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, 2006
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
--------------------------
(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, 2006, 29,709,610 shares of the registrant's common stock (no par
value) were outstanding.
Transitional Small Business Disclosure Format (check one):
YES / / NO /X/
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTERIM REVIEWED FINANCIAL STATEMENTS FOR QUARTER ENDING AUGUST 31, 2006
These interim financial statements have been reviewed but not audited by our
auditors, Spector & Wong.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
AS OF AUGUST 31, 2006 2005
------------ ------------
ASSETS
Current Assets
Cash $ 824,575 $ 404,432
Accounts receivable -- 38,565
------------ ------------
Total current assets 824,575 442,997
------------ ------------
Property and equipment, net of accumulated depreciation
of $102,984 and $84,910 for 2006 and 2005, respectively 61,542 45,136
Debt issue cost, net of accumulated amortization of $16,400 291,800 --
------------ ------------
TOTAL ASSETS $ 1,177,917 $ 488,133
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 48,186 $ --
Accrued expenses 177,655 394,771
------------ ------------
Total current liabilities 225,841 394,771
------------ ------------
Long-term Liabilities
Officers' loans 6,886 42,802
Convertible notes payable, net of unamortized discount of $1,366,929 7,290 --
Derivative liabilities 3,860,069 --
------------ ------------
Total long-term liabilities 3,874,245 42,802
------------ ------------
Stockholders' deficit
Preferred stock Series A, no par value, 40,000,000 and none
authorized in 2006 and 2005, respectively; issued and
outstanding 14,134,547 for 2006 and 3,000,000 for 2005 734,980 30,000
Preferred stock, no par value, none and 37,000,000 authorized
in 2006 and 2005, respectively; issued and outstanding none
and 36,900,000 for 2006 and 2005, respectively -- 369,000
Common stock, no par value, authorized 100,000,000 in 2006 and
500,000,000 shares in 2005; issued and outstanding 29,609,610
and 3,182,190 for 2006 and 2005, respectively 7,497,183 6,330,713
Series A preferred stock subscription (220,000) --
Accumulated deficit (10,934,332) (6,679,153)
------------ ------------
Total stockholders deficit (2,922,169) 50,560
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,177,917 $ 488,133
============ ============
See notes to interim unaudited consolidated financial statements
2
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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FOR THE THREE MONTHS ENDED AUGUST 31, 2006 2005
------------ ------------
Sales $ 189,158 $ 532,872
Cost of sales 115,547 85,046
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GROSS PROFIT 73,611 447,826
Selling, general and administrative expenses 329,104 559,246
------------ ------------
OPERATING LOSS (255,493) (111,420)
Other (expenses):
Interest Expenses (3,540,915) (1,542)
Change in derivative liabilities 1,031,094 --
------------ ------------
Total Other Income (expenses) (2,509,821) (1,542)
NET LOSS BEFORE TAXES (2,765,314) (112,962)
Provision for income taxes 800 800
------------ ------------
NET LOSS $ (2,766,114) $ (113,762)
============ ============
Basic and diluted net loss per share $ (0.12) $ (0.05)
============ ============
Weighted average number of common shares 22,207,208 2,205,309
See notes to interim unaudited consolidated financial statements
3
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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FOR THE THREE MONTHS ENDED AUGUST 31, 2006 2005
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss (2,766,114) $ (113,762)
Adjustments to Reconcile Net Loss to Net Cash Used in Operations:
Depreciation and amortization 4,576 2,965
Amortization of debt issue cost 16,400 --
(Increase) Decrease in:
Accounts receivable -- (38,565)
Change in derivative liabilities (1,031,094) --
Noncash interest expense and financing costs 3,523,454 --
Increase (Decrease) in:
Accounts payable -- 8,241
Accrued expenses (2,138) --
Litigation reserve -- (143,500)
----------- -----------
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES (254,916) (284,621)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Addition to Fixed Assets (34,480) (23,174)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (34,480) (23,174)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net repayments to note payable to related party (63,941) (60,000)
Repayments to notes payable -- (25,000)
Proceeds from issuance of common stock -- 779,500
Proceeds from convertible debt 1,066,800 --
----------- -----------
NET CASH FLOW PROVIDED (USED) BY FINANCING ACTIVITIES 1,002,859 694,500
----------- -----------
NET INCREASE (DECREASE) INCREASE IN CASH 713,463 386,705
Cash Balance at Beginning of Period 111,112 17,727
----------- -----------
CASH BALANCE AT END OF PERIOD $ 824,575 $ 404,432
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ -- $ --
Taxes paid $ -- $ --
Noncash Financing Activities:
Issuance warrrants in connection with convertible debt $ 1,987,478 $ --
Recorded a beneficial conversion feature $ 2,903,777 $ --
Stock subscription receivable for preferred stock $ 220,000 $ --
See notes to interim unaudited consolidated financial statements
4
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ingen Technologies, Inc., (formerly known as Creative Recycling Technologies
Inc., the "Company" or "Ingen Technologies"), is a Public Company trading under
NASDAQ OTC: IGTG. Ingen Technologies is a growth-oriented technology company
that offers a diverse and progressive services and products.
Ingen Technologies, Inc., is a Georgia corporation ("IGTG") 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company's financial instruments consist
principally of cash, accounts receivable, accounts payable and borrowings. The
Company believes the financial instruments' recorded values approximate current
values because of their nature and respective durations. The fair value of
embedded conversion options and stock warrants are based on a Black-Scholes fair
value calculation. The fair value of convertible notes payable is based on
discounted cash flows of principal and interest payments.
PRESENTATION OF INTERIM INFORMATION: The accompanying consolidated financial
statements as of August 31, 2006 and 2005, for the three months ended August 31,
2006 and 2005 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, 2006.
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, 2006 and 2005, for the
three months ended August 31, 2006 and 2005 have been made. The results of
operations for the three months ended August 31, 2006 are not necessarily
indicative of the operating results for the full year.
5
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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. The accompanying consolidated financial statements have
been retroactively adjusted to reflect the one-for-forty reverse stock split on
December 7, 2005.
USE OF ESTIMATES: The preparation of the accompanying consolidated financial
statements in conformity with accounting principles generally accepted in the
United States (U.S. GAAP) requires management to make certain estimates and
assumptions that directly affect the results of reported assets, liabilities,
revenue, and expenses. Actual results may differ from these estimates.
CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES: The Company accounts for
convertible notes payable and warrants in accordance with Statement of Financial
Accounting Standards (SFAS) No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES." This standard requires the conversion feature of
convertible debt be separated from the host contract and presented as a
derivative instrument if certain conditions are met. Emerging Issue Task Force
(EITF) 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO AND
POTENTIALLY SETTLED IN A COMPANY'S OWN STOCK" and EITF 05-2, "THE MEANING OF
"CONVENTIONAL CONVERTIBLE DEBT INSTRUMENT" IN ISSUE NO. 00-19" were also
analyzed to determine whether the debt instrument is to be considered a
conventional convertible debt instrument and classified in stockholders' equity.
