Revenues
for Years ended December 31,
|
||||||||||
2003
|
2004
|
2005
|
||||||||
U.S.
Government
|
—
|
—
|
26
|
%
|
||||||
British
Distributor
|
—
|
41
|
%
|
14
|
%
|
|||||
Sentry
360 Security Inc.
|
—
|
—
|
3
|
%
|
||||||
Homestore
|
3
|
%
|
8
|
%
|
—
|
· maintain
and enhance our brand and expand our immersive product and service
offerings;
|
|
· expand
our customer base for all product offerings;
|
|
· attract,
integrate, retain and motivate qualified personnel; and
|
|
· adapt
to meet changes in our markets and competitive developments.
|
· any
patent can be successfully defended against challenges by third parties;
|
|
· pending
patent applications will result in the issuance of patents;
|
|
· our
competitors or potential competitors will not devise new methods
of
competing with us that are not covered by our patents or patent
applications;
|
|
· new
prior art will not be discovered which may diminish the value of
or
invalidate an issued patent; or
|
|
· a
third party will have or obtain one or more patents that prevent
us from
practicing features of our business or will require us to pay for
a
license to use those features.
|
· failure
of foreign countries to rapidly adopt digital imaging or other required
technologies;
|
|
· unexpected
changes in regulatory requirements;
|
|
· slower
payment and collection of accounts receivable than in our domestic
market;
and
|
|
· political
and economic instability.
|
AGE
|
TITLE
|
|||
Clara
M Conti
|
44
|
President
and Chief Executive Officer
|
||
Charles
A. Crew
|
62
|
Chief
Financial Officer and Secretary,
Treasurer
|
|
High
|
Low
|
|||||
FISCAL
2005
|
|||||||
Fourth
Quarter
|
$
|
2.89
|
$
|
1.66
|
|||
Third
Quarter
|
$
|
4.70
|
$
|
2.60
|
|||
Second
Quarter
|
$
|
3.74
|
$
|
2.43
|
|||
First
Quarter
|
$
|
5.99
|
$
|
2.85
|
|||
|
FISCAL
2004
|
|
|
|||||
Fourth
Quarter
|
$
|
9.05
|
$
|
5.05
|
|||
Third
Quarter
|
$
|
13.60
|
$
|
6.19
|
|||
Second
Quarter
|
$
|
27.34
|
$
|
3.81
|
|||
First
Quarter
|
$
|
5.31
|
$
|
1.76
|
Plan
Category
|
Number
of securities to be issued upon exercises of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Securities
remaining available for future issuance (excluding securities in
column
(a))
|
|||||||
|
(a)
|
(b)
|
(c)
|
|||||||
2005
Stock Incentive Plan
|
—
|
—
|
5,000,000
|
|||||||
2001
Equity Compensation
|
2,000,635
|
$
|
4.31
|
—
|
||||||
2000
Equity Compensation
|
2,195
|
$
|
101.59
|
—
|
||||||
1998
Employee, Director and Consultant Stock Option
|
172
|
$
|
300.00
|
—
|
||||||
1997
Equity Compensation
|
5,238
|
$
|
148.38
|
—
|
||||||
Prior
option plans
|
425,100
|
$
|
2.70
|
—
|
||||||
Employee
Stock Purchase
|
—
|
—
|
289,469
|
|||||||
Total
|
2,433,340
|
$
|
4.45
|
5,289,469
|
Fiscal
Years Ended December 31,
|
||||||||||||||||
2001*
|
2002*
|
2003*
|
2004
|
2005
|
||||||||||||
(In
thousands)
|
||||||||||||||||
Statement
of Operations Data
|
||||||||||||||||
Revenue:
|
||||||||||||||||
Hardware
|
$
|
1,789
|
$
|
1,911
|
$
|
1,159
|
$
|
2,476
|
$
|
2,523
|
||||||
Services
|
11,071
|
3,197
|
357
|
189
|
1,728
|
|||||||||||
License
& other
|
1,740
|
1,063
|
1,078
|
1,199
|
1,148
|
|||||||||||
Total
revenue:
|
14,600
|
6,171
|
2,594
|
3,864
|
5,399
|
|||||||||||
Cost
of revenue:
|
||||||||||||||||
Hardware
|
1,763
|
1,636
|
1,320
|
2,320
|
2,172
|
|||||||||||
Services
|
4,637
|
116
|
159
|
108
|
1,382
|
|||||||||||
Licenses
& other
|
72
|
148
|
101
|
98
|
31
|
|||||||||||
Total
cost of revenue
|
6,472
|
1,900
|
1,580
|
2,526
|
3,585
|
|||||||||||
Gross
profit
|
8,128
|
4,271
|
1,014
|
1,338
|
1,814
|
|||||||||||
Operating
expenses:
|
||||||||||||||||
Sales
and marketing
|
19,184
|
3,618
|
3,621
|
4,305
|
7,125
|
|||||||||||
Research
and development
|
2,501
|
1,170
|
1,694
|
2,065
|
2,493
|
|||||||||||
General
and administrative
|
14,593
|
2,933
|
3,452
|
4,490
|
10,125
|
|||||||||||
Loss
on disposal of assets
|
1,655
|
—
|
—
|
—
|
—
|
|||||||||||
Restructuring
and impairment
|
11,655
|
687
|
89
|
170
|
3,053
|
|||||||||||
Total
operating expenses
|
49,588
|
8,408
|
8,856
|
11,030
|
22,796
|
|||||||||||
Loss
from operations
|
(41,460
|
)
|
(4,137
|
)
|
(7,842
|
)
|
(9,692
|
)
|
(20,982
|
)
|
||||||
Interest
expense
|
(10,667
|
)
|
(183
|
)
|
(158
|
)
|
(235
|
)
|
(58
|
)
|
||||||
Interest
income
|
305
|
456
|
65
|
115
|
240
|
|||||||||||
Patent
infringement award
|
—
|
1,000
|
—
|
—
|
—
|
|||||||||||
Loss
on foreign currency
|
—
|
—
|
(491
|
)
|
—
|
—
|
||||||||||
Other
income (expense)
|
(380
|
)
|
(12
|
)
|
(8
|
)
|
2
|
140
|
||||||||
Loss
from continuing operations before income taxes
|
(52,202
|
)
|
(2,876
|
)
|
(8,434
|
)
|
(9,810
|
)
|
(20,660
|
)
|
||||||
Income
tax benefit
|
—
|
197
|
3,764
|
—
|
—
|
|||||||||||
Loss
from continuing operations after income taxes
|
(52,202
|
)
|
(2,679
|
)
|
(4,670
|
)
|
(9,810
|
)
|
(20,660
|
)
|
||||||
Income
(loss) from discontinued operations, net of tax
|
(2,377
|
)
|
1,536
|
6,056
|
(4,925
|
)
|
(1,360
|
)
|
||||||||
Extraordinary
gain
|
901
|
—
|
—
|
—
|
—
|
|||||||||||
Net
income (loss)
|
(53,678
|
)
|
(1,143
|
)
|
1,386
|
(14,735
|
)
|
(22,020
|
)
|
|||||||
Preferred
stock dividends
|
—
|
(1,784
|
)
|
(1,778
|
)
|
(874
|
)
|
(439
|
)
|
|||||||
Net
loss available to common stockholders
|
$
|
(53,678
|
)
|
$
|
(2,927
|
)
|
$
|
(392
|
)
|
$
|
(15,609
|
)
|
$
|
(22,459
|
)
|
|
Basic
and diluted net loss per share available to common stockholders:
|
||||||||||||||||
Continuing
operations
|
$
|
(7.99
|
)
|
$
|
(0.65
|
)
|
$
|
(0.87
|
)
|
$
|
(0.65
|
)
|
$
|
(0.85
|
)
|
|
Discontinued
operations
|
(0.37
|
)
|
0.22
|
0.82
|
(0.30
|
)
|
(0.06
|
)
|
||||||||
Extraordinary
gain
|
0.14
|
—
|
—
|
—
|
—
|
|||||||||||
Basic
and diluted net loss per common share available to common stockholders
|
$
|
(8.22
|
)
|
$
|
(0.43
|
)
|
$
|
(0.05
|
)
|
$
|
(0.95
|
)
|
$
|
(0.91
|
)
|
|
Weighted
average common shares - basic and diluted
|
6,534
|
6,794
|
7,365
|
16,470
|
24,799
|
As
of December 31,
|
||||||||||||||||
2001
|
2002
|
2003
|
2004
|
2005
|
||||||||||||
Balance
Sheet Data:
|
(In
thousands)
|
|||||||||||||||
Cash
and cash equivalents, short term and long term restricted cash and
short-term investments and securities available for sale
|
$
|
13,401
|
$
|
5,992
|
$
|
12,303
|
$
|
14,859
|
$
|
6,341
|
||||||
Working
capital
|
3,506
|
2,418
|
9,216
|
13,923
|
5,127
|
|||||||||||
Total
assets
|
23,078
|
18,435
|
16,284
|
20,244
|
12,291
|
|||||||||||
Long-term
liabilities
|
2,392
|
1,769
|
181
|
142
|
53
|
|||||||||||
Total
stockholders’ equity
|
$
|
8,770
|
$
|
8,392
|
$
|
11,465
|
$
|
15,215
|
$
|
6,345
|
San
Ramon
|
Oak
Ridge
|
Total
|
||||||||
Lease
|
$
|
1,061
|
$
|
304
|
$
|
1,365
|
||||
Severance
|
362
|
3
|
365
|
|||||||
Information
Systems Relocation
|
36
|
36
|
||||||||
Fixed
Asset Buyout
|
747
|
747
|
||||||||
Fixed
Asset Write-down
|
221
|
221
|
||||||||
Other
|
59
|
6
|
65
|
|||||||
TOTALS
|
$
|
2,229
|
$
|
570
|
$
|
2,799
|
Balance
Dec.31,
|
Expense
in
|
Payments/
Write-offs
|
Balance
Dec. 31,
|
Expense
in
|
Payments/
|
Balance
Dec. 31,
|
Expense
in
|
Payments/
Write-offs
|
Balance
Dec. 31,
|
||||||||||||||||||||||
2002
|
2003
|
in
2003
|
2003
|
2004
|
in
2004
|
2004
|
2005
|
in
2005
|
2005
|
||||||||||||||||||||||
(In
thousands)
|
|||||||||||||||||||||||||||||||
Severance
|
$
|
500
|
$
|
—
|
$
|
(500
|
)
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
365
|
$
|
(354
|
)
|
$
|
3
|
|||||||||
Other
|
549
|
89
|
(267
|
)
|
371
|
170
|
(284
|
)
|
257
|
2,434
|
(1,685
|
)
|
1,014
|
||||||||||||||||||
Total
|
$
|
1,049
|
$
|
89
|
$
|
(767
|
)
|
$
|
371
|
$
|
170
|
$
|
(284
|
)
|
$
|
257
|
$
|
2,799
|
$
|
(2,039
|
)
|
$
|
1,017
|
· |
deliver
high quality products and services;
|
· |
respond
to highly competitive developments;
|
· |
attract,
retain and motivate qualified
personnel;
|
· |
implement
and successfully execute our marketing
plans;
|
· |
continue
to upgrade our technologies;
|
· |
develop
new distribution channels; and
|
· |
improve
our operational and financial
systems.
