##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 30, 2006o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number 0-27892
  SIPEX CORPORATION
 (Exact name of registrant as
    specified in its charter)
  Delaware

04-6135748(State of
    Incorporation)

(IRS employer identification
    number)233 South Hillview Drive,
    Milpitas, California(Address of principal
    executive offices)

95035(Zip
    Code)   Registrants telephone number, including area code:
 (408) 934-7500
  Securities registered pursuant to Section 12(b) of the
    Act:
 None
  Securities registered pursuant to Section 12(g) of the
    Act:
 Common Stock, par value $0.01 per share
 Name of exchange on which registered: None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ
  1-for-2
    DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



TABLE OF
    CONTENTS
  PagePART IItem 1.


Business


1Item 1A.


Risk
    Factors


7Item 1B.


Unresolved Staff
    Comments


17Item 2.


Properties


18Item 3.


Legal
    Proceedings


18Item 4.


Submission of
    Matters to a Vote of Security Holders


18PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


21Item 6.


Selected Financial
    Data


24Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


24Item 7A.


Quantitative and
    Qualitative Disclosure about Market Risk


39Item 8.


Financial
    Statements and Supplementary Data


41Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


80Item 9A.


Controls and
    Procedures


80Item 9B.


Other
    Information


81PART IIIItem 10.


Directors,
    Executive Officers and Corporate Governance


82Item 11.


Executive
    Compensation


82Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


82Item 13.


Certain
    Relationships, Related Transactions and Director
    Independence


82Item 14.


Principal
    Accounting Fees and Services


82PART IVItem 15.


Exhibits and
    Consolidated Financial Statement Schedules


82EXHIBIT 3.1EXHIBIT 10.36EXHIBIT 12.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2    FORWARD-LOOKING
    STATEMENTS
  Form 10-K Form 10-K Form 10-K
 i




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PART I  Item 1.
    Business:  Company
    Overview
      Recent
    Developments
    1-for-2
    Semiconductor
    Industry Background
  state-of-the-art
   1




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Sipexs
    Business Strategy
    Sipex
    Markets, Applications and Products
  pick-up
    Power Management Products out-of-range
   2




---



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Interface Products
    Optical Storage Products pick-up time-to-volume
    pick-up pick-up
  Sales,
    Distribution and Marketing
         3




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Future
    Electronics
    Inc.
      Asian
    Distributors
    Customers
    Backlog
   4




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and/or
  Manufacturing
        Product
    Quality Assurance and Reliability
    Patents,
    Licenses and Trademarks
   5




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Research
    and Development
        Competition
      Employees
     6




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Availability
    of Reports and Other Information
  Form 10-K over-the-counter
  Item 1A.
    Risk
    Factors:  Our
    quarterly and annual operating results are volatile and
    difficult to predict and may cause our stock price to
    fluctuate.
  period-to-period,
  
    the cyclical nature of the semiconductor industry;
    the volatility of the optical device market;
    competitive pressures on selling prices;
    the mix of product sales, as our margins vary across product
    lines;
    the timing and cancellation of customer orders;
    the effect of the timing of sales by our resellers may have on
    our reported results as a result of our sell-through revenue
    recognition policies;
    our ability to maintain and expand our distributor relationships;
    our ability to design and manufacture products to meet
    customers and distributors specifications and
    expectations;
    our ability to introduce new products and technologies on a
    timely basis;
    market acceptance of our products and our customers
    products;
    the introduction of products and technologies by our competitors;
    the level of orders received that can be shipped in a quarter;
    delays in shipments from our fabrication plants to assembly
    houses;
    the availability of foundry capacity, raw materials and assembly
    and test capacity;
    our ability to manufacture and have products manufactured for
    us, the correct mix to respond to orders on hand and new orders
    received in the future;
    fluctuations in yields;
    changes in product mix;
    the level of future product returns;
    the timing of investments in research and development, including
    tooling expenses associated with product development, process
    improvements and production; 7




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
    costs associated with increased regulation of corporate
    governance and disclosure and risks of non-compliance with such
    regulation; and
    the overall economic conditions in the United States and abroad.        We may
    need to obtain a significant amount of additional capital in the
    future and may not be able to secure adequate funds on a timely
    basis or on terms acceptable to us.
        
    whether we are able to reduce our recent negative cash flows;
    the market acceptance of our products;
    volume price discounts;
    the levels of inventory and accounts receivable that we maintain;
    our business, product, capital expenditure and research and
    development plans and product and technology roadmaps;
    our competitors response to our products;
    our relationships with suppliers and customers; 8




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
    capital expenditures for equipment to meet customer demand for
    our products;
    technological advances, and
    the levels of promotion and advertising that will be required to
    launch our products and achieve and maintain a competitive
    position in the marketplace.    Our
    management has identified certain material
    weaknesses in the design and operation of our internal
    controls, which, if not adequately addressed, could result in
    accounting errors, call into question the accuracy of our
    financial results.
    Regulation S-K
  Regulation S-K,
    If we
    are unable to accurately forecast demand for our products, we
    may be unable to efficiently manage our inventory.
  larger-than-desired
 9




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We are
    not currently listed on a national exchange or market, and can
    offer no assurance that we will ever be listed.
  Form 10-K Form 10-Q over-the-counter
  We may
    face unforeseen complications from the transfer our
    manufacturing processes to Silan in China and Episil
    Technologies in Taiwan.
      We may
    experience difficulties in developing and introducing new or
    enhanced products necessitated by technological
    advances.
    
    accurate new product definition;
    timely completion and introduction of new product designs;
    availability of foundry capacity;
    achievement of manufacturing yields; and
    market acceptance of our products and our customers
    products.   10




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The
    introduction of our new products may be delayed in order to test
    for and resolve design flaws.
    We
    depend on distributors who sell directly to OEMs and the loss of
    one or more of our significant distributors could have a
    material adverse effect on our business.
    We may
    not successfully expand our sales and distribution
    channels.
    We
    derive a substantial portion of our revenues from Future, a
    related party, and our revenues would likely decline
    significantly if Future elected not to make, cancel, reduce or
    defer purchases of our products.
     11




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Affiliates
    of Future, our largest distributor, beneficially own a
    significant percentage of our common stock, which will allow
    them to significantly influence matters requiring
    stockholders approval and could discourage potential
    acquisition of our Company.
    Occasionally,
    we enter into agreements that expose us to potential damages
    that exceed the value of the agreement.
    We may
    face significant risks related to our international
    operations.
    
    unexpected changes in legal and regulatory requirements;
    changes in tariffs;
    exchange rates and other barriers;
    political and economic instability;
    difficulties in accounts receivable collection;
    difficulties in managing distributors or representatives;
    difficulties in staffing and managing international operations;
    difficulties in protecting our intellectual property overseas;
    the seasonality of sales; and
    potentially adverse tax consequences.   12




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Our
    inability to meet any increase in demand could reduce our market
    share.
    If we
    are unable to compete effectively with existing or new
    competitors, we will experience fewer customer orders, reduced
    revenues, reduced gross margins and lost market
    share.
    
    accurately identify emerging technological trends and demand for
    product features and performance characteristics;
    develop and maintain competitive products;
    enhance our products by adding innovative features that
    differentiate our products from those of our competitors;
    bring products to market on a timely basis at competitive prices;
    respond effectively to new technological changes or new product
    announcements by others;
    increase device performance and improve manufacturing yields;
    adapt products and processes to technological changes; and
    adopt or set emerging industry standards.    The
    implementation of a new management information system may
    disrupt our business.
   13




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A
    failure of our information systems would adversely impact our
    ability to process orders for and manufacture
    products.
    We
    have only limited protection for our proprietary
    technology.
      Our
    future success depends on retaining our key personnel and
    attracting and retaining additional highly qualified
    employees.
    Product
    defects or compatibility problems with our products could damage
    our reputation, decrease market acceptance of our technology,
    cause us to replace defective or incompatible products at a
    substantial cost and result in potentially costly
    litigation.
    
    cause delays in product introductions and shipments;
    result in increased costs and diversion of development resources; 14