The convertible notes payable issued on July 27 and August 30, 2006 were
evaluated and determined not conventional convertible and, therefore, because of
certain terms and provisions including liquidating damages under the associated
registration rights agreement the embedded conversion option was bifurcated and
has been accounted for as a derivative liability instrument. The stock warrants
issued in conjunction with the convertible notes payable were also evaluated and
determined to be a derivative instrument and, therefore, classified as a
liability on the balance sheet. The accounting guidance also requires that the
conversion feature and warrants be recorded at fair value for each reporting
period with changes in fair value recorded in the consolidated statements of
operations.
A Black-Scholes valuation calculation was applied to both the conversion
features and warrants at issuance dates and August 31, 2006. The issuance date
valuation was used for the effective debt discount that these instruments
represent. The debt discount is amortized over the three-year life of the debts
using the effective interest method. The August 30, 2006 valuation was used to
record the fair value of these instruments at the end of the reporting period
with any difference from prior period calculations reflected in the consolidated
statement of operations.
NET INCOME (LOSS) PER SHARE: Basic net income per share includes no dilution and
is computed by dividing net income available to common stockholders by the
weighted average number of common stock outstanding for the period. Diluted net
income per share is computed by dividing net income by the weighted average
number of common shares and the dilutive potential common shares outstanding
during the period. Diluted net loss per common share is computed by dividing net
loss by the weighted average number of common shares and excludes dilutive
potential common shares outstanding, as their effective is anti-dilutive.
Dilutive potential common shares consist primarily of stock warrants and shares
issuable under convertible debt.
6
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK-BASED COMPENSATION: The Company accounts for stock issued to non-employees
in accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 123 and the Emerging Issue Task Force (EITF) Issue No. 00-18,
"ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR
ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES." SFAS No. 123
states that equity instruments that are issued in exchange for the receipt of
goods or services should be measured at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable. Under the guidance in Issue 00-18, the measurement date
occurs as of the earlier of (a) the date at which a performance commitment is
reached or (b) absent a performance commitment, the date at which the
performance necessary to earn the equity instruments is complete (that is, the
vesting date).
In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "ACCOUNTING
FOR UNCERTAINTY IN INCOME TAXES, AN INTERPRETATION OF FASB STATEMENT NO. 109,"
which clarifies the accounting of uncertainty in income taxes recognized in
financial statements in accordance with FASB Statement No. 109, "ACCOUNTING OF
INCOME TAXES." FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The provisions of this
Interpretation are effective for fiscal years beginning after December 15, 2006.
Management is currently evaluating the financial statement impact of the
adoption of FIN 48.
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.
On July 25, 2006, the Company entered into a Security Purchase Agreement for
sale of $2 million aggregate principal amount of callable secured convertible
notes. As of August 31, 2006, the Company received an aggregate of $1,066,800 in
cash from issuing convertible notes. 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 on 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 $2,766,114 and $113,762 for the three months
ended August 31, 2006 and 2005, and as of that date, had an accumulated deficit
of $10,934,332 and $6,679,153, respectively.
7
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment as of August 31, 2006 is summarized as follow:
2006 2005
--------- ---------
Automobile $ 9,500 $ 9,500
Furniture & Fixture 27,222 27,222
Machinary & Equipment 65,900 61,277
Leasehold Improvements 32,047 32,047
Molds 29,857 --
--------- ---------
164,526 130,046
Less accumulated depreciation (102,984) (84,910)
--------- ---------
Property and Equipment, net $ 61,542 $ 45,136
========= =========
NOTE 4 - ACCRUED EXPENSES
Accrued expenses at August 31, 2006 and 2005 consist of:
2006 2005
-------- --------
Accrued officer's compensation $112,000 $363,500
Accrued Professional Fees 6,000 --
Accrued Interest Expense 33,844 30,471
Accrued taxes 25,811 800
-------- --------
Total $177,655 $394,771
======== ========
NOTE 5 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES
6% $2 MILLION CONVERTIBLE DEBT
- ------------------------------
On July 25, 2006, the Company entered into a Security Purchase Agreement (the
"Agreement") and agreed to issue and sell (i) callable secured convertible notes
up to $2 million, and (ii) warrants to acquire for aggregate of 20 million of
the Company's common stocks. The notes bear interest at 6% per annum, and mature
three years from the date of issuance. The notes are convertible into the
Company's common stock at the applicable percentage of the average of the lowest
three trading prices for the Company's shares of common stock during the twenty
trading day period to conversion. The applicable percentage is 50%; however, the
percentage shall be increased to: (i) 55% in the event that a Registration
Statement is filed within thirty days from July 26, 2006, and (ii) 60% in the
event that the Registration Statement becomes effective within one hundred and
twenty days from July 26, 2006.
The Company may prepay the notes in the event that no event of default exists,
there are sufficient number of shares available for conversion, and the market
price is at or below $0.10 per share. In addition, in the event that the average
daily price of the common stock, as reported by the reporting service, for each
day of the month ending on any determination date is below $0.10, the Company
may repay a portion of the outstanding principal amount of the notes equal to
101% of the principal amount thereof divided by thirty-six plus one month's
interest. The full principal amount of the notes is due upon default under the
terms of the Notes. In addition, the Company has granted the investors a
security interest in substantially all of its assets and intellectual property
as well as registration rights.
8
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 5 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES (CONTINUED)
The Company received the first tranch of $700,000 on July 27, 2005, less
issuance costs of $295,200, the second tranch of $600,000, less issuance costs
of $13,000 on August 30, 2006, and the third and final tranch of $700,000 is to
be purchases upon effectiveness of the Registration Statement.
The Company issued seven year warrants to purchase 20,000,000 shares of our
common stock at an exercise price of $0.10.
The Company filed a, SB-2 registration statement with the SEC on August 25,
2006, regarding the agreement; however, a registration withdrawal request was
filed with the SEC on October 31, 2006.
The issuance costs incurred in connection with the convertible notes are
deferred and being amortized to interest expense over the life of each debenture
tranch.
The Company is accounting for the conversion option in the debentures and the
associated warrants as derivative liabilities in accordance with SFAS 133,
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," EITF 00-19,
"ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO AND POTENTIALLY
SETTLED IN A COMPANY'S OWN STOCK" and EITF No. 05-2, "THE MEANING OF
"CONVENTIONAL CONVERTIBLE DEBT INSTRUMENT" IN ISSUE NO. 00-19." The Company
attributed beneficial conversion features to the convertible debt using the
Black-Scholes Option Pricing Model. The fair value of the conversion feature has
been included as a discount to debt in the accompanying balance sheet up to the
proceeds received from each tranch, with any excess charged to operations. The
discount is being amortized over the life of each debenture tranch using the
interest method.
