x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Delaware
|
|
36-3688459
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
1001
Cambridge Drive
Elk
Grove Village, Illinois
|
|
60007
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
Common
Stock, Par Value $0.001 Per Share
|
|
American
Stock Exchange
|
(Title
of each class)
|
|
(Name
of each exchange on which
registered)
|
|
|
|||
Forward Looking Statements | ||||
Item 1.
|
|
|
1
|
|
Item
1A.
|
|
|
9
|
|
Item
1B.
|
|
|
17
|
|
Item 2.
|
|
|
17
|
|
Item 3.
|
|
|
17
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|
Item 4.
|
|
|
17
|
|
|
|
|||
Item 5.
|
|
|
18
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|
Item 6.
|
|
|
18
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|
Item 7.
|
|
|
20
|
|
Item 7A.
|
|
|
28
|
|
Item 8.
|
|
|
28
|
|
Item 9.
|
|
|
50
|
|
Item 9A.
|
|
|
50
|
|
Item 9B.
|
|
|
50
|
|
|
|
|||
Item
10
|
|
|
51
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|
Item
11
|
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51
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|
Item
12
|
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|
51
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Item
13
|
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|
51
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Item
14
|
|
|
51
|
|
Item 15.
|
|
|
52
|
|
•
|
|
Marketing
our products aggressively to leading wireless
operators;
|
|
•
|
|
Providing
customers comprehensive radio link management infrastructure-based
solutions for wireless networks;
|
|
•
|
|
Continuing
to build on our strong intellectual property position selectively,
emphasizing speed to market; and
|
|
•
|
|
Outsourcing
product manufacturing and reducing product
cost.
|
|
•
|
|
Remote
configuration of parameters within all ANF
units;
|
|
•
|
|
Remote
monitoring of alarm status for all ANF
units;
|
|
•
|
|
Observation
of interference and notch activity from all units;
and
|
|
•
|
|
The
ability to view on-line event data and reports based on measured
performance data.
|
|
|
High
|
|
Low
|
|||
FISCAL
YEAR ENDED DECEMBER 31, 2005
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.52
|
$
|
0.28
|
||
Second
Quarter
|
|
$
|
0.41
|
|
$
|
0.22
|
|
Third
Quarter
|
|
$
|
0.29
|
$
|
0.23
|
||
Fourth
Quarter
|
|
$
|
0.45
|
|
$
|
0.25
|
|
FISCAL
YEAR ENDED DECEMBER 31, 2006
|
|
||||||
First
Quarter
|
|
$
|
0.43
|
|
$
|
0.30
|
|
Second
Quarter
|
|
$
|
0.43
|
$
|
0.25
|
||
Third
Quarter
|
|
$
|
0.36
|
|
$
|
0.27
|
|
Fourth
Quarter
|
|
$
|
0.45
|
$
|
0.30
|
2002
|
2003
|
2004
|
2005
|
2006
|
|||||||
CONSOLIDATED
STATEMENT OF
|
|
|
|
|
|
|
|
|
|
|
|
OPERATIONS
DATA
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
$
|
3,662,805
|
$
|
3,238,402
|
$
|
2,621,933
|
$
|
10,264,428
|
$
|
14,997,320
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
3,565,140
|
1,639,540
|
1,527,554
|
5,121,650
|
9,066,929
|
||||||
Research
and development
|
|
2,737,084
|
|
988,425
|
|
1,119,406
|
|
1,767,447
|
|
2,011,652
|
|
Selling
and marketing
|
2,201,195
|
959,798
|
1,164,830
|
1,861,065
|
3,207,882
|
||||||
General
and administrative
|
|
7,972,948
|
|
5,614,492
|
|
4,757,935
|
|
3,691,070
|
|
4,287,080
|
|
|
|
|
|
|
|||||||
Operating
loss
|
|
(12,813,562)
|
|
(5,963,853)
|
|
(5,947,792)
|
|
(2,176,804)
|
|
(3,576,223)
|
|
Other
income (Expense)
|
|||||||||||
Interest
income
|
|
62,954
|
|
5,087
|
|
8,660
|
|
77,383
|
|
118,590
|
|
Interest
expense
|
(327,224)
|
(1,197,309)
|
(1,028,169)
|
(877,461)
|
(907,351)
|
||||||
|
|
|
|
|
|||||||
Total
other expense, net
|
(264,270)
|
(1,192,222)
|
(1,019,509)
|
(800,078)
|
(788,761)
|
||||||
|
|
|
|
|
|||||||
Net
loss
|
$
|
(13,077,832)
|
$
|
(7,156,075)
|
$
|
(6,967,301)
|
|
(2,976,882)
|
$
|
(4,364,984)
|
|
|
|
|
|
|
|||||||
Basic
and diluted loss per
|
|||||||||||
common
share
|
$
|
(0.09)
|
$
|
(0.05)
|
$
|
(0.04)
|
$
|
(0.02)
|
$
|
(0.02)
|
|
Weighted
average number of
|
|
|
|
|
|
|
|
|
|
|
|
common
shares outstanding
|
|