|
Fiscal
Years Ended December 31,
|
|||||||||||||
2003*
|
2004
|
2005
|
|||||||||||
(In
thousands except per share data)
|
|||||||||||||
Revenue:
|
|||||||||||||
Hardware
|
$
|
1,159
|
$
|
2,476
|
$
|
2,523
|
|||||||
Services
|
357
|
189
|
1,728
|
||||||||||
License
& other
|
1,078
|
1,199
|
1,148
|
||||||||||
Total
revenue:
|
2,594
|
3,864
|
5,399
|
||||||||||
Cost
of revenue:
|
|||||||||||||
Hardware
|
1,320
|
2,320
|
2,172
|
||||||||||
Services
|
159
|
108
|
1,382
|
||||||||||
Licenses
& other
|
101
|
98
|
31
|
||||||||||
Total
cost of revenue
|
1,580
|
2,526
|
3,585
|
||||||||||
Gross
profit
|
1,014
|
1,338
|
1,814
|
||||||||||
Operating
expenses:
|
|||||||||||||
Sales
and marketing
|
3,621
|
4,305
|
7,125
|
||||||||||
Research
and development
|
1,694
|
2,065
|
2,493
|
||||||||||
General
and administrative
|
3,452
|
4,490
|
10,125
|
||||||||||
Restructuring
and impairment
|
89
|
170
|
3,053
|
||||||||||
Total
operating expenses
|
8,856
|
11,030
|
22,796
|
||||||||||
Loss
from operations
|
(7,842
|
)
|
(9,692
|
)
|
(20,982
|
)
|
|||||||
Interest
expense
|
(158
|
)
|
(235
|
)
|
(58
|
)
|
|||||||
Interest
income
|
65
|
115
|
240
|
||||||||||
Loss
on foreign currency
|
(491
|
)
|
—
|
—
|
|||||||||
Other
income (expense)
|
(8
|
)
|
2
|
140
|
|||||||||
Loss
from continuing operations before income taxes
|
(8,434
|
)
|
(9,810
|
)
|
(20,660
|
)
|
|||||||
Income
tax benefit
|
3,764
|
—
|
—
|
||||||||||
Loss
from continuing operations after income taxes
|
(4,670
|
)
|
(9,810
|
)
|
(20,660
|
)
|
|||||||
Income
(loss) from discontinued operations, net of tax
|
6,056
|
(4,925
|
)
|
(1,360
|
)
|
||||||||
Net
income (loss)
|
1,386
|
(14,735
|
)
|
(22,020
|
)
|
||||||||
Preferred
stock dividends
|
(1,778
|
)
|
(874
|
)
|
(439
|
)
|
|||||||
Net
loss available to common stockholders
|
$
|
(392
|
)
|
$
|
(15,609
|
)
|
$
|
(22,459
|
)
|
||||
Basic
and diluted net loss per share available to common stockholders:
|
|||||||||||||
Continuing
operations
|
$
|
(0.87
|
)
|
$
|
(0.65
|
)
|
$
|
(0.85
|
)
|
||||
Discontinued
operations
|
0.82
|
(0.30
|
)
|
(0.06
|
)
|
||||||||
Basic
and diluted net loss per common share available to common stockholders
|
$
|
(0.05
|
)
|
$
|
(0.95
|
)
|
$
|
(0.91
|
)
|
||||
Weighted
average common shares - basic and diluted
|
7,365
|
16,470
|
24,799
|
*
As a*As
adjusted for discontinued operations (See Note 4 to our consolidated
financial statements)
|
Fiscal
Years Ended December 31,
|
||||||||||
2003*
|
|
2004
|
|
2005
|
||||||
Revenue:
|
||||||||||
Hardware
|
44.7
|
%
|
64.1
|
%
|
46.7
|
%
|
||||
Services
|
13.7
|
%
|
4.9
|
%
|
32.0
|
%
|
||||
License
& other
|
41.6
|
%
|
31.0
|
%
|
21.3
|
%
|
||||
Total
revenue:
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
Cost
of revenue:
|
||||||||||
Hardware
|
50.9
|
%
|
60.0
|
%
|
40.2
|
%
|
||||
Services
|
6.1
|
%
|
2.8
|
%
|
25.6
|
%
|
||||
Licenses
& other
|
3.9
|
%
|
2.6
|
%
|
0.6
|
%
|
||||
Total
cost of revenue
|
60.9
|
%
|
65.4
|
%
|
66.4
|
%
|
||||
Gross
profit
|
39.1
|
%
|
34.6
|
%
|
33.6
|
%
|
||||
Operating
expenses:
|
||||||||||
Sales
and marketing
|
139.6
|
%
|
111.4
|
%
|
132.0
|
%
|
||||
Research
and development
|
65.3
|
%
|
53.4
|
%
|
46.2
|
%
|
||||
General
and administrative
|
133.1
|
%
|
116.2
|
%
|
187.5
|
%
|
||||
Restructuring
and impairment
|
3.4
|
%
|
4.4
|
%
|
56.5
|
%
|
||||
Total
operating expenses
|
341.4
|
%
|
285.4
|
%
|
422.2
|
%
|
||||
Loss
from operations
|
(302.3
|
)%
|
(250.8
|
)%
|
(388.6
|
)%
|
||||
Interest
expense
|
(6.1
|
)%
|
(6.1
|
)%
|
(1.1
|
)%
|
||||
Interest
income
|
2.5
|
%
|
3.0
|
%
|
4.4
|
%
|
||||
Loss
on foreign currency
|
(18.9
|
)%
|
—
|
—
|
||||||
Other
income (expense)
|
(0.3
|
)%
|
0.1
|
%
|
2.6
|
%
|
||||
Loss
from continuing operations before income taxes
|
(325.1
|
)%
|
(253.8
|
)%
|
(382.7
|
)%
|
||||
Income
tax benefit
|
145.1
|
%
|
0.0
|
%
|
0.0
|
%
|
||||
Loss
from continuing operations after income taxes
|
(180.0
|
)%
|
(253.8
|
)%
|
(382.7
|
)%
|
||||
Income
(loss) from discontinued operations, net of tax
|
233.5
|
%
|
(127.5
|
)%
|
(25.2
|
)%
|
||||
Net
income (loss)
|
53.5
|
%
|
(381.3
|
)%
|
(407.9
|
)%
|
*
As a*As
adjusted for discontinued operations (See
Note 4 to our consolidated financial statements)
|
Fiscal
Years Ended December 31,
|
Percent
Change in
|
||||||||||||||||||
2003*
|
2004
|
2005
|
2004
|
2005
|
|||||||||||||||
(In
thousands)
|
|||||||||||||||||||
Revenue:
|
|||||||||||||||||||
Hardware
|
|
$
|
1,159
|
$
|
2,476
|
$
|
2,523
|
113.6
|
%
|
1.9
|
%
|
||||||||
Services
|
357
|
189
|
1,728
|
(47.1
|
)%
|
814.3
|
%
|
||||||||||||
License
& other
|
1,078
|
1,199
|
1,148
|
11.2
|
%
|
(4.3
|
)%
|
||||||||||||
Total
revenue:
|
2,594
|
3,864
|
5,399
|
49.0
|
%
|
39.7
|
%
|
||||||||||||
Cost
of revenue:
|
|||||||||||||||||||
Hardware
|
1,320
|
2,320
|
2,172
|
75.8
|
%
|
(6.4
|
)%
|
||||||||||||
Services
|
159
|
108
|
1,382
|
(32.1
|
)%
|
1179.6
|
%
|
||||||||||||
Licenses
& other
|
101
|
98
|
31
|
(3.0
|
)%
|
(68.4
|
)%
|
||||||||||||
Total
cost of revenue
|
1,580
|
2,526
|
3,585
|
59.9
|
%
|
41.9
|
%
|
||||||||||||
Gross
profit
|
$
|
1,014
|
$
|
1,338
|
$
|
1,814
|
32.0
|
%
|
35.6
|
%
|
Fiscal
Years Ended December 31,
|
Percent
Change in
|
|||||||||||||||
2003*
|
2004
|
2005
|
2004
|
2005
|
||||||||||||
(In
thousands)
|
||||||||||||||||
Operating
expenses:
|
||||||||||||||||
Sales
and marketing
|
$
|
3,621
|
$
|
4,305
|
$
|
7,125
|
18.9
|
%
|
65.5
|
%
|
||||||
Research
and development
|
1,694
|
2,065
|
2,493
|
21.9
|
%
|
20.7
|
%
|
|||||||||
General
and administrative
|
3,452
|
4,490
|
10,125
|
30.1
|
%
|
125.5
|
%
|
|||||||||
Restructuring
and impairment
|
89
|
170
|
3,053
|
91.0
|
%
|
1695.9
|
%
|
|||||||||