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
    result in increased product returns and cause us to incur costs
    due to unusable inventory or replacement of defective or
    incompatible products; or
    require design modifications.    The
    manufacturing processes for our products are very complex, which
    may result in manufacturing difficulties.
    We
    increasingly rely on outside foundries to supply certain of our
    wafers and those foundries may not produce at acceptable
    levels.
    
    lack of adequate wafer supply;
    limited control over delivery schedules;
    unavailability of or delays in obtaining access to key process
    technologies; and
    limited control over quality assurance, manufacturing yields and
    production costs.    Our
    ability to meet current demand or any increase in demand for our
    products may be limited by our ability to test our semiconductor
    wafers.
   15




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The
    facilities of certain of our significant customers and third
    party wafer suppliers are located in areas susceptible to
    earthquakes and other natural disasters.
    We
    rely on outside suppliers to assemble, test and ship product to
    our customers.
        We
    must comply with significant environmental regulations,
    employment tax regulations, employment practices and other
    governmental regulations which are difficult and
    expensive.
    We
    substantially increased our outstanding indebtedness with the
    issuance of 5.5% Redeemable Convertible Senior Notes Due 2026,
    and we may not be able to pay our debt and other
    obligations.
   16




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If the
    investors in our 5.5% Redeemable Convertible Senior Notes Due
    2026 convert their notes or exercise their warrants, it will
    have a dilutive effect upon our stockholders.
  30-day
  Our
    stock price has been volatile and could continue to remain
    volatile.
  quarter-to-quarter
  Item 1B.
    Unresolved
    Staff Comments:   17




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Item 2.
    Properties:    Approximate




LeaseFacility Size


Owned or

ExpirationLocation

Description

(Square Feet)


Leased

DateMilpitas, CA

Manufacturing/Design 
    Center/General Office


95,700


Leased

3/20/2011Billerica, MA

Design Center/General Office


64,260


Leased

1/30/2008Zaventem, Belgium

Design Center/General Office


6,660


Leased

2/28/2012Ipoh, Perak, Malaysia

Warehouse


3,430


Leased

6-month
    noticePointe-Claire, Ontario, Canada

General Office


3,200


Leased

1/31/2008Munich, Germany

General Office


2,740


Leased

3/31/2010Taipei, Taiwan

General Office


2,600


Leased

3/31/2008Tokyo, Japan

General Office


2,500


Leased

1/31/2009Shanghai, China

General Office


1,670


Leased

11/19/2007Shenzhen, China

General Office


1,310


Leased

4/25/2007Beijing, China

General Office


1,180


Leased

9/10/2008Seoul, South Korea

General Office


1,130


Leased

5/29/2008Toronto, Ontario, Canada

Design Center


1,000


Leased

4/30/2010     Item 3.
    Legal
    Proceedings:    Item 4.
    Submission
    of Matters to a Vote of Security Holders:      one-for-three
  FOR


30,598,039AGAINST


530,425ABSTAIN


35,381     FOR


20,177,247AGAINST


1,867,919ABSTAINT


176,941NON-VOTES


8,941,738  18




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##### Table of Contents



Directors

For


WithheldThomas Redfern 
    Class I


29,313,796



1,850,049John Arnold 
    Class I


29,309,296



1,854,549Ralph Schmitt 
    Class II


29,394,529



1,769,316Brian Hilton 
    Class II


29,398,396



1,765,449Dan Casey 
    Class III


29,394,129



1,769,716Pierre Guilbault 
    Class III


29,309,529



1,854,316Alan Krock 
    Class III


29,412,254



1,751,591     Directors

For


WithheldBrian Hilton 
    Class II


29,398,396



1,765,449John Arnold 
    Class II


29,309,296



1,854,549Pierre Guilbault 
    Class II


29,309,529



1,854,316Alan Krock 
    Class III


29,412,254



1,751,591Ralph Schmitt 
    Class III


29,394,529



1,769,316     FOR


30,987,377AGAINST


167,071ABSTAIN


9,397     FOR


20,096,503AGAINST


2,107,202ABSTAIN


18,402NON-VOTES


8,941,738         FOR


27,793,948AGAINST


275,229ABSTAIN


55,779    19




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##### Table of Contents



Executive
    Officers of Sipex
    Name, Age & Position

Business ExperienceRalph Schmitt 
    Age 46
    Chief Executive Officer and
    Director

Mr. Schmitt joined Sipex in June
    2005 as chief executive officer and member of the board of
    directors. Mr. Schmitt received his BSEE from Rutgers
    University and began his career as a computer and communications
    system hardware designer. Prior to joining Sipex,
    Mr. Schmitt was the vice president of sales and marketing
    at Cypress Semiconductor Corporation. Mr. Schmitt had also
    served on the boards of Cypress subsidiaries, Silicon Light
    Machines and Cypress Microsystems, and on the board of Azanda
    Networks. He also currently serves on the board of StarGen,
    Inc., a privately held company.Clyde R. Wallin 
    Age 53
    Chief Financial Officer and
    Senior Vice President of Finance

Mr. Wallin joined Sipex in April
    2004 as chief financial officer and senior vice president of
    Finance. Previously, from October 2002 to April 2004,
    Mr. Wallin served as chief financial offers of iWatt, Inc.,
    a private analog semiconductor company. Prior to iWatt, from
    September 2000 to October 2002, Mr. Wallin was the chief
    financial officer for Kendin Communications, which was acquired
    by Micrel, Inc., and after this acquisition Mr. Wallin
    continued with Micrel, Inc. Mr. Wallin earned a Bachelors
    of Science in Economics from the University of Oregon and an MBA
    in Finance from the University of Chicago.Rick C. Hawron 
    Age 52
    Senior Vice President
    Worldwide Sales

Mr. Hawron joined Sipex in
    February 2004 and left Sipex in January 2007 as senior vice
    president of worldwide sales. Prior to joining Sipex,
    Mr. Hawron was the corporate vice president at Future
    Electronics Inc. Mr. Hawron was employed by Future
    Electronics Inc. for 27 years in various capacities around
    the globe, including vice president and managing director for
    Europe.Ed Lam  Age 46
    Senior Vice President
    Marketing and Business Development

Mr. Lam is senior vice president
    of marketing and business development. He joined Sipex in
    September 2005, and has over 20 years of analog
    semiconductor industry experience with National Semiconductor
    Corporation. Mr. Lam earned his BSEE from
    San Francisco State University.Joel Camarda 
    Age 58
    Senior Vice President of Operations

Mr. Camarda joined Sipex in
    November 2005 as senior vice president of operations.
    Mr. Camarda started his career as a senior Manufacturing
    engineer for National Semiconductor Corporation and later worked
    for companies including Rockwell and Cypress Semiconductor
    Corporation. Mr. Camarda has over 30 years of
    semiconductor industry experience. Prior to joining Sipex,
    Mr. Camarda worked for Kulicke & Soffa (K&S)
    Industries, where he served as the vice president of operations
    for their test products division. Prior to K&S, he worked
    for Silicon Storage Technology, Inc. Mr. Camarda earned his
    BS in Engineering from New York Universitys School of
    Engineering. 20




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Name, Age & Position

Business ExperienceLee Cleveland 
    Age 44
    Senior Vice President of Engineering

Mr. Cleveland joined Sipex in
    September of 2003. Mr. Cleveland was promoted to senior
    vice president of engineering, effective October 1, 2005.
    Mr. Cleveland has held various technical and management
    positions at AMD and Sipex. Mr. Cleveland graduated from UC
    Berkeley with a degree in Electrical Engineering.  PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities:  Delisting
    from the Nasdaq Global Market
    Form 10-K Form 10-Q Form 10-Q Form 10-K
  1-for-2
      Quarterly
    Stock Market Data
  Dec. 30,


Sept. 30,


July 1,


April 1,Fiscal 2006

2006


2006


2006


2006Stock price range per share:High

$
9.62


$
7.10


$
6.90


$
6.00Low


6.36



5.50



5.36



3.22   21




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##### Table of Contents



Dec. 31,


Oct. 1,


July 2,


April 2,Fiscal 2005

2005


2005


2005


2005Stock price range per share:High

$
3.90


$
4.96


$
4.28


$
9.00Low


2.58



3.30



2.30



4.02         CUMULATIVE
    TOTAL RETURN
    Based upon an initial investment of $100 on December 31, 2001
    with dividends reinvested
  
  Indexed Returns Years EndingBase PeriodCompany/Index

Dec-01


Dec-02


Dec-03


Dec-04


Dec-05


Dec-06Sipex
    Corp.