The following tables describe the valuation of the conversion feature of each
tranch of the convertible debenture, using the Black Scholes pricing model:
7/27/2006 8/30/2006
Tranch Tranch
-------------- -------------
Approximate risk free rate 5.01% 4.80%
Average expected life 3 years 3 years
Dividend yield 0% 0%
Volatility 202.01% 202.01%
Estimated fair value of conversion feature $ 1,328,118 $ 1,137,929
The Company recorded the fair value of the conversion feature, aggregate of
$2,466,047, as a discount to the convertible debt in the accompanying balance
sheet up to the proceeds received from each tranch, with any excess or
$1,166,047 charged to expense. Amortization expense related to the conversion
feature discount for the three months ended August 31, 2006 was $7,290.
Remaining unamortized discount as of that date was $1,292,710.
The Company also granted warrants to purchase 20,000,000 shares of
common stock in connection with the financing. The warrants are exercisable at
$0.10 per share for a period of seven years, and were fully vested. The warrants
have been valued at $1,987,478 using the Black-Scholes Option Pricing Model with
the following weighted-average assumptions used.
9
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES (CONTINUED)
6/26/2006
--------------
Approximate risk free rate 5.23%
Average expected life 7 years
Dividend yield 0%
Volatility 202.01%
Number of warrants granted 20,000,000
Estimated fair value of total warrants granted $ 1,987,478
6% $75,000 DEBT
- ---------------
On June 7, 2006, the Company entered into an agreement with an accredited
investor to sale a convertible debenture. The Company received proceeds of
$75,000 from the sale of the convertible debenture on June 7, 2006. The
debenture is convertible at any time within a three year period into 3,750,000
shares of common stock at $0.02 per share. The debenture carries an interest
rate of 6% per annum, and payable annually. In the event that the debenture is
not converted to common stock, any unpaid balance, including interest and the
principal, becomes due on May 31, 2009.
6/7/2006
--------------
Approximate risk free rate 4.99%
Average expected life 3 years
Dividend yield 0%
Volatility 202.01%
Estimated fair value of conversion feature $ 437,730
The Company recorded the fair value of the conversion feature of $437,730, as a
discount to the convertible debt in the accompanying balance sheet up to the
proceeds received with any excess or $362,730 charged to expense.
DERIVATIVE LIABILITIES
- ----------------------
In accordance with the EITF 00-19, the conversion feature of each convertible
debenture and the stock warrants issued in conjunction with convertible
debentures have been included as long-term liabilities and were originally
valued at fair value at the date of issuance. As a liability, the convertible
features and the stock warrants are revalued each period until and unless the
debt is converted. As of August 31, 2006, the fair values of the conversion
feature and the stock warrants aggregated to $3,860,069. The Company recorded a
gain of $1,031,094 related to the change in fair value from the date of issuance
of the convertible debt to August 31, 2006. This amount is recorded as "Change
in Derivative Liabilities" a component of other income in the accompanying
consolidated statement of operations. If the debt is converted prior to
maturity, the carrying value will be transferred to equity.
10
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - PREFERRED STOCKS
On December 7, 2005, the Company had a reverse stock split of 3 to 1 for all
issued and outstanding preferred shares and converted all classes of preferred
shares into Series A preferred stock. No dividends shall accrue or be payable on
the Series A preferred stocks. 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 1 vote. 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 1 share of fully paid and
non-assessable share 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 entitled 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. The accompanying
consolidated financial statements have been retroactively adjusted to reflect
the reverse stock split.
On April 5, 2006, the Company filed an SB-2 with the SEC regarding an investment
Contract (the "Contract") providing that the Company intends to raise up to $5
million or more utilizing Replacement S-B of the SEC. Under this Contract a
subscriber agreed to purchase 3 million shares of the Company's restricted
series A preferred stock shares at a price of $0.0733 per share or $220,000.
These shares will be registered by the Company in the S-B offering. As of August
31, 2006, all of 3 million shares of restricted series A preferred shares were
issued and a subscription receivable of $220,000 was recorded against the
Company's equity.
On July 25, 2006, the Company filed a request for withdrawal of Registration
Statement with the SEC. The filing of an SB-2 is pending due to the Company's
delinquency in periodic filings with the SEC under the Securities Exchange Act
of 1934. The Company did not report from 1998 until it resumed reporting in
November 2005.
NOTE 7 - COMMON STOCK
On October 31, 2005, the Board approved on reverse split to reduce the
authorized common shares to 100 million and also approved the reverse split of
40 to 1 outstanding and issued common shares; the effective was on December 7,
2005. The accompanying consolidated financial statements have been retroactively
adjusted to reflect the reverse stock split.
NOTE 8 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per
share:
August 31,2006 August 31, 2005
--------------- ---------------
Numerator:
Net Loss $ (2,766,114) $ (113,762)
--------------- ---------------
Denominator:
Weighted Average Number of Shares 22,207,208 7,536,098
--------------- ---------------
Net loss per share-Basic and Diluted $ (0.12) $ (0.02)
11
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - NET LOSS PER SHARE (CONTINUED)
As the Company incurred net losses for the three months ended August 31, 2006,
it has excluded from the calculation of diluted net loss per share approximately
6,083,333 related to its convertible debt in accordance with EITF Issue No.
04-8, "THE EFFECT OF CONTINGENTLY CONVERTIBLE DEBT ON DILUTED EARNINGS PER
SHARE". There are no dilutive items for the three months ended August 31, 2005.
NOTE 9 - 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 10 - RELATED PARTY TRANSACTIONS
The Company had a note payable to a related party in the amounts of $6,886 and
$42,802 as of August 31, 2006 and 2005, respectively. The interest rate on the
note is 6% and due upon working capital availability. The related accrued
interest is $33,844 and $30,471 as of August 31, 2006 and 2005, respectively.
NOTE 11 - 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 November 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 November 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, 2006.
12
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 three fiscal years (Secure
Balance(TM)). The others are oxygen and gas monitoring safety devices that we
have developed over the last few years; one of which (OxyView(tm)) we expect to
begin selling in calendar year 2006, OxyView(tm), OxyAlert(TM) and GasAlert(TM).
GasAlert(TM) development is currently "on hold" and we don't intend to focus on
it until we have OxyView(tm) and OxyAlert(TM) in a production and sales mode. We
also have a agri-business concept known as Pure Produce, which involves
establishing soil-less indoor farming facilities near population centers to grow
food and neutriceuticals.
We account for our Secure Balance(TM) sales on a cash basis. We had sales
revenues of $189,158 for the first quarter of our fiscal year 2007 (running from
June 1, 2006 to May 31, 2007) compared to $532,872 for the same time period in
fiscal year 2006 (all sales of Secure Balance(TM)).