142,884,921
|
|
148,080,749
|
|
158,977,249
|
|
170,786,657
|
|
185,506,261
|
|
|
|
|
|
|
|||||||
CONSOLIDATED
BALANCE
|
|||||||||||
SHEET
DATA
|
|||||||||||
Cash
and cash equivalents
|
$
|
216,119
|
$
|
346,409
|
$
|
402,391
|
$
|
3,486,430
|
$
|
2,886,476
|
|
Working
capital
|
1,333,827
|
735,840
|
979,413
|
6,396,541
|
(1,422,309)
|
||||||
Total
assets
|
|
19,183,000
|
|
17,723,035
|
|
17,133,752
|
|
22,905,633
|
|
26,875,195
|
|
Long-term
debt, less current portion
|
2,000,000
|
5,000,000
|
7,500,000
|
10,520,369
|
5,131,762
|
||||||
Stockholders'
equity
|
|
15,380,306
|
|
10,943,247
|
|
7,247,635
|
|
10,530,716
|
|
8,164,192
|
|
Contractual
Obligations
|
Payments
Due by Period
|
|||||||||||||||
Less
than 1
|
More
than
|
|||||||||||||||
Year
|
|
Total
|
Year
|
1-3
Years
|
3-5
Years
|
5
Years
|
||||||||||
Long
Term Debt Obligations
|
|
$
|
17,787,000
|
|
$
|
11,746,000
|
|
|
-
|
|
$
|
6,041,000
|
|
|
-
|
|
Operating
Lease Obligations
|
|
$
|
1,659,000
|
|
$
|
201,000
|
|
$
|
413,000
|
|
$
|
427,000
|
|
$
|
618,000
|
|
Total
|
$
|
19,446,000
|
$
|
11,947,000
|
$
|
413,000
|
$
|
6,468,000
|
$
|
618,000
|
December
31,
|
December
31,
|
|||||||||||||||
2006
|
2005
|
|||||||||||||||
Assets:
|
|
|
|
|
|
|
|
|||||||||
Current
Assets:
|
||||||||||||||||
Cash
and Cash Equivalents
|
|
$
|
2,886,476
|
|
$
|
3,486,430
|
|
|||||||||
Inventory
|
6,368,599
|
2,715,170
|
||||||||||||||
Accounts
Receivable, net
|
|
|
2,554,716
|
|
|
1,677,334
|
|
|||||||||
Prepaid
Expenses and Other
|
168,741
|
253,167
|
||||||||||||||
Total
Current Assets
|
|
|
11,978,532
|
|
|
8,132,101
|
|
|||||||||
Property
and Equipment
|
|
|
1,334,203
|
|
|
1,037,432
|
|
|||||||||
Less:
Accumulated Depreciation
|
(811,167)
|
(720,142)
|
||||||||||||||
Net
Property and Equipment
|
|
|
523,036
|
|
|
317,290
|
|
|||||||||
Restricted
Certificates of Deposit
|
162,440
|
242,180
|
||||||||||||||
Goodwill
|
|
|
13,370,000
|
|
|
13,370,000
|
|
|||||||||
Intangible
assets, net
|
841,187
|
844,062
|
||||||||||||||
Total
Assets
|
|
$
|
26,875,195
|
|
$
|
22,905,633
|
|
|||||||||
Liabilities
and Stockholders' Equity:
|
||||||||||||||||
Current
Liabilities:
|
||||||||||||||||
Accounts
Payable
|
|
$
|
1,172,844
|
|
$
|
416,095
|
|
|||||||||
Inventory-related
material purchase accrual
|
328,663
|
530,134
|
||||||||||||||
Employee-related
accrued liability
|
284,653
|
208,408
|
||||||||||||||
Accrued
professional services
|
|
|
93,000
|
|
|
279,000
|
|
|||||||||
Other
accrued liabilities and current deferred revenue
|
225,724
|
301,923
|
||||||||||||||
Current
Portion of LT Debt, including related interest, with related
parties
|
11,295,957
|
-
|
||||||||||||||
Total
Current Liabilities
|
|
|
13,400,841
|
|
|
1,735,560
|
|
|||||||||
Deferred
facility reimbursement
|
102,500
|
118,988
|
||||||||||||||
Deferred
revenue - non current
|
|
|
75,900
|
|
|
-
|
|
|||||||||
Notes
and related accrued interest with related parties, net of current
portion
|
5,131,762
|
10,520,369
|
||||||||||||||
Stockholders'
equity:
|
|
|
|
|
|
|
|
|||||||||
Preferred
stock; 300,000 shares authorized; No shares issued and outstanding
|
||||||||||||||||
at December 31, 2006 and December 31, 2005
|
-
|
-
|
||||||||||||||
Common
stock ($.001 par value); 250,000,000 shares authorized;
189,622,133
|
|
|
|
|
|
|
|
|||||||||
and 183,252,018 shares issued and outstanding at December 31,
2006 and
|
|
|
|
|
|
|
|
|||||||||
December 31, 2005, respectively
|
|
|
189,622
|
|
|
183,252
|
|
|||||||||
Additional
paid-in capital
|
172,379,842
|
170,387,752
|
||||||||||||||
Accumulated
deficit
|
|
|
(164,405,272)
|
|
|
(160,040,288)
|
|
|||||||||
Total
Shareholders' Equity
|
8,164,192
|
10,530,716
|
||||||||||||||
Total
Liabilities and Shareholders' Equity
|
|
$
|
26,875,195
|
|
$
|
22,905,633
|
|
|
Year
Ended December 31,
|
|||||||||
2006
|
2005
|
2004
|
||||||||
Net
sales
|
$
|
14,997,320
|
$
|
10,264,428
|
$
|
2,621,933
|
||||
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
9,066,929
|
5,121,650
|
1,527,554