$
100


$
29


$
60


$
36


$
12


$
37NASDAQ Composite
    Index

$
100


$
72


$
107


$
117


$
121


$
137S&P 500 Semiconductors
    Index

$
100


$
49


$
96


$
76


$
85


$
78  22




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Form 8-K
 23




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Item 6.
    Selected
    Financial Data:    Years EndedOperating Results:

2006


2005


2004


2003


2002Net sales

$
78,750


$
72,674


$
75,453


$
36,535
**

$
66,260Gross profit (loss)


9,351



13,749



11,796



(9,068
)**


(8,488
)As a % of net sales


11.9
%


18.9
%


15.6
%


(24.8
)%


(12.8
)%Depreciation and amortization


9,410



10,952



6,559



7,587



7,675Research and development expenses


17,332



17,248



14,710



13,252



12,944Loss from operations


(38,866
)


(38,515
)


(23,066
)


(38,495
)


(47,455
)Loss before income taxes


(41,109
)


(37,915
)


(22,881
)


(39,489
)


(47,542
)Net loss


(41,234
)


(38,107
)


(22,748
)


(39,807
)


(79,276
)As a % of net sales


(52.4
)%


(52.4
)%


(30.1
)%


(109.0
)%


(119.6
)%Net loss per common
    share  basic and diluted

$
(2.32
)

$
(2.14
)

$
(1.38
)

$
(2.82
)

$
(5.84
)Cash and cash equivalents

$
13,041


$
1,969


$
15,523


$
18,338


$
6,489Short-term investment securities


2,388







249



2,994



9,980Restricted cash equivalents and
    securities


407



1,000



1,838







Total assets


59,549



50,442



88,066



101,296



98,786
*Long-term obligations


39,474



621



1,294



21,929



10,455Working capital (deficit)


11,977



(3,385
)


14,346



24,468



27,775Current ratio


1.4



0.9



1.5



2.0



3.0Purchase of property, plant and
    equipment


3,799



878



1,921



2,024



4,108Stockholders equity (deficit)


(8,125
)


22,521



60,080



54,233



74,520     *
    
    The 2002 decrease in total assets was mainly due to the
    establishment of a 100% valuation allowance of
    $31.9 million for deferred tax assets, the disposition of
    machinery and equipment with a net book value of
    $6.7 million and a $3.0 million write-off of goodwill.**
    
    The decrease in net sales and increase in gross loss in 2003
    were primarily due to non-cash charges as a reduction to sales
    of $14.1 million in 2003 reflecting the fair value of
    conversion rights related to the 2003 convertible note issued to
    Future, a related party, and $12.6 million initial impact
    for the revenue values of our products in the distribution
    channel upon conversion to sell-through accounting.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations:  Form 10-K.
  Significant
    Developments
     24




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Forms 10-K Form 10-K Form 10-Q
  Form 10-K Form 10-K Forms 10-Q.
  Forms 10-Q Form 10-K/A Form 10-K Form 10-K Forms 10-Q
  Business
    Overview
      tm
   25




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Critical
    Accounting Policies and Estimates
      Revenue Recognition.
     26




---



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Valuation of Inventories. and/or
  Restructuring and Fixed Asset Impairment.
 27




---



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Income Taxes.
 28




---



##### Table of Contents



Results
    of Operations
    Years Ended2006


2005


2004Net sales


100.0
%


100.0
%


100.0
%Cost of sales


88.1



81.1



84.4Gross profit


11.9



18.9



15.6Operating expenses:Research and development


22.0



23.7



19.5Marketing and selling


19.7



14.6



11.4General and administrative


17.1



19.8



13.0Restructuring and impairment


2.4



13.8



2.3Total operating expenses


61.2



71.9



46.2Loss from operations


(49.3
)


(53.0
)


(30.6
)Other income (expense), net


(2.9
)


0.8



0.3Loss before income taxes


(52.2
)%


(52.2
)%


(30.3
)%   Fiscal
    Year Ended December 30, 2006 compared to Fiscal Year Ended
    December 31, 2005
  Net Sales.
     29




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Gross Profit (Loss).
  Research and Development.
  Marketing and Selling.
  General and Administrative.
  Restructuring and Fixed Asset
    Impairment.
 30




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sub-lease
      TotalRestructuring


Fixed AssetCosts


ImpairmentAccrual balance January 1,
    2005

$
1,847


$
Incurred 2005


871



9,377Charges utilized


(726
)


(9,377
)Sub-lease
    income received


293



Adjustments to accrual


(294
)


Accrual balance December 31,
    2005


1,991



Incurred in 2006


2,010



Charges utilized


(2,299
)


(12
)Employee stock options accelerated
    as severance pay


(137
)


Sub-lease
    income received


565



Adjustments to accrual


(263
)


12Accrual balance, December 30,
    2006

$
1,867


$
   Other Income (Expense), Net.
  Income Tax Expense.
  Fiscal
    Year Ended December 31, 2005 compared to Fiscal Year Ended
    January 1, 2005
  Net Sales.
 31




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##### Table of Contents



Gross Profit (Loss).
  Research and Development.
  Marketing and Selling.
  General and Administrative.
  Restructuring and Fixed Asset
    Impairment.
 32




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held-for-use
        TotalRestructuring


Fixed AssetCosts


ImpairmentAccrual balance December 31,
    2003

$
1,070


$
Incurred 2004


1,858



Charges utilized


(1,036
)


Deferred rent adjustment


15



Adjustments to accrual


(60
)


Accrual balance January 1,
    2005


1,847



Incurred 2005


871



9,377Charges utilized


(726
)


(9,377
)Sub-lease
    income received


293



Adjustments to accrual


(294
)


Accrual balance December 31,
    2005

$
1,991


$
   Other Income (Expense), Net.
 33




---



##### Table of Contents



Income Tax Expense.
  Financial
    Condition, Liquidity and Capital Resources
    Operating
    Activities
         34




---



##### Table of Contents



Investing
    Activities
        Financing
    Activities
     35




---



##### Table of Contents



and/or and/or
   36




---



##### Table of Contents



trading-day
    2 3
  Forms 10-K 10-Q
 37




---



##### Table of Contents



10-K
      Off-Balance
    Sheet Arrangement
  Regulation S-K
  Contractual
    Obligations
    Less Than


1 - 3


3 - 5


More ThanTotal


1 Year


Years


Years


5 YearsConvertible note payable(1):Principal

$
30,000


$



$



$



$
30,000Interest


32,654



2,129



3,300



3,300



23,925Long-term lease financing
    obligation(2)


5,797



1,329



2,776



1,692



Restructuring liability(3)


771



617



154







Operating leases(4)


1,642



676



627



315



24Purchase
    commitment  Polar Fab


3,653



3,653











Purchase
    commitment  Cadence Design


974



857



117







Verification software
    tools  Mentor Graphics


419



157



262







Other(5)


2,022



1,964



58







Total contractual obligations

$
77,932


$
11,382


$
7,294


$
5,307


$
53,949     (1)
    
    $30.0 million Convertible Senior Notes issued on
    March 18, 2006 due May 18, 2026 with 5.5% interest
    payable semi-annually on May 15 and November 15 of each year
    beginning on November 15, 2006. 38




---



##### Table of Contents



(2)
    
    Lease payments (excluding $11.2 million estimated final
    obligation settlement with the lessor by returning the Hillview
    facility due on our Hillview facility in Milpitas, California)
    under a
    5-year
    Standard Form Lease agreement that we signed with Mission
    West Properties L.P. on March 9, 2006.(3)
    
    Represents estimated lease payments with related costs for the
    unused portion of our Billerica, Massachusetts facility.(4)
    
    Includes lease payments related to the used portion of our
    facility at our Billerica, Massachusetts facility.(5)
    
