U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2005
Commission File Number ___________
INGEN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Georgia 88-0429044
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
35193 Avenue "A", Suite-C, Yucaipa, California 92399
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(Address of principal executive offices) (Zip Code)
(800) 259-9622
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [ ] No [x]
At August 31, 2005, 479,737,593 shares of the registrant's common stock
(no par value) were outstanding.
Transitional Small Business Disclosure Format (check one):
YES / / NO /X/
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (UNAUDITED)
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AUGUST 31, 2005 2004
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ASSETS
Current assets
Cash $ 404,432 $ 9,976
Accounts receivable 38,565 --
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Total current assets 442,997 9,976
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Property and equipment, net of accumulated depreciation
of $84,910 for 2005 and $66,913 for 2004 45,136 30,924
Other Assets
Patents, net of accumulated amortization of zero for 2005
and $9,964 for 2004 -- 16,941
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Total other assets -- 16,941
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TOTAL ASSETS $ 488,133 $ 57,841
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable & Accrued Expenses $ 394,771 $ 497,048
Litigation reserve -- 143,500
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Total current liabilities 394,771 640,548
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Long-term Liabilities
Officer's loan 42,802 264,125
Notes payable -- 25,000
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Total long-term liabilities 42,802 289,125
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Stockholders' Deficit
Preferred stock, no par value, 37,000,000 authorized; issued and
outstanding 36,900,000 for 2005 and zero for 2004 369,000 --
Series A preferred stock, no par value, 3,000,000 authorized; issued
and outstanding 3,000,000 for 2005 and zero for 2004 30,000 --
Common stock, no par value, authorized 500,000,000 shares; issued
and outstanding 479,737,593 for 2005 and 12,864,593 for 2004 6,330,713 5,407,213
Accumulated deficit (6,679,153) (6,279,045)
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Total stockholders deficit 50,560 (871,832)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 488,133 $ 57,841
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CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
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FOR THE THREE MONTHS ENDED AUGUST 31, 2005 2004
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Sales $ 532,872 $ 136,480
Cost of sales 85,046 58,156
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GROSS PROFIT 447,826 78,324
Selling, general and administrative expenses 559,246 95,344
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OPERATING LOSS (111,420) (17,020)
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Other (Expenses):
Interest expenses (1,542) (3,090)
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NET LOSS BEFORE TAXES (112,962) (20,110)
Provision for Income Taxes 800 800
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NET LOSS $ (113,762) $ (20,910)
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Basic and diluted net loss per share $ (0.00) $ (0.00)
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Weighted average number of common shares 301,443,916 12,864,593
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CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
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FOR THE THREE MONTHS ENDED AUGUST 31, 2005 2004
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CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(113,762) $ (20,910)
Adjustments to reconcile net loss to net cash used in operations:
Stock Issued for Services
Accounts receivable (38,565) --
Depreciation and amortization 2,965 4,499
Increase (Decrease) in:
Accounts payable & Accrued expenses 8,241 3,890
Litigation reserve (143,500) --
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NET CASH USED IN OPERATING ACTIVITIES (284,621) (12,521)
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CASH FLOW FROM INVESTING ACTIVITIES:
Additions to fixed assets (23,174) --
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NET CASH USED IN INVESTING ACTIVITIES (23,174) --
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CASH FLOW FROM FINANCING ACTIVITIES:
Net repayments from note payable to related party (60,000) (12,056)
Repayments to notes payable (25,000) --
Proceeds from issuance of common stock 779,500 --
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NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES 694,500 (12,056)
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NET INCREASE (DECREASE) INCREASE IN CASH 386,705 (24,577)
Cash Balance at Beginning of Period 17,727 34,553
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CASH BALANCE AT END OF PERIOD $ 404,432 $ 9,976
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Supplemental Disclosures of Cash Flow Information
Interest paid $ -- $ --
Taxes paid $ -- $ --
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NOTE 1 - NATURE OF BUSINESS
Ingen Technologies, Inc., (formerly known as Creative Recycling Technologies
Inc., the "Company" or "Ingen Technologies"), is a Public Company trading under
OTC: IGTN.PK. Ingen Technologies is a growth-oriented technology company that
offers a diverse and progressive services and products.
Ingen Technologies, Inc., is a Georgia corporation ("IGTN") and owns 100% of the
capital stock of Ingen Technologies, Inc. a Nevada corporation and it has been
in business since 1999.
The Company's flagship product is its BAFI (TM), the world's first wireless
digital low gas warning system for pressurized gas cylinders. On October 24,
2000, the BAFI (TM) received a U.S. Patent with Patent No. 6,137,417. BAFI (TM),
now in its second generation, is an accurate and cost-effective, real-time
pressurized gas warning system that will alert users when gas levels are
approaching empty.
The BAFI (TM) line has multiple applications, inclusive but not limited to, the
Medical Industry, Home Consumer, Residential Development Industry, Safety &
Protection (fire and police), Aircraft Industry, and the Recreational Vehicle
Industry. BAFI (TM) meets or exceeds regulatory compliance of this type of
product and is completed and in production.
The Secure Balance (TM) product is a private-label product that includes a
vestibular function testing system and balance therapy system available to
physicians throughout the United States.
PRESENTATION OF INTERIM INFORMATION: The accompanying consolidated financial
statements as of August 31, 2005 and 2004, for the three months ended August 31,
2005 and 2004 have been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. However,
the Company believes that the disclosures are adequate to make the information
presented not misleading. These consolidated financial statements should be read
in conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended May 31, 2005.
