##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 IPIX Corporation
  Delaware
    
    52-2213841(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 
  þ o
 þ o
 o þ




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##### 



IPIX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
INDEX
 PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Condensed Consolidated Financial Statements (unaudited)
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II  OTHER INFORMATION
    
    
    24Item 1. Legal Proceedings
    
    
    24Item 6. Exhibits
    
    
    24Signatures
    
    
    25




---



##### 



PART IFINANCIAL INFORMATION
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 IPIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2005
    
    
    2004(unaudited)
    
    
    (1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,746,444
    
    
    $
    12,784,058Restricted cash and short-term investments
    
    
    
    
    
    
    550,000Short-term investments
    
    
    1,474,586
    
    
    
    895,254Accounts receivable
    
    
    978,952
    
    
    
    413,873Inventory, net of reserves of $292,150 and $346,132
    
    
    2,386,954
    
    
    
    2,334,271Prepaid and other current assets
    
    
    663,732
    
    
    
    1,511,392Assets held for sale for discontinued operations
    
    
    
    
    
    
    321,384Total current assets
    
    
    15,250,668
    
    
    
    18,810,232Computer hardware, software and other, net
    
    
    1,646,071
    
    
    
    715,663Restricted cash and other long-term assets
    
    
    85,421
    
    
    
    718,343Total assets
    
    $
    16,982,160
    
    
    $
    20,244,238LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,852,103
    
    
    $
    1,042,979Accrued liabilities
    
    
    3,668,537
    
    
    
    3,376,775Deferred revenue
    
    
    3,576
    
    
    
    84,100Liabilities held for sale for discontinued operations
    
    
    
    
    
    
    164,112Capital lease obligations
    
    
    
    
    
    
    219,977Total current liabilities
    
    
    5,524,216
    
    
    
    4,887,943Long-term restructuring liabilities
    
    
    276,568
    
    
    
    141,675Total liabilities
    
    
    5,800,784
    
    
    
    5,029,618Stockholders equity:Preferred stock, $0.001 par value, 5,001,100 authorized, 248,967 and 290,347 shares
issued and outstanding (aggregate liquidation value: $6,666,510 and $7,325,335)
    
    
    249
    
    
    
    290Common stock, $0.001 par value, 50,000,000 authorized, 27,347,428 and
21,539,058 shares issued and outstanding
    
    
    27,347
    
    
    
    21,539Additional paid-in-capital
    
    
    546,676,788
    
    
    
    533,658,473Accumulated deficit
    
    
    (535,523,008
    )
    
    
    (518,465,682
    )Total stockholders equity
    
    
    11,181,376
    
    
    
    15,214,620Total liabilities and stockholders equity
    
    $
    16,982,160
    
    
    $
    20,244,238
 (1)
    
    The December 31, 2004 balances were derived from the audited consolidated financial statements.




---



##### 



IPIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:Hardware
    
    $
    534,115
    
    
    $
    1,082,817
    
    
    $
    1,874,998
    
    
    $
    1,890,569Services
    
    
    773,453
    
    
    
    103,695
    
    
    
    922,602
    
    
    
    166,248License and other
    
    
    190,220
    
    
    
    278,874
    
    
    
    801,220
    
    
    
    897,379Total revenue
    
    
    1,497,788
    
    
    
    1,465,386
    
    
    
    3,598,820
    
    
    
    2,954,196Cost of revenue:Hardware
    
    
    537,252
    
    
    
    754,896
    
    
    
    1,513,490
    
    
    
    1,531,251Services
    
    
    564,833
    
    
    
    50,452
    
    
    
    693,380
    
    
    
    96,479License and other
    
    
    10,499
    
    
    
    22,202
    
    
    
    27,480
    
    
    
    81,929Total cost of revenue
    
    
    1,112,584
    
    
    
    827,550
    
    
    
    2,234,350
    
    
    
    1,709,659Gross profit
    
    
    385,204
    
    
    
    637,836
    
    
    
    1,364,470
    
    
    
    1,244,537Operating expense:Sales and marketing
    
    
    1,905,456
    
    
    
    1,172,470
    
    
    
    5,592,731
    
    
    
    3,092,888General and administrative
    
    
    3,227,186
    
    
    
    1,219,333
    
    
    
    7,775,016
    
    
    
    2,836,614Research and development
    
    
    564,094
    
    
    
    542,000
    
    
    
    1,890,069
    
    
    
