UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO.1 TO FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INGEN TECHNOLOGIES, INC.
(Exact Name of Small Business Issuer in its Charter)
GEORGIA 3391 84-1122431
(State of Incorporation) (Primary Standard (IRS Employer ID No.)
Classification Code)
35193 AVENUE "A," SUITE-C,
YUCAIPA, CALIFORNIA 92399
(800) 259-9622
(Address and Telephone Number of Registrant's Principal
Executive Offices and Principal Place of Business)
SCOTT R. SAND, CHIEF EXECUTIVE OFFICER
35193 AVENUE "A," SUITE-C,
YUCAIPA, CALIFORNIA 92399
(800) 259-9622
(Name, Address and Telephone Number of Agent for Service)
Copies of communications to:
RICHARD I. ANSLOW, ESQ.
ANSLOW & JACLIN, LLP
195 ROUTE 9, SUITE 204
MANALAPAN, NEW JERSEY 07726
TELEPHONE NO.: (732) 409-1212
FACSIMILE NO.: (732) 577-1188
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.|_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS NUMBER OF PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE UNITS/SHARES TO OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ------------------------------ ------------------ ----------------- ---------------- ----------------
Common Stock, no par value 12,649,662(2) $0.042 $531,285.80 $16.31
per share (1)
Total 12,649,662 $531,285.80 $16.31
(1) Represents 12,649,662 shares of common stock issuable in connection with the
conversion of Callable Secured Convertible Notes in accordance with a Securities
Purchase Agreement dated July 25, 2006 between us and AJW Partners, LLC, AJW
Offshore, Ltd., AJW Qualified Partners, LLC and New Millennium Capital Partners
II, LLC, respectively. The price of $.042 per share is being estimated solely
for the purpose of computing the registration fee pursuant to Rule 457(c) of the
Securities Act and is based on the estimated conversion price of the Callable
Secured Convertible Notes ($0.07 was the average of the lowest (3) intraday
trading prices for our common stock during the twenty (20)trading days prior to
the date the notes were issued on July 25, 2006, less a 40% discount).
(2) The number of shares being registered for the conversion of the Callable
Secured Convertible Notes is 12,649,662 representing 1/3 of our issued and
outstanding shares of non-affiliate common stock..
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED FEBRUARY ___, 2008
PROSPECTUS
INGEN TECHNOLOGIES, INC.
12,649,662 SHARES OF COMMON STOCK ISSUABLE IN CONNECTION
WITH THE CONVERSION OF PROMISSORY NOTES
Our selling security holders are offering to sell 12,649,662 shares of common
stock issuable in connection with the conversion of promissory notes.
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING "RISK
FACTORS".
NEITHER THE SECURITES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February ___, 2008.
Our shares of common stock are quoted on the Pink Sheets under the symbol
"IGTG." The last reported sale price of our common stock on February 11, 2008
was $.03.
We will receive no proceeds from the sale of the shares by the selling
stockholders. However, we will receive proceeds from the exercise of the
Warrants.
TABLE OF CONTENTS
SUMMARY INFORMATION.....................................................................1
RISK FACTORS...........................................................................13
USE OF PROCEEDS........................................................................23
PENNY STOCK CONSIDERATIONS.............................................................23
SELLING STOCKHOLDERS...................................................................24
PLAN OF DISTRIBUTION...................................................................26
LEGAL PROCEEDINGS......................................................................28
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS...........................28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........................31
DESCRIPTION OF SECURITIES..............................................................32
INTEREST OF NAMED EXPERTS AND COUNSEL..................................................33
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES....33
DESCRIPTION OF BUSINESS................................................................34
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.............................48
DESCRIPTION OF PROPERTY................................................................56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................56
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...............................58
EXECUTIVE COMPENSATION.................................................................59
FINANCIAL STATEMENTS...................................................................60
CHANGES AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURE.......61
AVAILABLE INFORMATION..................................................................62
SUMMARY INFORMATION
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING, THE SECTION ENTITLED
"RISK FACTORS" BEFORE DECIDING TO INVEST IN OUR COMMON STOCK. INGEN
TECHNOLOGIES, INC. IS REFERRED TO THROUGHOUT THIS PROSPECTUS AS "INGEN," "INGEN
TECHNOLOGIES," "THE COMPANY," "WE," OR "US."
OUR COMPANY
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Our company was incorporated under the laws of the state of Georgia in 1995
under the name Classic Restaurants International, Inc. We changed our name in
1998 to Creative Recycling Technologies, Inc. Our business plan changed from the
restaurant business to recycling along with our name change. We had little
business activity and no sales. Our business was dormant from the late 1990's
into the first calendar quarter of 2004.
In March of 2004, we merged with a Nevada company, Ingen Technologies, Inc.
Ingen Technologies, Inc. survived as our subsidiary for the sole purpose of
operating our new business. In December of 2005, we underwent a 1:40 reverse
stock split. However, we remained a Georgia corporation, with completely new
management and an active business plan in the medical devices industry (operated
by the Nevada company with the same name). Shortly thereafter, we changed our
name to Ingen Technologies, Inc.
Ingen Technologies, Inc., the Nevada company, was founded by Scott R. Sand in
1999. Upon the merger with our Georgia corporation, Mr. Sand became the Chief
Executive Officer and Chairman of the Board of Directors, positions he maintains
today. Mr. Sand owns 2,285,796 shares of our common stock (approximately 3.9% of
the 57,933,474 common shares outstanding as of February 11, 2008) and he owns
approximately 83.5% of our issued Series A Convertible preferred shares
(20,275,960 of 24,275,960 Series A Convertible preferred shares issued and
outstanding as of February 11, 2008) which in some cases are entitled to a
separate vote on a one-vote-per-share basis along with our common shares. As of
February 11, 2008, Mr. Sand owned approximately 28.8% of our outstanding voting
shares.
OVERVIEW OF OUR BUSINESS
We are a medical device manufacturer and service provider for medical and
consumer markets both domestic and abroad. All of our manufacturing is currently
subcontracted. We have four products, two of which are currently generating
revenues; Secure Balance(TM) and Oxyview(TM). Oxyview(TM) is part of our product
line for wireless, digital, low gas warning systems for pressurized gas
cylinders, known as BAFI(TM). The other oxygen and gas monitoring safety devices
in our BAFI product line that are still being developed are OxyAlert(TM) and
GasAlert(TM).
The Company's flagship product is its BAFI (TM) line of products. These are the
world's first wireless digital low gas warning system for pressurized gas
cylinders. These products include Oxyview(TM), OxyAlert(TM)and GasAlert(TM). On
October 24, 2000, the Company received a U.S. Patent for the BAFI (TM) 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 Company's 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.