In the opinion of Management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows as of August 31, 2005 and 2004, for the
three months ended August 31, 2005 and 2004 have been made. The results of
operations for the three months ended August 31, 2005 are not necessarily
indicative of the operating results for the full year.
PRINCIPLE OF CONSOLIDATION AND PRESENTATION: The accompanying consolidated
financial statements include the accounts of Ingen Technologies, Inc. and its
subsidiaries after elimination of all inter-company accounts and transactions.
Certain prior period balances have been reclassified to conform to the current
period presentation.
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NOTE 2 - GOING CONCERN
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and liabilities and
commitments in the normal course of business. In the near term, the Company
expects operating costs to continue to exceed funds generated from operations.
As a result, the Company expects to continue to incur operating losses and not
have enough money to grow its business in the future. The Company can give no
assurance that it will achieve profitability or be capable of sustaining
profitable operations. As a result, operations in the near future are expected
to continue to use working capital.
To successfully grow the individual segments of the business, the Company must
decrease its cash burn rate, improve its cash position and the revenue base of
each segment, and succeed in its ability to raise additional capital through a
combination of primarily public or private equity offering or strategic
alliances. The Company also depends on certain important employees, and the loss
of any of those employees would harm the Company's business.
The company incurred a loss of $113,762 and $20,910 for the three months ended
August 31, 2005 and 2004, and as of that date, had an accumulated deficit of
$6,679,153 and $6,279,045, respectively.
NOTE 3 - ACCRUED EXPENSES
Accrued expenses at August 31, 2005 and 2004 consist of:
2005 2004
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Accrued officer's compensation $ 363,500 $ 460,000
Accrued Interest Expense 30,471 15,448
Accrued taxes 800 1,600
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Total $ 394,771 $ 477,048
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NOTE 4 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per
share:
August 31, 2005 August 31, 2004
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Numerator:
Net Loss $ (113,762) $ (20,910)
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Denominator:
Weighted Average Number of Shares 301,443,916 12,864,593
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Net loss per share-Basic and Diluted $ (0.00) $ (0.00)
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NOTE 5 - SEGMENT INFORMATION
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" requires that a publicly traded company must disclose information
about its operating segments when it presents a complete set of financial
statements. Since the Company has only one segment; accordingly, detailed
information of the reportable segment is not presented.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company had notes payable to a related party in the amounts of $42,802 and
$264,125 as of August 31, 2005 and 2004, respectively. The interest rate on the
loan is 6% and due upon working capital availability, but no sooner than June 1,
2006. The related accrued interest is $30,471 and $15,448 as of August 31, 2005
and 2004, respectively.
As of August 31, 2004, there is a note payable to a related party for the amount
of $25,000 with zero interest. The note for the amount of $25,000 was paid
during the quarter ended August 31, 2005.
NOTE 7 - LITIGATION SETTLEMENT
As of August 31, 2004, there was a pending litigation in connection with the
previous landlord for breaking a facility lease by the Company. Management had
estimated and accrued a loss for $143,500. The litigation was settled and paid
in August 2005.
NOTE 8 - GUARANTEES
The Company from time to time enters into certain types of contracts that
contingently require the Company to indemnify parties against third-party
claims. These contracts primarily relate to: (i) divestiture agreements, under
which the Company August provide customary indemnifications to purchasers of the
Company's businesses or assets; and (ii) certain agreements with the Company's
officers, directors and employees, under which the Company August be required to
indemnify such persons for liabilities arising our of their employment
relationship.
The terms of such obligations vary. Generally, a maximum obligation is not
explicitly stated. Because the obligated amounts of these types of agreements
often are not explicitly stated, the overall maximum amount of the obligation
cannot be reasonably estimated. Historically, the Company has not been obligated
to make significant payments for these obligations, and no liabilities have been
recorded for these obligations on its balance sheet as of August 31, 2005.
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NOTE 9 - PREFERRED STOCK
The Company is authorized to issue 40,000,000 shares of no par value preferred
stock. As of August 31, 2004 and 2005, the Company had zero and 39,900,000
shares of preferred stock issued and outstanding, respectively. No dividends
shall accrue or be payable on the preferred stocks. In February 2005, the
Company designated 3,000,000 of the shares of preferred stock as "Series A
Preferred Stock". The Company has the right to redeem each share of Series A
preferred stock for $1; however, there is no obligation for this redemption.
Each share of Series A preferred stock is entitled to vote on all matters with
holders of the common stock; however, each Series A preferred stock is entitled
to 15 votes. Each share of Series A preferred stock is convertible, at the
option of the holder and subject to a 65 day written notice to the Company, at
any time after the date of the issuance into 10 shares of common stock. In the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of Series A preferred stock shall be entitle to be paid
$1 per share before any payments or distribution of assets of the Company to the
holders of the common stock or any other equity securities of the Company.
NOTE 10 - SUBSEQUENT EVENTS
On October 31, 2005, the Company held a special shareholder meeting and
approved a reduction in the number of authorized common shares to 100 million, a
40 to 1 reverse split of all issued and outstanding common shares, and a 3 to 1
reverse split of all issued and outstanding preferred shares. The Board of
Directors and preferred shareholders also approved changes in some of the
attributes of the preferred shares and designated all preferred shares as Class
A preferred shares. All preferred shares are convertible on a one-to-one basis
for common shares and vote on a one share-one vote basis.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, which
reflect management's current views with respect to future events and financial
performance. In this report, the words "anticipates," "believes," "expects,"
"intends," "future," "may" and similar expressions identify forward-looking
statements. These and other forward-looking statements are subject to certain
risks and uncertainties, including those discussed in the Risk Factors section
of this Item 2 and elsewhere in this Form 10-QSB, that could cause actual
results to differ materially from historical results or those anticipated.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. We undertake no obligation
to publicly release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances occurring
subsequent to the filing of the Form 10-QSB with the Securities and Exchange
Commission.
