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 February 28, 2005
Commission File Number ___________
INGEN TECHNOLOGIES, INC.
------------------------
(Exact name of registrant as specified in its charter)
Georgia 88-0429044
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
35193 Avenue "A", Suite-C, Yucaipa, California 92399
---------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(800) 259-9622
--------------
(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
--------------------------
(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 February 28, 2005, 89,557,593 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)
- ------------------------------------------------------------------------------------------------
As of February 28 February 29
2005 2004
- ------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 558 $ 0
----------- -----------
Total current assets 558 --
----------- -----------
Property and equipment, net of accumulated depreciation
of $69,147 for 2005 and $0 for 2004 28,691 --
Other Assets
Patents, net of accumulated amortization of $9,964 for 2005
and $0 for 2004 16,941 --
----------- -----------
Total other assets 16,941 --
----------- -----------
TOTAL ASSETS $ 46,190 $ --
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable & $ 20,000 $ 35,000
Accrued Expenses 483,429 --
Litigation reserve 143,500 --
----------- -----------
Total current liabilities 646,929 35,000
----------- -----------
Long-term Liabilities
Officer's loan 183,437 --
Notes payable 25,000 --
----------- -----------
Total long-term liabilities 208,437 --
----------- -----------
Stockholders' Deficit
Preferred stock, no par value, 40,000,000 and no authorized,
issued and outstanding no for both years -- --
Common stock, no par value, authorized 500,000,000 shares; issued
and outstanding 12,864,593 and 3,221,524 5,468,638 5,758,406
Accumulated deficit (6,277,814) (5,793,406)
----------- -----------
Total stockholders deficit (809,176) (35,000)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 46,190 $ --
=========== ===========
1
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------
For three months ended For nine months ended
February 28 February 29 February 28 February 29
-----------------------------------------------------------
2005 2004 2005 2004
- ------------------------------------------------------------------------------------------------------------
Revenues $ 278,465 $ -- $ 501,758 $ --
Cost of Revenues 89,503 -- 184,750 --
-----------------------------------------------------------
Gross Profit 188,962 -- 317,008 --
Selling, General and Administrative Expenses 158,200 -- 326,415 --
-----------------------------------------------------------
Operating Income (Loss) 30,762 -- (9,407) --
-----------------------------------------------------------
Other Income (Expenses):
Interest and Other Income
Interest Expense (2,752) -- (9,471) --
-----------------------------------------------------------
Total Other Income (Expenses) (2,752) -- (9,471) --
Net Income (Loss) before Income Taxes 28,010 -- (18,878) --
Provision for Taxes -- -- 800
-----------------------------------------------------------
Net Income (Loss) $ 28,010 $ -- $ (19,678) $ --
===========================================================
Net Income (Loss) per share, Basic and Diluted NIL $ -- NIL $ --
Weighted Average Number of Shares 12,864,593 3,221,524 12,864,593 3,221,524
2
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- ------------------------------------------------------------------------------------------
For the nine months ended
February 28, February 29,
2005 2004
- ------------------------------------------------------------------------------------------
Cash Flow from Operating Activities:
Net loss $(19,678) $ --
Adjustments to reconcile net loss to net cash used in operations:
Stock Issued for Services
Depreciation and amortization 6,733 --
Increase (Decrease) in:
Accounts payable & Accrued expenses 10,269 --
-------- --------
Net Cash Used in Operating Activities (2,676) --
-------- --------
Cash Flow from Investing Activities:
-------- --------
Net Cash Used In Investing Activities -- --
-------- --------
Cash Flow from Financing Activities:
Net repayments from note payable to related party (92,744) --
Proceeds from issuance of common stock 61,425 --
-------- --------
Net Cash Flow Provided by Financing Activities (31,319) --
-------- --------
Net Increase (Decrease) Increase in Cash (33,995) --
Cash Balance at Beginning of Period 34,553 --
-------- --------
Cash Balance at End of Period $ 558 $ --
======== ========
Supplemental Disclosures of Cash Flow Information
Interest paid $ -- $ --
Taxes paid $ -- $ --
3
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 February 28, 2005 and February 29, 2004, for the three and nine
months ended February 28, 2005 and February 29, 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, 2004.