    1,498,179Restructuring charges
    
    
    (93,242
    )
    
    
    
    
    
    
    1,726,147
    
    
    
    Loss on impairment of asset
    
    
    
    
    
    
    
    
    
    
    253,358
    
    
    
    Total operating expenses
    
    
    5,603,494
    
    
    
    2,933,803
    
    
    
    17,237,321
    
    
    
    7,427,681Loss from operations
    
    
    (5,218,290
    )
    
    
    (2,295,967
    )
    
    
    (15,872,851
    )
    
    
    (6,183,144
    )Interest and other (expenses) income, net
    
    
    31,259
    
    
    
    32,288
    
    
    
    175,251
    
    
    
    52,260Loss from continuing operations
    
    
    (5,187,031
    )
    
    
    (2,263,679
    )
    
    
    (15,697,600
    )
    
    
    (6,130,884
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (1,156,914
    )
    
    
    (1,359,726
    )
    
    
    (3,902,447
    )Net loss
    
    
    (5,187,031
    )
    
    
    (3,420,593
    )
    
    
    (17,057,326
    )
    
    
    (10,033,331
    )Preferred stock dividends
    
    
    (100,405
    )
    
    
    (132,655
    )
    
    
    (330,774
    )
    
    
    (756,823
    )Net loss available to common stockholders
    
    $
    (5,287,436
    )
    
    $
    (3,553,248
    )
    
    $
    (17,388,100
    )
    
    $
    (10,790,154
    )Basic and diluted loss per share:Continuing operations
    
    $
    (0.20
    )
    
    $
    (0.12
    )
    
    $
    (0.67
    )
    
    $
    (0.47
    )Discontinued operations
    
    
    
    
    
    
    (0.06
    )
    
    
    (0.06
    )
    
    
    (0.26
    )Net loss per share to common stockholders (basic and diluted)
    
    $
    (0.20
    )
    
    $
    (0.18
    )
    
    $
    (0.73
    )
    
    $
    (0.73
    )Weighted
average common shares outstanding (basic and diluted)
    
    
    27,032,212
    
    
    
    19,624,742
    
    
    
    23,921,518
    
    
    
    14,806,631
 
 4




---



##### 



IPIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine Months EndedSeptember 30,2005
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (17,057,326
    )
    
    $
    (10,033,331
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    476,476
    
    
    
    749,000Bad debt expense
    
    
    
    
    
    
    2,675Stock based compensation expense
    
    
    818,747
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    (565,079
    )
    
    
    (565,956
    )Inventory
    
    
    (52,683
    )
    
    
    (912,603
    )Prepaid expenses and other current assets
    
    
    847,660
    
    
    
    (4,428
    )Other long-term assets
    
    
    324,306
    
    
    
    133,791Accounts payable
    
    
    809,126
    
    
    
    730,944Accrued liaibilities
    
    
    72,923
    
    
    
    201,273Deferred revenue
    
    
    (80,524
    )
    
    
    15,817Long-term restructuring liabilities
    
    
    134,893
    
    
    
    (158,995
    )Net cash used in operating activities
    
    
    (14,271,481
    )
    
    
    (9,841,813
    )Cash flows from investing activities:Acquisition of computer hardware, software and other
    
    
    (1,406,886
    )
    
    
    (144,830
    )Short-term investments
    
    
    (579,332
    )
    
    
    (13,684
    )Restricted cash
    
    
    1,180,000
    
    
    
    Net cash used in investing activities
    
    
    (806,218
    )
    
    
    (158,514
    )Cash flow from financing activities:Proceeds from:Common stock offerings
    
    
    9,758,750
    
    
    
    4,898,431Exercise of stock options
    
    
    2,536,241
    
    
    
    5,512,831Conversion of AIR
    
    
    136,647
    
    
    
    5,394,000Conversion of Series B Preferred
    
    
    
    
    
    
    2,989,998Payments for:Capital lease obligation
    
    
    (219,977
    )
    
    
    (518,089
    )Preferred stock dividends
    
    
    (171,576
    )
    
    
    (453,867
    )Net cash provided by financing activities
    
    
    12,040,085
    
    
    
    17,823,304Net
(decrease)/ increase in cash and cash equivalents
    
    
    (3,037,614
    )
    
    
    7,822,977Cash and cash equivalents, beginning of the period
    
    
    12,784,058
    
    
    