1
On November 16, 2006, the Company purchased the intellectual property rights for
Oxyview(TM). The Company co-invented the Oxyview (TM) product with a third
party. The agreement gave the Company sole ownership of the product and
intangible pending patents associated with Oxyview (TM), which is part of the
Company's BAFI(TM) line of products. Patents for Oxyview (TM) are pending in the
United States, Japan, People's Republic of China and the European Communities.
Oxyview(TM) relates to flow meters which provide a visual signal for gas flow
through a conduit. More particularly it relates to a flow meter which provides a
visual cue viewable with the human eye, as to the flow of gas through a cannula
which conventionally employs very low pressure and gas volume to a patient using
the Oxyview(TM). The Company began recording sales of Oxyview(TM) in November of
2006.
GasAlert(TM) development is currently "on hold" and we do not intend to focus on
it until we have OxyAlert(TM) in a production and sales mode. We also have an
agri-business concept known as Pure Produce, which involves establishing
soil-less indoor farming facilities near population centers to grow food and
neutriceuticals . Our development plans for Pure Produce are currently
suspended, pending the full launch of our BAFI product line and additional
funding.
GOING CONCERN
- -------------
As noted in Note 3 to the Financial Statements for the year ended May 31, 2007
which accompany this prospectus, our consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and liabilities and commitments in the normal course of business. In the near
term, we expect operating costs to continue to exceed funds generated from
operations. As a result, we expect to continue to incur operating losses and we
may not have sufficient funds to grow our business in the future. We can give no
assurance that we will achieve profitability or be capable of sustaining
profitable operations. As a result, operations in the near future are expected
to continue to use working capital.
To successfully grow the individual segments of the business, we must decrease
our cash burn rate, improve our cash position and the revenue base of each
segment, and succeed in our ability to raise additional capital through a
combination of primarily public or private equity offerings or strategic
alliances. We also depend on certain contractors, and our sole employee, the
CEO, and the loss of any of those contractors or the employee, may harm the
Company's business.
The Company incurred a loss of $5,061,482 and $1,736,868 for the years ended May
31, 2007 and 2006, and as of those dates, had an accumulated deficit of
$9,323,671 and $4,262,189, respectively.
OUR WEBSITE
- -----------
We invite you to visit our website at www.ingen-tech.com for information about
our company and products. Our address is provided as an inactive textual
reference only.
OUR CONTACT INFORMATION
- -----------------------
We can be reached by calling (909) 790-7180. Our fax number is (909) 790-7185.
Our email address is Info@ingen-tech.com. As noted above, our website address is
www.ingen-tech.com. Our office address is 35193 Avenue "A," Suite-C, Yucaipa, CA
92399.
2
THE OFFERING
- ------------
Common stock offered by
selling stockholders Up to 12,649,662 shares, including the
following:
- up to 12,649,662 shares of common stock
which is part of the amount underlying
secured convertible notes in the principal
amount of $1,500,000 (includes a good
faith estimate of the shares underlying
secured convertible notes to account for
market fluctuations and antidilution
protection adjustments, respectively). We
have registered 1/3 of Ingen's issued and
outstanding shares of common stock held by
non-affiliates, issuable upon conversion
of the secured notes, based upon current
market prices. We have received $1,500,000
of such proceeds and will receive an
additional $200,000 upon the filing of
this registration statement
- 12,649,662 represents 1/3 of our current
non-affiliate shares of outstanding
common stock.
Common stock to be outstanding
after the offering. Up to 70,583,136 shares
Use of proceeds We will not receive any proceeds
from the sale of the common stock.
Pink Sheets Symbol IGTG
DISCLOSURE REGARDING OUR July 25, 2006 FINANCING AND CONVERSION OF NOTES AND
EXERCISE OF WARRANTS
TERMS OF FINANCING DOCUMENTS
- ----------------------------
SECURITIES PURCHASE AGREEMENT
On July 25, 2006 (the "Issuance Date"), we entered into a Securities Purchase
Agreement with AJW Capital Partners, LLC, AJW Offshore, Ltd., AJW Qualified
Partners, LLC and New Millennium Capital Partners II, LLC (the "Investors"),
whereby the Investors purchased an aggregate of (i) $2,000,000 in Callable
Secured Convertible Notes (the "Notes") and (ii) warrants to purchase 20,000,000
shares of our common stock (the "Warrants"). The Investors purchased the
Notes and Warrants in three (3) tranches as set forth below:
1. At closing on July 25, 2006 ("Closing"), the Investors purchased Notes
aggregating $700,000 and Warrants to purchase 20,000,000 shares of Ingen's
common stock;
2. On August 29, 2006, the Investors purchased Notes aggregating $600,000; and
3. On January 24, 2007, the Investors purchased notes aggregating $200,000.
3
Under the Securities Purchase Agreement, we are obligated to pay all costs and
expenses incurred by us in connection with the negotiation, preparation and
delivery of the transaction documents, as well as the costs associated with
registering the common shares underlying the Notes being offered in this
Prospectus.
FUTURE CAPITAL RAISING LIMITATIONS. The Company may not, without the prior
written consent of a majority-in-interest of the Investors, negotiate or
contract with any party to obtain additional equity financing (including debt
financing with an equity component) involving the following:
1. Issuance of common stock at a discount to the market price of such stock;
2. Issuance of convertible securities that are convertible into an indeterminate
number of shares of common stock; or
3. Issuance of warrants during the "Lock-Up Period." The Lock-up Period begins
on the Closing Date and extends until the later of
(i) two hundred seventy (270) days from the Closing Date; or,
(ii) one hundred eighty (180) days from the date the Registration
Statement is declared effective (plus any days in which sales cannot be made
thereunder).
In addition, Investors have a right of first refusal of any future equity
offerings (including debt with an equity component) for the period beginning on
the Closing and ending two (2) years after the end of the Lock-up Period (the
"Right of First Refusal"). The Right of First Refusal provides each Buyer an
option to purchase its pro rata share of the securities being offered in the
future offering on the same terms as contemplated by such Future Offering.
Notwithstanding the above, such limitations shall not apply to any transaction
involving:
1. issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act); or
2. issuances of securities as consideration for a merger, consolidation or
purchase of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or license
by the Company.
The limitations also shall not apply to the issuance of securities upon exercise
or conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan approved by the shareholders of the Company.