OVERVIEW
We are a medical device manufacturer and service provider for medical and
consumer markets both domestic and (planned for) abroad. We have four products,
one of which has had sales in at least the last two fiscal years (Secure
Balance(TM)). The others are oxygen and gas monitoring safety devices that we
have developed over the last few years and expect to begin selling in calendar
year 2006, OxyView, OxyAlert(TM) and GasAlert(TM).
Our sales revenues for the first quarter of fiscal year 2006 (June 1, 2005
through August 31, 2005) were $532,872, compared with $136,480 in sales in the
first quarter of fiscal year 2005. All of these sales were of Secure
Balance(TM). We had sales revenues of $794,314 in our entire fiscal year 2005
(all Secure Balance(TM) as well). We expect this upswing to continue for our
current fiscal year and beyond as we build our Secure Balance(TM) brand
recognition in the market and intensify our efforts for market penetration.
We have had significant losses since inception. Our net loss was $113,762 in the
first quarter of fiscal year 2006, compared with $20,910 in the first quarter of
fiscal year 2005. Our net loss in fiscal year 2004 was $951,101 and in fiscal
year 2005 was $307,255. We anticipate that we will incur substantial additional
operating losses in our fiscal year 2006 as we wrap up our research and
development of our BAFI(TM) product line and continue to seek an increase in
Secure Balance(TM) sales. As of August 31, 2005, we had an accumulated deficit
of $6,679,153 (up from $6,279,045 in the first quarter of fiscal year 2004).
Our business plan for the remainder of fiscal year 2006 (ending May 31, 2006) is
to continue our efforts to increase the market share Secure Balance(TM) and to
begin world-wide sales of our BAFI(TM) product line.
We sold 347,100,000 of our common shares in the first quarter of fiscal year
2006, for a total purchase price of $779,500,
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are disclosed in Note 2 to our consolidated
financial statements. Certain of our policies require the application of
management judgment in making estimates and assumptions that affect the amounts
reported in the consolidated financial statements and disclosures made in the
accompanying notes. Those estimates and assumptions are based on historical
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experience and various other factors deemed to be applicable and reasonable
under the circumstances. The use of judgment in determining such estimates and
assumptions is by nature, subject to a degree of uncertainty. Accordingly,
actual results could differ from the estimates made. Our significant accounting
policies include:
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes the use of
the fair value based method of accounting for stock-based compensation
arrangements under which compensation cost is determined using the fair value
stock-based compensation determined as of the date of grant and is recognized
over the periods in which the related services are rendered. The statement also
permits companies to elect to continue using the intrinsic value accounting
method specified in Accounting Principles Bulletin Opinion No. 25, "Accounting
for Stock Issued to Employees," to account for stock-based compensation issued
to employees. Through May 31, 2005, we have elected to use the intrinsic value
based method and have disclosed the pro forma effect of using the fair value
based method to account for our stock-based compensation. We plan to continue
using the intrinsic value based method and providing disclosure for the pro
forma effect of using the fair value based method to account for our stock-based
compensation through our fiscal quarter ending in November, 2005.
As a result of the recent adoption by the Financial Accounting Standards Board
of SFAS No. 123 (revised 2004) "Share-Based Payment," or SFAS No. 123(R), we
will be required, beginning in our fiscal quarter ending February of 2006, to
apply the fair value method as prescribed in SFAS No. 123(R). Although our
adoption of SFAS No. 123(R) could have a material impact on our financial
position and results of operations, we are still evaluating the potential impact
from adopting this statement.
ALLOCATION OF COSTS
We allocate certain indirect costs associated with support activities such as
the rent and utilities for facilities. These costs are allocated between
research and development expense and general and administrative expense based on
headcount and/or square footage.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
"special purpose entities" (SPEs).
RESULTS OF OPERATIONS
We had $532,872 in sales in the first quarter of fiscal year 2006, up from
$136,480 in the same quarter of fiscal year 2005. Our cost of sales was $85,046
in the first quarter of fiscal year 2006 and $58,156 in the same quarter of
fiscal year 2005. As a result, our gross profit increased from $78,324 in the
first quarter of fiscal year 2005 to $447,826 in the first quarter of fiscal
year 2006. Our selling, general and administrative expenses for the first
quarter of fiscal year 2006 were $559,246 ($95,344 in the same quarter of fiscal
year 2005). Much of this increase is attributable to the increase in sales
brought about by more word-of-mouth referrals from our physician clientele,
adding more Secure Balance sales representatives and an increase in advertising
costs to over $100,000 for the quarter.
Our operating loss increased from $17,020 in the first quarter of fiscal year
2005 to $111,420 in the first quarter of fiscal year 2006. We expect our
operating costs to remain constant in fiscal year 2006, but still have a goal of
turning a profit late in fiscal year 2006 or in 2007.
We have not generated profits to date and therefore have not paid any federal
income taxes since inception. We paid $800 minimum franchise tax in California
in years 2004 and 2005. As of May 31, 2005, our federal tax net operating loss
carryforward was $1,406,771 ($1,099,516 in 2004), which will begin to expire in
2019, if not utilized. Our ability to utilize our net operating loss and tax
credit carryforwards may become subject to limitation in the event of a change
in ownership.
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LIQUIDITY AND CAPITAL RESOURCES
We financed our operations in the first quarter of fiscal year 2006 through
$532,872 of sales of Secure Balance(TM) and private placement common stock sales
totaling $779,500.
