| IPIX CORP Item 1A Risk Factors |
| Our limited operating history and recent changes in our customer base makes it difficult to evaluate our business In early 2004, we launched several new products for video surveillance and immersive photography |
| Additionally, in February 2005, we sold our AdMission business unit |
| As a result, we have a limited operating history of the Company in 2005 and upon which you can base an evaluation of our business and prospects |
| Our prospects must be considered in the light of the risks, uncertainties, expenses and difficulties frequently encountered by companies that have undertaken a substantial business restructuring |
| To address these risks and uncertainties, we must, among other things: · 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 |
| We may not be successful in accomplishing these objectives |
| We have a history of losses, and we expect to continue to incur losses and may not achieve or maintain profitability |
| The extent of our future losses and the timing of profitability are highly uncertain, and we may never achieve profitable operations |
| As of December 31, 2005, we had a total accumulated deficit of approximately dlra541 million |
| Historically, our net sales have varied significantly |
| We will need to generate additional revenue to achieve profitability in the future |
| If we are unable to achieve profitability or to maintain profitability if achieved, it may have a material adverse effect on our business and stock price and we may be unable to continue operations at the current levels, if at all |
| We cannot provide any assurances that we will generate additional revenues or achieve profitability |
| Additional capital or strategic alternatives may be required for us to continue our operations and as a result, our independent registered public accounting firm’s report includes an explanatory paragraph that states that significant matters exist that raise substantial doubt about our ability to continue as a going concern |
| If we are not successful in increasing our revenues or cutting costs, we may be required to reduce operations further, seek additional equity financing or financing from other sources, or consider other strategic alternatives, including a possible merger, sale of assets or other business combination or restructuring transactions |
| There can be no assurances that additional financing or strategic alternatives will be obtainable on terms acceptable to us or that any additional financing would not be substantially dilutive to existing stockholders |
| The holders of our Series B preferred stock have rights that are senior to those of the holders of our common stock in the event of the sale of our Company or in the event of our liquidation, dissolution or winding up |
| We have included a “going concern” footnote in our audited financial statements for fiscal 2005 |
| Our operating results are highly dependent on the development of new products and technologies, and marketing them in order to generate revenue from new markets Our results are subject to risks related to our significant investment in developing and introducing new products and services |
| These risks include: (i) difficulties and delays in the development, production, testing and marketing of products and services; (ii) customer acceptance; (iii) the development of industry standards; (iv) the significant amount of resources we must devote to the development of new technology; and (v) the ability to differentiate our products or services and compete with other companies in the same markets |
| We may not be able to develop and market new products and technologies and generate revenues |
| 8 _________________________________________________________________ Our operating results are highly dependent on obtaining adequate supplies of the components of our products Our ability to meet customer demands depends, in part, on our ability to obtain timely and adequate delivery of quality materials, parts and components from our suppliers and external manufacturing capacity |
| Although we work closely with our suppliers to avoid these types of shortages, there can be no assurances that we will not encounter these problems in the future |
| A reduction or interruption in supplies or a significant increase in the price of one or more supplies could have a material adverse effect on our revenues and operating results |
| Failure to manage expenses would prevent us from achieving profitability We may have to increase our operating expenses in order to increase our customer base, enhance our brand image and support our growing infrastructure |
| In order for us to become profitable, we must increase our revenues and gross profit margins sufficiently to cover current and future operating expenses |
| If we fail to do so, we may never achieve sustained profitability |
| In late 2003, we reduced the number of employees in the business unit that previously supported our largest customer |
| In February of 2005, we sold this business unit to AdMission Corporation as previously disclosed |
| During 2005, we further reduced the number of employees in all functional areas of the Company |
| We continue to streamline our cost structure but recognize the need to increase some sales and marketing costs that directly benefit the sale of security products |
| If we fail to do so, we may be required to implement further cost reductions that could adversely affect our business |
| Since the first half of 2000, we have been reducing costs and simplifying our product portfolios in all of our businesses |
| We discontinued product lines, exited businesses, consolidated operations and reduced our employee population |
| The impact of these cost-reduction efforts on our revenues and profitability may influence our ability to successfully complete these ongoing efforts; our ability to generate the level of cost savings we expect or that are necessary to enable us to effectively compete; the risk that we may not be able to retain key employees; and the performance of other parties under outsourcing arrangements |
| Another cost-reduction action has been to develop outsourcing arrangements for the design and/or manufacture of certain products and components |
| If these third parties fail to deliver quality products and components on time and at reasonable prices, we could have difficulties fulfilling our orders and our revenues and operating results could be negatively impacted |
| Our quarterly results may fluctuate, which could make financial forecasting difficult and increase volatility in our common stock Our revenues and operating results may vary significantly from quarter-to-quarter |
| As a result, quarter-to-quarter comparisons of our revenues and operating results may not be meaningful |
| In addition, due to our limited operating history and restructuring, it may be difficult to predict our future revenues and results of operations accurately |
| It is likely that, in one or more future quarters, our operating results will fall below the expectations of investors |
| If this happens, the trading price of our common stock is likely to be materially and adversely affected |
| We are dependent on a few products We anticipate that most of our revenue growth in the future, if any, will come from our visual intelligence technologies within both the commercial and government market segments |
| We may not be able to successfully increase sales of our current product offering |
| Additionally, our efforts to market new products and enhancements to our existing products may not be successful |
| If we are unable to continue to develop our products or if we are not successful in marketing and selling our new products, our financial condition could be materially and adversely affected |
| Additionally, camera technology is changing rapidly and we cannot be sure that our technology will continue to be attractive to customers or that technological advances will not render some inventory items such as cameras and lenses obsolete |
| Our success depends on our ability to protect our intellectual property We rely on trademark, copyright and patent law, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our proprietary rights |