|
|||||||
Research
and development
|
|
|
2,011,652
|
|
|
1,767,447
|
|
|
1,119,406
|
|
Selling
and marketing
|
3,207,882
|
1,861,065
|
1,164,830
|
|||||||
General
and administrative
|
|
|
4,287,080
|
|
|
3,691,070
|
|
|
4,757,935
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
18,573,543
|
|
|
12,441,232
|
|
|
8,569,725
|
|
|
|
|
||||||||
Operating
loss
|
|
|
(3,576,223)
|
|
|
(2,176,804)
|
|
|
(5,947,792)
|
|
Other
income (expense)
|
||||||||||
Interest
income
|
|
|
118,590
|
|
|
77,383
|
|
|
8,660
|
|
Non-cash
warrant expense
|
-
|
-
|
(250,297)
|
|||||||
Interest
expense
|
|
|
(907,351)
|
|
|
(877,461)
|
|
|
(777,872)
|
|
|
|
|
||||||||
Total
other expense, net
|
(788,761)
|
(800,078)
|
(1,019,509)
|
|||||||
|
|
|
||||||||
Net
loss
|
|
$
|
(4,364,984)
|
|
|
(2,976,882)
|
|
$
|
(6,967,301)
|
|
|
|
|
||||||||
Basic
and diluted loss per common share
|
$
|
(0.02)
|
(0.02)
|
$
|
(0.04)
|
|||||
|
|
|
||||||||
Weighted
average number of common shares outstanding
|
|
|
185,506,261
|
|
|
170,786,657
|
|
|
158,977,249
|
|
Common
|
Common
|
Additional
|
Accumulated
|
||||||||
Stock
|
Stock
|
Paid-In
|
Deficit
|
||||||||
Shares
|
Amount
|
Capital
|
|
Total
|
|||||||
Balance
as of December 31, 2003
|
|
150,149,927
|
$
|
150,150
|
$
|
160,889,202
|
$
|
(150,096,105)
|
$
|
10,943,247
|
|
Exercise
of Stock Options
|
1,063,776
|
1,064
|
140,676
|
-
|
141,740
|
||||||
Exercise
of Warrants
|
|
10,000,000
|
|
10,000
|
|
1,990,000
|
|
-
|
|
2,000,000
|
|
Stock-Based
Compensation
|
-
|
-
|
879,652
|
-
|
879,652
|
||||||
Non-cash
Warrant Expense
|
|
-
|
|
-
|
|
250,297
|
|
-
|
|
250,297
|
|
Net
Loss
|
-
|
-
|
-
|
(6,967,301)
|
(6,967,301)
|
||||||
Balance
as of December 31, 2004
|
|
161,213,703
|
$
|
161,214
|
$
|
164,149,827
|
$
|
(157,063,406)
|
$
|
7,247,635
|
|
Exercise
of Stock Options
|
2,038,333
|
2,038
|
265,078
|
-
|
267,116
|
||||||
Equity
Financing
|
|
20,000,000
|
|
20,000
|
|
4,280,000
|
|
-
|
|
4,300,000
|
|
Section
16b recovery
|
-
|
-
|
607,223
|
-
|
607,223
|
||||||
Stock-Based
Compensation
|
-
|
-
|
1,085,624
|
-
|
1,085,624
|
||||||
Net
Loss
|
-
|
-
|
-
|
(2,976,882)
|
(2,976,882)
|
||||||
Balance
as of December 31, 2005
|
|
183,252,036
|
$
|
183,252
|
$
|
170,387,752
|
$
|
(160,040,288)
|
$
|
10,530,716
|
|
Exercise
of Stock Options
|
2,582,826
|
2,583
|
427,330
|
-
|
429,913
|
||||||
Stock
Grants Vested
|
|
3,787,271
|
|
3,787
|
|
(3,787)
|
|
-
|
|
|
|
Section
16b recovery
|
-
|
-
|
3,124
|
-
|
3,124
|
||||||
Stock-Based
Compensation
|
-
|
-
|
1,565,423
|
-
|
1,565,423
|
||||||
Net
Loss
|
-
|
-
|
-
|
(4,364,984)
|
(4,364,984)
|
||||||
Balance
as of December 31, 2006
|
|
189,622,133
|
$
|
189,622
|
$
|
172,379,842
|
$
|
(164,405,272)
|
$
|
8,164,192
|
|
|
Years
Ended December 31,
|
|||||||||
2006
|
2005
|
2004
|
||||||||
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(4,364,984)
|
$
|
(2,976,882)
|
$
|
(6,967,301)
|
||||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||
Depreciation
|
|
|
92,963
|
|
|
81,174
|
|
|
633,794
|
|
Amortization
|
54,431
|
56,560
|
50,325
|
|||||||
Non-cash
compensation charges
|
1,565,423
|
1,085,624
|
879,651
|
|||||||
Non-cash
warrant issuance-related expense
|
|
|
-
|
|
|
-
|
|
|
250,297
|
|
Patent-related
charge
|
|
|
-
|
|
|
199,819
|
|
|
32,564
|
|
Changes
in operating assets and liabilities:
|
||||||||||
Accounts
receivable
|
|
|
(877,382)
|
|
|
(1,554,874)
|
|
|
1,047,251
|
|
Inventories
|
(3,653,429)
|
(1,746,122)
|
(290,687)
|
|||||||
Prepaid
expenses and other
|
|
|
84,426
|
|
|
341,321
|
|
|
(273,341)
|
|
Accounts
payable
|
756,749
|
213,482
|
(41,034)
|
|||||||
Accrued
liabilities and deferred revenue
|
|
|
476,837
|
|
|
1,290,565
|
|
|
499,616
|
|
Deferred
occupancy costs
|
106,250
|
-
|
-
|
|||||||
Net
cash used in operating activities
|
(5,758,716)
|
(3,009,333)
|
(4,178,865)
|
|||||||
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Decrease/
(Increase) in restricted certificates of deposit
|
79,740
|
48,847
|
(250,500)
|
|||||||
Payment