In years past, prior to the commencement of Secure Balance(TM) sales, we relied
on loans and deferments from our CEO and Chairman Scott R. Sand and the
approximate $300,000 investment of Mr. Jeffrey Gleckman (one of our two
preferred shareholders). From June 10, 1999 to March 31, 2004, Mr. Sand provided
"Ingen Nevada," and then "Ingen Georgia" (after our reverse merger; for a short
period of time) with a total of $72,000 in cash loans and $360,000 in deferred
executive compensation. Mr. Sand drew $54,000 in compensation over this time
period. We repaid Mr. Sand $60,000 in the first quarter of fiscal year 2006,
$173,379 in fiscal year 2005 and $33,649 in 2004.
As of August 31, 2005, we had cash on hand of $404,432 (compared to $9,976 in
the same quarter of fiscal year 2005). We also, as of the same date, had $38,565
in accounts receivable (none in the same quarter of fiscal year 2005).
Our future cash requirements will depend on many factors, including finishing
our research and development programs for our BAFI(TM) product line (largely
completed), the costs involved in filing, prosecuting and enforcing patents,
competing technological and market developments and the cost of product
commercialization, as well as our ongoing Secure Balance(TM) sales effort. We do
not expect to generate a positive cash flow from operations at least until the
commercial launch of our BAFI(TM) product line (planned for calendar year 2006)
and possibly later given the expected cost of commercializing our products. We
intend to seek additional funding through public or private financing
transactions. Successful future operations are subject to a number of technical
and business risks, including our continued ability to obtain future funding,
satisfactory product development and market acceptance for our products. See
"Business Risks" below.
HOPE CAPITAL, INC.
From January of 2005 to the end of fiscal year 2005, we entered into agreements
with Hope Capital, Inc. to purchase common shares of our stock in a series of
private transactions. Hope Capital, Inc. ultimately purchased 30,200,000 of our
common shares in fiscal year 2005 at a total price of $144,000. Hope Capital,
Inc. committed to purchase an additional 200 million plus common shares
in the first quarter of fiscal year 2006 (at $0.002 per share).
OTHER FINANCINGS
In total, we sold 347,100,000 shares of our common stock in the first quarter of
fiscal year 2006 for a total purchase price of $779,500. These stock purchases
were made by Hope Capital, Inc. (211,800,000 shares), Xcel Associates, Inc.
(133,300,000 shares) and Apex Charting, Inc. (2,000,000 shares). These sales
were all at $0.002 per share. We anticipate filing a registration statement with
the Securities and Exchange Commission during our fiscal year 2006. We currently
are planning to offer $4,000,000 of our securities.
PLAN OF OPERATION (FOR BAFI(TM) PRODUCT LINE)
We have reserved $500,000 in private placement common stock sales proceeds from
fiscal year 2005 and the first quarter of fiscal year 2006 as a starting point
for the funding for our operations in fiscal year 2006 (budgeted at $4 million).
If we are successful in filing and selling our planned $4,000,000 public
registration in fiscal year 2006, we plan to use these proceeds as follows:
The $4 million is budgeted for the next twelve months and is divided into the
following categories:
CATEGORY ESTIMATED COST
General and Administrative $600,000 (another $500,000 paid through
Secure Balance(TM) sales)
Advertising $400,000 for BAFI(TM) product line ($150,000
for Secure Balance(TM) paid with Secure
Balance(TM) sales)
Manufacturing Costs $2,000,000 for BAFI(TM) product line
($1,000,000 for Secure Balance(TM) paid with
Secure Balance(TM) sales)
Research and Development $400,000 (to create production models for
BAFI(TM) product line)
Consultants, Professionals $300,000
Debt repayment will be paid out of product sales
Contingency $300,000
The actual costs within each category and our total costs of operation for
fiscal year 2006 may vary significantly from the estimates set forth above based
on the factors discussed herein.
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We have not included our projected sales revenues in our budget for fiscal year
2006. Since we do not know if we will be able to sell our securities in a public
registration, revenues earned will be utilized in the same categories as
presented above. We have projected Secure Balance(TM) sales of $500,000 in each
of our first and second fiscal quarters of 2006 and $700,000 in each of our last
fiscal quarters of 2006. We have projected OxyView sales of $200,000 in our
third fiscal quarter of 2006 (December-February) and $400,000 in our fourth
fiscal quarter. Our OxyAlert(TM) fourth quarter sales projection is $200,000.
Management believes these are conservative, achievable sales projections. We
expect to engage in at least 6 months of intensive marketing of our BAFI(TM)
product line before sales pick up. Our market for GasAlert(TM) is a much
broader, larger market and we have declined to project sales totals presently.
TRENDS THAT MAY IMPACT OUR LIQUIDITY
Positive Trends:
The United States has an increasingly elderly population. Our Secure Balance(TM)
and BAFI(TM) product line (except GasAlert(TM) which targets the entire adult
population) are made to meet some of the challenges and circumstances
experienced by our senior citizens. As a result, we expect our sales to increase
in time in reflection of this positive trend.
Management also believes that our products provide increasing protection in
relation to medical malpractice issues. Use of our Secure Balance(TM) system and
OxyAlert(TM) and OxyView products enhance the safety of patients, and therefore,
we believe, lessen the chances of medical malpractice exposure to our physician
clients.
We have been developing our BAFI(TM) product line since 1999. Now, some 6 years
later, we still have not identified competition in the marketplace for our
BAFI(TM) product line. The lack of competition is expected to enhance our
planned marketing campaign.