Total
operating expenses
|
$
|
8,856
|
$
|
11,030
|
$
|
22,796
|
24.5
|
%
|
106.7
|
%
|
||||||
*
As adjusted for discontinued operations (See Note 4 to our consolidated
financial statements)
|
Fiscal
Years Ended December 31,
|
Percent
Change in
|
|||||||||||||||
2003*
|
2004
|
2005
|
2004
|
2005
|
||||||||||||
(In
thousands except percentages)
|
||||||||||||||||
Interest
expense
|
$
|
(158
|
)
|
$
|
(235
|
)
|
$
|
(58
|
)
|
48.7
|
%
|
(75.3
|
)%
|
|||
Interest
income
|
65
|
115
|
240
|
76.9
|
%
|
108.7
|
%
|
|||||||||
Loss
on foreign currency
|
(491
|
)
|
-
|
-
|
N/A
|
N/A
|
||||||||||
Other
income (expense)
|
(8
|
)
|
2
|
140
|
125
|
%
|
6900
|
%
|
||||||||
Total
other income (expense), net
|
$
|
(592
|
)
|
$
|
(118
|
)
|
$
|
322
|
80.1
|
%
|
372.9
|
%
|
Summary
Consolidated Cash Flow Data
|
|||||||
Twelve
months ended December 31,
|
|||||||
2004
|
2005
|
||||||
(In
thousands)
|
|||||||
Net
cash used in operating activities
|
$
|
(15,218
|
)
|
$
|
(17,904
|
)
|
|
Net
cash used in investing activities
|
(394
|
)
|
(2,064
|
)
|
|||
Net
cash provided by financing activities
|
18,155
|
12,044
|
|||||
Net
increase (decrease) in cash and cash equivalents
|
2,543
|
(7,924
|
)
|
||||
Cash
and cash equivalents, beginning of period
|
10,241
|
12,784
|
|||||
Cash
and cash equivalents, end of period
|
$
|
12,784
|
$
|
4,860
|
Payments
due by Period
|
||||||||||||||||
Total
|
Less
than 1 Year
|
1-3
Years
|
3-5
Years
|
>
5 Years
|
||||||||||||
(In
thousands)
|
||||||||||||||||
Operating
leases
|
$
|
2,840
|
$
|
1,402
|
$
|
986
|
$
|
449
|
$
|
3
|
||||||
Total
|
$
|
2,840
|
$
|
1,402
|
$
|
986
|
$
|
449
|
$
|
3
|
Page
|
|||
Reports
of Independent Registered Public Accounting Firms
|
F-1
|
||
IPIX
Corporation Consolidated Financial Statements
|
|||
Consolidated
Balance Sheets at December 31, 2004 and 2005
|
F-4
|
||
Consolidated
Statements of Operations for the years ended December 31, 2003, 2004
and 2005
|
F-5
|
||
Consolidated
Statements of Changes in Stockholders’ Equity for the years ended
December 31, 2003, 2004 and 2005
|
F-6
|
||
Consolidated
Statements of Cash Flows for the years ended December 31, 2003, 2004
and 2005
|
F-8
|
||
Notes
to Consolidated Financial Statements
|
F-9
|
Additions
|
||||||||||||||||||||||||||||||||||||||||
Balance
|
(Deductions)
|
Balance
|
||||||||||||||||||||||||||||||||||||||
Beginning
|
Charged
to
|
Write-offs
and
|
At
End of
|
|||||||||||||||||||||||||||||||||||||
DESCRIPTION
|
of
Period
|
Expense
|
Deductions
|
Period
|
||||||||||||||||||||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||||||||||||||||||||
2003
|
||||||||||||||||||||||||||||||||||||||||
Allowance
for doubtful accounts
|
$
|
208
|
$
|
8
|
$
|
(216
|
)
|
$
|
—
|
|||||||||||||||||||||||||||||||
Valuation
allowance on deferred tax assets
|
(20,722
|
)
|
—
|
(7,640
|
)
|
(28,362
|
)
|
|
||||||||||||||||||||||||||||||||
Provision
for excess and obsolete inventory
|
160
|
(12
|
)
|
—
|
148
|
|||||||||||||||||||||||||||||||||||
2004
|
||||||||||||||||||||||||||||||||||||||||
Allowance
for doubtful accounts
|
$
|
—
|
$
|
3
|
$
|
(3
|
)
|
$
|
—
|
|||||||||||||||||||||||||||||||
Valuation
allowance on deferred tax assets
|
(28,362
|
)
|
—
|
(11,387
|
)
|
(39,749
|
)
|
|
||||||||||||||||||||||||||||||||
Provision
for excess and obsolete inventory
|
148
|
198
|
—
|
346
|
||||||||||||||||||||||||||||||||||||
2005
|
||||||||||||||||||||||||||||||||||||||||
Allowance
for doubtful accounts
|
$
|
—
|
$
|
19
|
$
|
(19
|
)
|
$
|
—
|
|||||||||||||||||||||||||||||||
Valuation
allowance on deferred tax assets
|
(39,749
|
)
|
—
|
(7,879
|
)
|
(47,628
|
)
|
|||||||||||||||||||||||||||||||||
Provision
for excess and obsolete inventory
|
346
|
(136
|
)
|
4
|
4
|
214
|
Exhibit
|
|||
Number
|
Description
|
||
3.1
|
Amended
and Restated Certificate of Incorporation of the Registrant (incorporated
herein by reference to Form S-1 as declared effective on
August 25, 1999 (File No. 333-80639)).
|
||
3.1(a)
|
Amendment
to the Amended and Restated Certificate of Incorporation of the
Registrant
(incorporated herein by reference to Form S-1 as filed with the
Commission on March 17, 2000).
|
||
3.2
|
Amended
and Restated Bylaws of the Registrant (incorporated herein by reference
to
Form 10-Q as filed with the Commission on November 14, 2000).
|
||
3.3
|
Certificate
of Designations of Series A Junior Participating Preferred Stock
(incorporated herein by reference to Form 8-A as filed with the
Commission on November 2, 2000).
|
||
3.3
|
Amended
Certificate of Designations of Series B Preferred Stock (incorporated
herein by reference to Form 8-K as filed with the Commission on
October 3, 2001).
|
||
4.1
|
Form
of certificate representing the common stock, $.001 par value per
share of
IPIX Corporation (incorporated herein by reference to Form 10-K
as filed
with the Commission on March 29, 2000).
|
||
Commission
on November 2, 2000).
|
|||
4.3
|
Registration
Rights Agreement dated May 14, 2001 between IPIX Corporation and
Image Investors Portfolio, a separate series of Memphis Angels,
LLC
(incorporated herein by reference to Form 8-K as filed with the
Commission on May 29, 2001).
|
||
4.4
|
Registration
Rights Agreement dated April 4, 2004 between IPIX Corporation and
institutional investors named therein (incorporated by reference
to
Form 8-K as filed with the Commission on April 7, 2004).
|
||
10.1*
|
Employment
Agreement dated July 1, 2001, between IPIX Corporation and Donald W.
Strickland (incorporated herein by reference to Form 10-Q as filed
with the Commission on August 14, 2001).
|
||
10.2*
|
Employment
Agreement dated July 1, 2001, between IPIX Corporation and Paul A.
