- -0- -0- 407 -0- -0-
------ ------ ------ ------ ------ ------ ------
Net income (loss)........ $ (207) $ 338 $ 435 $ (213) $1,347 $ 89 $1,178
====== ====== ====== ====== ====== ====== ======
Net income (loss) per
share.................... $(0.10) $ 0.12 $ 0.13 $(0.06) $ 0.37 $ 0.03 $ 0.31
====== ====== ====== ====== ====== ====== ======
Weighted average common
and common equivalent
shares outstanding....... 1,982 2,899 3,236 3,455 3,650 3,497 3,825
====== ====== ====== ====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------------- APRIL 30,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $1,159 $1,502 $3,071 $3,253 $4,132 $5,351
Total assets...................... 2,049 2,370 4,005 4,449 6,098 7,404
Long-term debt.................... 182 -0- -0- -0- -0- -0-
Shareholders' equity.............. 1,436 1,833 3,384 3,719 5,145 6,530
</TABLE>

10
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Prospectus, including the information set forth in this section and the
information incorporated by reference herein, contains forward-looking
statements. Actual results could differ significantly from those contained in
the forward-looking statements. In connection with the forward-looking
statements which appear in these disclosures, prospective purchasers of the
Common Stock offered hereby should carefully review the factors set forth in
this Prospectus under "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Certain Factors Affecting
Future Performance."

OVERVIEW

The Company was founded in 1982 to commercialize technology for statistical
pattern recognition as applied to the then new machine vision market. In 1984,
the Company introduced its only product based on this technology, the APP 200.
In 1986, the Company introduced the APP 250, which employed direct contrast
sensing hardware which was more appropriate for factory automation
applications. The APP 300, which implemented a user-friendly interface
(Inspection Manager), was introduced in 1988.

The Company embarked on a new product direction in 1989, with the launching
of a project to develop an easy-to-use and fast machine vision system for the
end user market. This project focused on the development of an icon-based
graphical user interface operating under Microsoft(R) Windows(TM) and
proprietary hardware designed to plug into standard PC architecture. The first
product of this effort, the 400VPC, was introduced in 1991. The 400VPC, with
the Company's proprietary VPM software, was the first system for the end-user
machine vision market to use an icon-based graphical user interface operating
under Microsoft(R) Windows(TM). The basic architecture of the VPC series and
VPM form the foundation of the Company's current Passport and Scout family of
machine vision systems introduced in 1994. The Company has made significant
investments in product development and is continuing to invest in next
generation software and hardware architecture that will expand its lead in
speed, ease-of-use and the ability to deliver cost effective complete
solutions to its customers. The Company's basic software and hardware
architecture, together with an increasing array of specific software tools
such as the Connector Tool, have been the major drivers of the Company's
growth.

In recent years, the Company has directed significant resources to building
its sales and applications engineering capabilities, its corporate
infrastructure and its research and product development activities to support
expanded sales of its family of complete machine vision systems to the end
user market. In fiscal 1994 the Company recognized a net loss of $0.2 million
due to the significant investment in infrastructure, combined with a lag in
timing of order flow. However, the Company began to realize the benefit of
these investments in fiscal 1995 when a substantial growth in revenues
generated net income before taxes of $0.9 million. Although operating expenses
are expected to continue to grow in absolute dollar amounts, the Company
expects its efforts to generate significant increases in net revenues will not
require escalating increases in such expenditures as a percentage of net
revenues.

11
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth certain financial data (i) expressed as a
percentage of net revenues for the years ended October 31, 1993, 1994 and 1995
and for the six months ended April 30, 1995 and 1996 and (ii) expressed as a
percentage increase from the previous period's results:

<TABLE>
<CAPTION>
PERCENTAGE OF NET
REVENUES PERCENTAGE INCREASE
---------------------------- --------------------------
SIX
MONTHS SIX MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
OCTOBER 31, APRIL 30, OCTOBER 31, APRIL 30,
---------------- ---------- --------------- ----------
1993 1994 1995
1993 1994 1995 1995 1996 TO 1994 TO 1995 TO 1996
---- ---- ---- ---- ---- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... 100% 100% 100% 100% 100% 11% 48% 59%
Gross profit............... 57 54 54 53 59 5 49 79
Selling expenses........... 27 30 23 27 19 25 16 15
General and administrative
expenses.................. 9 11 9 9 8 29 20 48
Research and development
expenses.................. 14 17 13 15 14 36 15 46
Income (loss) from
operations................ 7 (4) 9 2 18 -- -- 1,594
Net income (loss).......... 7 (3) 14 2 19 -- -- 1,217
</TABLE>

Comparison of Six Months Ended April 30, 1996 to Six Months Ended April 30,
1995

Net Revenues. Net revenues increased 59% to $6.3 million for the six month
period ended April 30, 1996 compared to net revenues of $4.0 million for the
same period in fiscal 1995. The increase in net revenues in fiscal 1996 was
due to a 61% growth in unit sales, with sales of the Company's machine vision
systems increasing to 229 in the first six months of fiscal 1996 versus 142
for the same period in fiscal 1995. The Company attributes its sales growth to
increased demand in all markets, with particularly strong results shown
internationally. In the first six months of fiscal 1996 net revenues increased
89% outside North America and 49% in North America over the same period in the
prior year. Sales to customers outside North America represented 34% of net
revenues for the six month period ended April 30, 1996, compared to 29% for
the same period in fiscal 1995. The increase internationally is primarily the
result of increased sales to electronic component manufacturers in the Far
East through international distributors. The increase in North America is
primarily the result of increased sales to electronics and automobile
manufacturers.

Gross Profit. Gross profit increased 79% to $3.8 million for the six month
period ended April 30, 1996, compared to $2.1 million for the same period in
fiscal 1995. As a percentage of net revenues, the gross profit increased to
59% from 53% for the same period in fiscal 1995. The increase in gross profit
as a percentage of net revenues in 1996 is primarily due to economies of scale
related to increasing volume and to decreased material costs. The Company
anticipates that it can support increased net revenues at its current
manufacturing capacity.

Selling Expenses. Selling expenses increased 15% to $1.2 million for the six
month period ended April 30, 1996, compared to $1.1 million for the same
period in fiscal 1995. As a percentage of net revenues, selling expenses
declined to 19% for the first six months of fiscal 1996 from 27% for the same
period in fiscal 1995. The decline in selling expenses as a percentage of net
revenues is primarily due to the Company's ability to leverage its sales,
applications engineering and international distribution infrastructure.
Selling expenses for international sales are generally incurred by the
Company's distributors. Although the Company anticipates selling expenses to
increase in the remainder of fiscal 1996 as the Company invests additional
amounts in sales and applications engineering, the Company believes that these
expenditures will not increase substantially as a percentage of net revenues
for the remainder of this fiscal year.

General and Administrative Expenses. General and administrative expenses
increased 48% to $0.5 million for the six month period ended April 30, 1996,
compared with $0.4 million for the same period in fiscal 1995. As a percentage
of net revenues, general and administrative expenses decreased to 8% for

12
<PAGE>

the first six months of fiscal 1996, compared to 9% for the same period in
fiscal 1995. The increase in expenditures in the first six months of 1996 is
primarily attributable to increased expenses associated with operating the
Company as it continues to grow and to investments in management
infrastructure. The decrease as a percentage of net revenues is mainly related
to operating leverage provided by the Company's growing revenue base. The
Company believes that general and administrative expenses may decline slightly
as a percentage of net revenues during the remainder of fiscal 1996.

Research and Development Expenses. Research and development expenses
increased 46% to $0.9 million for the six month period ended April 30, 1996,
compared with $0.6 million for the same period in fiscal 1995. Research and
development expenses as a percentage of net revenues declined to 14% for the
first six months of fiscal 1996, compared to 15% for the same period in fiscal
1995. The increase in expenses in the first six months of fiscal 1996 is
mainly due to new product development programs and increased staffing to
support these efforts. The decline as a percentage of net revenues in the
first six months of fiscal 1996 is the result of the Company's growing revenue
base. As the Company continues to invest in next generation software and
hardware development, it expects research and development expenses may remain
constant or increase slightly as a percentage of net revenues during the
remainder of fiscal 1996.

Income Tax Benefit. No income tax expense or benefit was recorded in the six
month period ended April 30, 1996 or in the same period in fiscal 1995.
Depending on the results of operations for the last six months of fiscal 1996,
the Company may determine that it is prudent and necessary to fully recognize
the remaining potential future tax benefits of loss carry forwards and net
deductible temporary differences available to offset taxable income in future
periods.

Comparison of Year Ended October 31, 1995 to Year Ended October 31, 1994

Net Revenues. Net revenues in fiscal 1995 increased 48% to $9.7 million,
compared with $6.6 million for fiscal 1994. The increase in net revenues was
due to a 48% growth in unit sales, with sales of the Company's machine vision
systems increasing to 333 in fiscal 1995 versus 225 in fiscal 1994. The
Company attributes its sales growth to increased demand in all markets, with
particularly strong results in international markets. In fiscal 1995 revenues
increased 84% outside of North America and 35% in North America. The increase
internationally was primarily the result of a 492% increase in Far East sales
through distributors. The increase in North America is primarily due to demand
in the electronic components market as well as increased sales to systems
integrators.

Gross Profit. Gross profit for fiscal 1995 increased 49% to $5.3 million,
compared with $3.6 million for fiscal 1994. The gross profit as a percentage
of net revenues for fiscal 1995 remained constant at 54%.

Selling Expenses. Selling expenses increased 16% to $2.3 million in fiscal
1995, compared with $2.0 million in fiscal 1994. As a percentage of net
revenues, fiscal 1995 selling expenses declined to 23% from 30% in fiscal
1994. The increase in selling expenses in 1995 was related to expanded
marketing and promotion efforts and the addition of new employees in the sales
and customer support areas. The decline in selling expenses as a percentage of
net revenues in fiscal 1995 is primarily due to increased productivity from
the Company's sales and applications engineering teams and increased sales
through international distributors.

General and Administrative Expenses. General and administrative expenses
increased 20% to $0.9 million in fiscal 1995, compared with $0.7 million in
fiscal 1994. As a percentage of net revenues, general and administrative
expenses decreased to 9% in fiscal 1995 compared with 11% in fiscal 1994. The
increase in expenditures in 1995 was primarily due to incurring a full year of
lease expense in the Company's new facility and investments in management
infrastructure. The decrease as a percentage of net revenues is mainly related
to operating leverage provided by the Company's growing revenue base.