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 February 28, 2005 and February 29,
2004, for the three and nine months ended February 28, 2005 and February 29,
2004 have been made. The results of operations for the nine months ended
February 28, 2005 and February 29, 2004 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.
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 the settlement
of 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 may not have sufficient funds to grow its business in the near
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.
Management of the Company is actively increasing marketing efforts to increase
revenues. The ability of the Company to continue as a going concern is dependent
its ability to meet its financing arrangement and the success of its future
operations. The consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
The company incurred a loss of $19,678 and $0 for the nine months ended February
28, 2005 and February 29, 2004, and as of that date, had an accumulated deficit
of $6,277,814 and $5,793,406, respectively.
4
NOTE 3 - ACCRUED EXPENSES
Accrued expenses at February 28, 2005 consist of:
2004
-----------
Accrued officer's compensation $ 460,000
Accrued Interest Expense 21,829
Accrued taxes 1,600
-----------
Total $ 483,429
===========
NOTE 4 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per
share:
February 28, 2005 February 29, 2004
----------------- -----------------
Numerator:
Net Loss $ (19,678 $ --
----------------- -----------------
Denominator:
Weighted Average Number of Shares 12,864,593 3,221,524
----------------- -----------------
Net loss per share-Basic and Diluted NIL $ 0.00
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 $183,437 and
$0 as of February 28, 2005 and February 29, 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 $21,829 and $0 as of February
28, 2005 and February 29, 2004, respectively.
As of February 28, 2005 there was a note payable to a related party for the
amount of $25,000 with zero interest.
NOTE 7 - LITIGATION SETTLEMENT
As of February 28, 2005, there was a pending litigation in connection with the
previous landlord for breaking a facility lease by the Company. The management
had estimated and accrued a loss for $143,500.
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 February 28, 2005.
5
NOTE 9 - PREFERRED STOCK
As of February 28, 2005, the Company was authorized to issue 40,000,000 shares
of no par value preferred stock. As of February 28, 2005, the Company had zero
shares of preferred stock issued and outstanding. No dividends shall accrue or
be payable on the preferred stocks. As of February 29, 2004, no preferred stock
was issued.
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).
During the third quarter of our last fiscal year (ending February 28, 2004), we
were known as Creative Recycling Technologies, Inc. We were not operational. We
commenced operations in March of 2004 after merging with Ingen Technologies,
Inc. (and taking Ingen's corporate name).
Our sales revenues for the third quarter of fiscal year 2005 (December 1, 2004
through February 28, 2005) were $278,465, compared with no sales in the third
quarter of fiscal year 2004. All of these sales were of Secure Balance(TM). We
had sales revenues of $501,758 in the first three quarters of 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. However, in the third quarter of
fiscal year 2005, we had net income of $28,010 (compared with no net loss or
gain in the third quarter of fiscal year 2004). Our net loss for the first three
quarters of fiscal year 2005 was $19,678. We anticipate that we will incur
substantial additional operating losses for the remainder of this fiscal year
and 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 February 28, 2005, we had an accumulated deficit of $6,277,814 (up
from $5,793,406 in the first quarter of fiscal year 2004).
Our business plan for the remainder of fiscal year 2005 (ending May 31, 2005) is
to continue our efforts to increase the market share Secure Balance(TM) and to
continue research and development of our BAFI(TM) product line.
We sold common shares in private transactions in the third quarter of fiscal
year 2005, for a total purchase price of $61,425.