of patent costs
|
|
|
(51,556)
|
|
|
(49,121)
|
|
|
(38,707)
|
|
Acquisition
of property and equipment, net
|
(302,458)
|
(80,694)
|
(117,686)
|
|||||||
Net
cash used in investing activities
|
(274,274)
|
(80,968)
|
(406,893)
|
|||||||
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from warrants
|
-
|
-
|
2,000,000
|
|||||||
Proceeds
from equity issuance
|
|
|
-
|
|
|
4,300,000
|
|
|
-
|
|
Proceeds
from Section 16b recovery
|
3,124
|
607,223
|
-
|
|||||||
Exercise
of stock options
|
|
|
429,912
|
|
|
267,117
|
|
|
141,740
|
|
Proceeds
from issuance of notes
|
5,000,000
|
1,000,000
|
2,500,000
|
|||||||
Net
cash provided by financing activities
|
|
|
5,433,036
|
|
|
6,174,340
|
|
|
4,641,740
|
|
Increase
in cash and cash equivalents
|
|
|
(599,954)
|
|
|
3,084,039
|
|
|
55,982
|
|
Cash
and cash equivalents at beginning of period
|
3,486,430
|
402,391
|
346,409
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
2,886,476
|
$
|
3,486,430
|
$
|
402,391
|
|||
Supplemental
cash flow information
|
||||||||||
Cash
paid for interest and income taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Manufacturing
equipment
|
|
3 to 4 years
|
Office
equipment
|
|
3
to 5 years
|
Furniture
and fixtures
|
|
5
years
|
Leasehold
improvements
|
|
Life of lease
|
Year Ended December 31,
|
||||||||||||||||
2006
|
2005
|
|||||||||||||||
(in thousands of dollars)
|
||||||||||||||||
Patent,
gross
|
|
$
|
1,162
|
|
$
|
1,112
|
|
|||||||||
Accumulated
amortization
|
|
(321)
|
(268)
|
|||||||||||||
Other
amortizable intangibles, net
|
|
$
|
841
|
|
$
|
844
|
|
|||||||||
Goodwill
|
|
$
|
13,370
|
|
$
|
13,370
|
|
2007
|
|
|
|
|
|
51
|
|
2008
|
51
|
||||||
2009
|
|
|
|
|
|
51
|
|
2010
|
51
|
||||||
2011
|
|
|
|
|
|
50
|
|
Thereafter
|
587
|
||||||
Total
|
|
|
|
|
$
|
841
|
|
In
thousands of dollars:
|
|
Twelve
months ended
December
31, 2005
|
|
Twelve
months ended
December
31, 2004
|
|
||
Net
loss, as reported
|
|
$
|
(2,977
|
)
|
$
|
(6,967
|
)
|
Deduct
net change in stock-based employee compensation expense determined
under
fair-value-based method of all rewards, net of tax
|
|
$
|
(273
|
)
|
$
|
(406
|
)
|
Pro
forma net loss
|
|
$
|
(3,250
|
)
|
$
|
(7,373
|
)
|
Pro
forma net loss per share (basic)
|
|
$
|
(0.02
|
)
|
$
|
(0.05
|
)
|
Pro
forma net loss per share (diluted)
|
|
$
|
(0.02
|
)
|
$
|
(0.05
|
)
|
Outstanding,
December 31, 2005
|
|
|
8,146,000
|
|
Granted
|
-
|
|||
Forfeited
or canceled
|
|
|
(651,000)
|
|
Exercised
|
(2,583,000)
|
|||
Outstanding,
December 31, 2006
|
|
|
4,912,000
|
|
Weighted
|
||||||||
Average
Grant Date
|
||||||||
Shares
|
Fair
Value (per share)
|
|||||||
Outstanding,
December 31, 2005
|
|
|
None
|
|
|
None
|
|
|
Granted
|
15,598,000
|
$
|
0.35
|
|||||
Forfeited
or canceled
|
|
|
(3,097,000)
|
|
$
|
0.34
|
|
|
Vested
|
(3,787,000)
|
$
|
0.35
|
|||||
Outstanding,
December 31, 2006
|
|
|
8,714,000
|
|
$
|
0.35
|
|
December 31,
|
|
December 31,
|
|||||
2006
|
2005
|
||||||
Raw
materials
|
$
|
2,675,000
|
|
$
|
1,368,000
|
|
|
Work
in process
|
2,332,000
|
|
443,000
|
||||
Finished
product
|
|
1,362,000
|
|
|
904,000
|
|
|
Total
|
$
|
6,369,000
|
|
$
|
2,715,000
|
|
For the Years Ended December 31,
|
||||||||||
2006
|
|
2005
|
|
2004
|
||||||
(in
thousands of dollars)
|
||||||||||
Beginning
Balance
|
|
$
|
160
|
|
$
|
218
|
|
$
|
858
|
|
Inventory
Obsolescence Expense
|
165
|
|
-
|
|
57
|
|||||
Inventory
Written Off
|
|
|
-
|
|
|
58
|
|
|
697
|
|
Recoveries
|
-
|
|
-
|
|
-
|
|||||
Ending
Balance
|
|
$
|
325
|
|
$
|
160
|
|
$
|
218
|
|
For the Years Ended December 31,
|
||||||||||||||||||||
2006
|
|
2005
|
|
2004
|
||||||||||||||||
(in
thousands of dollars)
|
||||||||||||||||||||
Beginning
Balance
|
|
$
|
0
|
|
$
|
0
|
|
$
|
4
|
|
||||||||||
Bad
Debt Expense
|
-
|
|
-
|
|
-
|
|||||||||||||||
Accounts
Written Off
|
|
|
-
|
|
|
-
|
|
|
-
|
|
||||||||||
Recoveries
|
0
|
|
0
|
|
4
|
|||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Ending
Balance
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Options