Farmer (incorporated herein by reference to Form 10-Q as filed with
the Commission on August 14, 2001).
|
||
10.3*
|
Employment
Agreement dated July 1, 2001 between IPIX Corporation and Sarah Pate
(incorporated herein by reference to Form 10-K as filed with the
Commission on March 31, 2003).
|
||
10.4
|
Reserved
|
||
10.5*
|
Amended
and Restated IPIX Corporation 2001 Equity Incentive Plan (incorporated
herein by reference to Form S-8 as filed with the Commission on
January 16, 2002).
|
||
10.6*
|
Amended
and Restated 1997 Equity Compensation Plan (incorporated herein
by
reference to Form S-4 as declared effective on December 16, 1999
(File No. 91139).
|
||
10.7*
|
Amended
and Restated 1998 Employee, Director and Consultant Stock Plan
(incorporated herein by reference to Form S-4 as declared effective
on December 16, 1999 (File No. 91139)).
|
||
10.8*
|
1999
Employee Stock Purchase Plan (incorporated herein by reference
to
Form S-4 as declared effective on December 16, 1999 (File
No. 91139)
|
||
10.9*
|
2000
Equity Incentive Plan (incorporated herein by reference to Form
S-8 as
declared effective on June 27, 2000 (File No. 333-40160).
|
||
10.10*
|
PictureWorks
Technology, Inc. 1994 Stock Option Plan (incorporated herein by
reference
to Form S-8 as declared effective on May 2, 2000 (File
No. 333-36068))
|
||
10.11*
|
PictureWorks
Technology, Inc. 1996 Stock Option Plan (incorporated herein by
reference
to Form S-8 as declared effective on May 2, 2000 (File
No. 333-36068))
|
||
10.12*
|
PictureWorks
Technology, Inc. 1997 Stock Option Plan (incorporated herein by
reference
to Form S-8 as declared effective on May 2, 2000 (File
No. 333-36068))
|
||
10.13
|
Form
of Indemnification Agreement between the Registrant and each of
its
directors and officers (incorporated herein by reference to Form
S-1 as
declared effective on August 25, 1999 (File
No. 333-80639)).
|
||
10.14*
|
Separation
Agreement dated September 16, 2004, between IPIX Corporation and
Donald W. Strickland (incorporated by reference to Form 8-K as filed
with the Commission on September 21, 2004).
|
||
10.15
*
|
Employment
Agreement dated September 16, 2004 between IPIX Corporation and Clara
M. Conti (incorporated herein by reference to Form 10-Q as filed with
the Commission on November 15, 2004).
|
||
10.16*
|
Separation
Agreement dated January 25, 2005, between IPIX Corporation and Paul
A. Farmer (incorporated herein by reference to Form 8-K as filed with
the Commission on January 31, 2005).
|
||
10.17
|
Lease
dated February 3, 2005, between IPIX Corporation and Oak Ridge
Technical Center Partners — One, LP
|
||
10.18
|
Patent
Purchase, License and Repurchase Agreement dated February 11, 2005,
between IPIX Corporation and AdMission Corporation (incorporated
by
reference to Form 8-K filed with the Commission on February 17,
2005).
|
10.19
|
Trademark/Service
Mark License Agreement dated February 11, 2005, between IPIX
Corporation and AdMission Corporation (incorporated by reference
to
Form 8-K filed with the Commission on February 17, 2005).
|
||
10.20
|
Letter
Agreement dated October 25, 2004, between IPIX Corporation and Kara
Brand (incorporated by reference to Form 8-K filed with the
Commission on April 4, 2005).
|
||
10.21
|
Letter
Agreement dated March 29, 2005, between IPIX Corporation and Kara
Brand (incorporated by reference to Form 8-K filed with the
Commission on April 4, 2005).
|
||
10.22
|
Employment
Agreement effective April 1, 2005, between IPIX Corporation and
Charles A.
Crew (incorporated by reference to Form 8-K filed with the Commission
on April 4, 2005).
|
||
10.23
|
Lease
Agreement dated February 15, 2000, by and between R.E.C. Partners,
L.P. and Thomas Group, Inc. (incorporated by reference to Form 10-Q
filed with the Commission on May 10, 2005).
|
||
10.24
|
Sublease
Agreement dated April 18, 2005, between Thomas Group, Inc. and IPIX
Corporation (incorporated by reference to Form 10-Q filed with the
Commission on May 10, 2005).
|
||
10.25
|
Securities
Purchase Agreement dated June 21, 2005, among IPIX Corporation
and each of
the purchasers (incorporated by reference to Form 8-K filed with the
Commission on June 23, 2005).
|
||
10.26
|
Separation
Agreement dated February 27, 2006, between IPIX Corporation and
Charles A.
Crew (incorporated by reference to Form 8-K filed with the Commission
on March 3, 2006).
|
||
10.27
|
Amendment
A Termination of Lease dated March 13, 2006, by and between IPIX
Corporation and Oak Ridge Technical Center Partners - One, L.P.
(incorporated by reference to Form 8-K filed with the Commission
on March
16, 2006).
|
||
14.1
|
Code
of Ethics for Chief Executive Officer and Senior Financial Officers
(incorporated by reference to Form 10-K filed with the Commission on
March 30, 2004)
|
||
14.2
|
Code
of Business Conduct and Ethics (incorporated by reference to Form
10-K
filed with the Commission on March 30, 2004)
|
||
16.1
|
Letter
dated June 15, 2004 regarding change in certifying accountant
(incorporated by reference to Form 8-K filed with the Commission on
June 18, 2004).
|
||
21.1
|
Subsidiaries
of the Registrant (incorporated herein by reference to Form 10-K
filed with the Commission on March 31, 2003).
|
||
23.1#
|
Consent
of PricewaterhouseCoopers LLP
|
||
23.2#
|
Consent
of Armanino McKenna LLP
|
||
24.1
|
Power
of Attorney (included on page #31
|
||
31.1#
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.
|
||
31.2#
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934.
|
||
32#
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
*
Executive Compensation Plan or Agreement
|
#
Filed Herewith
|
Signature
|
Title
|
Date
|
|
/s/
Clara M. Conti
|
President,
Chief Executive Officer and
|
March
21, 2006
|
|
Clara
M. Conti
|
Director
|
||
/s/
Charles Crew
|
Chief
Financial Officer
|
March
21, 2006
|
|
Charles
Crew
|
|||
/s/
David M. Wilds
|
Chairman
of the Board of Directors
|
March
21, 2006
|
|
David
M. Wilds
|
|||
/s/
Michael D. Easterly
|
Director
|
March
21, 2006
|
|
Michael
D. Easterly
|
|||
/s/
James H. Hunt
|
Director
|
March
21, 2006
|
|
James
H. Hunt
|
|||
/s/
Laban P. Jackson, Jr.
|
Director
|
March
21, 2006
|
|
Laban
P. Jackson, Jr.
|
|||
/s/
Andrew P. Seamons
|
Director
|
March
21, 2006
|
|
Andrew
P. Seamons
|
December
31,
|
December
31,
|
||||||
2004
|
2005
|
||||||
(In
thousands)
|
|||||||
ASSETS
|
|||||||
CURRENT
ASSETS:
|
|||||||
Cash
and cash equivalents
|
$
|
12,784
|
$
|
4,860
|
|||
Restricted
cash and short term investments
|
550
|
||||||
Short
term investments
|
895
|
1,481
|
|||||
Accounts
receivable, net of allowance for doubtful accounts of $0 in 2004
and 2005
|
414
|
1,348
|
|||||
Inventory,
net of reserve for obsolescence of $346 in 2004 and $214 in 2005
|
2,334
|
2,145
|
|||||
Prepaid
expenses and other current assets
|
1,512
|
1,158
|
|||||
Assets
held for sale
|
321
|
28
|
|||||
Total
current assets
|
18,810
|
11,020
|
|||||
Computer
hardware, software and other, net
|
716
|
1,191
|
|||||
Restricted
cash and other long term assets
|
718
|
80
|
|||||
Total
assets
|
$
|
20,244
|
$
|
12,291
|
|||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
CURRENT
LIABILITIES:
|
|||||||
Accounts
payable
|
$
|
1,043
|
$
|
2,543
|
|||
Accrued
liabilities
|
3,376
|
3,350
|
|||||
Deferred
revenue
|
84
|
—
|
|||||
Liabilities
held for sale for discontinued operations
|
164
|
—
|
|||||
Current
portion of obligations under capital leases
|
220
|
—
|
|||||
Total
current liabilities
|
4,887
|
5,893
|
|||||
Other
long term liabilities
|
142
|
53
|
|||||
Total
liabilities
|
5,029
|
5,946
|
|||||
Commitments
and Contingencies (Note 11)
|
|||||||
STOCKHOLDERS’
EQUITY:
|
|||||||
Preferred
stock, $0.001 par value:
|
—
|
—
|
|||||
Authorized:
5,001,100 shares in 2004 and 2005 Issued and outstanding: 290,347
in 2004
and 246,867 in 2005. (Aggregate liquidation value: $7,325 in 2004
and
$6,623 in 2005)
|
|||||||
Common
stock, $0.001 par value:
|
22
|
27
|
|||||
Authorized:
50,000,000 in 2004 and 2005 Issued and outstanding: 21,539,058 in
2004 and
27,455,083 in 2005.