LIQUIDATED DAMAGES. We are liable to pay liquidated damages in shares or cash,
at our election, equal to 3% of the outstanding amount of the Notes per month
plus accrued and unpaid interest if we breach any (i) covenant set forth in the
Securities Purchase Agreement, including the failure to comply with blue sky
laws, timely file all public reports, use the proceeds from the sale of the
Notes in the agreed upon manner, obtain written consent from the Investors to
negotiate or contract with a party for additional financing, reserve and have
authorized the required number of common shares or maintain the listing or
quotation of our common shares on an exchange or automated quotation system; or
(ii) representation or warranty regarding the condition of our company set forth
in the Securities Purchase Agreement.
4
SECURITY AGREEMENT AND INTELLECTUAL PROPERTY SECURITY AGREEMENT
In connection with the Securities Purchase Agreement and as security for the
Notes, we executed a Security Agreement and an Intellectual Property Security
Agreement granting the Investors a continuing security interest in, a continuing
first lien upon, an unqualified right to possession and disposition of, and a
right of set-off against, in each case to the fullest extent permitted by law,
all of the Company's right, title and interest in all of our goods, inventory,
contractual rights and general intangibles, receivables, documents, instruments,
chattel paper, and intellectual property. Under the Security Agreement and
Intellectual Property Security Agreement, events of default occur upon:
The occurrence of an event of default (as defined in the Notes and
listed below) under the Notes;
Any representation or warranty we made in the Security Agreement or in
the Intellectual Property Security Agreement shall prove to have been incorrect
in any material respect when made;
The failure by us to observe or perform any of our obligations under
the Security Agreement or Intellectual Property Security Agreement for ten (10)
days after receipt of notice of such failure from the Investors; and
Any breach of, or default under, the Warrants.
WARRANTS
EXERCISE TERMS AND LIMITATION. We simultaneously issued to the Investors seven
(7) year Warrants to purchase 20,000,000 shares of our common stock at an
exercise price of $0.10. The Investors have contractually agreed to restrict
their ability to exercise the Warrants and receive shares of our common stock
such that the number of shares of our common stock held by them and their
affiliates after such exercise does not exceed 4.99% of the then issued and
outstanding shares of our common stock.
CASHLESS EXERCISE. If the shares of common stock underlying the Warrants are not
registered, then the Investors are entitled to exercise the Warrants on a
cashless basis without paying the exercise price in cash. In the event that the
Investors exercise the Warrants on a cashless basis, then we will not receive
any proceeds.
ANTI-DILUTION. The Warrants' exercise price will be adjusted in certain
circumstances such as if we issue common stock at a price below market price,
except for any securities issued in connection with the Notes, if we pay a stock
dividend, subdivide or combine outstanding shares of common stock into a greater
or lesser number of shares, or take such other actions as would otherwise result
in dilution of the Investors' position.
NOTES
INTEREST, MATURITY AND CONVERSION. The Notes bear interest at 6% per annum,
mature three (3) years from the issuance date, and are convertible into shares
of our common stock at the applicable percentage of the average of the lowest
three (3) intraday trading prices for our shares of common stock during the
twenty (20) trading day period prior to conversion, but not including the
conversion date. 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 (30) days of the closing, and (ii)
60% in the event that the Registration Statement is declared effective by the
SEC.
In the event of full conversion of the aggregate principal amount of the Notes
of $2,000,000, we would have to register a total of 47,619,048 shares of common
stock. This amount is calculated as follows:
5
The aggregate principal amount of the Notes is $2,000,000. The estimated
conversion price of the Notes is $0.042 based on the following: $0.07 was the
average of the lowest three (3) intraday trading prices for our shares of common
stock during the twenty (20) trading days prior to the Issuance Date ("Average
Common Stock Price"), less a 40% discount. Thus, at a discounted price-per-share
of $0.042, 47,619,048 shares of the Company's common stock would be issuable
upon conversion of $2,000,000 into common shares of the Company ("Conversion
Shares") and would be registered.
There is no limit to the number of shares that we may be required to issue upon
conversion of the Notes as it is dependent upon our share price, which varies
from day to day. This could cause significant downward pressure on the price of
our common stock. The following table shows the effect on the number of shares
issuable upon full conversion, in the event the common stock price declines by
25%, 50% and 75% from the trading price on the date of the Closing.
PRICE DECREASES BY
----------------------------------------------------------------------------
7/25/2006 25% 50% 75%
----------------------------------------------------------------------------
Average Common Stock Price (as defined above) 0.07 0.0525 0.035 $0.0175
Conversion Price 0.042 0.0315 0.021 $0.0105
100% Conversion Shares 47,619,048 63,492,063 95,238,095 190,476,190
CONVERSION LIMITATION. The Investors have contractually agreed to restrict their
ability to convert the Notes and receive shares of our common stock such that
the number of shares of our common stock held by them and their affiliates after
such conversion does not exceed 4.99% of the then issued and outstanding shares
of our common stock.
CALL OPTION. The Notes have a call option, which provides us with the right to
prepay the Notes in the event that no event of default exists, there are a
sufficient number of shares available for conversion of the Notes and the market
price is at or below $0.10 per share. Prepayments are to be made in cash equal
to either (i) 120% of the outstanding principal and accrued interest for
prepayments occurring within 30 days following the issue date of the Notes; (ii)
130% of the outstanding principal and accrued interest for prepayments occurring
between 31 and 60 days following the issue date of the Notes; and (iii) 140% of
the outstanding principal and accrued interest for prepayments occurring after
the 60th day following the issue date of the Notes. To exercise this right, we
must provide to the note holders prior written notice no less than 3 trading
days before the exercise date.
PARTIAL CALL OPTION. In the event that the average daily price of the common
stock for each day of the month ending on any determination date is below $0.10,
we have a partial call option which provides us with the right to prepay a
portion of the outstanding principal amount of the Notes equal to 101% of the
principal amount hereof divided by thirty-six (36) plus one month's interest.
Exercise of this option will stay all conversions for the following month. The
full principal amount of the Notes is due upon default under the terms of Notes.
In addition, we have granted the Investors a security interest in substantially
all of our assets and intellectual property as well as registration rights.
ANTI-DILUTION. The Notes' conversion price will be adjusted in certain
circumstances such as if we issue common stock at a price below market price,
except for any securities issued in connection with the Notes, if we pay a stock
dividend, subdivide or combine outstanding shares of common stock into a greater
or lesser number of shares, or take such other actions as would otherwise result
in dilution of the Investors' position.