outstanding (Note 7)
|
|
|
4,912,000
|
|
Options
|
|||||||
Outstanding
|
Exercise
Price Per Share
|
||||||
Outstanding
at December 31, 2003
|
|
|
6,660,000
|
|
$
|
0.11 —21.50
|
|
Granted
|
4,540,000
|
$
|
0.14
— 0.89
|
||||
Exercised
|
|
|
(1,046,000)
|
|
$
|
0.11
— 0.49
|
|
Forfeited
|
(1,095,000)
|
$
|
0.11
— 21.50
|
||||
Outstanding
at December 31, 2004
|
|
|
9,059,000
|
|
$
|
0.11
— 18.25
|
|
Granted
|
2,815,000
|
$
|
0.25
— 0.43
|
||||
Exercised
|
|
|
(2,038,000)
|
|
$
|
0.11
— 0.14
|
|
Forfeited
|
(1,690,000)
|
$
|
0.11
— 18.25
|
||||
Outstanding
at December 31, 2005
|
|
|
8,146,000
|
|
$
|
0.11
— 18.25
|
|
Granted
|
-
|
||||||
Exercised
|
|
|
(2,583,000)
|
|
$
|
0.11
- 0.39
|
|
Forfeited
|
(651,000)
|
$
|
0.25
- 18.25
|
||||
Outstanding
at December 31, 2006
|
|
|
4,912,000
|
|
$
|
0.11
- 1.81
|
|
$0.11
to
|
$0.24
to
|
$0.45
to
|
|||||||||||||||||||||
$0.22
|
$0.43
|
$1.81
|
|||||||||||||||||||||
OUTSTANDING
AT DECEMBER 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Number
of options
|
1,145,000
|
2,755,000
|
1,012,000
|
||||||||||||||||||||
Weighted-average
exercise price
|
|
$
|
0.14
|
|
$
|
0.35
|
|
$
|
0.89
|
|
|||||||||||||
Weighted-average
remaining contractual life in years
|
7
|
7
|
4
|
||||||||||||||||||||
EXERCISABLE
AT DECEMBER 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Number
of options
|
1,104,000
|
2,755,000
|
1,012,000
|
||||||||||||||||||||
Weighted-average
exercise price
|
|
$
|
0.14
|
|
$
|
0.35
|
|
$
|
0.89
|
|
Year
|
Amount
|
|||||||
2007
|
|
|
974,000
|
|
||||
2008
|
1,658,000
|
|||||||
2009
|
|
|
3,973,000
|
|
||||
2010
|
8,199,000
|
|||||||
2011
|
|
|
11,953,000
|
|
||||
2012
|
11,922,000
|
|||||||
2018
|
|
|
11,146,000
|
|
||||
2019
|
10,726,000
|
|||||||
2020
|
|
|
15,501,000
|
|
||||
2021
|
24,904,000
|
|||||||
2022
|
|
|
13,982,000
|
|
||||
2023
|
5,284,000
|
|||||||
2024
|
|
|
9,758,000
|
|
||||
2025
|
3,371,000
|
|||||||
2026
|
|
|
3,651,000
|
|
||||
Total
|
$
|
137,002,000
|
2006
|
2005
|
2004
|
||||||||
Tax
benefit computed at the Federal statutory rate
|
34.00%
|
|
|
34.00%
|
|
|
34.00%
|
|
||
Increase
(decrease) in taxes due to:
|
||||||||||
Change
in valuation allowance
|
|
|
-38.80%
|
|
|
-38.80%
|
|
|
-38.80%
|
|
State
taxes, net of Federal benefit
|
4.80%
|
4.80%
|
4.80%
|
|
December
31,
|
December
31,
|
|||||
2006
|
2005
|
||||||
Deferred
tax assets
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
$
|
52,061,000
|
$
|
50,490,000
|
|||
Accrued
liabilities
|
|
|
1,223,000
|
|
|
840,000
|
|
Inventories
|
124,000
|
61,000
|
|||||
Property
and Equipment
|
|
|
893,000
|
|
|
893,000
|
|
Total
deferred tax assets
|
|
|
54,301,000
|
|
|
52,284,000
|
|
Deferred
liabilities:
|
|||||||
Patent
costs
|
|
|
(320,000)
|
|
|
(321,000)
|
|
Net
deferred tax assets
|
53,981,000
|
51,963,000
|
|||||
Valuation
allowance
|
|
|
(53,981,000)
|
|
|
(51,963,000)
|
|
Net
Deferred tax assets
|
|
$
|
—
|
|
$
|
—
|
|
Year
|
Amount
|
|||
2007
|
|
$
|
201,000
|
|
2008
|
205,000
|
|||
2009
|
|
|
208,000
|
|
2010
|
211,000
|
|||
2011
|
|
|
216,000
|
|
2006
Quarter Ended
|
|||||||||||||
March 31
|
June
30
|
September
30
|
December
31
|
||||||||||
(in thousands of U.S. dollars except per share amounts)
|
|||||||||||||
Net
Sales
|
|
$
|
1,326
|
|
$
|
3,446
|
|
$
|
6,433
|
|
$
|
3,792
|
|
Gross
Profit
|
495
|
1,387
|
2,583
|
1,464
|
|||||||||
Net
Loss
|
|
|
(1,700)
|
|
|
(1,231)
|
|
|
(167)
|
|
|
(1,267)
|
|
Loss
per Share
|
$
|
(0.01)
|
$
|
(0.01)
|
$
|
(0.00)
|
$
|
(0.01)
|
|||||
2005
Quarter Ended
|
|||||||||||||
March 31
|
June
30
|
September
30
|
December
31
|
||||||||||
(in thousands of U.S. dollars except per share amounts)
|
|||||||||||||
Net
Sales
|
|
$
|
3,293
|
|
$
|
2,484
|
|
$
|
2,037
|
|
$
|
2,450
|
|
Gross
Profit
|
1,372
|
1,290
|
1,265
|
1,216
|
|||||||||
Net
Loss
|
|
|
(482)
|
|
|
(811)
|
|
|
(596)
|
|
|
(1,088)
|
|
Loss
per Share
|
$
|
0.00
|
$
|
(0.01)
|
$
|
0.00
|
$
|
(0.01)
|
|
(a)
|
The
following documents are filed as part of this Form
10-K:
|
1.