    10,240,980Cash and cash equivalents, end of the period
    
    $
    9,746,444
    
    
    $
    18,063,957Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    37,552
    
    
    $
    13,852
 
 5




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##### 



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
          6




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(unaudited)
    
    
    (unaudited)Revenue
    
    $
    
    
    
    $
    275,594
    
    
    $
    159,643
    
    
    $
    809,227Cost of revenue
    
    
    
    
    
    
    569,502
    
    
    
    220,091
    
    
    
    1,808,006Gross profit
    
    
    
    
    
    
    (293,908
    )
    
    
    (60,448
    )
    
    
    (998,779
    )Operating expenses:Sales and marketing
    
    
    
    
    
    
    452,772
    
    
    
    907,915
    
    
    
    1,527,508Research and development
    
    
    
    
    
    
    410,234
    
    
    
    391,363
    
    
    
    1,376,160Total operating expenses
    
    
    
    
    
    
    863,006
    
    
    
    1,299,278
    
    
    
    2,903,668Loss from discontinued
operations, net of taxes
    
    $
    
    
    
    $
    (1,156,914
    )
    
    $
    (1,359,726
    )
    
    $
    (3,902,447
    )
    7




---



##### 



8




---



##### 



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Numerator:Loss from
continuing
operations
    
    $
    (5,187,031
    )
    
    $
    (2,263,679
    )
    
    $
    (15,697,600
    )
    
    $
    (6,130,884
    )Loss from
discontinued
operations, net of
taxes
    
    
    
    
    
    
    (1,156,914
    )
    
    
    (1,359,726
    )
    
    
    (3,902,447
    )Net loss
    
    
    (5,187,031
    )
    
    
    (3,402,593
    )
    
    
    (17,057,326
    )
    
    
    (10,033,331
    )Preferred stock
dividends
    
    
    (100,405
    )
    
    
    (132,655
    )
    
    
    (330,774
    )
    
    
    (756,823
    )Net loss available
to common
stockholders
    
    $
    (5,287,436
    )
    
    $
    (3,553,248
    )
    
    $
    (17,388,100
    )
    
    $
    (10,790,154
    )Denominator
Weighted average
common shares
outstanding 
basic and diluted
    
    
    27,032,212
    
    
    
    19,624,742
    
    
    
    23,921,518
    
    
    
    14,806,631Basic and diluted
loss per share:Continued operations
    
    $
    (0.20
    )
    
    $
    (0.12
    )
    
    $
    (0.67
    )
    
    $
    (0.47
    )Discontinued
operations
    
    
    
    
    
    
    (0.06
    )
    
    
    (0.06
    )
    
    
    (0.26
    )Net loss per share
to common
stockholders (basic
and diluted)
    
    $
    (0.20
    )
    
    $
    (0.18
    )
    
    $
    (0.73
    )
    
    $
    (0.73
    )
  Three Months EndedSeptember 30,2005
    
    
    2004Vested stock options

    
    
    183,060
    
    
    
    1,685,118Convertible preferred stock

    
    
    2,292,363
    
    
    
    2,834,720Series B warrants

    
    
    
    
    
    
    448,378Series B Dividend conversion

    
    
    502,957
    
    
    
    PIPE Additional investment rights

    
    
    51,230
    
    
    
    Total

    
    
    3,029,610
    
    
    
    4,968,216
  As of September 30,2005
    
    
    2004Average share price of IPIX Common stock
    
    $
    3.53
    
    
    $
    8.50Stock options : Shares excluded (average price
$41.93 in 2005 and $114.32 in 2004)
    
    
    937,609
    
    
    
    112,000Series B warrants (exercise price of $4.34)
    
    
    917,067
    
    
    
    PIPE warrants (exercise price of $3.11)
    
    
    2,045,642
    
    
    
    Common warrants (average price of $147.41 in 2005
and $165.33 in 2004)
    
    
    32,064
    
    
    
    136,949
   9




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##### 



Lease obligations
    
    $
    967,642Equipment lease termination
    
    
    747,053Abandonment of fixed assets
    
    
    11,452$
    1,726,147
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss available
to common
stockholders, as
reported
    
    $
    (5,287,436
    )
    
    $
    (3,553,248
    )
    
    $
    (17,388,100
    )
    
    $
    (10,790,154
    )Add:Stock-based
employee
compensation cost
included in net
loss available to
common
stockholders, as
reported
    
    
    24,819
    
    
    
    
    