| If we are not successful in protecting our intellectual property, there could be a material adverse effect on our business |
| While we believe that our issued patents and pending patent applications help to protect our business, there can be no assurance that: · 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 |
| 9 _________________________________________________________________ Also, our patents, service marks or trademarks may be challenged and invalidated or circumvented |
| In addition, we are exposed to infringement of our intellectual property in foreign markets because our intellectual property is protected under United States laws that may not extend to foreign uses |
| We have been and are currently involved in litigation relating to the protection of intellectual property rights and could be involved in future litigation as third parties develop products that we believe infringe on our patents and other intellectual property rights |
| We have experienced attempts to misappropriate our technology, and we expect those attempts may continue |
| We have been involved in litigation in which our rights to technology have been challenged |
| The cost of such litigation, or the determination against us in this type of lawsuit, could have a material adverse effect on our business |
| Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses |
| Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and NASDAQ National Market rules, are creating uncertainty for companies such as ours |
| These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices |
| We are committed to maintaining high standards of corporate governance and public disclosure |
| As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities |
| In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of the effectiveness of our internal control over financial reporting and our independent registered public accounting firm’s audit of that assessment has required the commitment of significant financial and managerial resources |
| We expect these efforts to require the continued commitment of significant resources |
| Further, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties |
| As a result, we may have difficulty attracting and retaining qualified board members and executive officers, which could harm our business |
| If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed |
| If we lose key members of our personnel, our future success could be limited Our future success depends on our ability to attract and retain key management, engineering, technical and other personnel |
| In addition, we must recruit additional qualified management, engineering, technical and marketing and sales and support personnel for our operations |
| Competition for this type of personnel is intense, and we may not be successful in attracting or retaining personnel |
| The loss of the services of one or more members of our management group or other key employees or the inability to hire additional qualified personnel will limit our ability to grow our business |
| Our success is dependent upon our ability to adapt to technological changes, and if we fail to do so, our offerings may become obsolete We compete in a market characterized by rapidly changing technology, evolving industry standards, frequent new service and product announcements, introductions and enhancements and changing customer demands |
| These market characteristics are intensified by the emerging nature of the Internet and the multitude of companies offering Internet-based products and services |
| Thus, our success depends on our ability to adapt to rapidly changing technologies, to adapt our offerings to evolving industry standards and to continually improve the performance, features and reliability of our offerings in response to competitive products and shifting demands of the marketplace |
| We may not be successful in expanding our business into international markets A part of our long-term strategy has been to expand into international markets |
| The success of any additional foreign operations will be substantially dependent upon our entering and succeeding in those markets, including through distributors, joint ventures or other indirect strategies |
| We may experience difficulty in managing international operations as a result of competition, technical problems, distance, language or cultural differences |
| As we manage our international efforts, we will be subject to a number of risks, including the following: · 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 |
| 10 _________________________________________________________________ We cannot assure you that we will be able to successfully market our products in foreign markets |
| Conversion of Series B Preferred Stock into Common Stock and the payment of accrued dividends associated with such Preferred Stock could adversely affect stockholders The holders of our Series B preferred stock may at their election convert each share of preferred stock into approximately 9dtta2 shares of our registered common stock |
| Accrued dividends on the preferred stock become due and payable upon such conversions |
| The holder of the preferred stock may elect to receive the dividends in additional common stock or cash |
| As a result, these conversions could require us to use available funds to finance dividends or dilute existing shareholders by introducing new common stock into the market |
| As a result, our financial condition or the market price of our common stock could be adversely affected |
| Our certificate of incorporation and bylaws contain anti-takeover provisions that may make it more difficult or expensive to acquire us in the future, which could negatively affect our stock price Our amended and restated certificate of incorporation and amended and restated bylaws and applicable provisions of Delaware law contain several provisions that may make it more difficult for a third party to acquire control of us without the approval of our board of directors |
| In addition, in October of 2000, our board of directors approved a stockholder rights plan that has the effect of making an acquisition of us prohibitively expensive unless our board of directors approves of the acquisition |
| The provisions of our certificate and bylaws and the Delaware General Corporation Law may make it more difficult or expensive for a third party to acquire a majority of our outstanding voting common stock or delay, prevent or deter a merger, acquisition, tender offer or proxy contest, which may negatively affect our stock price |
| Our market is highly competitive, and our business may suffer if we are unable to compete successfully The market for our immersive products is rapidly evolving |
| The market for immersive products and services is also highly competitive |
| We compete with other providers of immersive imaging technology who develop and market products and services similar to ours |
| We expect additional competition from other emerging and established companies |
| There can be no assurance that the Company’s current and potential competitors will not develop products that are more effective than our current or future products, or that our products and technology will not be rendered obsolete by such developments |
| Some of our competitors have longer operating histories, greater name recognition and significantly greater financial, technical and marketing resources |
| As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to promotion and sale of their products than us |
| Our business will suffer if we are unable to compete effectively |
| Terrorist activities and resulting military and other actions could adversely affect our business Terrorist attacks in recent years have disrupted commerce throughout the United States and other parts of the world |
| The continued threat of terrorism within the United States and abroad, and the continued military action and heightened security measures, may cost significant disruptions to global commerce |
| Such disruptions could result in a general decrease in corporate spending on information technology or our ability to effectively market and sell our products and services |
| Such events could have material adverse affect on our business |