13
<PAGE>

Research and Development Expenses. Research and development expenses
increased 15% to $1.3 million in fiscal 1995 from $1.1 million in fiscal 1994.
Research and development expenses as a percentage of net revenues declined to
13% in fiscal 1995 from 17% in fiscal 1994. The increase in expenditures in
1995 is mainly due to new product development programs and the necessary new
employees to support these efforts. The decline as a percentage of net
revenues in 1995 is the result of the Company's growing revenue base.

Income Tax Benefit. The income tax benefit of $407,000 recorded in fiscal
1995 reflects partial recognition of the potential future tax benefits of loss
carry forwards and net deductible temporary differences available to offset
taxable income in future periods. No income tax expense or benefit was
recorded in fiscal 1994.

Comparison of Year Ended October 31, 1994 to Year Ended October 31, 1993

Net Revenues. Net revenues in fiscal 1994 increased 11% to $6.6 million,
compared with $5.9 million in fiscal 1993. Unit sales of the Company's machine
vision systems increased to 225 in fiscal 1994 versus 186 in fiscal 1993. In
fiscal 1994 net revenues increased 131% outside of North America and declined
7% in North America. The increase internationally is primarily the result of
increased sales in Europe through distributors. The decline in North America
in fiscal 1994 is primarily the result of unusually low first quarter order
flow following a very large number of shipments in the fourth quarter of
fiscal 1993.

Gross Profit. Gross profit for fiscal 1994 increased 5% to $3.6 million,
compared with $3.4 million for fiscal 1993. The gross profit as a percentage
of net revenues for fiscal 1994 was 54%, compared with 57% for fiscal 1993.
The decline in gross profit as a percentage of net revenues for fiscal 1994
was primarily due to start-up costs related to the introduction of the
Passport and Scout product lines as well as the portion of increased
expenditures related to the move to the Company's new facility in fiscal 1994
that was allocated to cost of sales.

Selling Expenses. Selling expenses increased 25% to $2.0 million in fiscal
1994, compared with $1.6 million in fiscal 1993. As a percentage of net
revenues, fiscal 1994 selling expenses increased to 30% from 27% in fiscal
1993. The increase in selling expenses in fiscal 1994 was due primarily to
investments by the Company in its sales and applications engineering
infrastructure.

General and Administrative Expenses. General and administrative expenses
increased 29% to $0.7 million in fiscal 1994, compared with $0.6 million in
fiscal 1993. As a percentage of net revenues, general and administrative
expenses increased to 11% in fiscal 1994, compared with 9% in fiscal 1993. The
increase in expenditures in 1994 was primarily due to increased expenses
associated with operating the Company as it continued to grow and with
increased expenditures incurred in the move to its new facility during fiscal
1994.

Research and Development Expenses. Research and development expenses
increased 36% to $1.1 million in fiscal 1994 from $0.8 million in fiscal 1993.
Research and development expenses as a percentage of net revenues increased to
17% in fiscal 1994 from 14% in fiscal 1993. The increase in expenditures in
fiscal 1994 reflected increased personnel expenses and costs associated with
the continuation of enhancements for software tools and development work on
the Company's Passport and Scout product lines.

Quarterly Comparisons

The following table sets forth certain quarterly financial data for the
first two quarters in 1996 and the four quarters in each of fiscal years 1995
and 1994, as well as certain of such information expressed as a percentage of
net revenues for the same periods. This quarterly information is unaudited but
has been prepared on the same basis as the annual financial statements and, in
management's opinion, reflects all adjustments, consisting only of normal
recurring adjustments required for a fair presentation

14
<PAGE>

of the information for the periods presented. The operating results for any
quarter are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------
JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1994 1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues............ $1,283 $1,669 $1,632 $2,004 $2,029 $1,966 $2,751 $3,004 $3,135 $3,212
Gross profit............ 692 975 817 1,077 1,066 1,042 1,506 1,694 1,832 1,944
Income (loss) from
operations............. (142) 6 (148) 31 48 19 296 517 534 593
Net income (loss)....... (135) 16 (137) 43 56 33 315 943 557 621
Net income (loss) per
share.................. (0.04) 0.00 (0.04) 0.01 0.02 0.01 0.09 0.25 0.15 0.16
AS A PERCENTAGE OF NET REVENUES:
Gross profit............ 54% 58% 50% 54% 53% 53% 55% 56% 58% 61%
Income (loss) from
operations............. (11)% 0% (9)% 2% 2% 1% 11% 17% 17% 18%
Net income (loss)....... (11)% 1% (8)% 2% 3% 2% 11% 31% 18% 19%
</TABLE>

The Company has experienced quarterly fluctuations in operating results and
anticipates that these fluctuations will continue. These fluctuations have been
caused by various factors, including the number and timing of new product
introductions and enhancements, the buying patterns of the Company's target
markets, the timing of product shipments and marketing. Future operating
results may fluctuate as a result of these and other factors, including the
Company's ability to continue to develop innovative products, the announcement
or introduction of new products by the Company's competitors, the Company's
product and customer mix, the level of competition and overall trends in the
economy.

Net revenues have generally increased from quarter to quarter since the first
quarter of fiscal 1994 which ended January 31, 1994. Net revenues of $1.3
million in that quarter decreased significantly from net revenues of $2.1
million for the preceding quarter ended October 31, 1993, which was the result
of a very large number of orders being completed and shipped in the earlier
quarter. Such fluctuations in quarter-to-quarter net revenues may occur in the
future due to variations in product mix and the long selling cycle and
application-specific customer requirements inherent in the end user machine
vision market. Furthermore, given that the Company attempts to ship products
within a relatively short time of specific product orders, quarter-to-quarter
comparisons will be significantly affected by order flow and the timing and
acceptance of new product introductions.

The Company's gross profit in the quarter ended April 30, 1994 increased due
to an unusually large order for the Company's Image Processor and Framegrabber
board sets, which carry a higher gross margin than complete vision systems. The
gross profit in the quarter ended July 31, 1994 declined due to the shipment of
an order which carried a lower gross profit percentage due to an unusually high
pass-through element of cost. This order consisted of equipment purchased by
the Company to be integrated with the Company's machine vision system which was
passed on to the customer at minimal increase in cost. The Company does not
anticipate incurring similar cost of sales charges in the future. Gross profit
as a percentage of net revenues has been increasing beginning with the quarter
ended July 31, 1995 due to economies of scale related to increasing volume and
to reduced material costs. Net income for the quarter ended October 31, 1995
includes the impact of an income tax benefit of $407,000.

LIQUIDITY AND CAPITAL RESOURCES

Working capital increased to $5.4 million on April 30, 1996 from $4.1 million
on October 31, 1995. The Company financed its increased sales in the first six
months of fiscal 1996 through internally generated cash flow and existing cash
and cash equivalents. Net cash provided from operating activities was $0.5
million for the six month period ended April 30, 1996. Due to the increased
level of sales activity and a higher percentage of sales occurring in the last
half of the second quarter ended April 30,

15
<PAGE>

1996, accounts receivable increased $0.4 million during the first six months of
fiscal 1996. Inventories increased $0.3 million during the first six months of
fiscal 1996 due to raw material purchases to support increased sales and new
product introductions. The Company used $0.3 million in cash flow in investing
activities, primarily for the purchase of capital equipment. In addition, the
Company generated $0.2 million from its financing activities as a result of
issuances of its Common Stock upon exercise of stock options and warrants.

Current assets increased to $6.1 million at April 30, 1996 from $4.9 million
at October 31, 1995. This increase was primarily due to an increase in cash and
cash equivalents to $1.7 million at April 30, 1996 from $1.2 million at October
31, 1995. Accounts receivable also increased to $3.1 million at April 30, 1996
from $2.7 million at October 31, 1995.

The Company's current liabilities decreased to $0.7 million at April 30, 1996
from $0.8 million at October 31, 1995. This was mainly due to lower trade
accounts payable.

The Company believes that its cash flow from operations, existing cash and
cash equivalents at April 30, 1996 and the net proceeds of this offering will
be adequate for its foreseeable operating needs.

CERTAIN FACTORS AFFECTING FUTURE PERFORMANCE

Although the Company has experienced significant growth in net revenues over
the past five years, there can be no assurance that prior growth rates are
indicative of future operating results. In addition, while the Company has
directed, and intends to continue to direct, significant resources to building
its sales and applications engineering capabilities, corporate infrastructure
and research and product development activities, there can be no assurance that
such investments will result in increased net revenues or more favorable
operating margins. Future operating results may fluctuate due to factors such
as demand for the Company's machine vision systems, technological change, the
introduction by the Company or its competitors of new products, product
enhancements or services, the acceptance by the Company's customers of such new
products, product enhancements or services, demand for the products of the
Company's customers, the capital spending patterns of the Company's customers,
availability of components integral to the functioning of the Company's
products, changes in the level of operating expenses and competitive conditions
in the machine vision industry.

The machine vision industry is highly fragmented and the Company faces
competition from a number of companies in the machine vision market, some of
which have greater manufacturing and marketing capabilities and greater
financial, technological and personnel resources than the Company. The Company
may incur significant costs in connection with its engineering research,
development, marketing and customer service efforts in order to maintain or
enhance its competitive position. In addition, the Company and certain of its
competitors which are public companies have historically reported strong
operating margins. However, while to date the Company has not experienced
significant price competition, competitive pressures may in the future result
in price competition among the Company and its competitors which would
negatively affect operating margins in general for companies in the machine
vision industry and, specifically, could materially and adversely affect the
Company's financial condition and results of operations.

The Company anticipates that international sales will continue to account for
a significant portion of its net revenues. International sales are subject to a
number of risks, including various regulatory requirements, political and
economic changes and disruptions, transportation delays and difficulties in
staffing and managing foreign sales operations and distributor relationships.
In addition, fluctuations in exchange rates may render the Company's products
less price competitive relative to local product offerings. These factors may,
in the future, contribute to fluctuations in the Company's financial condition
and results of operations. Although the Company's results of operations have
not been materially adversely affected to date by these factors, the long-term
impact of these factors on the Company's financial condition or results of
operations, including any possible affect on the business outlook in other
developing countries, cannot be predicted.