    Includes wafer and part purchases as well as other services with
    various vendors including Episil and BCD Semiconductor
    Manufacture Limited.  Effect
    of Recent Accounting Pronouncements
    Item 7A.
    Quantitative
    and Qualitative Disclosure about Market Risk:  Market
    Risk
    Interest
    Rate Risk
           39




---



##### Table of Contents



10-K Form 8-K
      Foreign
    Currency Exchange Risk
   40




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data:    PageReport of
    Independent Registered Public Accounting Firm


42Consolidated
    Balance Sheets as of December 30, 2006 and
    December 31, 2005


43Consolidated
    Statements of Operations for the years ended December 30,
    2006, December 31, 2005 and January 1, 2005


44Consolidated
    Statements of Stockholders Equity (Deficit) and
    Comprehensive Loss for the years ended December 30, 2006,
    December 31, 2005, January 1, 2005


45Consolidated
    Statements of Cash Flows for the years ended December 30,
    2006, December 31 2005, January 1, 2005


46Notes to
    consolidated financial statements


47    41




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM          Share-Based Payment,
  /s/  DELOITTE &
    TOUCHE LLP
    42




---



##### Table of Contents



SIPEX
    CORPORATION



CONSOLIDATED
    BALANCE SHEETS

(In
    thousands, except per-share data)  December 30,


December 31,2006


2005ASSETSCurrent assets:Cash and cash equivalents

$
13,041


$
1,969Restricted cash


350



500Short-term investment securities


2,388



Accounts receivable, less
    allowances of $551 and $820, respectively


6,222



3,735Accounts receivable, related
    party, less allowances of $306 and $529, respectively


949



3,011Inventories


15,586



13,400Prepaid expenses and other current
    assets


1,641



1,300Total current assets


40,177



23,915Property, plant, and equipment, net


19,113



25,803Restricted cash 
    noncurrent


57



500Other assets


202



224Total assets

$
59,549


$
50,442LIABILITIES AND
    STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Short-term bank borrowing

$



$
3,000Current portion of long-term bank
    borrowing


667



Current portion of lease financing
    obligation


191



Accounts payable


10,331



7,394Accrued expenses


7,185



7,282Accrued restructuring costs


1,728



1,407Deferred income, related party


5,543



5,707Deferred income, other


2,555



2,510Total current liabilities


28,200



27,300Long-term bank borrowing


1,333



Long-term lease financing
    obligation


12,152



Long-term accrued restructuring
    costs


139



584Convertible senior notes


25,826



Other long-term liabilities


24



37Total liabilities


67,674



27,921Commitments and contingencies
    (Note 14)Stockholders equity
    (deficit):Preferred stock, $0.01 par
    value, 1,000 shares authorized and no shares issued or
    outstanding






Common stock, $0.01 par
    value, 60,000 shares authorized; 18,390 and
    17,775 shares issued and outstanding at December 30,
    2006 and December 31, 2005, respectively


184



178Additional paid-in capital


234,785



224,203Accumulated deficit


(243,075
)


(201,841
)Accumulated other comprehensive
    loss


(19
)


(19
)Total stockholders equity
    (deficit)


(8,125
)


22,521Total liabilities and
    stockholders equity (deficit)

$
59,549


$
50,442    43




---



##### Table of Contents



SIPEX
    CORPORATION



CONSOLIDATED
    STATEMENTS OF OPERATIONS

(In
    thousands, except per-share data)  Years EndedDecember 30,


December 31,


January 1,2006


2005


2005Net sales

$
44,733


$
40,847


$
46,219Net sales, related party


34,017



31,827



29,234Total net sales


78,750



72,674



75,453Cost of sales


41,103



35,103



41,250Cost of sales, related party


28,296



23,822



22,407Total cost of sales


69,399



58,925



63,657Gross profit


9,351



13,749



11,796Operating expenses:Research and development


17,332



17,248



14,710Marketing and selling


15,524



10,642



8,570General and administrative


13,486



14,420



9,784Restructuring


1,863



577



1,798Impairment of fixed assets


12



9,377



Total operating expenses


48,217



52,264



34,862Loss from operations


(38,866
)


(38,515
)


(23,066
)Other income (expense):Interest income


721



208



176Interest expense


(3,046
)


(35
)


(194
)Other, net


82



427



203Total other income (expense), net


(2,243
)


600



185Loss before income tax expense
    (benefit)


(41,109
)


(37,915
)


(22,881
)Income tax expense (benefit)


125



192



(133
)Net loss

$
(41,234
)

$
(38,107
)

$
(22,748
)Net loss per common
    share  basic and diluted

$
(2.32
)

$
(2.14
)

$
(1.38
)Weighted average common shares
    outstanding  basic and diluted


17,807



17,772



16,468    44




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##### Table of Contents



SIPEX
    CORPORATION



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) AND

COMPREHENSIVE
    LOSS  Common Stock


Additional





Accumulated


TotalNumber of


$0.01 Par


Paid-In


Accumulated


Other


StockholdersShares


Value


Capital


Deficit


Comprehensive Loss


Equity (Deficit)(In thousands, except per share data)Balances at December 31,
    2003


14,213


$
142


$
195,084


$
(140,986
)

$
(7
)

$
54,233Net loss














(22,748
)






(22,748
)Foreign currency translation
    adjustments


















(12
)


(12
)Comprehensive loss






















(22,760
)Issuance of common stock under
    employee stock option plans


688



7



4,237











4,244Issuance of common stock under
    employee stock purchase plan


46







426











426Issuance of common stock on
    conversion of notes payable, net of discount and issuance costs


2,300



23



21,112











21,135Issuance of common stock on
    exercise of warrants


450



5



2,646











2,651Compensation from acceleration of
    stock option vesting










44











44Other stock compensation expense










7











7Consulting services provided by
    related party (see Note 2)










100











100Balances at January 1,
    2005


17,697



177



223,656



(163,734
)


(19
)


60,080Net loss and comprehensive loss














(38,107
)






(38,107
)Issuance of common stock under
    employee stock option plans


78



1



461











462Compensation from acceleration of
    stock option vesting










60











60Other stock compensation expense










9











9Consulting services provided by
    related party (see Note 2)










17











17Balances at December 31,
    2005


17,775



178



224,203



(201,841
)


(19
)


22,521Net loss and comprehensive loss














(41,234
)






(41,234
)Issuance of common stock under
    employee stock option plans


195



2



727











729Issuance of common stock on
    exercise of warrants


420



4



2,696











2,700Beneficial conversion feature of
    convertible senior notes










1,639











1,639Warrant issuance with convertible
    senior notes, net of issuance costs










1,568











1,568Stock-based compensation










3,947











3,947Consulting services provided by
    related party (see Note 2)










5











5Balances at December 30,
    2006


18,390


$
184


$
234,785


$
(243,075
)

$
(19
)

$
(8,125
)    45




---



##### Table of Contents



SIPEX
    CORPORATION



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Years EndedDecember 30,


December 31,


January 1,2006


2005


2005(In thousands)Operating activities:Net loss

$
(41,234
)

$
(38,107
)

$
(22,748
)Adjustments to reconcile net loss
    to net cash used in operating activities:Stock-based compensation expense


3,780



69



51Depreciation and amortization


9,410



10,952



6,559Provision for inventories


4,997



5,031



8,628Provision for purchase commitments
    on excess inventories


1,417







Provision for restructuring charges


1,610



577



1,798Loss on disposal of fixed assets


9



39



Impairment of fixed assets


12



9,377



Amortization of discount and
    issuance costs on convertible senior notes


472







57Provision for uncollectible
    receivables and sales returns and allowances


909



1,484



1,323Consulting services provided by
    related party


5



17



100Changes in assets and liabilities:Accounts receivable


(1,334
)


1,678



(863
)Inventories


(7,016
)


(5,290
)


(5,365
)Prepaid expenses and other current
    assets


(341
)


83



115Other assets


22



261



(278
)Accounts payable


2,856



(3,444
)


391Accrued expenses


(1,532
)


1,427



1,374Accrued restructuring costs


(1,850
)


(433
)


(608
)Deferred income


(119
)


(1,191
)