|
|||||||
Class B
common stock, $0.0001 par value:
|
—
|
—
|
|||||
Authorized:
7,421,536 shares in 2004 and 2005 Issued and outstanding: 0 shares
in 2004
and 0 shares in 2005
|
|||||||
Additional
paid-in capital
|
533,659
|
546,804
|
|||||
Accumulated
deficit
|
(518,466
|
)
|
(540,486
|
)
|
|||
Total
stockholders’ equity
|
15,215
|
6,345
|
|||||
Total
liabilities and stockholders’ equity
|
$
|
20,244
|
$
|
12,291
|
|||
FOR
YEARS ENDED DECEMBER 31,
|
|||||||||||||
2003
|
2004
|
2005
|
|||||||||||
(In
thousands, except per share data)
|
|||||||||||||
Revenue:
|
|||||||||||||
Hardware
|
$
|
1,159
|
$
|
2,476
|
$
|
2,523
|
|||||||
Services
|
357
|
189
|
1,728
|
||||||||||
License
and other
|
1,078
|
1,199
|
1,148
|
||||||||||
Total
revenue
|
2,594
|
3,864
|
5,399
|
||||||||||
Cost
of revenue:
|
|||||||||||||
Hardware
|
1,320
|
2,320
|
2,172
|
||||||||||
Services
|
159
|
108
|
1,382
|
||||||||||
License
and other
|
101
|
98
|
31
|
||||||||||
Total
cost of revenue
|
1,580
|
2,526
|
3,585
|
||||||||||
Gross
profit
|
1,014
|
1,338
|
1,814
|
||||||||||
Operating
expenses:
|
|
||||||||||||
Sales
and marketing
|
3,621
|
4,305
|
7,125
|
||||||||||
Research
and development
|
1,694
|
2,065
|
2,493
|
||||||||||
General
and administrative
|
3,452
|
4,490
|
10,125
|
||||||||||
Restructuring
and impairment
|
89
|
170
|
3,053
|
||||||||||
Total
operating expenses
|
8,856
|
11,030
|
22,796
|
||||||||||
Loss
from operations
|
(7,842
|
)
|
(9,692
|
)
|
(20,982
|
)
|
|||||||
Other
income (expense) :
|
|
||||||||||||
Interest
expense
|
(158
|
)
|
(235
|
)
|
(58
|
)
|
|||||||
Interest
income
|
65
|
115
|
240
|
||||||||||
Loss
on foreign currency
|
(491
|
)
|
—
|
—
|
|||||||||
Other
income (expense)
|
(8
|
)
|
2
|
140
|
|||||||||
Loss
from continuing operations before income taxes
|
(8,434
|
)
|
(9,810
|
)
|
(20,660
|
)
|
|||||||
Income
tax benefit
|
3,764
|
—
|
—
|
||||||||||
Loss
from continuing operations after taxes
|
(4,670
|
)
|
(9,810
|
)
|
(20,660
|
)
|
|||||||
Income
(loss) from discontinued operations, net of taxes
|
6,056
|
(4,925
|
)
|
(1,360
|
)
|
||||||||
Net
income (loss)
|
1,386
|
(14,735
|
)
|
(22,020
|
)
|
||||||||
Preferred
stock dividends
|
(1,778
|
)
|
(874
|
)
|
(439
|
)
|
|||||||
Net
loss available to common stockholders
|
$
|
(392
|
)
|
$
|
(15,609
|
)
|
$
|
(22,459
|
)
|
||||
Basic
and diluted loss per share:
|
|||||||||||||
Continuing
operations
|
$
|
(0.87
|
)
|
$
|
(0.65
|
)
|
$
|
(0.85
|
)
|
||||
Discontinued
operations
|
0.82
|
(0.30
|
)
|
(0.06
|
)
|
||||||||
Net
loss per common share to common stockholders (basic and diluted)
|
$
|
(0.05
|
)
|
$
|
(0.95
|
)
|
$
|
(0.91
|
)
|
||||
Weighted
average common shares - Basic and diluted
|
7,365
|
16,470
|
24,799
|
||||||||||
Class
B Common Stock
|
Series
B Preferred Stock
|
Common
Stock
|
|||||||||||||||||||||||||||||||||||
Number
|
Amount
|
Number
|
Amount
|
Number
|
Amount
|
||||||||||||||||||||||||||||||||
Balance,
December 31, 2002
|
17,948
|
$
|
—
|
1,115,080
|
$
|
1
|
6,795,007
|
$
|
7
|
||||||||||||||||||||||||||||
Stock
issued on exercise of stock options
|
—
|
—
|
—
|
—
|
771,056
|
1
|
|||||||||||||||||||||||||||||||
Stock
issued from employee stock purchase plan
|
—
|
—
|
—
|
—
|
79,969
|
—
|
|||||||||||||||||||||||||||||||
Shares
issued from Series B dividend
|
—
|
—
|
—
|
—
|
4,416
|
—
|
|||||||||||||||||||||||||||||||
Foreign
translation loss
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||
Dividend
attributable to Series B conversion
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||
Conversion
of Class B common stock
|
(3,948
|
)
|
—
|
—
|
—
|
3,948
|
—
|
||||||||||||||||||||||||||||||
Conversion
of Series B Preferred Stock
|
—
|
—
|
(111,250
|
)
|
—
|
1,024,333
|
1
|
||||||||||||||||||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||
Other
comprehensive loss
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||
Balances,
December 31, 2003
|
14,000
|
$
|
—
|
1,003,830
|
$
|
1
|
8,678,729
|
$
|
9
|
Accumulated
other
|
||||||||||||||||||||||
Additional
Paid-in
|
Comprehensive
|
Accumulated | ||||||||||||||||||||
Capital
|
Income
(Loss)
|
Deficit
|
Total
|
|||||||||||||||||||
Balance,
December 31, 2002
|
$
|
513,995
|
$
|
(494
|
)
|
$
|
(505,117
|
)
|
$
|
8,392
|
||||||||||||
Stock
issued on exercise of stock options
|
1,468
|
—
|
—
|
1,469
|
||||||||||||||||||
Stock
issued from employee stock purchase plan
|
88
|
—
|
—
|
88
|
||||||||||||||||||
Shares
issued from Series B dividend
|
18
|
—
|
—
|
18
|
||||||||||||||||||
Foreign
translation loss
|
—
|
491
|
—
|
491
|
||||||||||||||||||
Dividend
attributable to Series B conversion
|
(382
|
)
|
—
|
—
|
(382
|
)
|
||||||||||||||||
Conversion
of Class B common stock
|
—
|
—
|
—
|
—
|
||||||||||||||||||
Conversion
of Series B Preferred Stock
|
(1
|
)
|
—
|
—
|
—
|
|||||||||||||||||
Net
income
|
—
|
—
|
1,386
|
1,386
|
||||||||||||||||||
Other
comprehensive loss
|
—
|
3
|
—
|
3
|
||||||||||||||||||
Balances,
December 31, 2003
|
$
|
515,186
|
$
|
—
|
$
|
(503,731
|
)
|
$
|
11,465
|
Class
B Common Stock
|
Series
B Preferred Stock
|
Common
Stock
|
||||||||||||||||||||||||||||||||
Number
|
Amount
|
Number
|
Amount
|
Number
|
Amount
|
|||||||||||||||||||||||||||||
Balance,
December 31, 2003
|
14,000
|
$
|
—
|
1,003,830
|
$
|
1
|
8,678,729
|
$
|
9
|
|||||||||||||||||||||||||
Stock
issued on exercise of stock options
|
—
|
—
|
—
|
—
|
2,190,632
|
2
|
||||||||||||||||||||||||||||
Stock
issued from employee stock purchase plan
|
—
|
—
|
—
|
—
|
293,219
|
—
|
||||||||||||||||||||||||||||
PIPE
Investment
|
—
|
—
|
—
|
—
|
909,090
|
1
|
||||||||||||||||||||||||||||
Conversion
of AIR
|
—
|
—
|
—
|
—
|
888,179
|
1
|
||||||||||||||||||||||||||||
Dividend
attributable to Series B conversion
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||||||
Conversion
of warrant
|
—
|
—
|
—
|
—
|
7,286
|
—
|
||||||||||||||||||||||||||||
Conversion
of Class B common stock
|
(14,000
|
)
|
—
|
—
|
—
|
14,000
|
—
|
|||||||||||||||||||||||||||
Conversion
of Series B Preferred Stock
|
—
|
—
|
(862,883
|
)
|
(1
|
)
|
8,557,923
|
9
|
||||||||||||||||||||||||||
Conversion
of Series B Warrant
|
—
|
—
|
149,400
|
—
|
—
|
—
|
||||||||||||||||||||||||||||
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||||||
Balances,
Dec. 31, 2004
|
—
|
$
|
—
|
290,347
|
$
|
—
|
21,539,058
|
$
|
22
|
Additional
Paid-in
|
|||||||||||||||||||||||||
Capital
|