16
<PAGE>

BUSINESS

OVERVIEW

PPT VISION is a leading designer, manufacturer, marketer and integrator of a
complete family of machine vision systems for end user manufacturers, system
integrators and machine builders. The Company's machine vision systems consist
of a combination of proprietary computer software and hardware, cameras and
lighting, working together to capture and analyze images of moving parts to
determine the quality of manufactured parts and control manufacturing
processes. PPT VISION's systems enable manufacturers to achieve 100% on-line
inspection, thus achieving zero defect production, in situations where
previously only random sampling or less precise human inspection was used as a
means of monitoring quality. In addition to functioning as a quality control
tool, PPT VISION systems provide manufacturers a window on their manufacturing
processes by producing real-time statistical process control feedback. This
allows manufacturers to take earlier corrective action to improve their
manufacturing process.

BACKGROUND

A machine vision system consists of computer software and hardware, working
together with cameras and lighting, to perform image analysis and image
processing for automated inspection, measurement and identification functions
in the manufacturing process. Commercial use of machine vision technology for
manufacturing quality control began to emerge in the early 1980s. However,
machine vision systems at that time were complex to program and maintain,
difficult to install, limited in performance and not cost effective. Through
advances in microprocessor and software technologies, these barriers have been
removed, enabling machine vision to emerge as a powerful process control
technology that allows manufacturers to improve quality and increase
productivity.

The machine vision market is large and highly fragmented. The AIA estimates
that the North American market for machine vision systems in 1995 was
approximately $900 million, with worldwide levels estimated at approximately
$2.3 billion. The AIA expects this market to grow at approximately 15% per year
through the year 2000. According to the AIA, over 70% of the estimated 200
companies in the North American machine vision market have less than $5 million
in annual revenues. Demand for machine vision systems comes from end user
manufacturers who apply these systems as an integral part of their
manufacturing process, OEMs who incorporate machine vision systems into their
products, systems integrators and machine builders. The AIA estimates that a
substantial majority of the North American market for machine vision systems
consists of sales to end user manufacturers.

17
<PAGE>

A key factor in the expansion of the machine vision market is the growth in
the demand for machine vision systems in the semiconductor and electronics
industries. The growth in demand for personal computers, cellular
communications and other electronic devices, as well as the increase in
electronic components inside other products such as consumer appliances and
automobiles, is stimulating demand for electronic and semiconductor components.
In an effort to rapidly ramp up manufacturing capability while at the same time
introducing innovative new designs and improving quality, manufacturers of
these components are increasingly turning to machine vision as a vital part of
their manufacturing process.

The growth of the end user machine vision market is also being driven by
global competitive trends, which have led manufacturers worldwide to
dramatically redesign manufacturing processes in order to reduce cost and
increase productivity and quality. In order to meet today's manufacturing
quality requirements, statistical sampling methods are insufficient and 100%
on-line inspection is required. To accomplish these objectives, manufacturers
are increasingly adopting machine vision solutions.

Manufacturers are demanding expanded capabilities from machine vision
systems, including faster processing capabilities and greater ease of use.
Manufacturers are also demanding more comprehensive services from machine
vision providers, including application engineering, technical support and
training. Furthermore, manufacturers are seeking the ability to monitor trends,
to better comprehend the manufacturing process and to identify problems. In
addition, manufacturers are being challenged to maintain high production levels
which require rapid set up times, flexibility and seamless networking with the
host manufacturing control system to provide comprehensive diagnostic and
process control feedback.

THE PPT VISION SOLUTION

The Company's machine vision systems are primarily targeted at providing
manufacturers with 100% on-line inspection in high speed discrete part
manufacturing applications. This typically replaces older off-line random
sampling techniques or human vision inspection techniques as a means of
monitoring quality, thus enabling manufacturers to achieve zero defect
production.

PPT VISION's family of machine vision systems which include its proprietary
VPM graphical programming software provide significant performance advantages
that meet manufacturers' critical requirements. These requirements include high
speed, flexibility, ease-of-use, networkability and statistical feedback, all
without sacrificing performance. All PPT VISION systems are supported by the
Company's focus on providing its customers with complete solutions, not just
components, and a major commitment to providing its customers with value-added
application engineering services.

PPT VISION has developed products which have specific advantages in terms of
speed and ease-of-use. The Company's machine vision systems are capable of
operating speeds of over 12,000 parts per minute performing 100% on-line
inspection. This speed is critical to successfully employing machine vision in
many applications. PPT VISION also pioneered the use of an icon-based visual
programming system (VPM) operating in the Microsoft(R) Windows(TM) environment.
Users are able to program the Company's systems by creating a flowchart of
icons linked together rather than having to write a computer program in a
programming language such as C or using a complex, pull-down menu-based system.
This results in lower cost and time for implementation.

The Company is pursuing what it believes is the most fully vertically
integrated business model in the machine vision industry. PPT VISION develops
its own image acquisition and processing hardware, image analysis software,
application specific software tools and general purpose graphical user
interface. The Company also provides lighting solutions and value-added
application engineering services on a direct basis to manufacturers. These
capabilities enable PPT VISION to provide its customers with (i)

18
<PAGE>

application specific software tools (such as the Connector Tool used for
inspection of fully assembled electronic connectors), (ii) complete
application specific products (such as the Stampede providing high speed
inspection for precision metal stamping applications), and (iii) complete
custom solutions. This strategy enables PPT VISION to leverage its investment
in core software and hardware architectures while providing improved service
for the end user manufacturing customers. In addition, PPT VISION markets its
vision systems to manufacturing system integrators and machine builders who
address the end user market with unique expertise in specific vertical
markets. Many system integrators and machine builders prefer to use the
Company's complete vision systems, which enable them to reduce programming
development time, save money and concentrate their expertise on material
handling and integration issues. The Company believes that this business model
gives it a decisive competitive advantage in providing cost effective,
complete solutions to the end user machine vision market.

PPT VISION STRATEGY

The Company's objective is to be a worldwide leader in the design,
manufacture, marketing and integration of machine vision systems for automated
manufacturing applications in the end user machine vision market. Through the
successful integration of the Company's five core competencies, including
image acquisition, image processing, application development software, optics
and illumination and vision system integration, the Company believes it will
be able to meet its objective and successfully implement its strategy.

Key elements of the Company's strategy include:

. Provide Complete Solutions to End Users. The Company focuses on providing
complete machine vision solutions to end user manufacturers, system
integrators and machine builders. PPT VISION is pursuing what it believes
to be the most fully vertically integrated business model in the
industry, including the design, manufacturing, marketing and integration
of complete machine vision solutions. The Company believes this provides
it with a competitive advantage in delivering cost effective complete
vision solutions.

. Extend Technology Leadership in Speed and Ease-of-Use. The Company is
continuing to aggressively invest in next generation software and
hardware architectures that will expand its lead in speed, ease-of-use
and the ability to deliver cost effective complete solutions to its
customers. New products currently in development will feature significant
enhancements in speed, accuracy and breadth of application through new
proprietary technology. Key software products will enable support for
different hardware and user interfaces, as well as increasing the
development speed of application specific software tools.

. Target Expanding Markets Through Continued Development of Application
Specific Software Tools. The Company's application specific software
tools are a proven solution for a wide variety of electronic component
inspection applications. In response to the worldwide expansion of the
semiconductor and electronics industries, the Company is developing
additional software tools for electronic component, electronics and
semiconductor applications. The Company also focuses considerable effort
on expanding the offerings of application specific software tools to the
industries it identifies as being poised to exhibit significant growth in
demand for machine vision solutions, such as pharmaceuticals, medical
devices, automotive and plastics.

. Provide a Superior Level of Value-Added Application Engineering Support.
The Company delivers a high level of value-added application engineering
support to its end user customers through its own in-house applications
engineering resources. Manufacturing end users increasingly want to
concentrate their engineering expertise on the products they manufacture,
not on engineering machine vision systems. They are seeking complete
machine vision solutions with the associated application engineering
support on an on-going basis.

. Increase International Market Presence. The Company is aggressively
focusing on increasing its market share in the worldwide machine vision
market. The Company believes international

19
<PAGE>

markets represent a significant opportunity and intends to capture a
significant share of this market through investment and expansion in its
international sales distribution and support infrastructure.

PRODUCTS

PPT VISION's systems consist of proprietary software and hardware working
together with cameras and lighting to capture and analyze images of parts on-
line. The four key process steps in the PPT VISION solution are lighting and
optics, image acquisition, image processing and outputs. In lighting and
optics, cameras, lenses and lighting options are configured to capture a high-
definition image of each part as it passes the camera. Image acquisition
involves capturing an image at extremely high rates of speed and preparing the
image for further processing. In image processing, the machine vision system
measures critical part features and compares algorithmically the digital image
to a preset standard that has been programmed into the system. The output
function typically involves sending the results of the inspection process to
the production line controller or the host manufacturing control system, as
well as providing real-time process control data which can be used to improve
the production process over time.

TYPICAL PPT VISION SYSTEM CONFIGURATION EXAMPLE

[GRAPHIC OF TYPICAL SYSTEM CONFIGURATION (INCLUDING
PROCESSOR, MONITOR AND SAMPLE CONVEYOR) APPEARS HERE]

20
<PAGE>

Software Operating System and Tools. All PPT VISION systems run on
proprietary software in a Microsoft(R) Windows(TM) environment using the
Company's VPM user interface. VPM is an icon-based, graphical language which
is easy to use and extremely flexible. It allows the Company's customers to
create complete inspection solutions with no training in computer programming
languages. Instead of writing a computer program in a programming language
such as C or using a complex, pull-down menu-based system, the vision system
is set up by creating visual flowcharts. Clicking the trackball, the user
graphically grabs icons (representing machine vision functions) out of system
toolboxes and arranges them in the workspace on the system monitor. The icons
are then connected with different colored lines to indicate execution and data
flow throughout the inspection routine.