The following financial statements of the Company, with the report
of
independent auditors, are filed as part of this Form 10-K:
|
|
|
|
||
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
|
|
Consolidated
Statements of Operations for the Years Ended December 31, 2006,
2005, and
2004
|
|
|
Consolidated
Statements of Stockholders’ Equity (Net Capital Deficiency) for the Years
Ended December 31, 2006, 2005 and 2004
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2006,
2005, and
2004
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
2.
The following financial statement schedules of the Company are
filed as
part of this Form 10-K:
|
|
|
All
financial schedules are omitted because such schedules are not
required or
the information required has been presented in the aforementioned
financial statements.
|
|
|
3.
Exhibits are listed in the Exhibit Index to this Form
10-K.
|
|
ISCO
INTERNATIONAL
|
||
By:
|
|
/s/
JOHN THODE
|
|
John
Thode
|
|
|
Chief
Executive Officer
|
Signature
|
|
Title
|
/s/
JOHN THODE
|
|
Chief
Executive Officer and Director
(Principal
Executive Officer and Director)
|
John
Thode
|
|
|
/s/
FRANK CESARIO
|
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
Frank
Cesario
|
|
|
/s/
JAMES FUENTES
|
|
Director
and Chairman of the Board
|
James
Fuentes
|
|
|
/s/
AMR ABDELMONEM
|
|
Director
and Chief Technology Officer
|
Amr
Abdelmonem
|
|
|
/s/
GEORGE CALHOUN
|
|
Director
|
George
Calhoun
|
|
|
/s/
MICHAEL FENGER
|
|
Director
|
Michael
Fenger
|
|
|
/s/
RALPH PINI
|
|
Director
|
Ralph
Pini
|
|
|
/s/
TOM POWERS
|
|
Director
|
Tom
Powers
|
|
|
/s/
MARTY SINGER
|
|
Director
|
Marty
Singer
|
|
|
Exhibit
Number
|
|
Description
of Exhibits
|
3.1
|
|
Certificate
of Incorporation of the Company, incorporated by reference to Exhibit
3.1
to the Company’s Registration Statement on Form S-3/A, filed with the
Securities and Exchange Commission (“SEC”) on August 13, 1998,
Registration No. 333-56601 (the “August 1998 S-3”).
|
3.2
|
|
By-Laws
of the Company, incorporated by reference to Exhibit 3.2 to Amendment
No.
3 to the Company’s Registration Statement on Form S-1, filed with the SEC
on October 26, 1993, Registration No. 33-67756 (the “IPO Registration
Statement”).
|
3.3
|
|
Certificate
of Amendment of Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 3.3 to the IPO Registration
Statement.
|
3.4
|
|
Certificate
of Amendment of Certificate of Incorporation of the Company, incorporated
by reference to Exhibit 4.3 to the Company’s Registration Statement on
Form S-3/A, filed with the SEC on July 1, 1999, Registration No.
333-77337.
|
3.5
|
|
Certificate
of Amendment of Certificate of Incorporation of the Company filed
July 18,
2000, incorporated by reference to the Company’s registration statement on
Form S-8 filed August 7, 2000 (the August 2000 S-8”).
|
3.6
|
|
Certificate
of Amendment to Certificate of Incorporation filed with the Secretary
of
State of the State of Delaware on June 25, 2001, incorporated by
reference
to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June
27, 2001.
|
3.7
|
|
Certificate
of Amendment to Certificate of Incorporation filed with the Secretary
of
State of the State of Delaware on December 16, 2004, incorporated
by
reference to Exhibit 3.7 to the Company’s Annual Report on Form 10-K filed
on March 31, 2005 (the “2004 10-K”).
|
4.1
|
|
Specimen
stock certificate representing common stock, incorporated by reference
to
Exhibit 4.1 to the IPO Registration Statement.
|
4.2
|
|
Rights
Agreement dated as of February 9, 1996 between the Company and
LaSalle
National Trust, N.A., incorporated by reference to the Exhibit
to the
Company’s Registration Statement on Form 8-A, filed with the SEC on
February 12, 1996.
|
4.3
|
|
The
SSI Replacement Nonqualified Stock Option Plan, incorporated by
reference
to Exhibit 4.1 to the Company’s Registration Statement on Form S-8, filed
with the SEC on November 3, 2000, Registration No.
333-49268.*
|
4.4
|
|
Amendment
No. 1 to the Rights Agreement between ISCO International, Inc.
(formerly
Illinois Superconductor Corporation) and LaSalle National Trust
Association (formerly known as LaSalle National Trust Company)
dated as of
February 9, 1996, incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed with the SEC on February 22,
2002.
|
10.1 *
|
|
Form
of Amended and Restated Director Indemnification Agreement, incorporated
by reference to Exhibit 10 to the Company’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998.
|
10.2
|
|
Public
Law Agreement dated February 2, 1990 between Illinois Department
of
Commerce and Community Affairs and the Company, incorporated by
reference
to Exhibit 10.5 to the IPO Registration Statement.
|
10.3
|
|
Public
Law Agreement dated December 30, 1991 between Illinois Department
of
Commerce and Community Affairs and the Company, amended as of June
30,
1992, incorporated by reference to Exhibit 10.6 to the IPO Registration
Statement.
|
10.4
|
|
Subcontract
and Cooperative Development Agreement dated as of June 1, 1993
between
American Telephone and Telegraph Company and the Company, incorporated
by
reference to Exhibit 10.9 to the IPO Registration
Statement.
|
10.5
|
|
Intellectual
Property Agreement dated as of June 1, 1993 between American Telephone
and
Telegraph Company and the Company, incorporated by reference to
Exhibit
10.10 to the IPO Registration Statement.