Accumulated
Deficit
|
Total
|
|||||||||||||||||||||||
Balance,
December 31, 2003
|
$
|
515,186
|
$
|
(503,731)
|
|
$
|
11,465
|
||||||||||||||||||
Stock
issued on exercise of stock options
|
5,270
|
—
|
5,272
|
||||||||||||||||||||||
Stock
issued from employee stock purchase plan
|
384
|
—
|
384
|
||||||||||||||||||||||
PIPE
Investment
|
4,918
|
—
|
4,919
|
||||||||||||||||||||||
Conversion
of AIR
|
5,373
|
—
|
5,374
|
||||||||||||||||||||||
Dividend
attributable to Series B conversion
|
(452
|
)
|
—
|
(452)
|
|
||||||||||||||||||||
Conversion
of warrant
|
—
|
—
|
—
|
||||||||||||||||||||||
Conversion
of Class B common stock
|
—
|
—
|
—
|
||||||||||||||||||||||
Conversion
of Series B Preferred Stock
|
(8
|
)
|
—
|
—
|
|||||||||||||||||||||
Conversion
of Series B Warrant
|
2,988
|
—
|
2,988
|
||||||||||||||||||||||
Net
loss
|
—
|
(14,735)
|
|
(14,735)
|
|
||||||||||||||||||||
Balances,
December 31, 2004
|
$
|
533,659
|
$
|
(518,466)
|
|
$
|
15,215
|
||||||||||||||||||
Class
B Common Stock Number
|
Amount
|
Series
B Preferred Stock Number
|
Amount
|
Common
Stock Number
|
Amount
|
||||||||||||||||||||
Balance,
December 31, 2004
|
—
|
$
|
—
|
290,347
|
$
|
—
|
21,539,058
|
$
|
22
|
1
|
|||||||||||||||
Stock
issued on exercise of stock options
|
—
|
—
|
1,165,445
|
1
|
|||||||||||||||||||||
Stock
issued from employee stock purchase plan
|
—
|
—
|
90,418
|
||||||||||||||||||||||
PIPE
Investment
|
|
|
—
|
—
|
4,149,376
|
4
|
|||||||||||||||||||
Conversion
of AIR
|
|
|
—
|
—
|
87,596
|
||||||||||||||||||||
Dividend
attributable to Series B conversion
|
|
|
—
|
—
|
22,847
|
||||||||||||||||||||
Conversion
of Series B Preferred Stock
|
|
|
(43,480)
|
—
|
400,343
|
||||||||||||||||||||
Net
loss
|
—
|
—
|
—
|
||||||||||||||||||||||
Balances,
December 31, 2005
|
—
|
|
246,867
|
—
|
27,455,083
|
27
|
Class
B Common Stock Number
|
Amount
|
Series
B Preferred Stock Number
|
Amount
|
Common
Stock Number
|
Amount
|
||||||||||||||||||||||||||
Balance,
December 31, 2004
|
—
|
$
|
—
|
290,347
|
$
|
—
|
21,539,058
|
$
|
22
|
|
|||||||||||||||||||||
Stock
issued on exercise of stock options
|
—
|
—
|
1,165,445
|
1
|
|||||||||||||||||||||||||||
Stock
issued from employee stock purchase plan
|
—
|
—
|
90,418
|
||||||||||||||||||||||||||||
PIPE
Investment
|
—
|
—
|
4,149,376
|
4
|
|||||||||||||||||||||||||||
Conversion
of AIR
|
—
|
—
|
87,596
|
||||||||||||||||||||||||||||
Dividend
attributable to Series B conversion
|
—
|
—
|
22,847
|
||||||||||||||||||||||||||||
Conversion
of Series B Preferred Stock
|
(43,480
|
)
|
—
|
400,343
|
|||||||||||||||||||||||||||
Net
loss
|
—
|
—
|
—
|
||||||||||||||||||||||||||||
Balances,
December 31, 2005
|
—
|
246,867
|
—
|
27,455,083
|
27
|
Additional
Paid-in
Capital
|
||||||||||||||||||||||
Accumulated
Deficit
|
Total
|
|||||||||||||||||||||
Balances,
December 31, 2004
|
$
|
533,659
|
$
|
(518,466
|
)
|
$
|
15,215
|
|||||||||||||||
Stock
issued on exercise of stock options
|
2,383
|
—
|
2,384
|
|||||||||||||||||||
Stock
issued from employee stock purchase plan
|
173
|
—
|
173
|
|||||||||||||||||||
PIPE
Investment
|
9,755
|
—
|
9,759
|
|||||||||||||||||||
Conversion
of AIR
|
200
|
—
|
200
|
|||||||||||||||||||
Dividend
attributable to Series B conversion
|
(185
|
)
|
—
|
(185
|
)
|
|||||||||||||||||
Unearned
stock-based compensation
|
819
|
—
|
819
|
|||||||||||||||||||
Net
loss
|
—
|
(22,020
|
)
|
(22,020
|
)
|
|||||||||||||||||
Balances,
December 31, 2005
|
$
|
546,804
|
$
|
(540,486
|
)
|
$
|
6,345
|
FOR
YEARS ENDED DECEMBER 31,
|
|||||||||||||
2003
|
2004
|
2005
|
|||||||||||
Cash
flows from operating activities:
|
(In
thousands)
|
||||||||||||
Net
income (loss)
|
$
|
1,386
|
$
|
(14,735
|
)
|
$
|
(22,020
|
)
|
|||||
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating activities:
|
|||||||||||||
Depreciation
|
3,164
|
989
|
740
|
||||||||||
Impairment
and amortization of intangibles
|
3,042
|
—
|
—
|
||||||||||
Write
down of computer hardware, software
|
—
|
—
|
221
|
||||||||||
Bad
debt expense (recovery)
|
8
|
3
|
19
|
||||||||||
Provision
for inventory obsolescence
|
(12
|
)
|
198
|
(132
|
)
|
||||||||
Loss
on foreign exchange
|
491
|
—
|
—
|
||||||||||
Gain (loss)
on disposal of assets
|
(177
|
)
|
—
|
14
|
|||||||||
Stock-based
compensation expense
|
—
|
—
|
819
|
||||||||||
Accounts
receivable
|
3,266
|
(156
|
)
|
(953
|
)
|
||||||||
Inventory
|
(205
|
)
|
(2,134
|
)
|
321
|
||||||||
Prepaid
expenses and other current assets
|
(632
|
)
|
(57
|
)
|
354
|
||||||||
Long-term
restricted cash and other assets
|
(782
|
)
|
134
|
1,345
|
|||||||||
Accounts
payable
|
252
|
431
|
1,500
|
||||||||||
Accrued
liabilities
|
(837
|
)
|
23
|
(48
|
)
|
||||||||
Deferred
revenue
|
(9
|
)
|
86
|
(84
|
)
|
||||||||
Net
cash provided by (used in) operating activities
|
|||||||||||||
8,955
|
(15,218
|
)
|
(17,904
|
)
|
|||||||||
Cash
flows from investing activities:
|
|||||||||||||
Purchases
of computer hardware, software and other
|
(909
|
)
|
(380
|
)
|
(1,478
|
)
|
|||||||
Purchase
of short term investments
|
(1,431
|
)
|
(1,445
|
)
|
(2,031
|
)
|
|||||||
Maturities
of short term investments
|
1,400
|
1,431
|
1,445
|
||||||||||
Net
cash used in investing activities
|
(940
|
)
|
(394
|
)
|
(2,064
|
)
|
|||||||
Cash
flows from financing activities:
|
|||||||||||||
Proceeds
from issuance of common stock
|
1,557
|
5,736
|
2,579
|
||||||||||
PIPE
Investment
|
—
|
4,920
|
9,759
|
||||||||||
Conversion
of AIR
|
—
|
5,373
|
200
|
||||||||||
Conversion
of Series B Preferred Warrant
|
—
|
2,988
|
—
|
||||||||||
Dividend
attributable to Series B preferred stock conversion
|
(364
|
)
|
(452
|
)
|
(185
|
)
|
|||||||
Repayments
of lease obligations
|
(1,990
|
)
|
(410
|
)
|
(309
|
)
|
|||||||
Net
cash provided by (used in) financing activities
|
(797
|
)
|
18,155
|
12,044
|
|||||||||
Effect
of exchange rate changes on cash
|
3
|
—
|
—
|
||||||||||
Net
increase (decrease) in cash and cash equivalents
|
7,221
|
2,543
|
(7,924
|
)
|
|||||||||
Cash
and cash equivalents, beginning of period
|
3,020
|
10,241
|
12,784
|
||||||||||
Cash
and cash equivalents, end of period
|
$
|
10,241
|
$
|
12,784
|
$
|
4,860
|
FOR
YEARS ENDED DECEMBER 31,
|
|||||||||||||
2003
|
2004
|
2005
|
|||||||||||
(In
thousands)
|
|||||||||||||
Interest
paid
|
$
|
158
|
$
|
235
|
$
|
58
|
Revenues
for Years ended December 31,
|
||||||||||
2003
|
2004
|
|
2005
|
|||||||
U.S.