Management attributes the drop in Secure Balance(tm) sales (in comparison to a
year ago) to a change in billing practices of Medicare. The government "changed"
the rules, telling physicians that they could not utilize the balance therapy
equipment in their offices without having a licensed physical therapist on hand
while the equipment was in use. Therefore, for a period of time, only physicians
willing to bring physical therapists into their offices were willing to purchase
or lease Secure Balance(tm). However, after an outcry from physicians,
Management has learned that Medicare's decision has been reversed. It is
Management's understanding that now Secure Balance(tm) can be utilized by
physicians, in their offices (without the need to have a physical therapist
present), as long as the use is "incident" to their practices. As a result,
Management expects Secure Balance(tm) sales to increase.
In addition, we have completed our prototype testing for OxyView(tm) and plan to
begin manufacturing and sales during our next fiscal quarter (that ends on
November 30, 2006).
We have had significant losses since inception. Our net loss for the first
quarter of fiscal year 2007 is $2,627,033 compared with $113,762 during the same
time period in fiscal year 2006.
We anticipate that we will continue to incur substantial operating losses in our
fiscal year 2007 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. We
will also have continuing development, manufacturing and sales costs for
OxyView(tm). We will have continuing costs in our efforts to catch up on our
delinquent periodic reporting filings with the SEC, in filing our current
periodic reporting filings with the SEC and when filing our registration
statements (as required by investment contracts). All of these factors
contributed to our net loss during the current quarter.
13
As of August 31, 2006 we had an accumulated deficit of $10,795,251 (up from
$6,679,153 as of the first quarter of fiscal year 2006).
Our business plan for the remainder of fiscal year 2007 (ending May 31, 2007) is
to continue our efforts to increase the market share Secure Balance(TM) and to
begin world-wide sales of one of our BAFI(TM) product lines, OxyView(tm). We
will also continue to develop Oxy Alert(tm) and Pure Produce if funds allow.
SIGNIFICANT FINANCING THIS QUARTER
On July 25, 2006, we entered into a Securities Purchase Agreement for a total
subscription amount of $2,000,000 that included Stock Purchase Warrants and
Callable Secured Convertible Notes with AJW Capital Partners, LLC, AJW Offshore,
Ltd., AJW Qualified Partners, LLC and New Millennium Capital Partners II, LLC.
The initial funding of $700,000 (we received net proceeds of $640,000) was
completed on July 26, 2006 with the following parties and evidenced by callable
secured convertible notes: AJW Capital Partners, LLC invested $67,900; AJW
Offshore, Ltd. invested $413,000; AJW Qualified Partners, LLC invested $210,000;
and New Millennium Capital Partners II, LLC invested $9,100.
The callable secured convertible notes are convertible into shares of our common
stock at a variable conversion price based upon the applicable percentage of the
average of the lowest three (3) Trading Prices for the Common Stock during the
twenty (20) Trading Day period prior to conversion. The "Applicable Percentage"
means 50%; provided, however, that the Applicable Percentage shall be increased
to (i) 55% in the event that a Registration Statement is filed within thirty
days of the closing and (ii) 60% in the event that the Registration Statement
becomes effective within one hundred and twenty days from the Closing. Under the
terms of the callable secured convertible note and the related warrants, the
callable secured convertible note and the warrants are exercisable by any holder
only to the extent that the number of shares of common stock issuable pursuant
to such securities, together with the number of shares of common stock owned by
such holder and its affiliates (but not including shares of common stock
underlying unconverted shares of callable secured convertible notes or
unexercised portions of the warrants) would not exceed 4.99% of the then
outstanding common stock as determined in accordance with Section 13(d) of the
Exchange Act.
The parties received the following seven year warrants to purchase shares of our
common stock, exercisable at $.10 per share: AJW Capital Partners, LLC -
1,940,000 warrants; AJW Offshore, Ltd. - 11,800,000 warrants; AJW Qualified
Partners, LLC - 6,000,000 warrants; and New Millennium Capital Partners II, LLC
- - 260,000 warrants (the "Warrants"). The Warrants are not subject to
registration rights.
Upon full subscription to the Securities Purchase Agreement and the conversion
in full of the Callable Secured Convertible Notes, the total shares being
registered are 47,619,048 as follows: (i) AJW Capital Partners, LLC - 4,619,048
shares of common stock issuable in connection with the conversion of the
callable secured convertible note; (ii) AJW Offshore, Ltd. - 28,095,238 shares
of common stock issuable in connection with the conversion of the callable
secured convertible note;; (iii) AJW Qualified Partners, LLC - 14,285,714 shares
of common stock issuable in connection with the conversion of the callable
secured convertible note; and (iv) New Millennium Capital Partners II, LLC -
619,048 shares of common stock issuable in connection with the conversion of the
callable secured convertible note.
14
Lionheart Associates, LLC (d/b/a Fairhills Capital) ("Lionheart") acted as a
consultant to us. In consideration for their services, we issued to them
warrants representing the right to purchase up to 2,000,000 shares of our common
stock at an exercise price of $.10 per share. These warrants also expire on July
26, 2013.
More information regarding this transaction is available within our Form SB-2 as
filed with the SEC on August 25, 2006.
WITHDRAWAL OF OUR SB-2 OF APRIL 5, 2006
On July 25, 2006, we filed a Request for Withdrawal of Registration Statement.
This filing withdrew our first SB-2 filing of April 5, 2006. This withdrawal was
necessary in order for the company to proceed with the SB-2 as filed on August
25, 2006.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are disclosed in Note 1 to our consolidated
financial statements. Certain of our policies require the application of
management's 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:
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 February of 2006.
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.
15
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 FOR THE THREE MONTHS ENDED AUGUST 31, 2006 COMPARED TO
THE THREE MONTHS ENDED AUGUST 31, 2005
We had $189,158 in sales for the first quarter of fiscal year 2007, down from
$532,872 during the same period of fiscal year 2006. Our cost of sales was
$115,547 for this period of fiscal year 2006 and $85,046 for the first quarter
of fiscal year 2005. As a result, our gross profit decreased from $447,826 in
the first quarter of fiscal year 2006 to $73,611 in the same period of fiscal
year 2007 (this quarter). Our selling, general and administrative expenses for
the first quarter of fiscal year 2007 were $329,104 ($559,246 in the same period
of fiscal year 2006).
Our operating loss increased from $111,420 for the first quarter of fiscal year
2006 to $255,493 for the first quarter of fiscal year 2007. We expect our
operating costs to fluctuate in relation to our sales results during fiscal year
2007, but still have a goal of turning a profit at some point in fiscal year
2007.
OPERATING LOSS CARRYFORWARD (CALCULATED ON A FISCAL YEAR BASIS)
As of May 31, 2006 and 2005, the Company had net operating loss carryforwards,
approximately, of $3,009,598 and $1,406,771, respectively, to reduce future
federal and state taxable income. To the extent not utilized, the carryforwards
will begin to expire through 2026. The Company's ability to utilize its net
operating loss carryforwards is uncertain and thus a valuation reserve has been
provided against the Company's net deferred tax assets. A valuation allowance is
recorded for the full amount of deferred tax assets of approximately $1,294,127
and $602,098, for the years ended May 31, 2006 and 2005, respectively, which
relates to these loss carryforwards, since future profits are indeterminable.