Machine vision functions are performed by the Company's extensive set of
software tools. PPT VISION has developed a library of over 40 vision tools
contained in four toolboxes covering imaging, input/output ("I/O"), utility
and control functions. The Company's imaging toolbox contains all system tools
directly associated with image acquisition, processing and analysis. These
tools provide access to all of the Company's vision algorithms, which are the
vital core of all inspections performed by its vision systems. The I/O toolbox
holds all the tools which permit an inspection developer to control vision
system input and output options. These tools allow for system networking, data
collection and application control. The tools in the utility and control
toolboxes access functions such as counters, reset and display functions, math
and logical operations, data collection and screen controls. These toolboxes
also provide control of data flow to a variety of peripherals such as disk
drives, serial ports and Microsoft(R) Visual Basic(TM) programs.

TYPICAL PPT VISION GRAPHICAL USER INTERFACE

[GRAPHIC OF VPM GRAPHICAL USER INTERFACE (INCLUDES SAMPLE PROGRAM AND
TOOLBOXES) APPEARS HERE]

21
<PAGE>

Hardware Architecture. PPT VISION's machine vision processor includes the
Company's proprietary high performance Framegrabber and Image Processor boards
with a Texas Instruments DSP (digital signal processor) and high speed
pipeline architecture along with an integrated PC for inspection set-up and
networking and fully integrated I/O capability. All PPT VISION systems are
capable of capturing full framed video images at a rate of up to 3,600 images
per minute, in both strobed and shuttered modes. Most competitors are limited
to capturing full frame images at 1,800 images per minute, which is the
industry standard. Much higher inspection rates are achieved through the use
of the Company's exclusive partial scanning technology and split-screen
imaging, which enables speeds of over 12,000 parts per minute.

PPT VISION Product Family. The Company's machine vision systems are the
Passport 440, Passport 240, Scout and Stampede. Each of these systems includes
a machine vision processor, a Super VGA touch-screen color display monitor and
VPM.

The Passport 440 is the Company's top of the line product, designed to
operate with up to four asynchronously functioning cameras for multiple
inspection views and complex imaging tasks. The Passport 240 has all of the
basic capabilities of the Passport 440 in a two-camera model. Both systems are
housed in industrially rugged enclosures and are capable of operating at
speeds of over 12,000 inspections per minute. These systems are widely used in
the electronic connector, metal stamping and automotive components industries
that demand speed, accuracy and flexibility while maintaining industrial
ruggedness.

The Scout is a cost-effective machine vision system designed for industrial
applications that do not require rugged enclosures. It is packaged in a non-
industrial desktop style enclosure and is capable of running two cameras with
similar speed and power to the Passport 240.

The Stampede is a turnkey inspection system specifically designed for the
precision stamping industry. The system includes a Passport vision processor,
mechanical fixturing, precision camera optics and lighting integrated on a
mobile platform.

In addition, the Company sells a broad range of peripheral services and
components, including applications engineering, installation and training
services, custom lighting solutions, fixturing, cameras, cabling and various
software options.

MARKETS AND CUSTOMERS

The Company sells its products to a broad range of industries, including
manufacturers of electronic components, pharmaceuticals, medical devices,
automotive components, consumer products and plastics. As of April 30, 1996,
the Company had sold 1,337 machine vision systems to over 200 customers, since
inception. In the area of electronic components, eight of the ten largest
electronic connector manufacturers in the world have purchased PPT VISION
systems. These companies are included in the list shown below.

The following is a representative list of end users of the Company's
products.

AMP ITT Cannon Philips
Abbott Labs Imation Reynolds Metals
Akso I-Stat Siemens
Allied Signal JST Sumitomo
Augat Japan Aviation Electronics Suzuki
Berg Electronics Johnson & Johnson Syntex
Chrysler Kemet Thomas & Betts
Framatome Molex 3M
Ford Motorola Toshiba
GM-Delphi Division Novo Nordisk United Technologies
Hewlett Packard Philip Morris Vishay

22
<PAGE>

In each of the past several years, the Company has had one or more customers
that have accounted for ten percent or more of the Company's net revenues.
During the fiscal year ended October 31, 1995, sales to one customer, Simac
Masic B.V., a European distributor for the Company, represented 17% of net
revenues. In addition, direct sales to AMP, Inc. represented 10% of net
revenues for fiscal 1995. The Company also realizes substantial additional
sales to AMP, Inc. indirectly through other channels, including systems
integrators, machine builders and international distributors.

SALES, MARKETING AND CUSTOMER SUPPORT

The Company sells its products primarily on a direct basis in the United
States to end users, system integrators and machine builders. Outside the
United States, the Company sells primarily through a network of five
distributors covering Europe, Singapore, Taiwan, Korea and Japan. The Company
markets its products through appearances at industry trade shows, advertising
in industry journals, articles published in industry and technical journals and
through direct-selling in specific vertical markets. In addition, the Company's
strong customer relationships serve as valuable references.

The Company focuses on delivering a high level of value-added applications
engineering support to its end user customers through its own in-house
applications engineering resources. The Company also provides extensive
training opportunities for its customers, either at the Company's facilities or
on-site at the customer's facilities.

The Company's sales and applications engineering departments are structured
along a team concept, with each team having dedicated sales and applications
engineering resources. The Company believes this team approach provides it with
increased flexibility in responding to customers' needs.

The following table sets forth the percentage of the Company's net revenues
(including sales delivered through international distributors) by geographic
location during the past three years:

<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, SIX MONTHS
-------------- ENDED APRIL 30,
1993 1994 1995 1996
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
North America.............................. 87% 73% 67% 66%
Europe..................................... 10% 24% 21% 18%
Far East................................... 3% 3% 12% 16%
</TABLE>

Substantially all of the Company's export sales are negotiated, invoiced and
paid in United States dollars.

BACKLOG

The Company does not believe backlog is a key indicator of future revenues in
the end user machine vision market. PPT VISION products are typically shipped
within 30 days after receipt of an order. The Company believes that maintaining
as short a time as practical for delivery is a competitive advantage in the end
user machine vision market. The nature of the end user machine vision market is
that customers do not normally place orders for large multiples of units with
scheduled deliveries over many months. Rather, end user machine vision
addresses a specific application or problem at a specific manufacturing site.
In this environment the Company focuses considerable attention on managing the
sales pipeline to ensure that sales targets are achieved. However, the Company
has received orders from certain customers with deliveries scheduled throughout
fiscal 1996. Product backlog was $2.2 million at April 30, 1996, of which
approximately $1.0 million is deliverable in the third quarter of fiscal 1996,
as compared with $0.8 million at April 30, 1995, of which $0.7 million was
deliverable in the third quarter of fiscal 1995.

23
<PAGE>

RESEARCH AND PRODUCT DEVELOPMENT

PPT VISION's products are distinguished by the Company's proprietary
technology and its significant commitment to research and product development
efforts. The Company's research and product development efforts are focused on
its five core competencies, including image acquisition, imaging processing,
application development software, optics and illumination and vision system
integration. The Company believes that the integration of these core
competencies is essential to achieving long term success in the machine vision
market. The Company's five core competencies can be described as follows:

Image Acquisition. This refers to the means and methods by which an image
is captured, stored, and then made available for subsequent processing and
display. Image acquisition combines the disciplines of photo-optics and
electrical engineering.

Imaging Processing. This refers to the means and methods whereby an image
is analyzed or enhanced to produce some desired information, measurements
or results. Image processing combines the disciplines of software
engineering, mathematics, algorithm development and electrical engineering
to implement efficient solutions to computationally complex problems.
Typical image processing tasks include real-time inspection, guidance,
gauging and recognition.

Application Development Software. This refers to the means and methods
whereby a machine vision system is configured and controlled. The
development and support of applications development software requires
expertise in the disciplines of object-oriented programming, graphical
programming environments, man-machine interfaces, device drivers and
general software engineering.

Optics and Illumination. This refers to the means and methods by which a
scene is illuminated and optically presented to an input device such as a
video camera. Special optics and illumination techniques are often used to
reveal features in an image which would otherwise go undetected or to
optimize an image for subsequent processing. Strobed illumination is often
used to "freeze" the motion of continuously moving parts. Optics and
illumination draw on skills from the disciplines of physics, mechanical
engineering and electrical engineering.

Vision System Integration. This refers to the means and methods whereby a
machine vision system is interfaced to and combined with other factory
automation equipment for purposes of creating a complete solution for the
customer. This may include material handling for part presentation,
mechanical fixturing for mounting camera and lighting components,
networking and programmable controllers for process control and reject
mechanisms for ejection of defective parts.

Various configurations of the Company's products include proprietary design
work performed by the Company's employees in each of these five areas.

PPT VISION believes that continued and timely development of new products
and enhancements to existing product characteristics is essential to
maintaining its competitive position. The Company has committed and expects to
continue to commit substantial resources to its research and development
effort, which plays a significant role in maintaining and advancing its
position as a leading provider of complete machine vision systems. The
Company's current research and development efforts are directed to increasing
performance in image acquisition, image processing and application development
software, which could produce systems with greater speed attributes while also
providing end users with more expanded software tools. New products currently
in development will feature significant enhancements in speed, accuracy and
robustness through new proprietary technology. Key software products will
enable support for different hardware and user interfaces, as well as
increasing the development speed of application specific software tools. The
Company also intends to expand its offerings of application specific software
tools to the industries it identifies as being poised to exhibit significant
growth in demand for machine vision solutions, such as the electronics,
semiconductor, pharmaceutical, medical, automotive, consumer products and
plastics markets.

24
<PAGE>

Research and development expenditures were $0.8 million, $1.1 million, $1.3
million and $0.9 million during the fiscal years ended October 31, 1993, 1994,
and 1995, and during the six month period ended April 30, 1996, respectively.

MANUFACTURING

The Company assembles, configures and tests its products at its suburban
Minneapolis facility. The Company's printed circuit boards are custom built by
several manufacturers. Most of the components used in the Company's machine
vision systems are available off-the-shelf. However, some components are
available from only a single supplier or from a limited number of suppliers.
The Company typically purchases inventory and builds products in response to
quarterly sales forecasts, enabling it to ship products within 30 days after
receipt of an order.

Much of the Company's product manufacturing, consisting primarily of circuit
board manufacturing and assembly and machined parts production, is contracted
with outside vendors. Company personnel inspect incoming parts and perform
final assembly and testing of finished products. The Company believes that its
outsourcing strategy enables it to employ its resources on the key core
competency areas from which it derives its competitive advantages.