Government
|
—
|
—
|
26
|
%
|
||||||
British
Distributor
|
—
|
41
|
%
|
14
|
%
|
|||||
Sentry
360 Security Inc.
|
—
|
—
|
3
|
%
|
||||||
Homestore
|
3
|
%
|
8
|
%
|
—
|
FOR
YEARS ENDED DECEMBER 31,
|
|||||||||||||
2003
|
2004
|
2005
|
|||||||||||
(In
thousands, except per share data)
|
|||||||||||||
Net
loss available to common stockholders
|
$
|
(392
|
)
|
$
|
(15,609
|
)
|
$
|
(22,459
|
)
|
||||
Add
employee stock compensation expense included in reported net loss
|
—
|
—
|
819
|
||||||||||
Less
total stock-based employee compensation expense determined under
fair
value based methods for all awards
|
(1,472
|
)
|
(2,701
|
)
|
(3,135
|
)
|
|||||||
Adjusted
net loss available to common stockholders
|
$
|
(1,864
|
)
|
$
|
(18,310
|
)
|
$
|
(24,775
|
)
|
||||
Basic
net loss per common share:
|
|||||||||||||
Net
loss available to common stockholders before pro-forma charge
|
$
|
(0.05
|
)
|
$
|
(0.95
|
)
|
$
|
(0.91
|
)
|
||||
Net
effect of pro-forma charges
|
(0.20
|
)
|
(0.16
|
)
|
(0.09
|
)
|
|||||||
Adjusted
basic net loss per common share available to common stockholders
|
$
|
(0.25
|
)
|
$
|
(1.11
|
)
|
$
|
(1.00
|
)
|
SEGMENT
INFORMATION
|
FOR
YEARS ENDED DECEMBER 31,
|
||||||||||
2003
|
2004
|
2005
|
||||||||
WEIGHTED
AVERAGE EFFECT OF POTENTIAL COMMON SHARES:
|
||||||||||
Series B
preferred stock
|
10,924,287
|
2,871,843
|
2,821,837
|
|||||||
Employee
stock options
|
960,851
|
2,260,097
|
257,176
|
|||||||
Warrants
to purchase Series B preferred stock
|
218,446
|
338,536
|
—
|
|||||||
TOTAL
|
12,103,584
|
5,470,476
|
3,079,013
|
|||||||
FOR
YEARS ENDED DECEMBER 31,
|
|||||||||||||
2003
|
2004
|
2005
|
|||||||||||
(In
thousands)
|
|||||||||||||
Net
income (loss)
|
$
|
1,386
|
$
|
(14,735
|
)
|
$
|
(22,020
|
)
|
|||||
Foreign
currency translation adjustment
|
(3
|
)
|
—
|
—
|
|||||||||
Comprehensive
income (loss)
|
$
|
1,383
|
$
|
(14,735
|
)
|
$
|
(22,020
|
)
|
|||||
FOR
YEARS ENDED DECEMBER 31,
|
|||||||||||||
2003
|
2004
|
2005
|
|||||||||||
(In
thousands)
|
|||||||||||||
Revenues
|
$
|
26,245
|
$
|
1,116
|
$
|
159
|
|||||||
Cost
of Revenues
|
6,540
|
2,304
|
220
|
||||||||||
Gross
profit
|
19,705
|
(1,188
|
)
|
(61
|
)
|
||||||||
Operating
expenses:
|
|||||||||||||
Sales
and marketing
|
3,985
|
1,968
|
908
|
||||||||||
Research
and development
|
2,858
|
1,769
|
391
|
||||||||||
Impairment
and amortization of intangibles
|
3,042
|
—
|
—
|
||||||||||
Total
operating expenses
|
9,885
|
3,737
|
1,299
|
||||||||||
Income
(loss) from discontinued operations before income tax
|
9,820
|
(4,925
|
)
|
(1,360
|
)
|
||||||||
Income
tax provision
|
(3,764
|
)
|
—
|
—
|
|||||||||
Income
(loss) from discontinued operations, net of tax
|
$
|
6,056
|
$
|
(4,925
|
)
|
$
|
(1,360
|
)
|
|||||
San
Ramon
|
Oak
Ridge
|
Total
|
||||||||
Lease
|
$
|
1,061
|
$
|
304
|
$
|
1,365
|
||||
Severance
|
362
|
3
|
365
|
|||||||
Information
Systems Relocation
|
36
|
36
|
||||||||
Fixed
Asset Buyout
|
747
|
747
|
||||||||
Fixed
Asset Write-down
|
221
|
221
|
||||||||
Other
|
59
|
6
|
65
|
|||||||
TOTALS
|
$
|
2,229
|
$
|
570
|
$
|
2,799
|
Balance
Dec.31,
|
Expense
in
|
Payments/
Write-offs
|
Balance
Dec. 31,
|
Expense
in
|
Payments/
|
Balance
Dec. 31,
|
Expense
in
|
Payments/
Write-offs
|
Balance
Dec. 31,
|
||||||||||||||||||||||
2002
|
2003
|
in
2003
|
2003
|
2004
|
in
2004
|
2004
|
2005
|
in
2005
|
2005
|
||||||||||||||||||||||
(In
thousands)
|
|||||||||||||||||||||||||||||||
Severance
|
$
|
500
|
$
|
—
|
$
|
(500
|
)
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
365
|
$
|
(354
|
)
|
$
|
3
|
|||||||||
Other
|
549
|
89
|
(267
|
)
|
371
|
170
|
(284
|
)
|
257
|
2,434
|
(1,685
|
)
|
1,014
|
||||||||||||||||||
Total
|
$
|
1,049
|
$
|
89
|
$
|
(767
|
)
|
$
|
371
|
$
|
170
|
$
|
(284
|
)
|
$
|
257
|
$
|
2,799
|
$
|
(2,039
|
)
|
$
|
1,017
|
December
31, 2004
|
December
31, 2005
|
||||||
Components
|
$
|
1,437
|
$
|
1,218
|
|||
Finished
goods
|
$
|
1,243
|
$
|
1,141
|
|||
Total
Inventory
|
$
|
2,680
|
$
|
2,359
|
|||
Inventory
Reserve
|
$
|
(346
|
)
|
$
|
(214
|
)
|
|
Total
Inventory, net
|
$
|
2,334
|
$
|
2,145
|
2004
|
2005
|
||||||||||||
(In
thousands)
|
|||||||||||||
Computer
hardware and software
|
$
|
1,766
|
$
|
2,355
|
|||||||||
Fixtures
and leasehold improvements
|
218
|
260
|
|||||||||||
1,984
|
2,615
|
||||||||||||
Accumulated
depreciation and amortization
|
(1,268
|
)
|
(1,424
|
)
|
|
||||||||
Computer
hardware, software and other, net
|
$
|
716
|
$
|
1,191
|
2004
|
2005
|
||||||
(In
thousands)
|
|||||||
CURRENT
|
|||||||
Accrued
sales, franchise and other taxes
|
$
|
1,202
|
$
|
1,050
|
|||
Accrued
liabilities - trade
|
1,482
|
1,038
|
|||||
Accrued
salaries and benefits
|
224
|
92
|
|||||
Accrued
legal fees
|
133
|
104
|
|||||
Accrued
vacation
|
213
|
80
|
|||||
Accrued
restructuring
|
115
|
964
|
|||||
Customer
deposits
|
7
|
22
|
|||||
Total
current liabilities
|
3,376
|
3,350
|
|||||
Long-term
restructuring
|
142
|
53
|
|||||
Total
accrued liabilities
|
$
|
3,518
|
$
|
3,403
|
2004
|
2005
|
||||||
(In
thousands)
|
|||||||
DEFERRED
TAX ASSETS (LIABILITIES) CURRENT:
|
|||||||
Financial
reserves
|
$
|
137
|
$
|
83
|
|||
Accrued
expenses and deferred revenues
|
1,132
|
1,201
|
|||||
Other
|
4
|
8
|
|||||
1,273
|
1,292
|
||||||
Valuation
allowance
|
(1,273
|
)
|
(1,292
|
)
|
|||
Net
current deferred tax assets
|
$
|
—
|
$
|
—
|
2004
|
2005
|
||||||||||||||||||
(In
thousands)
|
|||||||||||||||||||
DEFERRED
TAX ASSETS (LIABILITIES) LONG-TERM:
|
|||||||||||||||||||
Net
operating loss carryforwards
|
$
28,628
|
$
38,375
|
|||||||||||||||||
Capitalized
research and development
|
9,407
|
7,808
|
|||||||||||||||||
Depreciation
|
327
|
55
|
|||||||||||||||||
Other
|
114
|
98
|
|||||||||||||||||
38,476
|
46,336
|
||||||||||||||||||
Valuation
allowance
|
(38,476)
|
(46,336)
|
|||||||||||||||||
Net
long-term deferred tax assets (liabilities).