See our Form 10-KSB for more information (filed on August 8, 2006).
LIQUIDITY AND CAPITAL RESOURCES
Our net cash flow from financing activities was $1,002,859 in the quarter ending
August 31, 2006. We financed our operations in the first quarter of fiscal year
2007 with $189,158 of sales of Secure Balance(TM) and private placement
securities sales totaling $1,066,800.
As of August 31, 2006, we had cash on hand of $824,575 (compared to $404,432 in
the same quarter of fiscal year 2006). We had no accounts receivable during this
time period (compared to ($38,565) during same quarter of fiscal year 2006).
Our future cash requirements will depend on many factors, including finishing
our research and development programs for our BAFI(TM) product line (largely
completed for OxyView(tm)) and tooling for manufacturing of OxyView(tm), which
we are currently engaged in. We will have costs involved in filing, prosecuting
and enforcing patents, including foreign patents (planned for the immediate
future for OxyView(tm)). We will have costs to complete technological and market
developments and the cost of product commercialization, commencing our
manufacturing and sales programs for OxyView(tm), as well as our ongoing Secure
Balance(TM) sales effort. We also have considerable expense involved in our
effort to get up-to-date on all SEC periodic reporting filings under the
Securities Exchange Act of 1934, as well as costs involved in filing current
periodic reporting and securities registration (as required by contracts with
investors).
16
We do not expect to generate a positive cash flow from operations at least until
the commercial launch of our OxyView(tm) product line (planned for the second
quarter of our fiscal year 2007) 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.
PLAN OF OPERATION FOR OXYVIEW
OxyView is a proprietary medical product with a United States Patent (and
Trademark) Pending that measures the accuracy of oxygen flow-rate for patients
using oxygen during surgery, hospitalization, and outpatient oxygen therapy.
OxyView is a disposable pneumatic analog gauge that measures the oxygen
flow-rate close to the patient. It allows the medical staff and patient to
quickly determine any malfunction of oxygen flow-rate between the source and the
patient. OxyView can be used with any oxygen delivery source and has additional
markets in aviation, fire fighting, and military.
According to a 2002 report of the Department of Health and Human Resources,
there are over 5,000 oxygen cannulas used every day in hospitals and surgical
rooms, and over 8 million patients using oxygen as outpatient therapy for a
variety of pulmonary diseases. The hospitals and surgical staff are required to
dispose of the units per OSHA regulations. OxyView is a product that is
clean-packaged and disposable.
All of our manufacturing tooling and ultimately the manufacturing process
itself, is out-sourced. We are estimating that we'll spend $260,000 into the
Fall of 2006 getting OxyView manufacturing equipment (called manufacturing
molds) ready for production. We've budgeted $114,000 for product molding
tooling, about $88,000 for assembly of the manufacturing unit and a sonic welder
and about $58,000 for special printing around the cylinder and piston face. We
will be able to order the commencement of manufacturing of OxyView units when
the manufacturing molds are completed. We plan to order 250,000 OxyView units in
our first manufacturing run. Once manufacturing commences, we anticipate about 2
weeks before product will be ready for shipping to customers. We do not have to
file a 510(k) pre-market notification with the Food and Drug Administration for
this particular product (because it is a monitoring device).
Our retail sales effort will be through independent sales people and entities.
We do not plan to hire Ingen employees to sell OxyView. OxyView retail pricing
will start at $14.95/unit (per our current plan). As long as we meet our timing
goal for the commencement of manufacturing and have funds available for
advertising, the Company hopes to penetrate 10% of the market throughout
the calendar year of 2007. If we meet these goals, we will have $2.8 million in
sales to hospitals and surgical facilities, and another $12 million sold to
oxygen suppliers/medical supply chains for patients using outpatient oxygen
therapy during the first year.
The elderly population will increase dramatically over the next 10 years. The
majority of pulmonary diseases reside within our elderly population over 55.
OxyView, once in production, will be available to all patients of any age. With
the increasing problems of medical malpractice law suits, OxyView provides
additional means to assist with the prevention of various medical malpractice
issues related to oxygen therapy and provides a means to assure proper and
accurate oxygen delivery to patients.
We do not plan to hire employees to manufacture, ship or sell OxyView. All of
these functions will be performed by companies and individuals that we contract
with on an independent contractor, or outside sales representative, basis.
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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(tm) 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 7 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 2007 and beyond (as
long as physicians are not impacted by Medicare billing changes, that may
fluctuate periodically, as discussed above, and below).
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. Except for the summer of 2005 (when we
had better-than-expected Secure Balance(tm) sales), 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.
18
EMPLOYEES
We have no employees. Our company is basically a holding company (formed in
Georgia) that owns or has rights to certain proprietary products and operates
our business through another company with our same name, Ingen Technologies,
Inc., a Nevada company. As of the date of this periodic report, Ingen
Technologies, Inc., the Nevada company, has one full time employee, Mr. Scott R.
Sand, our CEO, Founder and Chairman. Mr. Sand is paid a monthly draw on a "1099"
basis of $5000; the company does not withhold taxes from his draw. Our Secure
Balance(TM) systems (the equipment) are sold to us for re-sale on a "private
label" basis; we have no part in the design or manufacture of the systems. We
hire sales representatives to sell Secure Balance(TM). These reps are paid on a
contractual basis and are not technically our employees. We will out-source the
manufacturing of our OxyView(tm) product and will sell these products utilizing
a distribution network that will not include the use of company employees.
BUSINESS RISKS
EACH OF THE FOLLOWING RISKS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, WHICH COULD CAUSE THE PRICE OF
OUR SHARES TO DECLINE SIGNIFICANTLY. OUR FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO THE FOLLOWING RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED BY OUR FORWARD-LOOKING STATEMENTS AS A RESULT
OF THE RISK FACTORS BELOW. SEE "FORWARD-LOOKING STATEMENTS."
THE FOLLOWING RISKS RELATE TO OUR OBLIGATION TO FILE REPORTS UNDER THE
SECURITIES EXCHANGE ACT OF 1934:
THE SEC HAS THREATENED TO SUSPEND TRADING OF OUR STOCK
On October 13, 2005, we received a letter from the Division of Corporate Finance
of the Securities and Exchange Commission ("SEC") in connection with our failure
to file periodic reports as required by the Securities Exchange Act of 1934.
Specifically, as of the date of the SEC's letter, our predecessor failed to file
periodic reports dating to fiscal year ended 1998. After the Merger, we
recommenced filing of our periodic reports on November 7, 2005. Based on same,
we are required to file all reports not previously filed or we may face an SEC
administrative hearing pursuant to which the trading of our stock could be
suspended until such time as our filings become current. Our counsel has
contacted the SEC in connection with this matter and has communicated progress
we have made to date in bringing our filings current. To date, the SEC has not
scheduled such an administrative hearing.