COMPETITION

The machine vision industry is highly fragmented. Recent data provided by the
AIA show that there were approximately 200 machine vision companies in North
America in 1995, of which over 70% had revenues of less than $5 million.
Currently, no competitor holds a significant aggregate market share percentage,
although some dominate individual niches within the overall machine vision
industry. The Company believes that over the next several years, the industry
will experience a continuing trend toward consolidation. However, given the
application specific nature of the industry, the Company also believes that the
machine vision industry will continue to have a relatively large number of
competitors.

Although the Company believes that its products are unique, competitors offer
technologies and systems that are capable of certain of the functions performed
by the Company's products. The Company faces competition from a number of
companies in the machine vision market, some of which have greater
manufacturing and marketing capabilities and greater financial, technological
and personnel resources. Certain competitors in this market include the machine
vision group of Allen Bradley, the Acuity Imaging division of Robotic Vision
Systems, Inc. and Cognex Corporation.

Although the Company believes that its current products offer several
advantages in terms of speed and ease-of-use and although the Company has
attempted to protect the proprietary nature of such products, it is possible
that any of the Company's products could be duplicated by other companies in
the same general market. There can be no assurances that the Company would be
able to compete with similar products produced by a competitor.

PATENTS AND TRADEMARKS

The Company relies on a combination of patent, copyright, trademark and trade
secret laws to establish its proprietary rights in its products. The Company
has applied for foreign and domestic patents with respect to several key
technologies. One United States patent application has been allowed and is
expected to be issued on June 25, 1996. Although the Company believes that its
patents may have been useful in protecting its proprietary products and may be
useful in protecting potential future products, the Company also believes its
ability to efficiently develop and sell high performance, cost-effective vision
systems on a timely basis, whether patented or not, is more crucial to the
Company's future success. The Company requires each of its employees to enter
into standard agreements pursuant to

25
<PAGE>

which the employee agrees to keep confidential all proprietary information of
the Company and to assign to the Company all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment or made thereafter as a result of any inventions conceived or work
done during such employment. Despite these precautions, it may be possible for
a third party to copy or otherwise obtain and use the Company's products or
technology without authorization or to develop similar technology
independently. In addition, effective patent, copyright, trademark and trade
secret protection may be unavailable or limited in certain foreign countries.

The Company has obtained United States federal registration of its "PPT
VISION" trademark and has pending registrations for its "Passport" and "Scout"
trademarks. The Company intends to file for federal registration of additional
trademarks in the future. Although no assurance can be given as to the strength
or scope of the Company's trademarks, the Company believes that its trademarks
have been and will be useful in developing and protecting market recognition
for its products.

EMPLOYEES

As of April 30, 1996, the Company had 61 employees, including 22 employees in
research and development, 20 in sales and marketing, 14 in manufacturing and 5
in finance and administration. To date, the Company has been successful in
attracting and retaining qualified technical personnel, although there can be
no assurance that this success will continue. None of the Company's employees
are covered by collective bargaining agreements or are members of a union. The
Company has never experienced a work stoppage and believes that its relations
with its employees are excellent.

PROPERTIES

The Company leases approximately 28,400 square feet of office and
manufacturing space in suburban Minneapolis pursuant to a seven year lease
beginning in March 1994. The Company believes that its facilities are adequate
for its current operations and that additional space will be available for
expansion, if necessary.

LEGAL PROCEEDINGS

From time to time the Company may be involved in litigation relating to
claims arising from its operations in the normal course of business. The
Company is not a party to any pending legal proceedings as of the date of this
Prospectus.

26
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph C. Christenson.......... 37 President, Director
Thomas R. Northenscold......... 38 Chief Financial Officer
Larry G. Paulson............... 45 Vice President of Research and Development,
Secretary, Director
Arye Malek..................... 40 Vice President of Marketing
Bruce C. Huber(1)(2)........... 48 Director
David C. Malmberg(1)(2)........ 53 Director
P. R. Peterson(1)(2)........... 62 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.

Joseph C. Christenson has been President of the Company since January 1989
and a director since December 1987. Prior to being elected President of the
Company, he had been its Chief Operating Officer and Chief Financial Officer
from December 1987 to December 1988, General Manager and Chief Financial
Officer from August 1986 to November 1987, and financial analyst and marketing
manager since joining the Company in May 1985. Mr. Christenson has a Masters in
Business Administration from the University of Michigan and a Bachelor of Arts
degree from St. Olaf College.

Thomas R. Northenscold has been Chief Financial Officer of the Company since
February 1995. Prior to that, he had been the Senior Vice President of
Operations in the City Directory Division of R.L. Polk and Company, a directory
publishing company, from April 1992 to April 1994. Mr. Northenscold was
previously employed at Cardiac Pacemakers, Inc., a medical device company, in
several finance and operations positions from June 1985 to April 1992. He has a
Masters in Business Administration in finance from the University of Michigan
and a Bachelor of Science degree from Mankato State University.

Larry G. Paulson was a co-founder of the Company and has been Vice President
of Research and Development, Secretary and a director of the Company since
December 1981. Mr. Paulson is also a Registered Professional Engineer and holds
Bachelors and Masters Degrees in Science from the University of Minnesota.

Arye Malek has been the Vice President of Marketing of the Company since May
1996. He joined the Company in May 1990 as a Senior Account Manager and became
Director of International Operations in November 1992. Mr. Malek holds a
Bachelor of Science Degree from the University of Minnesota.

Bruce C. Huber is a Managing Director and the Director of Equity Capital
Markets at Piper Jaffray Inc., a full service investment bank based in
Minneapolis, Minnesota. Mr. Huber has been a director of the Company since
September 1985. Mr. Huber is also a director of Computer Petroleum Corporation.

David C. Malmberg has been the President of David C. Malmberg, Inc., a
consulting and investment management firm, since May 1994. Prior to that time,
he served in various capacities with National Computer Systems, Inc., a global
data collection services and systems company, including Vice Chairman and
President. Mr. Malmberg is Chairman of the Board of National City Bank
Corporation in Minneapolis, Minnesota and serves as a director of Three Five
Systems, Inc. Mr. Malmberg began serving as a director of the Company in May
1994.

27
<PAGE>

P. R. Peterson is the Secretary and a director of Electro-Sensors, Inc., a
manufacturer of machine control systems. Mr. Peterson is also a director of
Applied Biometrics, Inc. Mr. Peterson is also President of P.R. Peterson Co.,
Inc., a venture capital firm, and has been active in the venture capital
business for over 20 years. Mr. Peterson served as a director from the
Company's inception in 1982 to 1985. He was again elected a director of the
Company in December 1988 and continues to serve in that capacity.

28
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of April 30, 1996, the number of shares of
the Company's Common Stock beneficially owned (i) by each director, (ii) by
each person known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock and (iii) by all officers and directors as a
group. Unless otherwise indicated, each person has sole voting and dispositive
power over such shares.

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
NUMBER SHARES
OF SHARES -----------------
NAME OF BENEFICIAL BENEFICIALLY BEFORE AFTER
OWNER OWNED(1) OFFERING OFFERING
- ------------------ ------------ -------- --------
<S> <C> <C> <C>
P. R. Peterson(2)............................... 930,757 25.2% 17.6%
ESI Investment Co.
6111 Blue Circle Drive
Minnetonka, MN 55343
Bruce C. Huber.................................. 118,444 3.2% 2.2%
Larry G. Paulson................................ 95,119 2.6% 1.8%
Joseph C. Christenson........................... 80,077 2.2% 1.5%
David C. Malmberg............................... 12,450 * *
All Officers and Directors
as a group (7 persons)......................... 1,274,566 33.9% 23.8%
</TABLE>
- --------
(1) The table excludes shares purchasable pursuant to the Company's 1995
Employee Stock Purchase Plan. The table includes options under the
Company's 1988 Stock Option Plan exercisable within 60 days of April 30,
1996 in the following amounts: Mr. Peterson, 15,225 shares; Mr. Huber,
15,450 shares; Mr. Malmberg, 6,000 shares; Mr. Paulson, 16,414 shares; Mr.
Christenson, 15,750 shares; and all officers and directors as a group,
76,864 shares.
(2) ESI Investment Co. is the record owner of 549,084 shares of Common Stock.
Mr. Peterson is a controlling shareholder of Electro-Sensors, Inc., the
parent company of ESI Investment Co. Mr. Peterson also owns 161,148 shares
of Common Stock individually and controls 112,750 shares as trustee of the
P. R. Peterson Co. Profit Sharing Trust. He is also a one-third owner of
Peterson Brothers Securities Company which owns 92,550 shares of Common
Stock in its investment account.

29
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's Articles of Incorporation authorize the issuance of up to
10,000,000 shares of Common Stock, $.10 par value, and up to 10,000,000 shares
of Preferred Stock, no par value. As of April 30, 1996, 3,679,717 shares of
Common Stock were issued and outstanding and no shares of Preferred Stock were
issued and outstanding.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share. There is no
cumulative voting for directors, and holders of Common Stock have no conversion
rights and no preemptive or other rights to subscribe for additional
securities. Upon liquidation or dissolution, the holders of Common Stock will
be entitled to share ratably in all assets available for distribution after the
payment or provision for payment of all debts and liabilities and subject to
the rights of the holders of Preferred Stock which may be outstanding. Each
share of Common Stock is entitled to such dividends as may from time to time be
declared by the Board of Directors out of funds legally available therefor. The
shares of Common Stock are traded on the Nasdaq National Market under the
symbol "PPTV." The outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby will be, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors of the Company is authorized, without further
shareholder action, to issue Preferred Stock in one or more classes or series
and to fix the voting power, dividend, redemption rights or privileges, rights
on liquidation or dissolution, conversion rights and privileges, sinking or
purchase fund rights, and other preferences, privileges and restrictions, of
such classes or series.

The voting and other rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.

OUTSTANDING STOCK OPTIONS

As of April 30, 1996, the Company had outstanding options to acquire 235,299
shares of Common Stock awarded pursuant to option plans maintained by the
Company. Of this amount, options to purchase 193,936 shares are currently
exercisable at exercise prices ranging from $1.00 to $11.33 per share. The
Company had reserved as of April 30, 1996 an additional 136,470 shares for
future grants under its 1988 Stock Option Plan.