    
    
    818,747
    
    
    
    Deduct:Stock-based
employee
compensation
expense under fair
value method of
SFAS No. 123 for
all awards
    
    
    (485,364
    )
    
    
    (504,904
    )
    
    
    (1,880,464
    )
    
    
    (1,786,000
    )Net loss pro forma
    
    $
    (5,747,981
    )
    
    $
    (4,058,152
    )
    
    $
    (18,449,817
    )
    
    $
    (12,576,154
    )Net loss per share
basic and diluted 
as reported
    
    $
    (0.20
    )
    
    $
    (0.18
    )
    
    $
    (0.73
    )
    
    $
    (0.73
    )Net loss per share
basic and diluted 
pro forma
    
    $
    (0.21
    )
    
    $
    (0.21
    )
    
    $
    (0.77
    )
    
    $
    (0.85
    )Grants under the ESPP have a look-back feature and a 15% discount and accordingly under FAS 123
would have had compensation expense calculated as a result. The fair value disclosure associated
with the ESPP grants is included in the fair value pro-forma
information above.The fair value of each award is calculated on the date of grant using the Black-Scholes pricing
model. The following assumptions were used for each respective period:Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Risk-free interest rates
    
    
    4.0
    %
    
    
    3.75
    %
    
    
    4.0
    %
    
    
    3.75
    %Expected lives (in years)
    
    
    3.0
    
    
    
    3.5
    
    
    
    3.17
    
    
    
    3.5Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    81
    %
    
    
    179
    %
    
    
    81
    %
    
    
    179
    %
 10




---



##### 



As ofSeptember 30, 2005
    
    

December
31, 2004(unaudited)Components
    
    $
    1,437,477
    
    
    $
    1,628,496Finished goods
    
    
    1,241,627
    
    
    
    1,051,907Total Inventory
    
    
    2,679,104
    
    
    
    2,680,403Inventory Reserve
    
    
    (292,150
    )
    
    
    (346,132
    )Total Inventory, net
    
    $
    2,386,954
    
    
    $
    2,334,271
  Commitments
  Payments Due by PeriodsLess than oneTotal
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    ThereafterOperating Leases
    
    $
    2,096,048
    
    
    $
    617,271
    
    
    $
    982,577
    
    
    $
    496,200
    
    
    $
    Restructuring Liability
    
    
    931,325
    
    
    
    654,757
    
    
    
    276,568
    
    
    
    
    
    
    
    $
    3,027,373
    
    
    $
    1,272,028
    
    
    $
    1,259,145
    
    
    $
    496,200
    
    
    $
    
 Contingencies
     11




---



##### 



Indemnification Provisions
        12




---



##### 



As of and for the Three Months
    
    As of and for the Nine MonthsEnded September 30,
    
    Ended September 30,2005
    
    2004
    
    2005
    
    2004Revenue:Number of Customers
    
    
    2
    
    
    
    2
    
    
    
    1
    
    
    
    2Percentage of Total Revenue
    
    
    49
    %
    
    
    50
    %
    
    
    17
    %
    
    
    42
    %Accounts ReceivableNumber of Customers
    
    
    1
    
    
    
    2
    
    
    
    1
    
    
    
    2Percent of Total Accounts Receivable
    
    
    64
    %
    
    
    47
    %
    
    
    64
    %
    
    
    47
    %
    13




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
 Our Business
  Products
    Target Markets
  Business Models
  Business Trends and Conditions
      14




---



##### 



CRITICAL ACCOUNTING POLICIES
    Revenue Recognition
         15




---



##### 



Allowances for Doubtful Accounts
  Reserve for Inventory Obsolescence
  Significant Accruals, including Restructuring Charges and Sales Tax
  Restructuring
    Lease obligations
    
    $
    967,642Equipment lease termination
    
    
    747,053Abandonment of fixed assets
    
    
    11,452$
    1,726,147
  16




---



##### 



RESULTS OF OPERATIONS
 THREE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004
 Three Months Ended
    
    
    
    
    
    
    PercentSeptember 30,
    
    
    Increase/
    
    
    Increase/2005
    
    

2004*
    
    
    (Decrease)
    
    
    (Decrease)Revenue:Hardware
    
    $
    534,115
    
    
    $
    1,082,817
    
    
    $
    (548,702
    )
    
    
    (51
    )%Services
    
    
    773,453
    
    
    
    103,695
    
    
    
    669,758
    
    
    