19
Our fiscal year is from June 1 to May 31. We have filed annual reports on Form
10-KSB for our fiscal years 2004, 2005, and 2006 and quarterly reports on Form
10-QSB for each quarter during fiscal years 2004 and 2005 and the first three
quarters of fiscal year 2006, as well as other documents as contained on EDGAR.
We are currently attempting to gather information from former CRTZ officials,
attorneys and accountants so that our auditors can complete back financial
statements and our legal counsel can complete and file the remaining back
reporting documents. Our counsel is keeping the SEC abreast of our efforts on a
continuing basis. However, there is no guarantee that we will be able to
complete our back filings in a manner and within a period of time acceptable to
the SEC. There is no guarantee that we will be able to maintain an uninterrupted
public market for our securities.
THERE IS CONSIDERABLE EFFORT AND EXPENSE INVOLVED IN OUR EFFORT TO CATCH UP ON
THE DELINQUENT FILINGS
We have expended considerable administrative time on our effort to bring our
reporting obligation up to date and will continue to do so until we are able to
catch up on all the back periodic reporting filings. We have expended a
considerable amount of money in fees to our auditor and counsel to commence
periodic reporting, and to go back in time to research and prepare the filings
we have done since November of 2005. We plan to continue to expend these
administrative and financial resources until such time as we are able to file
all past-due reporting on EDGAR (and keep abreast of deadlines for prospective
filings). Given the circumstances, this is a necessary drain on the company's
resources and until we complete and file all required back reporting, this
administrative effort and financial expense may adversely affect our ability to
operate and finance our business operations.
WE MAY BE SUBJECT TO DISCIPLINE PURSUANT TO SECTION 14 OF THE SECURITIES
EXCHANGE ACT OF 1934 BASED ON OUR FAILURE TO FILE A PROXY STATEMENT WITH THE SEC
IN CONNECTION WITH THE EFFECTUATION OF OUR REVERSE STOCK SPLITS AND AMENDMENTS
TO OUR ARTICLES OF INCORPORATION.
Pursuant to Section 14 of the Securities Exchange Act of 1934, we are required
to furnish a publicly-filed preliminary and/or definitive written proxy
statement to any shareholder whose vote shall be solicited in connection with
any proposed corporate action requiring a shareholder vote. We are also required
to file such proxy statements with the Securities and Exchange Commission.
Certain exemptions may apply which allow us to furnish shareholders with an
information statement, as opposed to a proxy statement, which must also be filed
with the Securities and Exchange Commission. Additionally, the Georgia Business
Corporation Code requires us to provide shareholder notice within a reasonable
time from the date shareholder approval was acquired.
Based upon same, we were required to notify our shareholders and file an
information statement prior to filing amendments to our Articles of
Incorporation pursuant to which we reduced the number of authorized shares of
our common stock from 500,000,000 to 100,000,000 with the State of Georgia, as
well as prior to the effectuation of the 1-for-40 reverse split of all of our
common shares and the 1-for-3 reverse stock split of our preferred shares.
20
Although such actions were approved by the holders of the majority of our
outstanding shares entitled to vote thereon and although notice was sent to the
shareholders as required under Georgia state law, such actions should not have
been effectuated without the filing of the information statement with the SEC.
Because we failed to file such information statement in a timely manner and
provide our shareholders with proper notice, we may be subject to discipline by
the Securities and Exchange Commission in violation of Section 14 of the
Securities and Exchange Act.
THE FOLLOWING RISKS RELATE PRIMARILY TO THE OPERATION OF OUR BUSINESS:
NEW BUSINESS VENTURES OR ACQUISITIONS THAT WE MAY UNDERTAKE WOULD INVOLVE A
NUMBER OF INHERENT RISKS, ANY OF WHICH COULD CAUSE US NOT TO REALIZE THE
BENEFITS ANTICIPATED TO RESULT.
We continually seek to expand our operations through acquisitions of businesses
and assets, including Pure Produce. These transactions involve various inherent
risks, such as:
o uncertainties in assessing the value, strengths, weaknesses, contingent
and other liabilities and potential profitability of acquisition or
other transaction candidates;
o the potential loss of key personnel of an acquired business;
o the ability to achieve identified operating and financial synergies
anticipated to result from an acquisition or other transaction;
o problems that could arise from the integration of the acquired or new
business;
o unanticipated changes in business, industry or general economic
conditions that affect the assumptions underlying the acquisition or
other transaction rationale; and
o unexpected development costs that adversely affect our profitability.
Any one or more of these factors could cause us not to realize the benefits
anticipated to result from the acquisition of businesses or assets or the
commencement of a new business venture.
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, 2006, we have incurred total accumulated losses of
$10,795,251. 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 increasing 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.
21
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 may 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.
Ingen Nevada relied on loans and compensation deferrals from our CEO and
Chairman, Scott R. Sand, and investment from an individual named Jeffrey
Gleckman, to sustain the company from 1999 into fiscal year 2004. Our finances
are now consolidated and reported along with those of Ingen Nevada. 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.
Mr. Sand's executive compensation continues to accrue; currently we are paying
him $60,000 per year of the $150,000 per year he is entitled to as CEO under our
oral employment agreement with him.
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.
22
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 have manufacturing prototypes for
OxyView(tm), but still need manufacturing prototypes for OxyAlert(TM) and
GasAlert(TM). These products, once marketing commences, may not be successfully
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;
23
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 constitute what we call "Secure Balance(TM)." (See "Description of
Business" below) 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. Currently, our
only source of sales revenues is Secure Balance(TM).
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. 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.
24
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.
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.
25
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 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 do not
have "key person" life insurance policies.
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
further 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 in-house 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.
26
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 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.
SHAREHOLDERS MUST RELY ON MANAGEMENT FOR THE OPERATION OF THE COMPANY
All decisions with respect to the operation of Ingen and development, production
and marketing of our products, will be made exclusively by management. Our
success will, to a large extent, depend on the quality of the management of the
company. In particular, we will depend on the services of our board members and
officers. Management believes that these individuals have the necessary business
experience to supervise the management of the company and production and
commercial exploitation of our products, however, there can be no assurance that
they will perform adequately or that our operations will be successful.
Shareholders will have no right or power to take part in the management of the
company, for the most part, except to the extent of voting for the members of
the Board of Directors each year. Accordingly, no person should purchase any of
the stock offered hereby unless such prospective purchaser is willing to entrust
all aspects of the management of the company to management and has evaluated
management's capabilities to perform such functions.
THE COMPANY IS A "C" CORPORATION FOR FEDERAL TAX PURPOSES
The corporation is a "C" corporation for federal tax purposes which means that
losses or profits of the company, if any, remain in the corporation and are not
passed through for tax purposes to shareholders. All assets and liabilities of
the company are owned by the company, and not by the shareholders. A
shareholder's only asset with respect to the company is his, her or its company
share(s) of stock.