620Other long-term liabilities


(13
)


24



(21
)Net cash used in operating
    activities


(27,940
)


(17,446
)


(8,867
)Investing activities:Proceeds from maturity of
    short-term investment securities


5,600



850



9,000Purchase of short-term investment
    securities


(7,988
)


(601
)


(6,255
)Purchase of property, plant, and
    equipment


(3,799
)


(878
)


(1,921
)Net proceeds from sale of machinery
    and equipment


1,139







20Restricted cash 
    decrease (increase)


593



838



(1,838
)Net cash provided by (used in)
    investing activities


(4,455
)


209



(994
)Financing activities:Proceeds from issuance of common
    stock under employee stock option plans


729



683



4,449Proceeds from issuance of common
    stock on exercise of warrants


2,700







2,651Legal fees for conversion of
    convertible debt to common stock










(42
)Proceeds from borrowing 
    related party


7,000







Repayment of borrowing 
    related party


(7,000
)






Proceeds from (repayment of)
    short-term bank borrowing


(3,000
)


3,000



Net proceeds from lease financing
    obligation


12,578







Repayment of lease financing
    obligation


(235
)






Proceeds from issuance of
    convertible senior notes and warrants


30,000







Debt issuance costs related to
    convertible senior notes


(1,305
)






Proceeds from long-term bank
    borrowing


2,000







Net cash provided by financing
    activities


43,467



3,683



7,058Effect of foreign currency exchange
    rate changes on cash and cash equivalents










(12
)Increase (decrease) in cash and
    cash equivalents


11,072



(13,554
)


(2,815
)Cash and cash equivalents at
    beginning of period


1,969



15,523



18,338Cash and cash equivalents at end of
    period

$
13,041


$
1,969


$
15,523Supplemental cash flow information:Cash paid during the period for:Income taxes

$
32


$
48


$
13Interest

$
1,972


$



$
5Supplemental disclosure of non-cash
    investing and financing activities:Purchase of property, plant and
    equipment not paid at end of period

$
169


$
88


$
113Conversion of convertible debt to
    common stock

$



$



$
21,177Receivable from exercise of stock
    options

$



$



$
221    46




---



##### Table of Contents



SIPEX
    CORPORATION
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  Note 1.
    Description
    of Business        Note 2.
    Summary
    of Significant Accounting Policies  Basis
    of Presentation
      53-week
  Reverse
    Stock Split
  1-for-2
 47




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Revenue
    Recognition
               48




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Research
    and Development
    Net
    Loss Per Share
      2006


2005


2004Weighted average common shares
    outstanding  basic


17,807



17,772



16,468Net effect of dilutive potential
    common shares outstanding based on the treasury stock method
    using the average market price










Weighted average common shares
    outstanding  diluted


17,807



17,772



16,468     December 30,


December 31,


January 1,2006


2005


2005Option shares outstanding


3,761



3,259



2,726Weighted average exercise price of
    option shares outstanding

$
5.88


$
5.74


$
11.96Convertible notes of
    $30.0 million issued on May 18, 2006 (conversion price
    at $5.36)


5,597







Warrants issued on May 18,
    2006 with the above convertible notes (exercise price at $6.432)


420







   Concentration
    of Credit Risk
    Concentration
    of Other Risks
   49




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  period-to-period
  Fair
    Values of Financial Assets and Financial
    Liabilities
  S-1
  Short-term
    Investments
    Inventories
  s first-in,
  Valuation
    of Inventories
  and/or
 50




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Related
    Parties
    and/or
         51




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         Employee
    Advances
    Property,
    Plant and Equipment
    Useful LivesBuilding and improvements

25 years (see Note 5)Machinery and equipment

3-10 years
    (see Note 3)Furniture, fixtures and office
    equipment

3-7 yearsLeasehold improvements

Lesser of 10 years or lease
    term   Restricted
    Cash
    Impairment
    of Long-Lived Assets and Long-Lived Assets to be Disposed
    of
   52




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Foreign
    Currency Translation
    Income
    Taxes
    Stock-Based
    Compensation
  Adoption
    of SFAS No. 123R
    No. FAS 123R-3 paid-in-capital paid-in-capital.
   53




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Form S-8
      2006WeightedWeighted


AverageNumber


Average


Remaining


Aggregateof


Exercise


Contractual


IntrinsicOptions


Price


Term (in years)


Value(In thousands)








(In thousands)Outstanding at beginning of year


3,259


$
5.74Granted


912



6.20Exercised


(195
)


3.73Forfeited or expired


(215
)


7.04Outstanding at end of year


3,761


$
5.88



7.81


$
17,518Vested and expected to vest at
    December 30, 2006


3,553


$
5.91



7.76


$
16,587Exercisable at December 30,
    2006


1,867


$
6.47



6.83


$
9,010      54




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2006Cost of sales

$
343Research and development


1,219Marketing and selling


816General and administrative


1,265Restructuring (see Note 3)


137Stock-based compensation expense
    before income tax effect


3,780Less income tax effect


Stock-based compensation expense
    after income tax effect

$
3,780         Prior
    to the Adoption of SFAS No. 123R
     55




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2005


2004Net loss as reported

$
(38,107
)

$
(22,748
)Add employee stock-based
    compensation expense from accelerated stock option vesting and
    other employee stock option compensation included in reported
    net loss


60



51Less employee stock-based
    compensation expense determined under fair value method


(5,107
)


(7,969
)Pro forma net loss

$
(43,154
)

$
(30,666
)Net loss per shareBasic and diluted  as
    reported

$
(2.14
)

$
(1.38
)Basic and diluted  pro
    forma


(2.43
)


(1.86
)     Valuation
    Assumptions
    2006


2005


2004Expected life of options


6 years



4 years



4 yearsVolatility


89
%


86
%


61
%Risk-free interest rate


4.8
%


3.9
%


3.4
%Dividend yield










Weighted average fair value of
    options granted

$
4.68


$
2.30


$
5.76    56




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2006


2005


2004Expected life of options










0.5 yearVolatility:First purchase period










61
%Second purchase period










60
%Risk-free interest rate










2.0
%Dividend yield










Average fair value:First purchase period









$
2.74Second purchase period









$
2.70   Effect
    of Recent Accounting Pronouncements
  No. 03-1, 03-1, Other-Than-Temporary 03-1 03-1
  04-10 04-10
    FAS 109-1,
 57




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      FAS 115-1 FAS 124-1, Other-Than-Temporary 115-1), No. 03-01, Other-Than-Temporary 115-1 other-than-temporary, 115-1 other-than-temporary 115-1 115-1
  instrument-by-instrument
     58




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      No. 00-19-2,
   59




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 3.
    Restructuring
    and Impairment of Fixed Assets    TotalEmployee


Restructuring


Fixed AssetFacility


Costs


Costs


ImpairmentAccrual balance, December 31,
    2003

$
1,070


$



$
1,070


$
Incurred in 2004


1,826



32



1,858



Charges utilized


(1,004
)


(32
)


(1,036
)


Deferred rent adjustment


15







15



Adjustments to accrual


(60
)






(60
)


Accrual balance, January 1,
    2005


1,847







1,847



Incurred in 2005


105



766



871



9,377Charges utilized


(726
)






(726
)


(9,377
)Sub-lease
    income received


293







293Adjustments to accrual


(264
)


(30
)


(294
)Accrual balance, December 31,
    2005


1,255



736



1,991



Incurred in 2006


200



1,810



2,010



Charges utilized


(818
)


(1,481
)


(2,299
)


(12
)Employee stock options accelerated
    as severance pay






(137
)


(137
)


Sub-lease
    income received


565







565



Adjustments to accrual


(209
)


(54
)


(263
)


12Accrual balance, December 30,
    2006

$
993


$
874


$
1,867


$
     Restructuring
       60




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    sub-lease
        Impairment
     61