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
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:
6
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 $278,465 in sales in the third quarter of fiscal year 2005, compared with
no sales revenue in the same quarter of fiscal year 2004. Our cost of sales was
$89,503 in the third quarter of fiscal year 2005. As a result, our gross profit
was $188,962 in the third quarter of fiscal year 2005. Our selling, general and
administrative expenses were $158,200.
We had a small amount of net income ($28,010) in the third quarter of fiscal
year 2005 and a net loss of $19,678 for the first three quarters of fiscal year
2005. We expect our operating costs to increase during the last quarter of this
fiscal year and then remain constant or increase somewhat 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 year 2004. As of May 31, 2004, our federal tax net operating loss
carryforward was $1,099,51;, 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.
LIQUIDITY AND CAPITAL RESOURCES
We financed our operations in the third quarter of fiscal year 2005 through
$278,465 of sales of Secure Balance(TM) and private placement common stock sales
totaling $61,425.
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 February 28, 2005, we had cash on hand of $558 (compared to none in the
same quarter of fiscal year 2004).
7
Our future cash requirements will depend on many factors, including finishing
our research and development programs for our BAFI(TM) product line, 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.
OTHER FINANCINGS
We sold $61,425 in common stock shares during this fiscal quarter through our
agreement with Director Khoo Yong Sin and to Grace Holdings, Inc.
PLAN OF OPERATION (FOR BAFI(TM) PRODUCT LINE)
We will continue our research and development of our BAFI(TM) Product Line,
financed by our sales revenues and common stock private placement sales.
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 5 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 the last quarter of fiscal year
2005 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
(www.Ingen-Tech.com).
NEW EMPLOYEES
We do note anticipate hiring employees over the next twelve months.
8
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 February 28, 2005, we have incurred total accumulated losses of
$6,277,814. 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.
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.
9
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;
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.
10
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.
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.
11
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. Scott 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.
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.
12
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.
Some 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 during this fiscal quarter were unrestricted common shares. We will
undoubtedly have unrestricted shares issued in the near 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 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 February 28, 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.
13
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 $61,425 worth of our common shares in the third quarter of fiscal year
2005. $16,485 was received for the sale of restricted stock through our contract
with Director Khoo Yong Sin (exhibit 10.25 to our Form 10-KSB for the year ended
may 31, 2005). All other shares were unrestricted shares and were sold to Grace
Holdings, Inc. under Rule 504 of Regulation D of the SEC and the Model
Accredited Investor Exemption. It has been represented to us in the underlying
contractual documentation that this purchaser is an accredited investor as that
term is defined in Regulation D of the Securities and Exchange Commission. The
amount of stock sales for this fiscal quarter were not enough to trigger any
change of control issues.
14
ITEM 6. EXHIBITS - note; Ingen Technologies, Inc. has already filed a Form
10-KSB for our fiscal year 2005. The date of the filing was November 7, 2005.
This Form 10-QSB is for one of the quarters in our fiscal year 2005. All
applicable exhibits for this quarter of fiscal year 2005 are contained within
our 10-KSB filed on November 7, 2005, and are incorporated herein by this
reference.
Exhibit No. Document Description
- ----------- --------------------
10.1 Agreement between Khoo Yong Sin and Ingen Technologies, Inc. dated
October 15, 2004 for the purchase and sale of our common stock. This
agreement is exhibit 10.25 to our Form 10-KSB for the period ending May
31, 2005 and are incorporated herein as an exhibit by this reference.
10.2 Template for sales of unrestricted stock under the Model Accredited
Investor Exemption. This template is exhibit 10.1 of our Form 10-QSB
for the quarter ending August 31, 2005 and is incorporated herein as an
exhibit by this reference.
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.
15
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.
January 27, 2006 /s/ Scott R. Sand
-------------------------------------
Scott R. Sand
Chief Executive Officer and Chairman
January 27, 2006 /s/ Thomas J. Neavitt
-------------------------------------
Thomas J. Neavitt
Secretary and Chief Financial Officer
16