We believe that Secure Balance(TM) is now among the leaders in the balance and
fall prevention industry. We expect to be able to capitalize on this notoriety
and increase our Secure Balance(TM) sales in fiscal year 2006 and beyond.
Negative Trends:
Our product sales are impacted by Medicare, and are Medicare dependent. Adverse
economic conditions, federal budgetary concerns and politics can affect Medicare
regulations and could negatively impact our product sales.
SEASONAL ASPECTS THAT EFFECT MAY IMPACT OUR MEDICAL MARKET
Traditionally, the medical market experiences an economic decrease in purchasing
during the summer months. Peak months are usually October through February,
followed by a decrease from March to May. This is the common "bell curve" that
has been consistent for several decades and will affect our sales during the
course of a year.
OUR SECURE BALANCE(TM) LEASING AND FINANCING PROGRAMS
Our Secure Balance(TM) Leasing and Financing Programs are offered to allow our
physician and medical facility clients a variety of affordable leasing and
financing options. Our financing option includes a 90 deferral program, giving
clients a chance to earn revenues from Secure Balance(TM) before payments are
due. Please see our website to see the particulars of these financing options.
PURE PRODUCE - A DEVELOPING PRODUCT
We have an agreement in place with AgroWorx, Inc., a company affiliated with one
our directors, Christopher A. Worth. This agreement relates to Pure Produce, an
AgroWorx line of plant products. We will work in concert with AgroWorx to
develop production facilities and market the products grown therein.
The Pure Produce(TM) product is a continuing research & development program
currently under design. This program uses hydroponics technology to grow various
plants without the use of soil, fertilizer and water consumption. The Company
anticipates entering the nutriceutical and pharmaceutical markets over the next
two years. If we accelerate the development of this product during our fiscal
year 2006, we may use a portion of our planned registration statement securities
sales proceeds to move this project (and adjust our currently planned uses
accordingly). The portion that may be used will depend on the amount of Secure
Balance(TM) and BAFI(TM) product line sales during fiscal year 2006. The amount
of funding anticipated for the project is as much as $2 million to construct and
operate as many as 10 production facilities.
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The Ingen Technologies, Inc. Pure Produce(TM) facilities will be designed to
offer vegetable growth efficiency, without pesticides. The Agro-facility will
offer the most efficient use of water and energy conservation technologically
available, while offering the best method for insulator towards food security
available to us.
The main competitive advantage of the facility, if operational, will be to
deliver off-season, high profit margin gourmet vegetables, herbs and edible
flowers. The produce grown can be customized for local consumption or be grown
for specific export markets.
More information regarding Pure Produce(TM) will be forthcoming in our
subsequent period reporting filings with the SEC as we continue to refine and
develop our plans for Pure Produce(TM).
NEW EMPLOYEES
We do note anticipate hiring employees over the next twelve months.
BUSINESS RISKS
The following is a summary of the many risks and uncertainties we face in our
business. You should carefully read these risks and uncertainties as well as the
other information in this report in evaluating our business and its prospects.
WE HAVE A HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT, AND WE MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE.
We have experienced significant operating losses in each period since our
inception. As of August 31, 2005, we have incurred total accumulated losses of
$6,679,153. We expect these losses to continue and it is uncertain when, if
ever, we will become profitable. These losses have resulted principally from
costs incurred in research and development and from general and administrative
costs associated with operations. We expect to incur operating losses in the
future as a result of expenses associated with research and product development
as well as general and administrative costs. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.
WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR GROWTH, AND RAISING
SUCH CAPITAL WILL LIKELY CAUSE SUBSTANTIAL DILUTION TO EXISTING STOCKHOLDERS. IF
ADDITIONAL CAPITAL IS NOT AVAILABLE, WE MAY HAVE TO CURTAIL OR CEASE OPERATIONS.
Our current plans indicate we will need significant additional capital for
research and development and market penetration before we have any anticipated
revenue generated from our BAFI(TM) product line. The actual amount of funds
that we will need will be determined by many factors, some of which are beyond
our control, and we may need funds sooner than currently anticipated. These
factors include:
o the extent to which we enter into licensing arrangements,
collaborations or joint ventures;
o our progress with research and development;
o the costs and timing of obtaining new patent rights (if any);
o cost of continuing operations and sales;
o the extent to which we acquire or license other technologies; and
o regulatory changes and competition and technological developments
in the market.
We will be relying on future securities sales to enable us to grow and reach
profitability. There is no guarantee we will be able to sell our securities.
WE HAVE RELIED ON CAPITAL CONTRIBUTED BY RELATED PARTIES, AND SUCH CAPITAL MAY
NOT BE AVAILABLE IN THE FUTURE.
-12-
We have relied on loans and compensation deferrals from our CEO and Chairman,
Scott R. Sand, and investment from Jeffrey Gleckman, to sustain us from 1999
into fiscal year 2004. Although we have paid much of these loans from Mr. Sand
back, we may be unable to repay the remainder as planned and may have to look
again to Mr. Sand for assistance in financing if our securities sales don't go
as planned. There is no guarantee that Mr. Sand will have financial resources
available to assist in our funding.
WE ARE SUBJECT TO NEW CORPORATE GOVERNANCE AND INTERNAL CONTROLS REPORTING
REQUIREMENTS, AND OUR COSTS RELATED TO COMPLIANCE WITH, OR OUR FAILURE TO COMPLY
WITH EXISTING AND FUTURE REQUIREMENTS COULD ADVERSELY AFFECT OUR BUSINESS.
We face new corporate governance requirements under the Sarbanes-Oxley Act of
2002, as well as new rules and regulations subsequently adopted by the SEC.