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 4.
    Inventories    2006


2005Raw materials

$
768


$
223Work-in-process


10,518



10,297Finished goods


4,300



2,880$
15,586


$
13,400   Note 5.
    Property,
    Plant and Equipment    2006


2005Land

$
5,957


$
5,957Building and improvements


23,614



23,614Machinery and equipment


11,713



13,503Furniture, fixtures and office
    equipment


7,454



6,926Leasehold improvements


357



32649,095



50,326Less accumulated depreciation and
    amortization


29,982



24,523$
19,113


$
25,803      62




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 6.
    Accrued
    Expenses    2006


2005Accrued compensation and benefits

$
2,815


$
2,959Accrued provision for purchase
    commitment on excess inventories


1,417



Accrued interest and related
    derivative liaility


679



8Accrued audit fees


574



2,607Accrued commissions


444



309Accrued income taxes


340



248Accrued warranty


259



87Accrued legal fees


251



365Accrued royalties


19



185Other


387



514$
7,185


$
7,282   Note 7.
    Borrowing
    Arrangements     63




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   and/or
      Note 8.
    Income
    Taxes    2006


2005


2004Domestic

$
(40,930
)

$
(37,910
)

$
(23,019
)Foreign


(179
)


(5
)


138Loss before income tax expense
    (benefit)

$
(41,109
)

$
(37,915
)

$
(22,881
)     2006


2005


2004Deferred


Current


Total


Deferred


Current


Total


Deferred


Current


TotalFederal

$



$



$



$



$



$



$



$



$
State






(10
)


(10
)






4



4







(14
)


(14
)Foreign






135



135







188



188







(119
)


(119
)Total expense (benefit)

$



$
125


$
125


$



$
192


$
192


$



$
(133
)

$
(133
)  64




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005


2004Tax benefit at statutory rate

$
(14,388
)

$
(13,270
)

$
(8,008
)State income tax, net of federal
    income tax expense (benefit)


(10
)


4



(14
)Non-deductible expenses


872



40



39Foreign taxes on branch income and
    tax rate differential


135



188



(119
)Tax credits


(606
)


(928
)


(491
)Losses not benefited/change in
    valuation allowance


14,122



14,158



8,460Actual tax expense (benefit)

$
125


$
192


$
(133
)     2006


2005Current deferred tax assets:Inventories, primarily write-downs
    not currently deductible

$
4,127


$
5,049Accounts receivable


389



503Deferred revenue


3,170



3,064Accrued expenses and reserves not
    currently deductible


7,944



2,659Total current deferred tax assets
    before valuation allowance


15,630



11,275Valuation allowance 
    current


(15,630
)


(11,275
)Noncurrent deferred tax assets:Net operating loss carryforwards


77,083



63,468Tax credit carryforwards


5,405



5,232Total noncurrent deferred tax
    assets before valuation allowance


82,488



68,700Valuation allowance 
    noncurrent


(77,033
)


(67,810
)Deferred tax liabilities:Fixed assets, due to differences
    in depreciation


(5,455
)


(890
)Net deferred tax assets

$



$
        65




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Note 9.
    Stockholders
    Equity  Issuance
    of Common Stock to Related Party
    Stock
    Option Plans
     66




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         2006


2005


2004Weighted





Weighted





WeightedNumber


Average


Number


Average


Number


Averageof


Exercise


of


Exercise


of


ExerciseShares


Price


Shares


Price


Shares


Price(In thousands)





(In thousands)





(In thousands)Outstanding at beginning of year


3,259


$
5.74



2,726


$
11.96



3,285


$
11.02Granted


912



6.20



1,409



3.70



823



11.31Exercised


(195
)


3.73



(78
)


5.92



(689
)


6.16Forfeited or expired


(215
)


7.04



(798
)


10.14



(693
)


12.44Outstanding at end of year


3,761


$
5.88



3,259


$
5.74



2,726


$
11.96Vested and expected to vest at
    December 30, 2006


3,553


$
5.91Exercisable at December 30,
    2006


1,867


$
6.47  67




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Options Outstanding


Options ExercisableWeightedAverage


Weighted





WeightedRemaining


Average





AverageNumber of


Contractual


Exercise


Number of


ExerciseRange of Exercise Prices

Shares


Life


Price


Shares


Price$ 2.00 - $ 3.36


323



7.62 years


$
2.89



167


$
2.54$ 3.40 - $ 3.40


651



7.85 years


$
3.40



339


$
3.40$ 3.44 - $ 3.78


272



8.76 years


$
3.60



174


$
3.58$ 3.80 - $ 3.80


975



6.50 years


$
3.80



698


$
3.80$ 3.82 - $ 5.20


386



8.81 years


$
4.10



83


$
4.14$ 5.62 - $ 6.90


419



9.50 years


$
6.28



23


$
6.72$ 7.00 - $ 9.14


382



9.17 years


$
8.43



105


$
8.81$ 9.56 - $43.00


331



6.38 years


$
16.99



256


$
17.96$56.63 - $56.63


8



3.55 years


$
56.63



8


$
56.63$57.50 - $57.50


14



3.59 years


$
57.50



14


$
57.503,761



7.81 years


$
5.88



1,867


$
6.47   Employee
    Stock Purchase Plan
  beginning-of-period end-of-period
  Note 10.
    Accrued
    Warranty      2006


2005


2004Beginning balance

$
87


$
228


$
195Warranty claims


(28
)


(60
)


(192
)Accruals for the period


200



(81
)


225Ending balance

$
259


$
87


$
228  68




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 11.  Lease
    Financing Obligation
  on-site
    Fiscal year ending December2007

$
1,3292008


1,3682009


1,4082010


1,4492011


11,454Total minimum lease payments


17,008Less: amount representing interest


4,665Present value of minimum lease
    payments


12,343Less: current portion of lease
    financing obligation


191Long-term lease financing
    obligation

$
12,152     Note 12.  Convertible
    Senior Notes
  Terms
    and Conditions
     69




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      trading-day
        2 3
   70




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    trading-day
      Forms 10-K 10-Q
  Valuation
    of the 2006 Notes, Beneficial Conversion Feature, Warrants and
    Penalties
    No. 98-5, No. 00-27, No. 98-5 No. 05-04 The Effect of a Liquidated Damages Clause on a
    Freestanding Financial Instrument Subject to EITF Issue
    No. 00-19,
    Accounting for Derivative Financial Instruments Indexed
    to, and Potentially Settled in, a Companys Own
    Stock,
 71




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    paid-in-capital
    Note 13.
    Employee
    Benefit Plan    Note 14.
    Commitments
    and Contingencies      2007

$
1,2012008


5222009


2362010


1682011


147Thereafter


24Total

$
2,298  72




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                Legal
    Proceedings
   73




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Class Action
    Securities Litigation
  Keller v. Sipex
    Corporation, et al., Coil
    Partners LLC v. Sipex Corporation, et al., Levy v. Sipex Corporation,
    et al., Jacobson v.
    Sipex Corporation, et al.,
  Rule 10b-5
  Levy Keller In re Sipex Corporation
    Securities Litigation No. 05-CV-00392.
    Stockholder
    Derivative Litigation
  Lie v. McBurnie,
    et al Nagdev v. Maghribi,
    et al
    Lie Sipex Derivative Cases
 74




---



##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Government
    Investigations
    DiPietro v.
    Sipex
    Sipex v.
    Lestina
        Other
    Contingencies
   75




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 15.
    Valuation
    and Qualifying Accounts    SalesReturns and


Bad Debt


Total A/RAllowances


Reserves


AllowancesBalances at December 31, 2003

$
143


$
200


$
343Provisions


1,355



(32
)


1,323Charged to other account


350







350Deductions


(489
)


(113
)


(602
)Balances at January 1, 2005


1,359



55



1,414Provisions


1,173



311



1,484Charged to other account


53







53Deductions


(1,485
)


(117
)


(1,602
)Balances at December 31, 2005


1,100



249



1,349Provisions


989



(80
)


909Charged to other account


282







282Deductions


(1,568
)


(115
)


(1,683
)Balances at December 30, 2006

$
803


$
54


$
857     Note 16.
    Segment
    Information and Major Customers   76




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2006


2005


2004Interface

$
44,550


$
38,477


$
39,622Power Management


22,780



19,027



21,223Optical Storage


11,339



14,620



13,824Other*


81



550



784Total net sales

$
78,750


$
72,674


$
75,453     *
    
    Mainly legacy and other discontinued products.      2006


2005


2004United States

$
16,078


$
14,704


$
15,203China


12,790



8,606



7,085Japan


12,158



16,859



18,520Singapore


12,058



9,381



9,391United Kingdom


11,713



11,137



9,220Taiwan


5,040



6,253



8,654Asia, other than Japan, Taiwan,
    Singapore, and China


4,998



1,604



1,997Germany


1,426



1,413



1,550France


602



1,421



2,473Rest of the World


1,887



1,296



1,360Total net sales

$
78,750


$
72,674


$
75,453     2006


2005Future Electronics, Inc., a
    related party


15
%


44
%Jetronic Technology


11
%


*
%     *
    
    Less than 10%    2006


2005


2004Future Electronics, Inc., a
    related party


43
%


44
%


39
%Microtek, Inc.