6
DEFAULT. An "Event of Default" occurs if we:
Fail to pay the principal or interest when due;
Fail to issue shares of common stock upon receipt of a conversion
notice;
Fail to file a registration statement within 30 days following the
Closing or failure to have the registration statement effective 120 days
following the Closing;
Breach any material covenant or other material term or condition in the
Notes or the Securities Purchase Agreement;
Breach any representation or warranty made in the Securities Purchase
Agreement or other document executed in connection with the financing
transaction;
Fail to maintain the listing or quotation of our common stock on the
OTCBB or an equivalent exchange, the Nasdaq National Market, the Nasdaq SmallCap
Market, the New York Stock Exchange, or the American Stock Exchange;
Apply for or consent to the appointment of a receiver or trustee for us
or any of our subsidiaries or for a substantial part of our or our subsidiaries'
property or business, or such a receiver or trustee shall otherwise be
appointed;
Have any money judgment, writ or similar process shall be entered or
filed against us or any of our subsidiaries or any of our property or other
assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
for a period of twenty (20) days unless otherwise consented to by the Investors;
Institute or have instituted against us or any of our subsidiaries any
bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors; or
Default under any Note issued pursuant to the Securities Purchase
Agreement.
VALUE OF SHARES UNDERLYING NOTES
- --------------------------------
The maximum aggregate dollar value of the 12,649,662 shares of common stock
underlying the Notes that the Company has registered for resale is $531,285.80
This number is based on 1/3 of our 40,479,579 non-affiliate outstanding common
shares issued and outstanding as of February 11, 2008 and the estimated
conversion price per share of $0.042 ($0.07 was the average of the lowest three
(3) intraday trading prices for our common shares during the twenty (20) trading
days prior to the date the Notes were issued on July 25, 2006, less a 40%
discount.
The market price for the Company's common stock on the Issuance Date was $0.09
per share based on the closing price on July 25, 2006, the closing price on the
Issuance Date. Using this market price per share, the maximum aggregate dollar
value of the 12,649,662 common shares underlying the Notes that the Company has
registered for resale is $1,138,469.58.
FEES AND PAYMENTS ASSOCIATED WITH TRANSACTION
- ---------------------------------------------
The following table discloses the dollar amount of each payment
(including the dollar value of any payments to be made in common stock) in
connection with the financing transaction that the Company has paid, or may be
required to pay to any Selling Stockholder, any affiliate of a Selling
Stockholder, or any person with whom any Selling Stockholder has a contractual
relationship regarding the transaction. The table also reflects the potential
net proceeds to the Company from the sale of the Notes and the total possible
payments to all selling shareholders and any of their affiliates in the first
year following the sale of convertible notes.
7
We intend to use all proceeds received in connection with the financing
transaction for general corporate, business development and working capital
purposes. For purposes of this table, we assumed that the aggregate of
$2,000,000 in Notes were issued on July 25, 2006, even though the Investors are
not scheduled to pay to us the fourth tranche of $500,000 until this
Registration Statement is declared effective by the SEC. In this regard,
however, as the Registration Statement has not been deemed effective within 120
days of the Issuance Date as required by Section 2(c) of the Registration Rights
Agreement, we may be declared to be in default under the agreement. Further, per
the agreement, we are subject to liquidated damages in the amount of 2% of
the outstanding principal amount of the notes per month, payable in cash or
common stock, until the registration is effective. At this time the Investors
have not declared us to be in default, nor have they sought liquidated damages.
There are no other persons with whom any Selling Stockholder has a contractual
relationship with regarding the transaction.
MAXIMUM MAXIMUM
STRUCTURING AND POSSIBLE MAXIMUM POSSIBLE MAXIMUM MAXIMUM NET
FINDER'S DUE DILIGENCE INTEREST REDEMPTION LIQUIDATED FIRST YEAR POSSIBLE PROCEEDS TO
FEE(1) FEES(2) PAYMENTS(3) PREMIUM(4) DAMAGES(5) PAYMENTS(6) PAYMENTS(7) COMPANY(8)
- ---------------------------------------------------------------------------------------------------------------------
$200,000 $35,000 $190,379.50 $876,151.80 $63,088.16 $166,026.87 $288,467.66 $1,965,000
(1) Fee paid to Lionheart Associates.
(2) Pursuant to the Securities Purchase Agreement, the Company paid to The
National Investment Resources, LLC ("NIR") $30,000 in structuring and
due diligence fees and $5,000 to Ballard Spahr Andrews & Ingersoll,
LLP, NIR's legal counsel in connection with the transaction.
(3) Maximum amount of interest that can accrue assuming all Notes
aggregating $2,000,000 were issued on July 25, 2006 and remain
outstanding until the maturity date. Interest is payable quarterly
provided that no interest shall be due and payable for any month in
which the intraday trading price is greater than $0.01. The Company, at
its option, may pay accrued interest in either cash or, in shares of
its common stock. To date, no interest has accrued or been paid since
our intraday trading price has been greater than $0.01.
(4) Under certain circumstances we have the right to redeem the full
principal amount of the Notes prior to the maturity date by repaying
the principal and accrued and unpaid interest plus a redemption premium
of 40%. This represents the maximum redemption premium the Company
would pay assuming we redeem all of the Notes twelve (12) months from
July 25, 2006.
(5) Under the Stock Purchase Agreement, the maximum amount of liquidated
damages that the Company may be required to pay for the twelve (12)
months following the sale of all Notes is 3% of the outstanding
principal and accrued and unpaid interest.
(6) Total maximum payments that the Company may be required to pay to the
Selling Stockholders for the twelve (12) months following the sale of
all Notes, which is comprised of $102,938.71 in first year interest and
$63,088.16 in liquidated damages. If we redeemed the Notes one year
from the Issuance Date, then the total payments would be $2,876,151.80,
which is calculated by adding the outstanding principal ($2,000,000),
plus total first year interest payments ($102,938.71), plus liquidated
damages ($63,088.16), plus maximum redemption premium ($710,124.93).
8
(7) Total maximum payments payable by Company, includes structuring and due
diligence fees of $35,000, maximum possible interest of $190,379.50 and
maximum possible liquidated damages of $63,088.16. We also incurred
$65,000 in legal fees for the transaction and filing of this
registration statement, and $200,000 to Lionheart Associates as a
finders fee, which would increase the possible maximum payments by
Company to $553,467.66 and reduce the net proceeds to Company to
$1,700,000. In addition, we were required to place in escrow $20,000
for the purchase of keyman insurance for Scott Sand, our Chief
Executive Officer. The premium was $45,000 for a $4,000,000 policy,
which would increase the possible maximum payments by Company to
$598,467.66 and reduce the net proceeds to Company to $1,655,000.
(8) Total net proceeds to the Company including the $35,000 structuring and
due diligence fees. We also incurred $65,000 in legal fees for the
transaction and filing of this registration statement.