    646
    %License and other
    
    
    190,220
    
    
    
    278,874
    
    
    
    (88,654
    )
    
    
    (32
    )%Total revenue
    
    
    1,497,788
    
    
    
    1,465,386
    
    
    
    32,402
    
    
    
    2
    %Cost of revenue:Hardware
    
    
    537,252
    
    
    
    754,896
    
    
    
    (217,644
    )
    
    
    (29
    )%Services
    
    
    564,833
    
    
    
    50,452
    
    
    
    514,381
    
    
    
    1020
    %License and other
    
    
    10,499
    
    
    
    22,202
    
    
    
    (11,703
    )
    
    
    (53
    )%Total cost of revenue
    
    
    1,112,584
    
    
    
    827,550
    
    
    
    285,034
    
    
    
    34
    %Gross profit
    
    
    385,204
    
    
    
    637,836
    
    
    
    (252,632
    )
    
    
    (40
    )%Operating expense:Sales and marketing
    
    
    1,905,456
    
    
    
    1,172,470
    
    
    
    732,986
    
    
    
    63
    %General and administrative
    
    
    3,227,186
    
    
    
    1,219,333
    
    
    
    2,007,853
    
    
    
    165
    %Research and development
    
    
    564,094
    
    
    
    542,000
    
    
    
    22,094
    
    
    
    4
    %Restructuring charges
    
    
    (93,242
    )
    
    
    
    
    
    
    (93,242
    )
    
    
    (100
    )%Total operating expenses
    
    
    5,603,494
    
    
    
    2,933,803
    
    
    
    2,669,691
    
    
    
    91
    %Loss from operations
    
    
    (5,218,290
    )
    
    
    (2,295,967
    )
    
    
    2,922,323
    
    
    
    127
    %Interest and other (expenses) income, net
    
    
    31,259
    
    
    
    32,288
    
    
    
    (1,029
    )
    
    
    (3
    )%Loss from continuing operations
    
    
    (5,187,031
    )
    
    
    (2,263,679
    )
    
    
    2,923,352
    
    
    
    129
    %Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    1,156,914
    
    
    
    (1,156,914
    )
    
    
    (100
    )%Net loss
    
    
    (5,187,031
    )
    
    
    (3,420,593
    )
    
    
    1,766,438
    
    
    
    52
    %Preferred stock dividends
    
    
    (100,405
    )
    
    
    (132,655
    )
    
    
    (32,250
    )
    
    
    (24
    )%Net loss available to common stockholders
    
    $
    (5,287,436
    )
    
    $
    (3,553,248
    )
    
    $
    1,734,188
    
    
    
    49
    %
  17




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##### 



NINE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004
 Nine Months Ended
    
    
    
    
    
    
    PercentSeptember 30,
    
    
    Increase/
    
    
    Increase/2005
    
    

2004*
    
    
    (Decrease)
    
    
    (Decrease)Revenue:Hardware
    
    $
    1,874,998
    
    
    $
    1,890,569
    
    
    $
    (15,571
    )
    
    
    (1
    )%Services
    
    
    922,602
    
    
    
    166,248
    
    
    
    756,354
    
    
    
    455
    %License and other
    
    
    801,220
    
    
    
    897,379
    
    
    
    (96,159
    )
    
    
    (11
    )%Total revenue
    
    
    3,598,820
    
    
    
    2,954,196
    
    
    
    644,624
    
    
    
    22
    %Cost of revenue:Hardware
    
    
    1,513,490
    
    
    
    1,531,251
    
    
    
    (17,761
    )
    
    
    (1
    )%Services
    
    
    693,380
    
    
    
    96,479
    
    
    
    596,901
    
    
    
    619
    %License and other
    
    
    27,480
    
    
    
    81,929
    
    
    
    (54,449
    )
    
    
    (66
    )%Total cost of revenue
    
    
    2,234,350
    
    
    
    1,709,659
    
    
    
    524,691
    
    
    
    31
    %Gross profit
    
    
    1,364,470
    
    
    
    1,244,537
    
    
    
    119,933
    
    
    
    10
    %Operating expense:Sales and marketing
    
    
    5,592,731
    
    
    
    3,092,888
    
    
    
    2,499,843
    
    
    
    81
    %General and administrative
    
    
    7,775,016
    
    
    
    2,836,614
    
    
    
    4,938,402
    
    
    
    174
    %Research and development
    
    
    1,890,069
    
    
    