THERE ARE NO TAX BENEFITS ASSOCIATED WITH THIS OFFERING
There are no tax benefits associated with this offering of corporate stock and
the company does not intend and believes it has no obligation to register with
the Internal Revenue Service as a tax shelter. Any corporate distributions that
may be paid by the company to shareholders will be taxed as ordinary income as
to the shareholders. We have no current plans to make cash distributions to
shareholders and will not be able to do so until (and if) we achieve
profitability.
27
INDEMNIFICATION PROVISIONS MAY ADVERSELY AFFECT THE COMPANY
The Corporation's Articles of Incorporation provide that under certain
circumstances management and other agents will be indemnified by the company for
any liabilities or losses arising out of management's activities in connection
with the company. Indemnification under such provision could reduce or deplete
the assets of the company.
OUR QUARTERLY OPERATING RESULTS WILL FLUCTUATE
Our quarterly operating results will fluctuate for many reasons, including:
o our ability to retain existing customers, attract new customers and
satisfy our customers' demands,
o our ability to acquire merchandise, manage our inventory and fulfill
orders,
o changes in gross margins of our current and future products, services,
and markets
o introduction of our new sites, services and products or those of
competitors
o changes in usage of the Internet and online services and consumer
acceptance of the Internet and online commerce
o timing of upgrades and developments in our systems and infrastructure o
the level of traffic on our Web site
o the effects of acquisitions and other business combinations, and
related integration
o technical difficulties, system downtime or Internet brownouts
o our ability to properly anticipate demand,
o our ability to prevent fraud perpetrated by third parties through
credit card transactions, and payments transactions
o our level of merchandise returns
o disruptions in service by common shipping carriers due to strikes or
otherwise
o disruption of our ongoing business
o problems retaining key technical and managerial personnel
o expenses associated with amortization of goodwill and other purchased
intangible assets
o additional operating losses and expenses of acquired businesses, if any
o impairment of relationships with existing employees, customers and
business partners
28
RISKS RELATED TO FRAUD
Although we have developed systems and processes to mitigate fraudulent credit
card transactions, failure to prevent such fraud may impact our financial
results and may create liability for us in the sale of our products. In
addition, the steps we take to protect our proprietary rights may not be
adequate and third parties may infringe or misappropriate our copyrights,
trademarks, trade dress, patents and similar proprietary rights. Other parties
may claim that we infringed their proprietary rights. Such claims, whether or
not meritorious, may result in the expenditure of significant financial and
managerial resources.
THE FOLLOWING RISKS RELATE PRINCIPALLY TO OUR COMMON STOCK AND ITS MARKET VALUE:
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 "restricted" 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. We will undoubtedly have unrestricted shares issued in the
future. Combined, we and our selling shareholders are offering tens of millions
of unrestricted common shares in this offering. We have little in the way of
contractual restrictions in our agreements for the sale of privately placed
shares. There is no way to control the sale of these shares on the secondary
market (we trade on the Pink Sheets). The resale of these unrestricted shares,
and/or sale of shares registered in this offering, 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 .40 (as of August 31, 2006). 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.
29
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 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.
THERE IS A LIMITED MARKET FOR OUR COMMON STOCK WHICH MAKES IT DIFFICULT FOR
INVESTORS TO ENGAGE IN TRANSACTIONS IN OUR SECURITIES.
Our common stock is quoted on the Pink Sheets under the symbol "IGTG." There is
a limited trading market for our common stock. If public trading of our common
stock does not increase, a liquid market will not develop for our common stock.
The potential effects of this include difficulties for the holders of our common
shares to sell our common stock at prices they find attractive. If liquidity in
the market for our common stock does not increase, investors in our company may
never realize a profit on their investment.
OUR STOCK PRICE IS VOLATILE WHICH MAY MAKE IT DIFFICULT FOR INVESTORS TO SELL
OUR SECURITIES FOR A PROFIT.
The market price of our common stock is likely to be highly volatile and Could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including:
o technological innovations or new products and services by us or our
competitors;
o additions or departures of key personnel;
o sales of our common stock
30
o our ability to integrate operations, technology, products and services;
o our ability to execute our business plan;
o operating results below expectations;
o loss of any strategic relationship;
o industry developments;
o economic and other external factors; and
o period-to-period fluctuations in our financial results.
Because we have a limited operating history with little revenues to date, you
may consider any one of these factors to be material. Our stock price may
fluctuate widely as a result of any of the above.
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of our common stock.
OUR COMMON STOCK IS DEEMED A "PENNY STOCK" UNDER THE RULES OF THE SEC, WHICH
MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME.
Our common stock is currently listed for trading on the Pink Sheets which is
generally considered to be a less efficient market than markets such as NASDAQ
or other national exchanges, and which may cause difficulty in conducting trades
and difficulty in obtaining future financing. Further, our securities are
subject to the "penny stock rules" adopted pursuant to Section 15 (g) of the
Securities Exchange Act of 1934, as amended, or Exchange Act. The penny stock
rules apply to non-NASDAQ companies whose common stock trades at less than $5.00
per share or which have tangible net worth of less than $5,000,000 ($2,000,000
if the company has been operating for three or more years). Such rules require,
among other things, that brokers who trade "penny stock" to persons other than
"established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided not to trade
"penny stocks" because of the requirements of the penny stock rules and, as a
result, the number of broker-dealers willing to act as market makers in such
securities is limited. In the event that we remain subject to the "penny stock
rules" for any significant period, there may develop an adverse impact on the
market, if any, for our securities. Because our securities are subject to the
"penny stock rules," investors will find it more difficult to dispose of our
securities. Further, for companies whose securities are traded on the Pink
Sheets, it is more difficult: (i) to obtain accurate quotations, (ii) to obtain
coverage for significant news events because major wire services, such as the
Dow Jones News Service, generally do not publish press releases about such
companies, and (iii) to obtain needed capital.
31
A SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK MAY CAUSE THE PRICE
OF OUR COMMON STOCK TO DECLINE.
If our shareholders sell substantial amounts of our common stock in the public
market, including shares issued upon the exercise of outstanding options or
warrants, the market price of our common stock could fall. These sales also may
make it more difficult for us to sell equity or equity-related securities in the
future at a time and price that we deem reasonable or appropriate. As of
August 31, 2006, 18,134,547 shares of our issued common stock are unrestricted
and 11,205,158 shares are restricted (but many may be eligible to have
restrictions lifted).
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.
32
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 received proceeds of $75,000 from the sale of a convertible debenture to
Salvatore Amato. The debenture is convertible at any time within a 3 year period
into 3,750,000 shares ($0.02 per share) of restricted common shares with
registration rights. The agreement and debenture are dated May 31, 2006. The
debenture pays 6% per annum.
On July 26, 2006, we completed a financing agreement by signing a securities
purchase agreement for a maximum of $2,000,000. The initial closing was for
financing of the principal amount of $700,000 for which we issued callable
secured convertible notes. The initial funding was undertaken as follows: AJW
Capital Partners, LLC - $67,900; AJW Offshore, Ltd. - $413,000; AJW Qualified
Partners, LLC - $210,000; and New Millennium Capital Partners II, LLC - $9,100.