The Compensation Committee of the Board of Directors intends to grant options
under the 1988 Stock Option Plan to purchase up to an aggregate of 110,000
shares of Common Stock in varying amounts to each of the Company's employees,
effective upon consummation of this offering, at an exercise price equal to the
Price to Public set forth on the cover page of this Prospectus.

ANTI-TAKEOVER PROVISIONS OF MINNESOTA BUSINESS CORPORATION ACT

Section 302A.671 of the Minnesota Business Corporation Act provides that,
unless the acquisition of certain new percentages of voting control of the
Company (in excess of 20%, 33 1/3% or 50%) by an existing shareholder or other
person is approved by a majority of the shareholders of the Company other than
the acquirer (if already a shareholder), the shares acquired above such new
percentage level of voting control will not be entitled to voting rights. The
Company is required to hold a special

30
<PAGE>

shareholders' meeting to vote on any such acquisition within 55 days after the
delivery to the Company by the acquirer of an information statement describing,
among other things, the acquirer and any plans of the acquirer to liquidate or
dissolve the Company and copies of definitive financing agreements for any
financing of the acquisition not to be provided by funds of the acquirer. If
any acquirer does not submit an information statement to the Company within 10
days after acquiring shares representing a new threshold percentage of voting
control of the Company, or if the disinterested shareholders vote not to
approve such an acquisition, the Company may redeem the shares so acquired by
the acquirer at their market value. Section 302A.671 generally does not apply
to a cash offer to purchase all shares of voting stock of the issuing
corporation if such offer has been approved by a majority vote of disinterested
board members of the issuing corporation.

Section 302A.673 of the Minnesota Business Corporation Act restricts certain
transactions between the Company and a shareholder who becomes the beneficial
holder of 10% or more of the Company's outstanding voting stock (an "interested
shareholder") unless a majority of the disinterested directors of the Company
have approved, prior to the date on which the shareholder acquired a 10%
interest, either the business combination transaction suggested by such a
shareholder or the acquisition of shares that made such a shareholder a
statutory interested shareholder. If such prior approval is not obtained, the
statute imposes a four-year prohibition from the interested shareholder's share
acquisition date on mergers, sales of substantial assets, loans, substantial
issuances of stock and various other transactions involving the Company and the
statutory interested shareholder or its affiliates.

In the event of certain tender offers for stock of the Company, Section
302A.675 of the Minnesota Business Corporation Act precludes the tender offeror
from acquiring additional shares of stock (including acquisitions pursuant to
mergers, consolidations or statutory share exchanges) within two years
following the completion of such an offer unless the selling shareholders are
given the opportunity to sell the shares on terms that are substantially
equivalent to those contained in the earlier tender offer. The Section does not
apply if a committee of the Board consisting of all of its disinterested
directors (excluding present and former officers of the corporation) approves
the subsequent acquisition before shares are acquired pursuant to the earlier
tender offer.

These statutory provisions could also have the effect in certain
circumstances of delaying or preventing a change in the control of the Company.

TRANSFER AGENT

The transfer agent for the Company's Common Stock is Norwest Bank Minnesota,
N.A.

31
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement (a copy of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part), the Underwriters named below (the "Underwriters") have
severally agreed to purchase from the Company the following number of shares of
Common Stock at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Alex. Brown & Sons Incorporated................................ 800,000
Piper Jaffray Inc.............................................. 800,000
---------
Total...................................................... 1,600,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares
are purchased.

The Company has been advised by the Underwriters that the Underwriters
propose to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of
$.47 per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $.10 per share to certain other dealers. After the
offering, the offering price and other selling terms may be changed by the
Underwriters.

The Company has granted to the Underwriters an option, exercisable not later
than 30 days from the date of this Prospectus, to purchase up to 240,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 1,600,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 1,600,000 shares are being offered.

The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended.

The Company, its officers and directors, and ESI Investment Co. and P. R.
Peterson Profit Sharing Trust, which are controlled by P. R. Peterson, a
director of the Company, have agreed not to offer, sell or otherwise dispose of
any additional shares of Common Stock for a period of 90 days after the date of
this Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated, except that the Company may issue, and grant options to purchase,
shares of Common Stock under its existing stock plans.

The rules of the Securities and Exchange Commission (the "Commission")
generally prohibit the Underwriters and other members of the selling group, if
any, from making a market in the Company's Common Stock during the "cooling-
off" period immediately preceding the commencement of sales in the offering.
The Commission has, however, adopted an exemption from these rules that permits
passive

32
<PAGE>

market making under certain conditions. These rules permit an Underwriter or
other member of the selling group, if any, to continue to make a market in the
Company's Common Stock subject to the conditions, among others, that its bid
not exceed the highest bid by a market maker not connected with the offering
and that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters and other members of the
selling group, if any, may engage in passive market making in the Company's
Common Stock during the cooling-off period.

Bruce C. Huber is a Managing Director and the Director of Equity Capital
Markets at Piper Jaffray Inc., one of the Representatives of the Underwriters.
Mr. Huber is a Director of the Company.

LEGAL MATTERS

The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Lindquist & Vennum P.L.L.P.,
Minneapolis, Minnesota and certain legal matters will be passed upon for the
Underwriters by Piper & Marbury L.L.P., New York, New York.

EXPERTS

The financial statements of the Company as of October 31, 1994 and 1995 and
for each of the three years in the period ended October 31, 1995 included and
incorporated by reference in this Prospectus and in the Registration Statement
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
the Commission's regional offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Company's
Common Stock is quoted on the National Market System of the National
Association of Securities Dealers Automated Quotations System ("Nasdaq"), and
such reports, proxy statements and other information regarding the Company can
be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form S-
2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the shares of Common Stock offered hereby, reference is made to
such Registration Statement, copies of which may be inspected in the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and copies of which may be obtained from the
Commission upon payment of the prescribed fees.

33
<PAGE>

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated into this Prospectus by reference:

(a) the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1995 (which incorporates by reference certain portions of the
Company's definitive Proxy Statement for the Company's 1996 Annual Meeting
of Shareholders);

(b) the Company's Quarterly Reports on Form 10-Q for the quarters ended
January 31, 1996 and April 30, 1996; and

Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference, other
than exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to Thomas R. Northenscold, Chief Financial Officer, PPT
Vision, Inc., 10321 West 70th Street, Eden Prairie, Minnesota 55344. Telephone
requests may be directed to Thomas R. Northenscold at (612) 996-9500.

34
<PAGE>

PPT VISION, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Income Statements for the Years Ended October 31, 1993, 1994 and 1995
(audited) and for the six months ended April 30, 1995 and 1996
(unaudited)............................................................. F-3
Balance Sheets as of October 31, 1994 and 1995 (audited) and April 30,
1996 (unaudited)........................................................ F-4
Statements of Cash Flows for the Years Ended October 31, 1993, 1994 and
1995 (audited) and for the six months ended April 30, 1995 and 1996
(unaudited)............................................................. F-5
Statements of Shareholders' Equity for the Years Ended October 31, 1993,
1994 and 1995 (audited) and for the six months ended April 30, 1995 and
1996 (unaudited)........................................................ F-6
Notes to Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE>

To the Board of Directors and
Shareholders of PPT Vision, Inc.

In our opinion, the accompanying balance sheet and the related statements of
income, of cash flows and of shareholders' equity present fairly, in all
material respects, the financial position of PPT Vision, Inc. at October 31,
1995 and 1994, and the results of its operations and its cash flows for each of
the three fiscal years in the period ended October 31, 1995 in conformity with
generally accepted accounting principles. 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 generally accepted auditing
standards which 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 the opinion expressed above.

PRICE WATERHOUSE LLP

Minneapolis, Minnesota
November 22, 1995 except as to Note 12,
which is as of April 5, 1996

F-2
<PAGE>

PPT VISION, INC.

INCOME STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED OCTOBER ENDED APRIL
31, 30,
---------------------- --------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............................ $5,935 $6,587 $9,750 $3,995 $6,347
Cost of sales........................... 2,539 3,026 4,442 1,887 2,571
------ ------ ------ ------ ------
Gross profit........................ 3,396 3,561 5,308 2,108 3,776
------ ------ ------ ------ ------
Expenses:
Selling............................... 1,576 1,970 2,279 1,075 1,231
General and administrative............ 550 711 851 359 530
Research and development.............. 831 1,133 1,299 608 888
------ ------ ------ ------ ------
Total expenses...................... 2,957 3,814 4,429 2,042 2,649
------ ------ ------ ------ ------
Income (loss) from operations........... 439 (253) 879 66 1,127
Interest income......................... 14 39 61 24 44
Interest expense........................ -- -- (2) (1) (1)
Other income (expense).................. (18) 1 2 -- 8
------ ------ ------ ------ ------
Other income (loss) before taxes........ 435 (213) 940 89 1,178
Income tax benefit...................... -- -- 407 -- --
------ ------ ------ ------ ------
Net income (loss)................... $ 435 $ (213) $1,347 $ 89 $1,178
====== ====== ====== ====== ======
Per share data:
Net income (loss) per share........... $ 0.13 $(0.06) $ 0.37 $ 0.03 $ 0.31
====== ====== ====== ====== ======
Weighted average common
shares outstanding................... 3,236 3,455 3,650 3,497 3,825
====== ====== ====== ====== ======
</TABLE>

The accompanying notes are an integral part of the financial statements

F-3
<PAGE>

PPT VISION, INC.

BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
OCTOBER 31,
-------------- APRIL 30,
1994 1995 1996
------ ------ ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................ $1,092 $1,235 $1,651
Accounts receivable, net......................... 1,938 2,687 3,060
Inventories...................................... 785 943 1,231
Other current assets............................. 40 47 112
------ ------ ------
Total current assets........................... 3,855 4,912 6,054
Restricted cash.................................... 213 213 213
Fixed assets, net.................................. 316 501 653
Other assets, net.................................. 65 65 77
Deferred income taxes.............................. 407 407
------ ------ ------
Total assets................................... $4,449 $6,098 $7,404
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................. $ 462 $ 564 $ 462
Commissions payable.............................. 43 55 54
Accrued expenses................................. 97 162 186
------ ------ ------
Total current liabilities...................... 602 781 702
Commitments and contingencies
Deferred rent.................................... 128 172 172
Shareholders' equity
Preferred Stock: authorized 10,000,000 shares;
issued and outstanding 87,499, 0 and 0.......... 256 -- --
Common Stock $.10 par value; authorized
10,000,000 shares;
issued and outstanding 3,440,485, 3,578,704 and
3,679,717....................................... 344 358 368
Capital in excess of par value................... 11,347 11,668 11,865
Accumulated (deficit)............................ (8,228) (6,881) (5,703)
------ ------ ------
Total shareholders' equity..................... 3,719 5,145 6,530
------ ------ ------
Total liabilities and shareholders' equity..... $4,449 $6,098 $7,404
====== ====== ======
</TABLE>

The accompanying notes are an integral part of the financial statements

F-4
<PAGE>

PPT VISION, INC.