*
%


10
%


17
%Komatsu


11
%


*
%


*
%     *
    
    Less than 10% 77




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 17.
    Quarterly
    Data (Unaudited)    Quarters EndedDecember 30,


September 30,


July 1,


April 1,2006


2006


2006


2006(In thousands, except per share data)Fiscal 2006Net sales

$
18,859


$
21,024


$
21,013


$
17,854Gross profit (loss)


(516
)


6,196



3,866



(195
)(2)Net loss


(14,278
)


(6,299
)


(6,858
)


(13,799
)(2)Net loss per common
    share  basic and diluted


(0.80
)


(0.35
)


(0.39
)


(0.78
)   Quarters EndedDecember 31,


October 1,


July 2,


April 2,2005


2005


2005


2005(In thousands, except per share data)Fiscal 2005Net sales

$
17,242


$
17,373


$
18,332


$
19,727Gross profit


501
(2)


4,626



3,245



5,377Net loss


(11,693
)(2)


(5,161
)


(16,211
)(1)


(5,042
)Net loss per common
    share  basic and diluted


(0.66
)


(0.29
)


(0.91
)


(0.28
)     (1)
    
    As described in Note 3, in the second quarter of 2005, the
    Company recognized a $9.4 million impairment charge for its
    long-lived assets, based upon changes in the planned use for its
    wafer fabrication assets.(2)
    
    As described in Note 5, in the fourth quarter of 2005, the
    Company reduced the remaining estimated depreciation life for
    its headquarters building and related improvements from
    25 years to approximately four months based upon its
    decision to sell the facility, resulting in an increase in
    depreciation expense of $6.5 million (including
    $4.3 million included in cost of sales) and in the first
    quarter of 2006 of $6.7 million (with $4.5 million
    included in cost of sales).  Note 18.
    Subsequent
    Events  1-for-2
   78




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##### Table of Contents



SIPEX
    CORPORATION
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   79




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure:    Item 9A.
    Controls
    and Procedures:  Evaluation
    of Disclosure Controls and Procedures for year ended
    December 30, 2006
  Rule 13a-15(b) Rule 3a-15(e) Form 10-K Form 10-K. Form 10-K
    Internal
    Control over Financial Reporting
  Regulation S-K
  Changes
    in Internal Control over Financial Reporting
  Regulation S-K
   80




---



##### Table of Contents



Inherent
    Limitation on the Effectiveness of Internal Controls
    Item 9B.
    Other
    Information:  Form 8-K
               81




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance:    Form 10-K
  Item 11.
    Executive
    Compensation:    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters:    Item 13.
    Certain
    Relationships, Related Transactions and Director
    Independence:    Item 14.
    Principal
    Accounting Fees and Services:   PART IV  Item 15.
    Exhibits
    and Consolidated Financial Statement Schedules:  Form 10-K:
  Consolidated Financial Statements.
 82




---



##### Table of Contents



Consolidated Financial Statement
    Schedules.
  Form 10-K.
 83




---



##### Table of Contents



SIGNATURES
      By:
    /s/  RALPH
    SCHMITT   Chief Executive Officer and Director
    Name

Title

Date/s/  RALPH
    SCHMITTRalph
    Schmitt

Chief Executive Officer and
    Director (Principal Executive Officer)

March 30, 2007/s/  CLYDE
    R. WALLINClyde
    R. Wallin

Chief Financial Officer and Senior
    Vice President, Finance (Principal Financial and Accounting
    Officer)

March 30, 2007/s/  JOHN
    D. ARNOLDJohn
    D. Arnold

Director

March 30, 2007/s/  DANIEL
    G. CASEYDaniel
    G. Casey

Director

March 30, 2007/s/  BRIAN
    HILTONBrian
    Hilton

Chairman of the Board of Directors

March 30, 2007/s/  PIERRE
    G. GUILBAULTPierre
    G. Guilbault

Director

March 30, 2007/s/  ALAN
    KROCKAlan
    Krock

Director

March 30, 2007/s/  THOMAS
    P. REDFERNThomas
    P. Redfern

Director

March 30, 2007  84




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description3
.1

Restated Certificate of
    Incorporation of Sipex Corporation dated March 20, 2007.3
.2

Bylaws (incorporated herein by
    reference from the Companys Registration Statement on
    Form 8-A
    file with the Securities and Exchange Commission on
    October 28, 2003).3
.3

Certificate of Amendment of Bylaws
    of Sipex Corporation (previously filed as Exhibit 3.2 to
    the Companys Current Report on
    Form 8-K
    filed on December 5, 2006 and incorporated herein by
    reference).4
.2

Form of Indemnification Agreement
    for directors and officers (previously filed as Exhibit 4.2
    to the Companys Registration Statement on
    Form S-1,
    File
    No. 333-1328,
    and incorporated herein by reference).4
.4

Indenture dated May 16, 2006
    (filed as Exhibit 4.1 to the Companys Current Report
    on
    Form 8-K
    filed on May 22, 2006, and incorporated herein by
    reference).10
.1**

1996 Incentive Stock Option Plan
    (previously filed as Exhibit 10.5 to the Companys
    Registration Statement on
    Form S-1,
    File
    No. 333-1328,
    and incorporated herein by reference).10
.2**

1996 Employee Stock Purchase Plan,
    as amended (previously filed as Appendix A to the
    Companys Definitive Notice and Proxy Statement on
    April 29, 2004, and incorporated herein by reference).10
.3**

1997 Incentive Stock Option Plan
    (previously filed as Appendix A to the Companys
    definitive Proxy Statement for the Special Meeting In Lieu Of
    Annual Meeting Of Shareholders held May 30, 1997, and
    incorporated herein by reference).10
.4**

Sipex Corporation 1999 Stock Plan
    (previously filed as Appendix A to the Companys
    Definitive Proxy Statement on Schedule 14A,
    No. 1000-27897,
    and incorporated herein by reference).10
.5**

2000 Non-Qualified Stock Option
    Plan (previously filed as an exhibit to the Companys
    Annual Report on
    Form 10-K
    for the year ended December 31, 2000, and incorporated
    herein by reference).10
.6**

2006 Equity Incentive Plan
    (previously filed as Appendix C to the Companys
    Definitive Notice and Proxy Statement on October 24, 2006,
    and incorporated herein by reference).10
.7

Worldwide Authorized Distributor
    Market Price Agreement dated July 22, 1993, by and between
    the Company and Future Electronics Incorporated (previously
    filed as an Exhibit to the Companys Annual report on
    Form 10-K
    for the year ended December 31, 2002, and incorporated
    herein by reference).10
.8

Amendment dated October 1,
    2002 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.1 to the
    Companys Quarterly Report of
    Form 10-Q
    for the quarter ended July 1, 2006, and incorporated herein
    by reference).10
.9

Addendum A dated
    February 7, 2003 to Worldwide Authorized Distributor Market
    Price Agreement dated July 22, 1993, by and between the
    Company and Future Electronics Incorporated (previously filed as
    an Exhibit to the Companys Annual report on
    Form 10-K
    for the year ended December 31, 2002, and incorporated
    herein by reference).10
.10*

Amendment dated August 26,
    2003 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.2 to the
    Companys Quarterly Report of
    Form 10-Q
    for the quarter ended July 1, 2006, and incorporated herein
    by reference).10
.11

Amendment dated September 15,
    2003 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.3 to the
    Companys Quarterly Report of
    Form 10-Q
    for the quarter ended July 1, 2006, and incorporated herein
    by reference).10
.12

Amendment dated April 25,
    2006 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.4 to the
    Companys Quarterly Report of
    Form 10-Q
    for the quarter ended July 1, 2006, and incorporated herein
    by reference).10
.13

Amendment dated September 27,
    2006 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed on October 3, 2006, and incorporated herein by
    reference).