These laws, rules and regulations continue to evolve and may become increasingly
stringent in the future. In particular, we will be required to include
management and auditor reports on internal controls as part of our annual report
for the year ended December 31, 2006 pursuant to Section 404 of the
Sarbanes-Oxley Act. We cannot assure you that we will be able to fully comply
with these laws, rules and regulations that address corporate governance,
internal control reporting and similar matters. Failure to comply with these
laws, rules and regulations could materially adversely affect our reputation,
financial condition and the value of our securities.
OUR PRODUCTS MAY NOT BE SUCCESSFULLY DEVELOPED OR COMMERCIALIZED, WHICH WOULD
HARM US AND FORCE US TO CURTAIL OR CEASE OPERATIONS.
We are a relatively new company and our BAFI(TM) product line in particular is
still in the late stages of development (we still need manufacturing
prototypes). These products, once marketing commences, may not be successfully
developed or commercialized on a timely basis, or at all. If we are unable, for
technological or other reasons, to complete the development, introduction or
scale-up of manufacturing of these products or other potential products, or if
our products do not achieve a significant level of market acceptance, we would
be forced to curtail or cease operations. Even if we develop our products for
commercial use, we may not be able to develop products that:
o are accepted by, and marketed successfully to, the medical
marketplace;
o are safe and effective;
o are protected from competition by others;
o do not infringe the intellectual property rights of others;
o are developed prior to the successful marketing of similar
products by competitors; or
o can be manufactured in sufficient quantities or at a reasonable
cost.
WE MAY NOT BE ABLE TO FORM AND MAINTAIN THE COLLABORATIVE RELATIONSHIPS THAT OUR
BUSINESS STRATEGY REQUIRES, AND IF WE CANNOT DO SO, OUR ABILITY TO DEVELOP
PRODUCTS AND REVENUE WILL SUFFER.
We must form research collaborations and licensing arrangements with several
partners at the same time to operate our business successfully. To succeed, we
will have to maintain our existing relationships and establish additional
collaborations. We cannot be sure that we will be able to establish any
additional research collaborations or licensing arrangements necessary to
develop and commercialize products using our technology or that we can do so on
terms favorable to us. If our collaborations are not successful or we are not
able to manage multiple collaborations successfully, our programs may suffer.
Collaborative agreements generally pose the following risks:
o collaborators may not pursue further development and
commercialization of products resulting from collaborations or may
elect not to continue or renew research and development programs;
o collaborators may delay clinical trials, under-fund a clinical
trial program, stop a clinical trial or abandon a product, repeat
or conduct new clinical trials or require a new formulation of a
product for clinical testing;
-13-
o collaborators could independently develop, or develop with third
parties, products that could compete with our future products;
o the terms of our agreements with our current or future
collaborators may not be favorable to us;
o a collaborator with marketing and distribution rights to one or
more products may not commit enough resources to the marketing and
distribution of our products, limiting our potential revenues from
the commercialization of a product;
o disputes may arise delaying or terminating the research,
development or commercialization of our products, or result in
significant litigation or arbitration; and
o collaborations may be terminated and, if terminated, we would
experience increased capital requirements if we elected to pursue
further development of the product.
SECURE BALANCE(TM) IS A PRIVATE LABEL PRODUCT THAT IS NOT EXCLUSIVE TO US.
We provide education, training and services related to the SportKat product
lines that all constitute what we call "Secure Balance(TM)." However, the
devices themselves are provided to us on a non-exclusive basis, meaning that
other companies are marketing the same devices under other names (or using the
SportKat name). Only time will tell if the non-exclusive nature of the provision
of the devices themselves to us negatively impacts our ability to capture a
meaningful market share. If our sales of Secure Balance(TM) suffer because of
this non-exclusive relationship, our financial prospects and operational results
will be negatively impacted.
ALTHOUGH WE DO NOT HAVE DIRECT COMPETITION IN RELATION TO OUR BAFI(TM) PRODUCT
LINE, WE EXPECT IT IN THE FUTURE.
Although we are unaware of any current competition for our BAFI(TM) product
line, we expect competition to develop after we begin marketing our products. It
is unknown at this time what impact any such competition could have on us.
However, we are a "going concern" enterprise and it is certainly foreseeable
that more than one competitor could emerge that is much stronger financially
than we are and/or could already have significant marketing relationships for
other medical devices.
WE DO NOT HAVE INTERNATIONAL PATENTS.
Although we have stated that we intend to apply for international patents for
our BAFI(TM) product line, we have not as yet done so. We do not know when, and
if, we will apply for such patents. If we do not apply for these patents, or if
there are delays in obtaining the patents, or if we are unable to obtain the
patents, we may not be able to adequately protect our technologies in foreign
markets.
IF WE ARE UNABLE TO PROTECT EFFECTIVELY OUR INTELLECTUAL PROPERTY, THIRD PARTIES
MAY USE OUR TECHNOLOGY, WHICH COULD IMPAIR OUR ABILITY TO COMPETE IN OUR
MARKETS.
Our success will depend on our ability to obtain and protect patents on our
technology and to protect our trade secrets. The patents we currently own, may
not afford meaningful protection for our technology and products. Others may
challenge our patents and, as a result, our patents could be narrowed,
invalidated or unenforceable. In addition, our current and future patent
applications may not result in the issuance of patents in the United States or
foreign countries. Competitors might develop products similar to ours that do
not infringe on our patents. In order to protect or enforce our patent rights,
we may initiate interference proceedings, oppositions, or patent litigation
against third parties, such as infringement suits. These lawsuits could be
expensive, take significant time and divert management's attention from other
business concerns. The patent position of medical firms generally is highly
uncertain, involves complex legal and factual questions, and has recently been
the subject of much litigation. No consistent policy has emerged from the U.S.