STATEMENT OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED OCTOBER ENDED APRIL
31, 30,
--------------------- --------------
1993 1994 1995 1995 1996
----- ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)....................... $ 435 $ (213) $1,347 $ 89 $1,178
Adjustment to reconcile net income
(loss)
to net cash provided by operating
activities:
Depreciation and amortization......... 115 131 164 66 114
Deferred rent......................... -- 128 44 32 1
Deferred income tax benefit........... -- -- (407) -- --
Change in assets and liabilities:
Accounts receivable................... (889) (72) (749) (63) (373)
Inventories........................... (188) 9 (158) (96) (288)
Other assets.......................... 16 5 (7) 4 (64)
Restricted cash....................... -- (213) -- -- --
Accounts payable...................... 29 31 102 22 (103)
Commissions payable................... 30 (6) 12 10 --
Accrued expenses...................... 26 (44) 65 (10) 24
----- ------ ------ ------ ------
Total adjustments................... (861) (31) (934) (35) (689)
----- ------ ------ ------ ------
Net cash provided (used) by operating
activities............................. (426) (244) 413 54 489
Cash flows from investing activities:
Purchase of fixed assets.............. (84) (194) (349) (122) (279)
----- ------ ------ ------ ------
Net cash used by investing activities... (84) (194) (349) (122) (279)
Cash flows from financing activities:
Proceeds from issuance of common
stock................................ 1,116 548 79 24 206
----- ------ ------ ------ ------
Net cash provided by financing
activities............................. 1,116 548 79 24 206
----- ------ ------ ------ ------
Net increase in cash and cash
equivalents............................ 606 110 143 (44) 416
Cash and cash equivalents at beginning
of year................................ 376 982 1,092 1,092 1,235
----- ------ ------ ------ ------
Cash and cash equivalents at end of
period................................. $ 982 $1,092 $1,235 $1,048 $1,651
===== ====== ====== ====== ======
</TABLE>

The accompanying notes are an integral part of the financial statements

F-5
<PAGE>

PPT VISION, INC.

STATEMENT OF SHAREHOLDERS' EQUITY

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
CAPITAL IN
COMMON COMMON EXCESS OF PREFERRED PREFERRED ACCUMULATED
SHARES STOCK PAR VALUE SHARES STOCK (DEFICIT)
--------- ------ ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
October 31, 1992........ 2,631,505 $263 $ 9,545 162,499 $475 $(8,450)
Stock issued through
the exercise of stock
options.............. 33,099 3 14
Stock issued through
the employee stock
purchase plan........ 21,843 2 44
Stock issued through
conversion of
preferred shares..... 42,856 4 191 (66,667) (195)
Stock issued through
private placement
(net of issue costs). 495,000 50 1,002
Net income............ 435
--------- ---- ------- ------- ---- -------
October 31, 1993........ 3,224,303 322 10,796 95,832 280 (8,015)
Stock issued through
the
exercise of stock
options.............. 64,743 6 32
Stock issued through
the
employee stock
purchase plan........ 26,082 3 68
Stock issued through
conversion of
preferred shares..... 5,357 1 24 (8,333) (24)
Stock issued through
private placement
(net of issue costs). 120,000 12 427
Net Loss.............. (213)
--------- ---- ------- ------- ---- -------
October 31, 1994........ 3,440,485 344 11,347 87,499 256 (8,228)
Stock issued through
the
exercise of stock
options.............. 65,370 6 37
Stock issued through
the
employee stock
purchase plan........ 16,599 2 35
Stock issued through
conversion of
preferred shares..... 56,250 6 249 (87,499) (256)
Net income............ 1,347
--------- ---- ------- ------- ---- -------
October 31, 1995........ 3,578,704 358 11,668 0 0 (6,881)
Stock issued through
the
exercise of stock
options.............. 51,513 5 77
Stock issued through
the
exercise of warrants. 49,500 5 120
Net income............ 1,178
--------- ---- ------- ------- ---- -------
April 30, 1996
(unaudited).......... 3,679,717 $368 $11,865 0 0 $(5,703)
========= ==== ======= ======= ==== =======
</TABLE>

F-6
<PAGE>

PPT VISION, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1: ORGANIZATION AND OPERATIONS

The Company designs, manufactures, markets and integrates machine vision
based automated inspection systems. The systems are used to improve
productivity and quality by automating inspection tasks in manufacturing
applications such as assembly verification, flaw detection, character
verification or measurement tasks.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTS RECEIVABLE

Accounts receivable are shown net of allowance for doubtful accounts of
$35,000 at October 31, 1995, and $55,000 at October 31, 1994.

INVENTORIES

Inventories are stated at the lower of cost or market, with costs determined
on a first-in, first-out (FIFO) basis. As of October 31, 1994 and 1995, and
April 30, 1996 inventories consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
OCTOBER 31, ENDED
----------------- APRIL 30,
1994 1995 1996
-------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Manufactured and purchased parts............ $493,567 $680,919 $1,044,263
Work-in-process............................. 230,924 214,410 114,389
Finished goods.............................. 60,113 47,532 72,104
-------- -------- ----------
Totals.................................. $784,604 $942,861 $1,230,756
======== ======== ==========
</TABLE>

OTHER ASSETS

Other assets at October 31, 1994 and 1995 consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------
1994 1995
------- -------
<S> <C> <C>
Patent and trademark.................................... $63,307 $70,515
Security deposits....................................... 7,187 192
Investment in related party............................. 52,500 52,500
------- -------
122,994 123,207
Less accumulated amortization........................... (57,565) (58,859)
------- -------
Total other assets.................................. $65,429 $64,348
======= =======
</TABLE>

The investment in a related party represents common stock the Company intends
to hold as an investment and is recorded at cost. During 1994, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (SFAS). No. 115 requires
certain investments in debt and equity securities to be recorded at fair market
value. No adjustment to market value was recorded as of October 31, 1994 and
1995 as the difference was not material. Patent and trademark costs are
amortized over 60 months.

F-7
<PAGE>

PPT VISION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

FIXED ASSETS

Fixed assets consist of furniture, fixtures and equipment, and are stated at
cost net of accumulated depreciation. Depreciation is computed for book
purposes on a straight-line basis over the estimated useful life of the asset
and for tax purposes over five and ten years using accelerated and straight-
line methods. At October 31, 1994 and 1995 furniture, fixtures and equipment
consisted of the following:

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Equipment....................................... $ 1,412,187 $ 1,743,291
Furniture and fixtures.......................... 231,584 234,967
----------- -----------
1,643,771 1,978,258
Less accumulated amortization................... (1,327,838) (1,477,173)
----------- -----------
Total fixed assets.......................... $ 315,933 $ 501,085
=========== ===========
</TABLE>

REVENUE RECOGNITION

The Company records sales revenue based on shipment to the customer.

RESEARCH AND DEVELOPMENT

Expenditures for research and development are expensed as incurred.

INCOME TAXES

Income taxes are provided on the liability method. Under the liability
method, deferred income taxes are provided on the difference in basis of assets
and liabilities between financial reporting and tax returns using expected tax
rates.

INCOME (LOSS) PER SHARE

Income per share computations are based on the weighted average number of
common shares and common share equivalents outstanding during the year. Common
share equivalents consist of convertible preferred stock, options and warrants
outstanding during the year.

CASH FLOWS

For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and investments with original maturities of three months or less.

Non-cash transactions in 1995 consist of $255,952 related to the conversion
of 87,499 preferred shares into 56,250 shares of common stock and $37,514
related to the transfer of long-term assets to inventory. In 1994 non-cash
transactions consist of $24,376 related to the conversion of 8,333 preferred
shares into 5,357 shares of common stock and $15,345 related to the transfer of
long-term assets to inventory. In 1993 non-cash transactions consist of $16,093
related to the transfer of long-term assets to inventory.

ESTIMATES BY MANAGEMENT

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

F-8
<PAGE>

PPT VISION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

UNAUDITED INTERIM FINANCIAL STATEMENTS

In the opinion of management, PPT Vision, Inc. has made all adjustments,
consisting primarily of normal recurring accruals, necessary for a fair
presentation of the financial condition of the Company as of April 30, 1996 and
the results of operations and cash flows for the six-month periods ended April
30, 1995 and 1996, as presented in the accompanying unaudited financial
statements.

NOTE 3: CUSTOMER INFORMATION

SIGNIFICANT CUSTOMER INFORMATION

During 1995, revenue from one customer accounted for 17% of net revenues.
During 1994 and 1993, revenue from another customer accounted for 10% and 18%
of net revenues respectively.

CUSTOMER GEOGRAPHIC DATA

North American and export sales as a percentage of net revenues in 1993, 1994
and 1995 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
North America.............................................. 87% 73% 67%
Europe..................................................... 10% 24% 21%
Far East................................................... 3% 3% 12%
</TABLE>

NOTE 4: ACCRUED EXPENSES

Accrued expenses at October 31, 1994 and 1995 include:

<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------
1994 1995
------- --------
<S> <C> <C>
Vacation................................................ $30,152 $ 30,152
Employee Stock Purchase Plan payroll deductions......... 33,813 33,053
Compensation............................................ 0 68,257
Other................................................... 32,913 30,820
------- --------
Total............................................... $96,878 $162,282
======= ========
</TABLE>

NOTE 5: PREFERRED STOCK

In 1985, the Company issued a total of 166,666 shares of Series 1985
Convertible Preferred shares ("Series 1985 Shares"). As of October 31, 1995,
all the Company's Series 1985 Shares had been converted to common stock.

NOTE 6: COMMON STOCK OPTIONS AND WARRANTS

Under the Company's 1988 Stock Option Plan the Company may issue options to
purchase up to 600,000 shares of common stock to employees and directors.
Options are granted at prices equal to the average of the bid and ask prices on
the date of the grant. The granting of options and their vesting is within the
discretion of the Company's Board of Directors.