|
$
—
|
$
—
|
For
Years Ended December 31,
|
|||||||||||||||||||||||||
2003
|
2004
|
2005
|
|||||||||||||||||||||||
(In
thousands)
|
|||||||||||||||||||||||||
Computed
“expected” tax (benefit) provision
|
$
|
471
|
$
|
(5,010
|
)
|
$
|
(7,487
|
)
|
|||||||||||||||||
State
income taxes, net of U.S. federal benefits
|
77
|
(805
|
)
|
(1,016
|
)
|
||||||||||||||||||||
Investment
in foreign subsidiaries
|
(8,587
|
)
|
—
|
—
|
|||||||||||||||||||||
Valuation
allowance changes affecting the provision for income taxes
|
6,906
|
6,099
|
7,785
|
||||||||||||||||||||||
Warrant
expense
|
—
|
—
|
—
|
||||||||||||||||||||||
Permanent
differences
|
1,133
|
14
|
15
|
||||||||||||||||||||||
State
tax rate change
|
—
|
55
|
703
|
||||||||||||||||||||||
True
up of prior year permanent items
|
—
|
(353
|
)
|
—
|
|||||||||||||||||||||
$
|
—
|
$
|
—
|
$
|
—
|
Shares
|
Weighted
Average of Exercise Prices
|
Weighted
Average Grant Date Fair Value
|
Stock
Options Exercisable
|
Weighted
Average Exercise Price
|
||||||||||||
Under
option at December 31, 2002
|
3,219,879
|
2,461,247
|
$
|
12.05
|
||||||||||||
Options
granted
|
1,445,500
|
$
|
1.28
|
$
|
1.78
|
|||||||||||
Options
exercised
|
(771,057
|
)
|
$
|
3.75
|
||||||||||||
Options
forfeited or expired
|
(594,306
|
)
|
$
|
19.12
|
||||||||||||
Under
option at December 31, 2003
|
3,300,016
|
1,859,632
|
$
|
10.10
|
||||||||||||
Options
granted
|
2,531,500
|
$
|
4.34
|
$
|
1.51
|
|||||||||||
Options
exercised
|
(2,190,632
|
)
|
$
|
8.84
|
||||||||||||
Options
forfeited or expired
|
(393,264
|
)
|
$
|
5.01
|
||||||||||||
Under
option at December 31, 2004
|
3,247,620
|
750,643
|
$
|
18.29
|
||||||||||||
Options
granted
|
2,010,000
|
$
|
2.97
|
$
|
2.09
|
|||||||||||
Options
exercised
|
(1,165,445
|
)
|
$
|
2.05
|
||||||||||||
Options
forfeited or expired
|
(1,658,835
|
)
|
$
|
10.57
|
||||||||||||
Under
option at December 31, 2005
|
2,433,340
|
621,137
|
$
|
6.02
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||
Number
Outstanding
|
Weighted-average
Remaining Contractual Life, Years
|
Weighted-average
Exercise Price
|
Number
Exercisable
|
Weighted-average
Exercise Price
|
||||||||
Range
of Exercise Price
|
||||||||||||
$
1.07
|
$
2.80
|
972,441
|
8.99
|
$
2.28
|
276,483
|
$
2.03
|
||||||
$2.93
|
$4.56
|
893,292
|
9.31
|
3.33
|
121,975
|
3.04
|
||||||
$5.63
|
$12.24
|
560,002
|
8.71
|
8.18
|
215,074
|
8.17
|
||||||
$43.38
|
$82.50
|
3,476
|
3.43
|
61.74
|
3,476
|
61.74
|
||||||
$123.13
|
$300.00
|
4,129
|
4.08
|
202.75
|
4,129
|
202.75
|
||||||
Total
|
2,433,340
|
9.03
|
$4.45
|
621,137
|
$6.02
|
For
Years Ended December 31,
|
||||||||||||||||||||||||||||
2003
|
2004
|
2005
|
||||||||||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||||||||
Accelerated
option expense
|
$
|
|
$
|
$
|
819
|
|||||||||||||||||||||||
$
|
—
|
$
|
—
|
$
|
819
|
2006
|
$
|
1,402
|
||
2007
|
654
|
|||
2008
|
332
|
|||
2009
|
335
|
|||
2010
|
114
|
|||
Thereafter
|
3
|
|||
TOTAL
|
$
|
2,840
|
Date
|
Expiration
|
Exercise
|
|||||||||||
of
Grant
|
Date
|
Shares
|
Price
|
||||||||||
Common
stock
|
1/6/2000
|
1/5/2009
|
20,000
|
154.70
|
|||||||||
Series
B Preferred Stock
|
|||||||||||||
Warrant
2
|
5/14/2001
|
5/14/2006
|
99,600
|
$
|
40.00
|
||||||||
Equivalent
to common shares
|
9.21
|
||||||||||||
Total
common shares
|
917,067
|
$
|
4.34
|
||||||||||
PIPE
Warrants
|
|||||||||||||
First
two tranches
|
6/21/2005
|
6/21/2009
|
2,033,194
|
$
|
3.11
|
||||||||
Second
tranche
|
12/21/2005
|
6/21/2009
|
4,380
|
$
|
3.11
|
||||||||
Total
Common Shares
|
2,037,574
|
$
|
3.11
|
FOR
YEARS ENDED DECEMBER 31,
|
|||||||||||||||||||
2003
|
2004
|
2005
|
|||||||||||||||||
REVENUES:
|
(In
thousands)
|
||||||||||||||||||
United
States
|
$
|
2,012
|
$
|
2,241
|
$
|
4,025
|
|||||||||||||
Japan/Pacific
Rim
|
29
|
—
|
163
|
||||||||||||||||
Europe
|
122
|
1,603
|
1,001
|
||||||||||||||||
Other
foreign countries
|
431
|
20
|
210
|
||||||||||||||||
TOTAL
|
$
|
2,594
|
$
|
3,864
|
$
|
5,399
|
AS
OF DECEMBER 31,
|
|||||||||||||||||||
2003
|
2004
|
2005
|
|||||||||||||||||
(In
thousands)
|
|||||||||||||||||||
LONG-LIVED
ASSETS:
|
|||||||||||||||||||
Foreign
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||||||||||
United
States
|
1,578
|
716
|
1,191
|
||||||||||||||||
$
|
1,578
|
$
|
716
|
$
|
1,191
|
For
the quarters ended
|
||||||||||||||||
Total
|
March
31
|
June
30
|
September
30
|
December
31
|
||||||||||||
(In
thousands, except per share data)
|
||||||||||||||||
FISCAL
YEAR 2005:
|
||||||||||||||||
Revenue
|
$
|
5,399
|
$
|
668
|
$
|
1,433
|
$
|
1,498
|
$
|
1,800
|
||||||
Gross
profit
|
1,814
|
302
|
677
|
385
|
450
|
|||||||||||
Loss
from continuing operations after income taxes(1)
|
(20,660
|
)
|
(4,521
|
)
|
(5,989
|
)
|
(5,187
|
)
|
(4,963
|
)
|
||||||
Net
loss available for common stockholders(1)
|
$
|
(22,459
|
)
|
$
|
(5,996
|
)
|
$
|
(6,105
|
)
|
$
|
(5,287
|
)
|
$
|
(5,071
|
)
|
|
Loss
from continuing operations per common share(1):
|
||||||||||||||||
Basic
|
(0.85
|
)
|
(0.21
|
)
|
(0.26
|
)
|
(0.20
|
)
|
(0.18
|
)
|
||||||
Diluted
|
(0.85
|
)
|
(0.21
|
)
|
(0.26
|
)
|
(0.20
|
)
|
(0.18
|
)
|
||||||
Net
loss per common share(1):
|
||||||||||||||||
Basic
|
(0.91
|
)
|
(0.27
|
)
|
(0.27
|
)
|
(0.20
|
)
|
(0.18
|
)
|
||||||
Diluted
|
$
|
(0.91
|
)
|
$
|
(0.27
|
)
|
$
|
(0.27
|
)
|
$
|
(0.20
|
)
|
$
|
(0.18
|
)
|
|
FISCAL
YEAR 2004:
|
||||||||||||||||
Revenue
|
$
|
3,864
|
$
|
476
|
$
|
1,013
|
$
|
1,466
|
$
|
909
|
||||||
Gross
profit
|
1,338
|
179
|
428
|
638
|
93
|
|||||||||||
Loss
from continuing operations after income taxes(1)
|
(9,810
|
)
|
(1,804
|
)
|
(2,064
|
)
|
(2,264
|
)
|
(3,678
|
)
|
||||||
Net
loss available for common stockholders(1)
|
$
|
(15,609
|
)
|
$
|
(3,610
|
)
|
$
|
(3,627
|
)
|
$
|
(3,554
|
)
|
$
|
(4,818
|
)
|
|
Loss
from continuing operations per common share(1):
|
||||||||||||||||
Basic
|
(0.65
|
)
|
(0.25
|
)
|
(0.14
|
)
|
(0.12
|
)
|
(0.18
|
)
|
||||||
Diluted
|
(0.65
|
)
|
(0.25
|
)
|
(0.14
|
)
|
(0.12
|
)
|
(0.18
|
)
|
||||||
Net
loss per common share(1):
|
||||||||||||||||
Basic
|
(0.95
|
)
|
(0.41
|
)
|
(0.23
|
)
|
(0.18
|
)
|
(0.22
|
)
|
||||||
Diluted
|
$
|
(0.95
|
)
|
$
|
(0.41
|
)
|
$
|
(0.23
|
)
|
$
|
(0.18
|
)
|
$
|
(0.22
|
)
|