TOTAL POSSIBLE PROFIT SELLING STOCKHOLDERS COULD REALIZE
- --------------------------------------------------------
NOTES
The following table discloses the total possible profit Selling
Stockholders could realize as a result of the conversion discount for the
securities underlying the Notes. For purposes of this table, we assumed that the
aggregate of $2,000,000 in Notes were issued on July 25, 2006, even though the
Investors are not scheduled to pay to us the fourth tranche of $500,000 until
this registration statement is declared effective by the SEC.
SHARES TOTAL POSSIBLE
CONVERSION UNDERLYING COMBINED MARKET TOTAL CONVERSION DISCOUNT TO
MARKET PRICE(1) PRICE(2) NOTES(3) PRICE OF SHARES(4) PRICE(5) MARKET PRICE(6)
- --------------- ----------- ---------- ------------------ ---------------- ---------------
$0.09 $0.042 47,619,048 $4,285,714.32 $2,000,000.00 $2,285,714.32
(1) Market price per share of our common stock on the Issuance Date (July
25, 2006).
(2) The conversion price is calculated by the average of the lowest three
(3) intraday trading prices for our common shares during the twenty
(20) trading days prior to the date the Notes were issued on July 25,
2006 ($0.07 was the average), less a 40% discount.
(3) Total number of shares of common stock underlying the Notes assuming
full conversion as of the Issuance Date. Since the conversion price of
the Notes may fluctuate as market prices fluctuate, the actual number
of shares that underlie the Notes will also fluctuate.
(4) Total market value of shares of common stock underlying the Notes
assuming full conversion as of the Issuance Date based on the market
price of the common stock on the Issuance Date.
(5) Total value of shares of common stock underlying the Notes assuming
full conversion as of the Issuance Date based on the conversion price.
(6) Discount to market price calculated by subtracting the total conversion
price (result in footnote (5)) from the combined market price (result
in footnote (4)).
9
WARRANTS
We also issued to Selling Stockholders seven year Warrants to purchase
an aggregate of 20,000,000 shares of our common stock, exercisable on a cashless
basis provided we are not in default of the Notes with the aggregate exercise
price of $200,000 if exercised on a cashless basis. The following table
discloses the total possible profit Selling Stockholders could realize as a
result of the cashless exercise of the Warrants.
SHARES TOTAL POSSIBLE
EXERCISE UNDERLYING COMBINED TOTAL EXERCISE DISCOUNT TO
MARKET PRICE(1) PRICE(2) WARRANTS(3) MARKET PRICE(4) PRICE(5) MARKET PRICE(6)
- ------------------ ------------- -------------- ------------------- ---------------- ----------------
$0.09 $0.10 20,000,000 $1,800,000 $2,000,000 $0
(1) Market price per share of our common stock on the Issuance Date (July
25, 2006).
(2) The exercise price per share of our common stock underlying the
Warrants is fixed at $0.10 except that the Warrants contain
anti-dilution protections which in certain circumstances may result in
a reduction to the exercise price.
(3) Total number of shares of common stock underlying the Warrants assuming
full exercise as of the Issuance Date. Upon certain adjustments of the
exercise price of the warrants, the number of shares underlying the
Warrants may also be adjusted such that the proceeds to be received by
us would remain constant.
(4) Total market value of shares of common stock underlying the Warrants
assuming full exercise as of the Issuance Date based on the market
price of the common stock on the Issuance Date.
(5) Total value of shares of common stock underlying the Warrants assuming
full exercise as of the Issuance Date based on the exercise price.
(6) Discount to market price calculated by subtracting the total exercise
price (result in footnote (5)) from the combined market price (result
in footnote (4)). The result of an exercise of the Warrants at the
exercise price and a sale at the market price would be a loss to the
Selling Stockholder. Since the current closing price of our common
stock is less than the Warrants' exercise price, the Warrants are out
of the money and no profit would be realized as of February 11, 2008.
COMBINED TOTAL POSSIBLE PROFIT SELLING STOCKHOLDERS COULD REALIZE
The following table summarizes the potential proceeds available to the
Company pursuant to the financing with the Investors and the Investors' return
on investment. For purposes of this table, we assumed that the aggregate of
$2,000,000 in Notes were issued on July 25, 2006, even though the Investors are
not scheduled to pay to us the fourth tranche of $500,000 until this
registration statement is declared effective by the SEC, and that the Investors
exercise all of the in-the-money Warrants, if any, on a cash basis. In this
regard, however, as the Registration Statement has not been deemed effective
within 120 days of the Issuance Date as required by Section 2(c) of the
Registration Rights Agreement, because the required registration statement was
not effective by the due date, we may be declared to be in default under the
agreement. Further, per the agreement, we are subject to liquidated damages in
the amount of 2% of the outstanding principal amount of the notes per month,
payable in cash or common stock, until the registration is effective. At this
time the Investors have not declared us to be in default, nor have they sought
liquidated damages.
10
GROSS PROCEEDS MAXIMUM POSSIBLE COMBINED TOTAL ALL PAYMENTS ALL PAYMENTS + POSSIBLE
PAYABLE TO PAYMENTS NET PROCEEDS POSSIBLE PROFIT + POSSIBLE PROFIT / PROFIT / NET PROCEEDS
COMPANY(1) BY COMPANY(2) TO COMPANY(3) TO INVESTORS(4) NET PROCEEDS(5) AVERAGED OVER 3 YEARS(6)
- ------------------- ------------------- ----------------- ----------------- --------------------- ------------------------
$2,000,000 $288,467.66 $1,865,000 $2,285,714.32 138% 46%
(1) Total amount of the Notes to be issued under July 25, 2006 agreement.
(2) Total maximum payments payable by Company, includes structuring and due
diligence fees of $35,000, maximum possible interest of $190,379.50 and
maximum possible liquidated damages of $63,088.16. We also incurred
$65,000 in legal fees for the transaction and filing of this
registration statement, and $200,000 finders fee to Lionheart
Associates, which would increase the possible maximum payments by
Company to $553,467.66 and reduce the net proceeds to Company to
$1,700,000. In addition, we were required to place in escrow $20,000
for the purchase of keyman insurance for Scott R. Sand, our Chief
Executive Officer. The premium was $45,000 for a $4,000,000 policy,
which would increase the possible maximum payments by Company to
$598,467.66 and reduce the net proceeds to Company to $1,655,000.
(3) Total net proceeds to the Company including the $35,000 structuring and
due diligence fees. We also incurred $65,000 in legal fees for the
transaction and filing of this registration statement, and paid $45,000
for the purchase of keyman insurance for Scott R. Sand our Chief
Executive Officer, both of which would increase the possible maximum
payments by us to $598,476.66 and reduce the net proceeds to the
Company to $1,655,000.