F-9
<PAGE>

PPT VISION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

A summary of stock options issued and outstanding under the 1988 Stock Option
Plan is as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------
EMPLOYEE DIRECTOR
OPTIONS OPTIONS
----------- -----------
<S> <C> <C>
Balance at October 31, 1992........................... 234,847 27,450
Granted............................................. 57,750 3,000
Exercised........................................... (33,099) (12,000)
----------- -----------
Balance at October 31, 1993........................... 259,498 18,450
Granted............................................. 71,250 39,000
Exercised........................................... (64,743) 0
Forfeited........................................... (1,462) 0
----------- -----------
Balance at October 31, 1994........................... 264,543 57,450
Granted............................................. 22,125 0
Exercised........................................... (63,870) (1,500)
Forfeited........................................... (4,687) 0
----------- -----------
Balance at October 31, 1995........................... 218,111 55,950
=========== ===========
As of October 31, 1995:
Price Range of Outstanding Options
Options........................................... $1.00-$6.33 $1.67-$4.00
Expiration Dates.................................. 1996-2000 1996-1999
Options Exercisable............................... 164,077 29,175
</TABLE>

During the year ended October 31, 1995, stock options were exercised at
prices of $0.44 to $3.59 per share under the Employee Stock Option Plan.

In April of 1993, the Company issued a warrant to purchase 49,500 shares of
common stock with an exercise price of $2.50 and an expiration date of April of
1996.

NOTE 7: STOCK OFFERINGS

In February of 1994, the Company completed a private equity placement,
issuing 120,000 shares of common stock at $3.66 per share, that raised $438,365
net of offering costs of $1,635.

NOTE 8: EMPLOYEE STOCK PURCHASE PLAN

In March 1995 shareholders approved the adoption of the 1995 Employee Stock
Purchase Plan to replace the 1990 Employee Stock Purchase Plan which expired in
1995. Under the terms of the 1995 Purchase Plan, 225,000 shares have been
reserved for issuance under the Plan.

The first phase of the Plan began on June 1, 1995 and employees were granted
the right to purchase 29,925 shares at $2.19 per share under the Plan.

Phase five of the 1990 Plan ended on May 31, 1995 and employees purchased
16,599 shares at $2.19 per share.

F-10
<PAGE>

PPT VISION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 9: COMMITMENTS & CONTINGENCIES

Rental expense under operating leases was $163,100, $162,823 and $97,960 in
1995, 1994 and 1993 respectively. Minimum future rental payments due under
noncancelable operating lease agreements are as follows:

<TABLE>
<S> <C>
1996............................ $156,048
1997............................ 179,688
1998............................ 184,416
1999............................ 189,198
Thereafter...................... 262,436
--------
Total....................... $971,786
========
</TABLE>

LETTER OF CREDIT

During 1994 the Company obtained a standby letter of credit for a security
deposit related to the Company's building lease. The letter of credit is
secured by the restricted cash balance of $212,792. Beginning in June 1996 the
restricted cash balance begins to decrease on a dollar for dollar basis as
rental payments are made.

NOTE 10: EMPLOYEE SAVING PLAN

The Company provides a supplementary retirement savings plan which is
structured in accordance with Section 401(k) of the Internal Revenue Code.
Employees eligible for the Plan may contribute from one to fifteen percent of
their monthly earnings on a pre-tax basis subject to annual contribution
limitations. The Company makes matching contributions of fifty cents for each
dollar contributed by each Plan participant up to a maximum of $750 annually.
The Company's contributions under this program were approximately $30,876,
$26,407 and $14,620 for the years ended October 31, 1995, 1994 and 1993
respectively.

NOTE 11: INCOME TAXES

No current tax provisions were recorded in the fiscal years ended October 31,
1995 and 1994 due to the utilization of net operating loss (NOL) carry
forwards. The deferred tax provisions of approximately $36,000 and $60,000 for
the years ended October 31, 1995 and 1994, respectively, are offset by
reductions in the valuation allowance.

At October 31, 1995, the Company has approximately $6.6 million of combined
loss carry forwards and net deductible temporary differences available to
offset taxable income in future periods. The $6.6 million of future tax
deduction is comprised of net operating loss carry forwards for tax return
purposes of approximately $5.9 million (expiring in fiscal 1999 to 2009) and
net deductible temporary differences available to offset taxable income in
future periods of approximately $700,000. The Company also has approximately
$340,000 of research and development tax credit carry forwards which generally
expire over the same time period. At existing tax rates, the future tax benefit
approximates $2.6 million for financial statement purposes.

The utilization of the operating loss carry forwards and net deductible
temporary differences to offset future tax liabilities is dependent upon the
Company's ability to generate sufficient taxable income during the carry
forward periods. The carry forwards are also subject to certain annual
limitations pursuant to IRS Code Section 382. A valuation allowance was
established for the entire net tax benefit associated with all carry forwards
and temporary differences at October 31, 1994. At October 31, 1995, a reduction
to the valuation allowance was recorded because future realization of a portion
of this benefit is expected.

F-11
<PAGE>

PPT VISION, INC.

NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)

An analysis of the effective rate on earnings and a reconciliation of the
expected federal statutory rate for the years ended October 31, 1994, and 1995
is as follows:

<TABLE>
<CAPTION>
1994 1995
-------- ----------
<S> <C> <C>
Expected tax provision at statutory rate.......... $(72,000) $ 320,000
State income tax provision, net of federal tax
effect........................................... (13,000) 56,000
Research and development credit................... 17,000 17,000
Increase/(utilization) of net operating loss carry
forward.......................................... 66,000 (397,000)
(Reduction) of valuation allowance................ 0 (407,000)
Other............................................. 2,000 4,000
-------- ----------
Total......................................... $ 0 $ (407,000)
======== ==========
</TABLE>

Deferred tax assets (liabilities) are comprised of the following at October
31:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Depreciation.................................... $ 90,000 $ 102,000
Deferred rent................................... 51,000 69,000
Other........................................... 88,000 94,000
Net operating loss carry forwards............... 2,794,000 2,361,000
Valuation allowance............................. (3,023,000) (2,219,000)
----------- -----------
Net deferred tax asset.......................... $ 0 $ 407,000
=========== ===========
</TABLE>

NOTE 12: SUBSEQUENT EVENTS

On March 14, 1996, the Board of Directors of PPT Vision, Inc. approved a
three-for-two stock split in the form of a fifty percent (50%) stock dividend.
The distribution of shares was made on April 5, 1996 to shareholders of record
as of March 25, 1996. All historical share and per share data included in the
financial statements and footnotes have been restated to reflect the stock
split.

F-12
<PAGE>

Market Driven Application Specific Software Tools

The ability to develop software tools for a steady stream of new
applications to run on proven hardware is a company strength. Recognizing
expanding markets and reacting with software tools like those described here
positions PPT VISION for growth. This is evident in electronic component
manufacturing and precision metal stamping. All PPT VISION systems run on
proprietary software in a Microsoft(R) Windows(TM) environment using the
Company's Vision Program Manager (VPM) icon-based graphical user interface.

[Below this description is a photo of the Company's Vision Program Manager
screen]

[Next to the heading "Connector Tool" is a photo of a part and a photo of an
icon with the following related text:]

Connector Tool
Problem: A multi-national manufacturer of electronic connectors sought an
automated solution for pin tip position of assembled connectors.

Solution: PPT VISION responded by creating the Connector Tool. The Connector
Tool checks the conformance of an entire array of pin tips to a series of user
defined criteria. These criteria include grid conformance, linear regression and
linear progression, providing comprehensive pin tip position inspection.

Grid conformance verifies that each pin tip is within a specified radial
distance from its calculated ideal position. Linear regression ensures that each
row of pins is both parallel to all other rows and is itself straight. Linear
progression is used to verify all pin-to-pin distances. The Connector Tool can
also inspect connectors that are too long for a single field-of-view by
"stitching" multiple images together.

[Next to the heading "Line Gauge Tool" is a photo of a part and a photo of an
icon with the following related text:]

Line Gauge Tool

Problem: A manufacturer of stamped metal parts wanted to monitor a number of
critical physical dimensions of the parts as they were fabricated in a high-
speed metal stamping operation.

Solution: PPT VISION designed the Line Gauge Tool to provide a means of making
multiple independent measurements between selected points on the image. Up to
sixteen separate gauging lines can be drawn in a single instance of this tool,
with multiple Line Gauge Tools available in every program.

Once the initial edges have been detected, the tool examines a small
neighborhood around selected measurement endpoints to determine the location of
the detected edges to subpixel accuracy. The tool will pass only if the distance
measured between the detected edges is within user-specified tolerances. The
measured distances are available as output data from the tool.

[Next to the heading "OCV Tool" is a photo of a part and a photo of an icon with
the following related text:]

OCV Tool
Problem: High speed inspection and verification of printed alphanumeric
characters is required by many industries including pharmaceutical, medical,
electronics and automotive. New regulations require 100%, on-line verification
of the date/lot codes printed on pharmaceutical packaging labels.

Solution: PPT VISION's Optical Character Verification (OCV) Tool was designed
specifically for alphanumeric character inspection and verification. The tool
inspects both printed characters and background areas, and not only verifies
that the correct code has been printed, but it inspects the print quality of the
characters themselves. Once the tool is set up, an operator can easily retrain
it on a new character string using VPM's control panels.
<PAGE>

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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPEC-
TUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 8
Price Range of Common Stock............................................... 8
Dividend Policy........................................................... 8
Capitalization............................................................ 9
Selected Financial Data................................................... 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 11
Business.................................................................. 17
Management................................................................ 27
Principal Shareholders.................................................... 29
Description of Capital Stock.............................................. 30
Underwriting.............................................................. 32
Legal Matters............................................................. 33
Experts................................................................... 33
Available Information..................................................... 33
Incorporation of Certain Documents by Reference........................... 34
Index to Financial Statements............................................. F-1
</TABLE>

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1,600,000 Shares

[LOGO]
PPT VISION, INC.

Common Stock

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

PROSPECTUS

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

ALEX. BROWN & SONS
INCORPORATED

PIPER JAFFRAY INC.

June 18, 1996

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