    1,498,179
    
    
    
    391,890
    
    
    
    26
    %Restructuring charges
    
    
    1,726,147
    
    
    
    
    
    
    
    1,726,147
    
    
    
    100
    %Loss on impairment of asset
    
    
    253,358
    
    
    
    
    
    
    
    253,358
    
    
    
    100
    %Total operating expenses
    
    
    17,237,321
    
    
    
    7,427,681
    
    
    
    9,809,640
    
    
    
    132
    %Loss from operations
    
    
    (15,872,851
    )
    
    
    (6,183,144
    )
    
    
    9,689,707
    
    
    
    157
    %Interest and other (expenses) income, net
    
    
    175,251
    
    
    
    52,260
    
    
    
    122,991
    
    
    
    235
    %Loss from continuing operations
    
    
    (15,697,600
    )
    
    
    (6,130,884
    )
    
    
    9,566,716
    
    
    
    156
    %Loss from discontinued operations, net of taxes
    
    
    (1,359,726
    )
    
    
    (3,902,447
    )
    
    
    (2,542,721
    )
    
    
    (65
    )%Net loss
    
    
    (17,057,326
    )
    
    
    (10,033,331
    )
    
    
    7,023,995
    
    
    
    70
    %Preferred stock dividends
    
    
    (330,774
    )
    
    
    (756,823
    )
    
    
    (426,049
    )
    
    
    (56
    )%Net loss available to common stockholders
    
    $
    (17,388,100
    )
    
    $
    (10,790,154
    )
    
    $
    6,597,946
    
    
    
    61
    %
 * As
adjusted for discontinued operations    18




---



##### 



19




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##### 



LIQUIDITY AND CAPITAL RESOURCES
  Common Stock
    20




---



##### 



Other Liquidity and Capital Resources
  Nine Months Ended September 30,2005
    
    
    2004Net cash used in operating activities
    
    $
    (14,271,481
    )
    
    $
    (9,841,813
    )Net cash used in investing activities
    
    
    (806,218
    )
    
    
    (158,514
    )Net cash provided by financing activities
    
    
    12,040,085
    
    
    
    17,823,304Net increase
/ (decrease) in cash and cash equivalents
    
    
    (3,037,614
    )
    
    
    7,822,977Cash and cash equivalents, beginning of period
    
    
    12,784,058
    
    
    
    10,240,980Cash and cash equivalents, end of period
    
    $
    9,746,444
    
    
    $
    18,063,957
     21




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##### 



Payments Due by PeriodsLess than oneTotal
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    ThereafterOperating Leases
    
    $
    2,096,048
    
    
    $
    617,271
    
    
    $
    982,577
    
    
    $
    496,200
    
    
    $
    Restructuring Liability
    
    
    931,325
    
    
    
    654,757
    
    
    
    276,568
    
    
    
    
    
    
    
    $
    3,027,373
    
    
    $
    1,272,028
    
    
    $
    1,259,145
    
    
    $
    496,200
    
    
    $
    
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Item 4. CONTROLS AND PROCEDURES
  1.
    
    Period-end close process2.
    
    Purchases and accounts payable3.
    
    Inventory4.
    
    Revenue and receivables5.
    
    Information technology
       22




---



##### 



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
    -
    
    changes in the demand for our products and services,-
    
    our third-party suppliers ability to deliver high quality components to us in a timely fashion,-
    
    our ability to control or effect reductions in costs,-
    
    uncertainty regarding our ability to continue as a going concern,-
    
    our ability to raise capital and fund our operations,-
    
    our ability to attract and retain highly qualified personnel,-
    
    our ability to design, manufacture and deliver high quality products in a timely fashion,-
    
    the burdens and costs of defending against potential infringement claims,
 23




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##### 



PART II  OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
     ITEM 6. EXHIBITS
 ExhibitNumber
    
    Exhibit Description31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
 24




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##### 



IPIX CORPORATION
SIGNATURES
  DATE: November 8, 2005
    
    IPIX CORPORATION(Registrant)/s/ Charles A. CrewCharles A. CrewAuthorized OfficerChief Financial Officer andChief Accounting Officer
 25




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##### 



IPIX CORPORATION
INDEX TO EXHIBITS FOR FORM 10-Q SEPTEMBER 30, 2005
 EXHIBIT NO.
    
    EXHIBIT DESCRIPTION31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32
    
    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
 26