---



##### Table of Contents



ExhibitNumber

Description10
.14

Amendment dated November 1,
    2006 to Worldwide Authorized Distributor Market Price Agreement
    dated July 22, 1993, by and between the Company and Future
    Electronics Inc. (previously filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed on November 7, 2006, and incorporated herein by
    reference).10
.15**

Letter agreement as of
    6/7/05
    concerning the terms of the newly appointed Chief Executive
    Officer Ralph Schmitt (previously filed as Exhibit 99.2 to
    the Companys
    Form 8-K
    filed on June 30, 2005, and incorporated herein by
    reference).10
.16

Loan and Security Agreement as of
    7/21/05,
    with Silicon Valley Bank (previously filed as Exhibit 99.1
    to the Companys
    Form 8-K
    filed on
    7/25/05, and
    incorporated herein by reference).10
.17**

Bonus plan as of August 29,
    2005, for an executive bonus plan for the remainder of 2005 for
    certain of its officers (previously filed as Exhibit 99.1
    to the Companys
    Form 8-K
    filed on September 2, 2005, and incorporated herein by
    reference).10
.18**

Separation Agreement and General
    Release as of
    9/2/05 with
    Joseph T. Rauschmayer, Senior Vice President of Operations
    (previously filed as Exhibit 10.1 to the Companys
    Form 8-K
    filed on September 2, 2005, and incorporated herein by
    reference).10
.19**

Separation Agreement and General
    Release as of April 26, 2005 with Kevin Plouse (previously
    filed as Exhibit 10.1 to the Companys
    Form 8-K
    filed on September 15, 2005, and incorporated herein by
    reference).10
.20**

Letter agreement as of
    September 12, 2005 with Mr. Edward Lam joining Sipex
    as the new Senior Vice President of Marketing and Business
    Development (previously filed as Exhibit 10.1 to the
    Companys
    Form 8-K
    filed on September 23, 2005, and incorporated herein by
    reference).10
.21**

Letter agreement as of
    October 7, 2005 with Joel Camarda joining Sipex as Senior
    Vice President of Operations (previously filed as
    Exhibit 10.1 to the Companys
    Form 8-K
    filed on October 12, 2005, and incorporated herein by
    reference).10
.22

Amendment No. 1 dated
    October 7, 2005, to the Loan and Security Agreement with
    Silicon Valley Bank, dated July 21, 2005 (previously filed
    as Exhibit 10.1 to the Companys
    Form 8-K
    filed on October 12, 2005, and incorporated herein by
    reference).10
.23

Amendment No. 2 dated
    November 12, 2005 to the Loan and Security Agreement with
    Silicon Valley Bank, dated July 12, 2005 (previously filed
    as Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    filed on
    11/16/05,
    and incorporated herein by reference).10
.24

Amendment No. 3 dated
    January 19, 2006 to the Loan and Security Agreement with
    Silicon Valley Bank, dated July 12, 2005 (previously filed
    as Exhibit 10.4 to the Companys Current Report on
    Form 8-K
    filed on
    1/25/06, and
    incorporated herein by reference).10
.25

Amendment No. 4 dated
    May 18, 2006 to the Loan and Security Agreement with
    Silicon Valley Bank, dated July 12, 2005, (previously filed
    as Exhibit 10.4 to Companys Current Report on
    Form 8-K
    filed on
    5/22/06, and
    incorporated herein by reference).10
.26

Amendment No. 5 dated
    August 1, 2006 to Loan and Security Agreement between Sipex
    Corporation and Silicon Valley Bank, dated July 12, 2005
    (previously filed as Exhibit 10.1 to the Companys
    Current Report on
    Form 8-K
    filed
    8/7/06, and
    incorporated herein by reference).10
.27

Amendment No. 6 dated
    September 28, 2006 to Loan and Security Agreement between
    Sipex Corporation and Silicon Valley Bank, dated July 12,
    2005 (previously filed as Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed
    10/4/06, and
    incorporated herein by reference).10
.28*

Master Agreement between Sipex,
    Hangzhou Silan Microelectronics Co. Ltd. and Hangzhou Silan
    Integrated Circuit Co., Ltd., dated as of February 27, 2006
    (previously filed as Exhibit 10.1 to the Company Current
    Report on
    Form 8-K/A
    filed on July 26, 2006, and incorporated herein by
    reference).10
.29

Agreement for Purchase and Sale of
    Real Property dated March 9, 2006, by and between Sipex
    Corporation and Mission West Properties, L.P. (previously filed
    as Exhibit 10.1 to the Company Current Report on
    Form 8-K
    filed on March 13, 2006, and incorporated herein by
    reference).10
.30

Standard Form Lease for 233
    Hillview dated March 9, 2006, by and between Sipex
    Corporation and Mission West Properties, L.P. (previously filed
    as Exhibit 10.2 to the Company Current Report on
    Form 8-K
    filed on March 13, 2006, and incorporated herein by
    reference).




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##### Table of Contents



ExhibitNumber

Description10
.31

Securities Purchase Agreement,
    dated as of May 16, 2006, by and among Sipex and the Buyers
    listed on the Schedule of Buyers (previously filed as
    Exhibit 10.1 to Companys Current Report on
    Form 8-K
    filed on
    5/22/06, and
    incorporated herein by reference).10
.32

Amendment No. 1 dated
    May 24, 2006 to Securities Purchase Agreement, dated as of
    May 16, 2006 by and among Sipex and the Buyers listed on
    the Schedule of Buyers (previously filed as Exhibit 10.1 to
    the Companys Current Report on
    Form 8-K
    filed on May 30, 2006, and incorporated herein by
    reference).10
.33

Registration Rights Agreement,
    dated as of May 16, 2006, by and among Sipex and the Buyers
    listed on the Schedule of Buyers (previously filed as
    Exhibit 10.2 to Companys Current Report on
    Form 8-K
    filed on
    5/22/06, and
    incorporated herein by reference).10
.34

Warrant Agent Agreement, dated as
    of May 16, 2006, between Sipex and Wells Fargo Bank,
    National Association, as Warrant Agent (which includes the Form
    of Warrant) (previously filed as Exhibit 10.1 to
    Companys Current Report on
    Form 8-K
    filed on
    5/22/06, and
    incorporated herein by reference).10
.35

Separation Agreement and General
    Release as of January 15, 2007 with Rick Hawron (previously
    filed as Exhibit 10.1 to the Companys
    Form 8-K
    filed on January 19, 2007, and incorporated herein by
    reference).10
.36

Securities Purchase Agreement,
    dated as of March 29, 2007, by and between Sipex and Rodfre
    Holdings LLC.12
.1

Computation of Ratio of Earnings
    to Fixed Cost Charges.21
.1

Subsidiaries of the Company
    (previously filed as an exhibit to the Companys Annual
    report on
    Form 10-K
    for the year ended December 31, 2000, and incorporated
    herein by reference).23
.1

Consent of Independent Registered
    Public Accounting Firm.31
.1

Certification of Chief Executive
    Officer pursuant to Section 302(a) of the Sarbanes-Oxley
    Act of 2002.31
.2

Certification of Chief Financial
    Officer pursuant to Section 302(a) of the Sarbanes-Oxley
    Act of 2002.32
.1

Certification of Chief Executive
    Officer pursuant to 18 U.S.C section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of Chief Financial
    Officer pursuant to 18 U.S.C section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Confidential treatment as to certain portions has been requested
    pursuant to
    Rule 24b-2
    promulgated under the Securities Exchange Act of 1934, as
    amended.**
    
    The Exhibits identified above with a double asterisk (**) are
    management contracts or compensatory plans or arrangements.