Patent and Trademark Office or the courts regarding the breadth of claims
allowed or the degree of protection afforded under biotechnology patents. In
addition, there is a substantial backlog of applications at the U.S. Patent and
Trademark Office, and the approval or rejection of patent applications may take
several years.
We cannot guarantee that our management and others associated with us will not
improperly use our patents, trademarks and trade secrets. Further, others may
gain access to our trade secrets or independently develop substantially
equivalent proprietary information and techniques.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON
OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS.
-14-
We may be sued for infringing on the patent rights or misappropriating the
proprietary rights of others. Intellectual property litigation is costly, and,
even if we prevail, the cost of such litigation could adversely affect our
business, financial condition and results of operations. In addition, litigation
is time consuming and could divert management attention and resources away from
our business. If we do not prevail in any litigation, we could be required to
stop the infringing activity and/or pay substantial damages. Under some
circumstances in the United States, these damages could be triple the actual
damages the patent holder incurs. If we have supplied infringing products to
third parties for marketing or licensed third parties to manufacture, use or
market infringing products, we may be obligated to indemnify these third parties
for any damages they may be required to pay to the patent holder and for any
losses the third parties may sustain themselves as the result of lost sales or
damages paid to the patent holder.
If a third party holding rights under a patent successfully asserts an
infringement claim with respect to any of our products, we may be prevented from
manufacturing or marketing our infringing product in the country or countries
covered by the patent we infringe, unless we can obtain a license from the
patent holder. Any required license may not be available to us on acceptable
terms, or at all. Some licenses may be non-exclusive, and therefore, our
competitors may have access to the same technology licensed to us. If we fail to
obtain a required license or are unable to design around a patent, we may be
unable to market some of our anticipated products, which could have a material
adverse effect on our business, financial condition and results of operations.
IF WE LOSE OUR KEY MANAGEMENT PERSONNEL, OUR PRODUCT DEVELOPMENT AND
COMMERCIALIZATION EFFORTS WOULD SUFFER.
Our performance is substantially dependent on the performance of our current
senior management, Board of Directors and key scientific and technical personnel
and advisers. The loss of the services of any member of our senior management,
in particular Mr. Sand, our CEO and Chairman, Board of Directors, scientific or
technical staff or advisory board may significantly delay or prevent the
achievement of product development and other business objectives and could have
a material adverse effect on our business, operating results and financial
condition.
WE HAVE NO COMMERCIAL PRODUCTION CAPABILITY YET FOR OUR BAFI(TM) PRODUCT LINE
AND WE MAY ENCOUNTER PRODUCTION PROBLEMS OR DELAYS, WHICH COULD RESULT IN LOWER
REVENUE.
To date, we have not produced a BAFI(TM) product line product for sale.
Customers for any potential products and regulatory agencies will require that
we comply with current good manufacturing practices that we may not be able to
meet. We may not be able to maintain acceptable quality standards if we ramp up
production. To achieve anticipated customer demand levels, we will need to
scale-up our production capability and maintain adequate levels of inventory. We
may not be able to produce sufficient quantities to meet market demand. If we
cannot achieve the required level and quality of production, we may need to
outsource production or rely on licensing and other arrangements with third
parties. This reliance could reduce our gross margins and expose us to the risks
inherent in relying on others. We may not be able to successfully outsource our
production or enter into licensing or other arrangements under acceptable terms
with these third parties, which could adversely affect our business.
WE HAVE NO MARKETING OR SALES STAFF, AND IF WE ARE UNABLE TO ENTER INTO
COLLABORATIONS WITH MARKETING PARTNERS OR IF WE ARE UNABLE TO DEVELOP OUR OWN
SALES AND MARKETING CAPABILITY, WE MAY NOT BE SUCCESSFUL IN COMMERCIALIZING OUR
PRODUCTS.
We currently have no sales, marketing or distribution capability. As a result,
we will depend on collaborations with third parties that have established
distribution systems and direct sales forces. To the extent that we enter into
co-promotion or other licensing arrangements, our revenues will depend upon the
efforts of third parties, over which we may have little or no control.
If we are unable to reach and maintain agreement with one or more distribution
entities or collaborators under acceptable terms, we may be required to market
our products directly (direct marketing is one component of our marketing
strategy). We may elect to establish our own specialized sales force and
marketing organization to market our products. In order to do this, we would
have to develop a marketing and sales force with technical expertise and with
supporting distribution capability. Developing a marketing and sales force is
expensive and time consuming and could delay a product launch. We may not be
able to develop this capacity, which would make us unable to commercialize our
products.
IF WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS AND HAVE NOT OBTAINED ADEQUATE
INSURANCE TO PROTECT AGAINST THESE CLAIMS, OUR FINANCIAL CONDITION WOULD SUFFER.
If we are able to launch commercially our BAFI(TM) product line, we will face
exposure to product liability claims. We have exposure selling Secure
Balance(TM). We have limited product liability insurance coverage, but there is
no guarantee that it is adequate coverage. There is also a risk that third
parties for which we have agreed to indemnify could incur liability.
-15-
We cannot predict all of the possible harms or side effects that may result and,
therefore, the amount of insurance coverage we obtain may not be adequate to
protect us from all liabilities. We may not have sufficient resources to pay for
any liabilities resulting from a claim beyond the limit of, or excluded from,
our insurance coverage.
A SUBSTANTIAL NUMBER OF SHARES WE HAVE ISSUED IN EXEMPT TRANSACTIONS ARE, OR ARE
BEING MADE, AVAILABLE FOR SALE ON THE OPEN MARKET. THE RESALE OF THESE
SECURITIES MIGHT ADVERSELY AFFECT OUR STOCK PRICE.