(4) Total possible profit to the Investors is based on the aggregate
discount to market price of the conversion of the Notes and cashless
exercise of Warrants. The Notes' conversion price is calculated by the
average of the lowest three (3) intraday trading prices for our common
shares during the twenty (20) trading days prior to the date the Notes
were issued on July 25, 2006 ($0.07 was the average), less a 40%
discount. The result of an exercise of the Warrants at the exercise
price and a sale at the market price would be a loss to the Selling
Stockholder. Since the current closing price of our common stock is
less than the Warrants' exercise price, the Warrants are out of the
money and no profit would be realized as of February 11, 2008.
(5) Percentage equal to the maximum possible payments by us in the
transaction ($288,467.66) plus total possible discount to the market
price of the shares underlying the convertible debentures
($2,285,714.32), plus profit from 10,000,000 warrants in the money as
of February 11, 2008 ($0), divided by the net proceeds to the Company
resulting from the sale of the Notes ($1,865,000).
(6) Calculated by dividing 138% (footnote 5) by 3.
PRIOR SECURITIES TRANSACTIONS WITH SELLING STOCKHOLDERS
- -------------------------------------------------------
We have not engaged in any prior securities transactions with the Selling
Stockholders, any affiliates of the Selling Stockholders, or any person with
whom any Selling Stockholder has a contractual relationship regarding the
transaction (or any predecessors of those persons).
11
SHARES OUTSTANDING PRIOR TO THE TRANSACTION
- -------------------------------------------
The following table discloses certain information comparing the number of shares
outstanding prior to the transaction, number of shares registered by the Selling
Stockholders, or their affiliates, in prior registration statements (along with
that number still held and number sold pursuant to such prior registration
statement) and the number of shares registered for resale in this Registration
Statement relating to the financing transaction.
- ----------------------------------------------------------------------------------------------------
Number of shares outstanding prior to convertible note transaction held by
persons other than the Selling Stockholders, affiliates of the Company and
affiliates of the Selling Stockholders. 40,479,579
- ----------------------------------------------------------------------------------------------------
Number of shares registered for resale by Selling Stockholders or affiliates
in prior registration statements. 0
- ----------------------------------------------------------------------------------------------------
Number of shares registered for resale by Selling Stockholders or affiliates
of Selling Stockholders that continue to be held by Selling Stockholders or
affiliates of Selling Stockholders. 0
- ----------------------------------------------------------------------------------------------------
Number of shares sold in registered resale by Selling Stockholders or
affiliates of Selling Stockholders. 0
- ----------------------------------------------------------------------------------------------------
Number of shares registered for resale on behalf of Selling Stockholders
or affiliates of Selling Stockholders in current transaction. 12,649,662
- ----------------------------------------------------------------------------------------------------
REPAYMENT, SHORTING AND PRIOR TRANSACTIONS WITH SELLING STOCKHOLDERS
- --------------------------------------------------------------------
The Company intends to repay the overlying securities and believes that it will
have the financial ability to make all payments on the Notes when they become
due and payable. To the best of our knowledge, and based on information obtained
from the Selling Stockholders, none of the selling shareholders have an existing
short position in the Company's common stock.
Other than its issuance and sale of the Notes and the Warrants to the Selling
Stockholders, and the issuance of convertible notes and warrants on March 15,
2007, the Company has not in the past three (3) years engaged in any securities
transaction with any of the Selling Stockholders, any affiliates of the Selling
Stockholders, or, after due inquiry and investigation, to the knowledge of the
management of the Company, any person with whom any Selling Stockholder has a
contractual relationship regarding the transaction (or any predecessors of those
persons). In addition, other than in connection with the contractual obligations
set forth in the transaction documents filed as Exhibits to our Form 8-K filed
August 8, 2006, Form 8-K filed September 21, 2006, Form 8-K filed March 16,
2007, Form 10-KSB for the year ended May 31, 2007 and Form 10-QSB for the
quarter ended August 31, 2007 including the (i) the Securities Purchase
Agreement, (ii) the Notes and the Warrants and (iii) the Security Agreement,
(iv) the Intellectual Property Security Agreement, the Company does not have any
agreements or arrangements with the Selling Stockholders with respect to the
performance of any current or future obligations.
12
RISK FACTORS
AN INVESTMENT IN OUR SHARES INVOLVES A HIGH DEGREE OF RISK. BEFORE MAKING AN
INVESTMENT DECISION, YOU SHOULD CAREFULLY CONSIDER ALL OF THE RISKS DESCRIBED IN
THIS PROSPECTUS. 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 AND YOU MAY LOSE ALL OR A PART
OF YOUR INVESTMENT. OUR FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS 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 FOLLOWING RISKS RELATE PRIMARILY TO THE OPERATION OF OUR BUSINESS:
13
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 November 30, 2007, we have incurred total accumulated losses of
$18,988,584. 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.
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 or Pure Produce. 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:
- - the extent to which we enter into licensing arrangements, collaborations
or joint ventures;
- - our progress with research and development;
- - the costs and timing of obtaining new patent rights (if any);
- - cost of continuing operations and sales;
- - the extent to which we acquire or license other technologies; and
- - regulatory changes and competition and technological developments in the
market.
We may rely on future equity or debt offerings to enable us to grow and reach
profitability. There is no guarantee we will be able obtain such financing in
order to fund these endeavors.
WE HAVE RELIED ON CAPITAL CONTRIBUTED BY RELATED PARTIES, AND SUCH CAPITAL MAY
NOT BE AVAILABLE IN THE FUTURE.
The Company has relied on loans and compensation deferrals from our CEO and
Chairman, Scott R. Sand, and investment in the form of convertible notes payable
from various individuals and entities to sustain the Company from 1999 into the
current fiscal year. 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. 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 obligated to
pay him $200,000 per year under his employment contract with the Company. As of
November 30, 2007, the Company owes Mr. Sand $213,356 under his employment
contract and also owes him $100,850 in loans made to the Company. If future
capital is not available from Mr. Sand or other third parties in the future, the
Company's operations may be negatively affected.
14
OUR BAFI 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 most of our BAFI(TM) product line is still
in the late stages of development as we still need manufacturing prototypes. Of
the BAFI(TM) products, only Oxyview (TM) is currently being marketed and sold.