Under the securities purchase agreement, we will receive the principal amount of
$600,000 when this SB-2 registration statement is filed with the SEC; and the
final principal amount of $700,000 when this registration statement is declared
effective. At both times, we will issue callable secured convertible notes for
such amounts. The note is convertible into our common shares at the lowest 3
intra-day trading prices during the 20 trading days immediately prior to the
conversion date discounted by 40%. The investors in the financing shall not be
entitled to convert the promissory note if such conversion would result in any
investor solely owning more than 4.99% of our outstanding shares of common
stock.
Based on our recent financing, we have also issued 20,000,000 warrants
convertible into shares of our common stock. Each Warrant entitles to holder to
one share of our common stock. The warrants were issued as follows: AJW Capital
Partners, LLC - 1,940,000 warrants; AJW Offshore, Ltd. - 11,800,000 warrants;
AJW Qualified Partners, LLC - 6,000,000 warrants; and New Millennium Capital
Partners II, LLC - 260,000 warrants. The exercise price is $.10 and is
exercisable for seven years from the date of issuance. The warrants have a
cashless exercise feature. For the 20,000,000 warrants issued on July 26, 2006,
the expiration date is July 26, 2013.
II-1
The convertible notes and the warrants (the "Securities") were issued in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. No commissions were paid for the issuance of such
Securities. The above issuance of Securities qualified for exemption under
Section 4(2) of the Securities Act of 1933 since the issuance of such shares by
us did not involve a public offering. The holders set forth above were each
accredited investors and had access to information normally provided in a
prospectus regarding us. The offering was not a "public offering" as defined in
Section 4(2) due to the insubstantial number of persons involved in the deal,
size of the offering, manner of the offering and number of Securities offered.
We did not undertake an offering in which we sold a high number of Securities to
a high number of investors. In addition, the holders set forth above had the
necessary investment intent as required by Section 4(2) since they agreed to
receive a share certificate bearing a legend stating that such shares underlying
the Securities are restricted pursuant to Rule 144 of the 1933 Securities Act.
These restrictions ensure that these shares would not be immediately
redistributed into the market and therefore not be part of a "public offering."
Based on an analysis of the above factors, we have met the requirements to
qualify for exemption under Section 4(2) of the Securities Act of 1933 for the
above transaction.
On July 26, 2006 we issued warrants to representing the right to purchase up to
2,000,000 shares of our common stock at an exercise price of $.10 per share. The
exercise price is $.10 and is exercisable for seven years from the date of
issuance. The warrants have a cashless exercise feature. The warrants were
issued in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act of 1933. No commissions were paid for the issuance of such
warrants. The above issuance of warrants to purchase shares of our common stock
qualified for exemption under Section 4(2) of the Securities Act of 1933 since
the issuance of such warrants did not involve a public offering. The
warrant-holder represented that it was an accredited investor and had access to
information normally provided in a prospectus regarding us. The offering was not
a "public offering" as defined in Section 4(2) due to the insubstantial number
of persons involved in the deal, size of the offering, manner of the offering
and number of shares offered. We did not undertake an offering in which we sold
a high number of shares to a high number of investors. In addition, the
warrant-holder had the necessary investment intent as required by Section 4(2)
and agreed to receive a share certificate upon exercise of the warrant bearing a
legend that such shares underlying the warrant are restricted pursuant to Rule
144 of the 1933 Securities Act. These restrictions ensure that these shares
would not be immediately redistributed into the market and therefore not be part
of a "public offering." Based on an analysis of the above factors, we have met
the requirements to qualify for exemption under Section 4(2) of the Securities
Act of 1933 for the above transaction.
All of the above issuances of shares of our common stock qualified for exemption
under Section 4(2) of the Securities Act of 1933 since the issuance of such
shares by us did not involve a public offering. Each of these shareholders was a
sophisticated investor and had access to information regarding us. The offering
was not a "public offering" as defined in Section 4(2) due to the insubstantial
number of persons involved in the deal, size of the offering, manner of the
offering and number of shares offered. We did not undertake an offering in which
we sold a high number of shares to a high number of investors. In addition,
these shareholders had the necessary investment intent as required by Section
4(2) since they agreed to and received a share certificate bearing a legend
stating that such shares are restricted pursuant to Rule 144 of the 1933
Securities Act. These restrictions ensure that these shares would not be
immediately redistributed into the market and therefore not be part of a "public
offering." Based on an analysis of the above factors, we have met the
requirements to qualify for exemption under Section 4(2) of the Securities Act
of 1933 for the above transactions.
II-2
All stock numbers and prices per share have been adjusted to reflect the
1-for-40 reverse split of our common stock split effective December 8, 2005.
ITEM 6. EXHIBITS
(all exhibits with original signatures are contained in the corporate office
files of Ingen Technologies, Inc. ("Ingen"))
Exhibit No. Document Description
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4.5 Form of Stock Purchase Warrant by and among Ingen Technologies,
Inc. and the New Millennium Capital Partners II, LLC, AJW
Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners,
LLC. (incorporated by reference to Ingen's Form 8-K filed August
8, 2006)
4.6 Registration Rights Agreement by and among Ingen Technologies,
Inc. and the New Millennium Capital Partners II, LLC, AJW
Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners,
LLC. (incorporated by reference to Ingen's Form 8-K filed August
8, 2006)
4.7 Security Agreement by and among Ingen Technologies, Inc. and the
New Millennium Capital Partners II, LLC, AJW Qualified Partners,
LLC, AJW Offshore, Ltd. and AJW Partners, LLC. (incorporated by
reference to Ingen's Form 8-K filed August 8, 2006)
4.8 Intellectual Property Security Agreement by and among Ingen
Technologies, Inc. and the New Millennium Capital Partners II,
LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW
Partners, LLC. (incorporated by reference to Ingen's Form 8-K
filed August 8, 2006)
5.1 Opinion of legality and consent of Anslow & Jaclin, LLP, dated
August 25, 2006 (incorporated by reference to Ingen's Form SB-2
filed on August 25, 2006)
10.1 Investment Agreement with Salvatore Amato, dated May 31, 2006.*
10.2 Consulting Agreement between National Financial Communications
Corp. and Ingen Technologies, Inc. dated July 24, 2006 pursuant
to which NFC will render public relations, communications,
advisory and consulting services (incorporated by reference to
Ingen's Form SB-2 filed on August 25, 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.*
32.3 Certification of Chief Executive Officer and Chief Financial
Officer as required pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
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* Filed herewith.
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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 1, 2006 /s/ Scott R. Sand
-------------------------------------
Scott R. Sand
Chief Executive Officer and Chairman
November 1, 2006 /s/ Thomas J. Neavitt
-------------------------------------
Thomas J. Neavitt
Secretary and Chief Financial Officer
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