|
10.6
|
|
License
Agreement dated January 31, 1990 between the Company and Northwestern
University, incorporated by reference to Exhibit 10.13 to the IPO
Registration Statement.
|
10.7
|
|
License
Agreement dated February 2, 1990 between the Company and ARCH Development
Corporation, incorporated by reference to Exhibit 10.14 to the
IPO
Registration Statement.
|
10.8
|
|
License
Agreement dated August 9, 1991 between the Company and ARCH Development
Corporation, incorporated by reference to Exhibit 10.15 to the
IPO
Registration Statement.
|
10.9
|
|
License
Agreement dated October 11, 1991 between the Company and ARCH Development
Corporation, incorporated by reference to Exhibit 10.16 to the
IPO
Registration Statement.
|
10.10
|
|
Public
Law Agreement dated August 18, 1993 between Illinois Department
of
Commerce and Community Affairs and the Company, incorporated by
reference
to Exhibit 10.17 to the IPO Registration
Statement.
|
10.11 *
|
|
Form
of Officer Indemnification Agreement incorporated by reference
to Exhibit
10.17 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 1998.
|
10.12
|
|
Escrow
Agreement dated August 8, 2000 among the Company, Russell Scott,
III, as
stockholder representative, and American National Bank and Trust
Company,
as escrow agent, incorporated by reference to Exhibit 10.25 to
the
Company’s registration statement on Form S-2 filed September 7, 2000,
Registration No. 333-45406 (the “September S-2”).
|
10.13
*
|
|
Employment
Agreement with Amr Abdelmonem dated January 1, 2001, incorporated
by
reference to Exhibit 10.5 to the Company’s Registration Statement on Form
S-3 filed on April 20, 2001.
|
10.14
|
|
ISCO
International, Inc. Amended and Restated 1993 Stock Option Plan,
incorporated by reference to Appendix C and D of the Company’s Definitive
Proxy materials filed on May 22, 2001.
|
10.15
|
|
Secured
9 1
/
2
%
Grid Note dated October 23, 2002 between ISCO International, Inc.
and
Alexander Finance L.P. in the principal amount of $1,752,400, incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
filed on October 24, 2002.
|
10.16
|
|
Secured
9 1
/
2
%
Grid Note dated October 23, 2002 between ISCO International, Inc.
and
Manchester Securities Corporation in the principal amount of $2,247,600,
incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K filed on October 24, 2002.
|
10.17
|
|
Registration
Rights Agreement dated October 23, 2002 between ISCO International,
Inc.
Manchester Securities Corporation, and Alexander Finance L.P.,
incorporated by reference to Exhibit 10.7 to the Company’s Current Report
on Form 8-K filed on October 24, 2002.
|
10.18
|
|
ISCO
International, Inc. 2003 Equity Incentive Plan, incorporated by
reference
to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on June
20, 2006.
|
10.19
|
|
Secured
14% Grid Note dated October 24, 2003 between ISCO International,
Inc. and
Alexander Finance, L.P. in the principal amount of $876,200, incorporated
by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K
filed on October 27, 2003.
|
10.20
|
|
Secured
14% Grid Note dated October 24, 2003 between ISCO International,
Inc. and
Manchester Securities Corporation in the principal amount of $1,123,800,
incorporated by reference to Exhibit 10.11 to the Company’s Current Report
on Form 8-K filed on October 27, 2003.
|
10.21
|
|
Secured
14% Grid Note dated July 23, 2004 between ISCO International, Inc.
and
Alexander Finance, L.P. in the principal amount of $386,900, incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
filed on July 28, 2004.
|
10.22
|
|
Secured
14% Grid Note dated July 23, 2004 between ISCO International, Inc.
and
Manchester Securities Corporation in the principal amount of $113,100,
incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K filed on July 28, 2004.
|
10.23
|
|
Stock
Purchase Agreement dated December 15, 2003 between ISCO International,
Inc. and Morgan & Finnegan, L.L.P., incorporated by reference to
Exhibit 10.1 to the Company’s Current Report of Form 8-K filed on December
16, 2003.
|
10.24
|
|
Office/Service
Center Lease Agreement dated July 20, 2004 between ISCO International,
Inc. and D&K Elk Grove Industrial II, LLC, incorporated by reference
to Exhibit 10.24 to the 2004 10-K.
|
10.25
|
|
Third
Amended and Restated Loan Agreement dated November 10, 2004 between
ISCO
International, Inc., Manchester Securities Corporation, and Alexander
Finance L.P., incorporated by reference to Exhibit 10.1 to the
Company’s
Current Report on Form 8-K filed on November 12, 2004.
|
10.26
|
|
Third
Amended and Restated Security Agreement dated November 10, 2004
between
ISCO International, Inc., Spectral Solutions, Inc., Illinois
Superconductor Canada Corporation, Manchester Securities Corporation,
and
Alexander Finance L.P., incorporated by reference to Exhibit 10.2
to the
Company’s Current Report on Form 8-K filed on November 12,
2004.
|
10.27
|
|
Secured
14% Grid Note dated November 10, 2004 between ISCO International,
Inc. and
Alexander Finance, L.P. in the principal amount of $1,100,000,
incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K filed on November 12, 2004.
|
10.28
|
|
Secured
14% Grid Note dated November 10, 2004 between ISCO International,
Inc. and
Manchester Securities Corporation in the principal amount of $900,000,
incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K filed on November 12, 2004.
|
10.29
|
|
Third
Amended and Restated Guaranty of Spectral Solutions, Inc. dated
November
10, 2004, incorporated by reference to Exhibit 10.5 to the Company’s
Current Report on Form 8-K filed on November 12, 2004.