Most of our common shares have been held by our shareholders for periods of one
or two years or longer. Some of these shares have had restrictions lifted. The
shares sold to Hope Capital, Inc. and others in the last part of fiscal year
2005 and in the first quarter of fiscal year 2006 were unrestricted common
shares. We will undoubtedly have unrestricted shares issued in the future. There
is no way to control the sale of these shares on the secondary market (we trade
on the Pink Sheets and plan to go to the OTC BB in the near future). The resale
of these unrestricted shares might adversely affect our stock price.
OUR STOCK IS THINLY TRADED, WHICH CAN LEAD TO PRICE VOLATILITY AND DIFFICULTY
LIQUIDATING YOUR INVESTMENT.
The trading volume of our stock has been low, which can cause the trading price
of our stock to change substantially in response to relatively small orders. In
addition, during the last two fiscal years, our common stock has traded as low
as .002 and as high as .285. Both volume and price could also be subject to wide
fluctuations in response to various factors, many of which are beyond our
control, including:
o actual or anticipated variations in quarterly and annual operating
results;
o announcements of technological innovations by us or our
competitors;
o developments or disputes concerning patent or proprietary rights;
and
o general market perception of medical device and provider
companies.
IF THE OWNERSHIP OF OUR COMMON STOCK CONTINUES TO BE SOMEWHAT CONCENTRATED, IT
MAY PREVENT YOU AND OTHER STOCKHOLDERS FROM INFLUENCING SIGNIFICANT CORPORATE
DECISIONS AND MAY RESULT IN CONFLICTS OF INTEREST THAT COULD CAUSE OUR STOCK
PRICE TO DECLINE.
As of August 31, 2005, our executive officers, directors and their affiliates
beneficially own or control approximately 20% of the outstanding shares of
our common stock. Accordingly, our current executive officers, directors and
their affiliates will have some control over the outcome of corporate actions
requiring stockholder approval, including the election of directors, any merger,
consolidation or sale of all or substantially all of our assets or any other
significant corporate transactions. These stockholders may also delay or prevent
a change of control of us, even if such a change of control would benefit our
other stockholders. The concentration of stock ownership may adversely affect
the trading price of our common stock due to investors' perception that
conflicts of interest may exist or arise.
WE MAY ISSUE PREFERRED STOCK IN THE FUTURE, AND THE TERMS OF THE PREFERRED STOCK
MAY REDUCE THE VALUE OF YOUR COMMON STOCK.
We are authorized to issue up to 40,000,000 shares of preferred stock in one or
more series. Our Board of Directors will be able to determine the terms of
preferred stock without further action by our stockholders. If we issue
preferred stock, it could affect your rights or reduce the value of your common
stock. In particular, specific rights granted to future holders of preferred
stock could be used to restrict our ability to merge with or sell our assets to
a third party. These terms may include voting rights, preferences as to
dividends and liquidation, conversion and redemption rights, and sinking fund
provisions.
WE HAVE NOT, AND CURRENTLY DO NOT ANTICIPATE, PAYING DIVIDENDS ON OUR COMMON
STOCK.
We have never paid any dividends on our common stock and do not plan to pay
dividends on our common stock for the foreseeable future. We currently intend to
retain future earnings, if any, to finance operations, capital expenditures and
the expansion of our business.
-16-
ITEM 3. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that material
information related to our company is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms.
(a) As of the end of the period covered by this report, we carried out an
evaluation under the supervision and with the participation of our Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934). Based upon that evaluation, our CEO and CFO concluded, as
of the date of such evaluation, that the design and operation of such disclosure
controls and procedures were effective.
(b) No significant changes were made in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
during our most recent fiscal quarter.
(c) Limitations. Our management, including our CEO and CFO, does not expect that
our disclosure controls or internal controls over financial reporting will
prevent all errors or all instances of fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance
that the control system's objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and any design may not succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance
with policies or procedures. Because of the inherent limitation of a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We may from time to time become a party to legal proceedings arising in the
ordinary course of business. Other than the lawsuit described above, we are not
currently a party to any material pending litigation or other material legal
proceeding.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
We sold $779,500 worth of our unrestricted common shares in a Regulation D, Rule
504 private placement offering (coupled with the Model Accredited Investor
Exemption) in the first quarter of fiscal year 2006. All such shares were sold
at $0.002 per share to 3 corporate purchasers as described above. It has been
represented to us in the underlying contractual documentation that these
purchasers are accredited investors as that term is defined in Regulation D of
the Securities and Exchange Commission. The two firms purchasing the great bulk
of these shares quickly divested them to many others (none of whom owns a
controlling interest in the company), and, therefore, we are of the opinion that
there is no change of control issue to report.
-17-
ITEM 6. EXHIBITS
Exhibit No. Document Description
- ----------- --------------------
10.1 Template for Regulation D, Rule 504/MAIE common stock sales during the
first quarter of our fiscal year 2006.*
31.1 Certification of Chief Executive Officer as required pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2 Certification of Chief Financial Officer as required pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
32 Certification of Chief Executive Officer and Chief Financial Officer as
required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
- ---------------
* Filed herewith.
-18-
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INGEN TECHNOLOGIES, INC.
November 30, 2005 /s/ Scott R. Sand
-------------------------------------
Scott R. Sand
Chief Executive Officer and Chairman
November 30, 2005 /s/ Thomas J. Neavitt
-------------------------------------
Thomas J. Neavitt
Secretary and Chief Financial Officer
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