Our Oxyview (TM) sales for the quarter ended November 30, 2007 were $230. These
products, once marketing efforts are increased for Oxyview (TM) and commence for
the other BAFI(TM) line, may not be successfully developed or commercialized on
a timely basis, or at all. If we are unable, for technological or other reasons,
to complete the development, introduction or scale-up of manufacturing of these
products or other potential products, or if our products do not achieve a
significant level of market acceptance, we would be forced to curtail or cease
operations. Even if we develop our products for commercial use, we may not be
able to develop products that:
- - are accepted by, and marketed successfully to, the medical marketplace;
- - are safe and effective;
- - are protected from competition by others;
- - do not infringe the intellectual property rights of others;
- - are developed prior to the successful marketing of similar products by
competitors; or
- - 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:
- - 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;
- - 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;
- - collaborators could independently develop, or develop with third parties,
products that could compete with our future products;
- - the terms of our agreements with our current or future collaborators may
not be favorable to us;
- - 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;
- - disputes may arise delaying or terminating the research, development or
commercialization of our products, or result in significant litigation or
arbitration; and
- - collaborations may be terminated and, if terminated, we would experience
increased capital requirements if we elected to pursue further development
of the product.
15
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:
- - uncertainties in assessing the value, strengths, weaknesses, contingent
and other liabilities and potential profitability of acquisition or other
transaction candidates;
- - the potential loss of key personnel of an acquired business;
- - the ability to achieve identified operating and financial synergies
anticipated to result from an acquisition or other transaction;
- - problems that could arise from the integration of the acquired or new
business;
- - unanticipated changes in business, industry or general economic conditions
that affect the assumptions underlying the acquisition or other
transaction rationale; and
- - 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.
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.
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, except for European,
Chinese and Japanese patents for OxyView. We do not know when, and if, we will
apply for such other patents. If we do not apply for these patents, or if there
are delays in obtaining the patents, or if we are unable to obtain the patents,
we may not be able to adequately protect our technologies in foreign markets.
IF WE ARE UNABLE TO PROTECT EFFECTIVELY OUR INTELLECTUAL PROPERTY, THIRD PARTIES
MAY USE OUR TECHNOLOGY, WHICH COULD IMPAIR OUR ABILITY TO COMPETE IN OUR
MARKETS.
Our success will depend on our ability to obtain and protect patents on our
technology and to protect our trade secrets. The patents we currently own may
not afford meaningful protection for our technology and products. Others may
challenge our patents and, as a result, our patents could be narrowed,
invalidated or unenforceable. In addition, our current and future patent
applications may not result in the issuance of patents in the United States or
foreign countries. Competitors might develop products similar to ours that do
not infringe on our patents. In order to protect or enforce our patent rights,
we may initiate interference proceedings, oppositions, or patent litigation
against third parties, such as infringement suits. These lawsuits could be
expensive, take significant time and divert management's attention from other
business concerns. The patent position of medical firms generally is highly
uncertain, involves complex legal and factual questions, and has recently been
the subject of much litigation. No consistent policy has emerged from the U.S.
Patent and Trademark Office or the courts regarding the breadth of claims
allowed or the degree of protection afforded under biotechnology patents. In
addition, there is a substantial backlog of applications at the U.S. Patent and
Trademark Office, and the approval or rejection of patent applications may take
several years.
We cannot guarantee that our management and others associated with us will not
improperly use our patents, trademarks and trade secrets. Further, others may
gain access to our trade secrets or independently develop substantially
equivalent proprietary information and techniques.
16
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.
IF WE LOSE OUR KEY MANAGEMENT PERSONNEL, OUR PRODUCT DEVELOPMENT AND
COMMERCIALIZATION EFFORTS WOULD SUFFER.
Our performance is substantially dependent on the performance of our current
senior management, Board of Directors and key scientific and technical personnel
and advisers. The loss of the services of any member of our senior management,
in particular Mr. Sand, our CEO and Chairman, Board of Directors, scientific or
technical staff or advisory board may significantly delay or prevent the
achievement of product development and other business objectives and could have
a material adverse effect on our business, operating results and financial
condition.
THE "PURE PRODUCE" PRODUCT LINE REPRESENTS A SHIFT FROM OUR PAST OPERATIONS IN
THE MEDICAL TECHNOLOGY INDUSTRY AND THERE CAN BE NO GUARANTEE THAT WE WILL BE
SUCCESSFUL IN PRODUCING, MARKETING, AND SELLING THESE PRODUCTS.
Our business development and operation to date has been in the medical
technology industry. One of our directors, Mr. Christopher Wirth, has
agricultural business experience. If the Pure Produce portion of our business
plan is funded, we will be relying primarily on Mr. Wirth and the employees we
hire to oversee the design, construction and operation of our initial Pure
Produce facility. There can be no guarantee that Mr. Wirth and the employees we
hire will be able to place Pure Produce into production in a timely and
efficient manner, or that Pure Produce will be a commercially successful farming
venture. There is no guarantee that we will be able to produce agricultural
products in sufficient quality and quantity to sell to willing purchasers (if
any) in such a manner as to ultimately be able to continue our Pure Produce
operations and/or to expand our facilities and commercial potential. There is no
guarantee that we will select, grow and harvest products that will be attractive
to, and be purchased by, our contemplated consumers. The food and herb market in
the United States is tremendously large, however, there is no guarantee that
Pure Produce will be able to compete with farmers growing produce and herbs
utilizing traditional farming methodology or with others growing crops utilizing
molecular farming methodology.
17
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.
IF WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS AND HAVE NOT OBTAINED ADEQUATE
INSURANCE TO PROTECT AGAINST THESE CLAIMS, OUR FINANCIAL CONDITION WOULD SUFFER.
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.
Should we pursue the development of Pure Product, we will also have products
liability exposure as a grower and seller of ingestible food and herb products.
There is no guarantee that our insurance coverage (once obtained for these
particular risks) or other resources will be adequate to satisfy a claim or
lawsuit that might be filed against us for alleged deficiencies or problems
caused by our agricultural products.
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.
18
OUR QUARTERLY OPERATING RESULTS WILL FLUCTUATE
Our quarterly operating results will fluctuate for many reasons, including:
- - our ability to retain existing customers, attract new customers and
satisfy our customers' demands,
- - our ability to acquire merchandise, manage our inventory and fulfill
orders,
- - changes in gross margins of our current and future products, services, and
markets
- - introduction of our new sites, services and products or those of
competitors
- - changes in usage of the Internet and online services and consumer
acceptance of the Internet and online commerce
- - timing of upgrades and developments in our systems and infrastructure
- - the level of traffic on our Web site
- - the effects of acquisitions and other business combinations, and related
integration
- - technical difficulties, system downtime or Internet brownouts
- - our ability to properly anticipate demand,
- - our ability to prevent fraud perpetrated by third parties through credit
card transactions, and payments transactions
- - our level of merchandise returns
- - disruptions in service by common shipping carriers due to strikes or
otherwise
- - disruption of our ongoing business
- - problems retaining key technical and managerial personnel
- - expenses associated with amortization of goodwill and other purchased
intangible assets
- - additional operating losses and expenses of acquired businesses, if any
- - impairment of relationships with existing employees, customers and
business partners
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.