|
10.30
|
|
Third
Amended and Restated Guaranty of Illinois Superconductor Canada
Corporation dated November 10, 2004, incorporated by reference
to Exhibit
10.6 to the Company’s Current Report on Form 8-K filed on November 12,
2004.
|
10.31*
|
|
Letter
Agreement dated January 6, 2005 between ISCO International, Inc.
and John
Thode (including Non-Qualified Stock Option Agreement) incorporated
by
reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K
filed on January 12, 2005.
|
10.32
|
|
Amendment
to Loan Documents dated February 10, 2005 between ISCO International,
Inc., Manchester Securities Corporation, Alexander Finance, L.P.,
Spectral
Solutions, Inc. and Illinois Superconductor Corporation, incorporated
by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on February 15, 2005.
|
10.33
|
|
Securities
Purchase Agreement dated July 25, 2005 by and among ISCO International,
Inc. Alexander Finance, L.P., Grace Brothers LTD, Elliott Associates,
L.P., and Elliott International, L.P., .incorporated by reference
to
Exhibit 10.1 to the Company’s Current Report of Form 8-K filed on July 26,
2005
|
10.34
|
|
Amendment
to and Waiver Under Loan Documents dated July 25, 2005 by and among
ISCO
International, Inc., Manchester Securities Corporation and Alexander
Finance, L.P., incorporated by reference to Exhibit 10.2 to the
Company’s
Current Report of Form 8-K filed on July 26, 2005
|
10.35
|
|
Letter
Agreement dated August 5, 2005 by and among ISCO International,
Inc.,
Elliott Associates, L.P., and Elliott International, L.P., incorporated
by
reference to Exhibit 10.1 to the Company’s Current Report of Form 8-K
filed on August 9, 2005.
|
10.36*
|
|
Thode
Employment Agreement dated January 10, 2006 between ISCO International,
Inc. and John S. Thode, incorporated by reference to Exhibit 10.1
to the
Company’s Current Report of Form 8-K filed on January 17,
2006.
|
10.37*
|
|
Abdelmonem
Employment Agreement dated January 12, 2006 between ISCO International,
Inc. and Dr. Amr Abdelmonem, incorporated by reference to Exhibit
10.2 to
the Company’s Current Report of Form 8-K filed on January 17,
2006.
|
10.38*
|
|
Restricted
Stock Agreement dated January 12, 2006 by and between ISCO International,
Inc. and Dr. Amr Abdelmonem, incorporated by reference to Exhibit
10.3 to
the Company’s Current Report of Form 8-K filed on January 17,
2006.
|
10.39*
|
|
Employment
Agreement dated February 6, 2006 between ISCO International, Inc.
and
Frank J. Cesario, incorporated by reference to Exhibit 10.1 to
the
Company’s Current Report of Form 8-K filed on February 9,
2006.
|
10.40*
|
|
Summary
of Non-Employee Director Compensation Policy, incorporated by reference
to
Exhibit 10.1 to the Company’s Current Report of Form 8-K filed on February
24, 2006.
|
10.41
|
Securities
Purchase Agreement by and among ISCO International, Inc., Manchester
Securities Corporation and Alexander Finance, L.P. dated June 22,
2006,
incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed on June 28, 2006.
|
|
10.42
|
5%
Senior Secured Convertible Note by and between ISCO International,
Inc.
and Manchester Securities Corporation, incorporated by reference
to
Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 28,
2006.
|
|
10.43
|
5%
Senior Secured Convertible Note by and between ISCO International,
Inc.
and Alexander Finance, L.P., incorporated by reference to Exhibit
10.3 to
the Company’s Current Report on Form 8-K filed on June 28,
2006.
|
|
10.44
|
Registration
Rights Agreement by and among ISCO International, Inc., Manchester
Securities Corporation and Alexander Finance, L.P. dated June 22,
2006,
incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K filed on June 28, 2006.
|
|
10.45
|
Fourth
Amended and Restated Security Agreement by and among ISCO International,
Inc., Spectral Solutions, Inc., Illinois Superconductor Canada
Corporation, Manchester Securities Corporation and Alexander Finance,
L.P.
dated June 22, 2006, incorporated by reference to Exhibit 10.5
to the
Company’s Current Report on Form 8-K filed on June 28,
2006.
|
|
10.46
|
Fourth
Amended and Restated Guaranty of Spectral Solutions, Inc., incorporated
by
reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K
filed on June 28, 2006.
|
|
10.47
|
Fourth
Amended and Restated Guaranty of Illinois Superconductor Canada
Corporation, incorporated by reference to Exhibit 10.7 to the Company’s
Current Report on Form 8-K filed on June 28, 2006.
|
|
10.48
|
Amendment
to and Waiver Under the Third Amended and Restated Loan Agreement
by and
among ISCO International, Inc., Spectral Solutions, Inc., Illinois
Superconductor Canada Corporation, Manchester Securities Corporation
and
Alexander Finance, L.P. dated June 22, 2006, incorporated by reference
to
Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on June 28,
2006.
|
|
14
|
|
Code
of Ethics incorporated by reference to Exhibit 14 to the Company’s Annual
Report on Form 10-K filed on March 30, 2004.
|
21**
|
List
of subsidiaries: Spectral Solutions, Inc. and Illinois Superconductor
Canada Corporation
|
|
23.1**
|
|
Consent
of Grant Thornton LLP
|
31.1**
|
|
Certification
by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a)
as
adopted pursuant to Section 302 of the Sarbanes Oxley Act of
2002.
|
31.2**
|
|
Certification
by Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a)
as
adopted pursuant to Section 302 of the Sarbanes Oxley Act of
2002.
|
32**
|
|
Certification
Pursuant To 18 U.S.C Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
*
|
Management
contract or compensatory plan or arrangement required to be filed
as an
exhibit on this Form 10-K.
|
**
|
Filed
herewith.
|