Most of our common shares have been held by our shareholders for periods of one
or two years or longer. Many of these shares have had restrictions lifted, in
fact, as of November 30, 2007, we have 21,668,119 unrestricted shares issued. We
will undoubtedly have unrestricted shares issued in the future. There is no way
to control the sale of these shares on the secondary market. Shares of our
common stock currently trade on the Pink Sheets and we have submitted an
application for the quotation of our common stock on the Over-the-counter
Bulletin Board. The
resale of these unrestricted shares might adversely affect our stock price. The
resale of these unrestricted shares, and/or sale of shares registered in this
offering, might adversely affect our stock price.
19
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 and interim quarters, our common
stock has traded as low as $0.03 and as high as $2.20 (adjusted for our 40 to 1
reverse split which was effected in December of 2005). Both volume and price
could also be subject to wide fluctuations in response to various factors, many
of which are beyond our control, including:
- - actual or anticipated variations in quarterly and annual operating
results;
- - announcements of technological innovations by us or our competitors;
- - developments or disputes concerning patent or proprietary rights; and
- - general market perception of medical device and provider companies.
IF THE OWNERSHIP OF OUR COMMON STOCK CONTINUES TO BE SOMEWHAT CONCENTRATED IN
SHARES OWNED BY OUR MANAGEMENT, IT MAY PREVENT YOU AND OTHER STOCKHOLDERS FROM
INFLUENCING SIGNIFICANT CORPORATE DECISIONS AND MAY RESULT IN CONFLICTS OF
INTEREST THAT COULD CAUSE OUR STOCK PRICE TO DECLINE.
As of February 11, 2008, our executive officers, directors and their affiliates,
other than Scott Sand, beneficially own or control approximately 4.7% of the
outstanding shares of our common stock and preferred shares (our common and
preferred shares vote together on a one vote per share basis). Mr. Sand owns
27.4% of our issued voting shares. Accordingly, our current executive officers,
directors and their affiliates will have some control over the outcome of
corporate actions requiring stockholder approval, including the election of
directors, any merger, consolidation or sale of all or substantially all of our
assets or any other significant corporate transactions. These stockholders may
also delay or prevent a change of control of us, even if such a change of
control would benefit our other stockholders. The concentration of stock
ownership may adversely affect the trading price of our common stock due to
investors' perception that conflicts of interest may exist or arise.
WE MAY ISSUE PREFERRED STOCK IN THE FUTURE, AND THE TERMS OF THE PREFERRED STOCK
MAY REDUCE THE VALUE OF YOUR COMMON STOCK.
We are authorized to issue up to 40,000,000 shares of preferred stock in one or
more series. Our Board of Directors will be able to determine the terms of
preferred stock without further action by our stockholders. We have issued
24,275,960 shares of Class A preferred stock as of February 11, 2008. To the
extent 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, and may
include preferences as to dividends and liquidation, conversion and redemption
rights, and sinking fund provisions.
WE HAVE NOT, AND CURRENTLY DO NOT ANTICIPATE, PAYING DIVIDENDS ON OUR COMMON
STOCK.
We have never paid any dividend 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.
20
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:
- - technological innovations or new products and services by us or our
competitors;
- - additions or departures of key personnel;
- - sales of our common stock
- - our ability to integrate operations, technology, products and services;
- - our ability to execute our business plan;
- - operating results below expectations;
- - loss of any strategic relationship;
- - industry developments;
- - economic and other external factors; and
- - 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 deemed to be "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). These requirements may reduce the potential market for our
common stock by reducing the number of potential investors. This may make it
more difficult for investors in our common stock to sell shares to third parties
or to otherwise dispose of them. This could cause our stock price to decline.
Penny stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national
exchange;
o Whose prices are not quoted on the NASDAQ automated quotation
system (NASDAQ listed stock must still have a price of not
less than $5.00 per share); or
o In issuers with net tangible assets less than $2.0 million (if
the issuer has been in continuous operation for at least three
years) or $10.0 million (if in continuous operation for less
than three years), or with average revenues of less than $6.0
million for the last three years.
21
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. 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.
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.
OUR RECENT FINANCING REQUIRED A REGISTRATION STATEMENT TO BECOME EFFECTIVE
WITHIN 120 DAYS AFTER THE INITIAL CLOSING DATE OF JULY 26, 2006 SINCE THIS
FAILED TO HAPPEN WE MAY INCUR LIQUIDATED DAMAGES.
The terms of the financing that we received from the selling security holders
listed in this Document required us to file a registration statement and have
the registration statement declared effective by the SEC within 120 days of the
closing of the financing, which occurred on July 26, 2006. Since this did not
happen, we may incur liquidated damages equal to 2% of the principal of the
promissory notes issued for each 30 day period that a registration statement is
not declared effective after November 23, 2006. At this time the selling
security holders have not sought liquidated damages.
THE CONVERSION OF THE PROMISSORY NOTES BASED ON OUR RECENT FINANCING IS BASED ON
AN AVERAGE OF OUR CLOSING BID PRICE OF OUR INTRA DAY TRADING PRICES OF OUR
COMMON STOCK OVER A CERTAIN PERIOD OF TIME PRIOR TO CONVERSION AND THE DECREASE
OF THE INTRA DAY TRADING PRICE WILL RESULT IN ISSUANCE OF A SIGNIFICANT INCREASE
OF SHARES RESULTING IN DILUTION TO OUR SHAREHOLDERS.
The conversion of the promissory notes in our recent financing is based on 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. The price of our common shares may fluctuate and the
lower intra-day trading price in the future, will result in a conversion ratio
resulting in issuance of a significant amount of our common shares to the
promissory note holders. This will result in our present shareholders being
diluted.
As set forth above, we have entered into convertible debenture agreements that
total $2,135,000. As of January 2, 2008, these notes were convertible into
141,083,334 shares of our common stock. This calculation is based on $2,060,000
of the notes convertible at a conversion price of $.015 (50% of the market price
of the average of the lowest three (3) trading prices for the common stock
during the twenty (20) trading day period prior to conversion) equaling
137,333,334 shares of common stock and 3,750,000 shares of common stock
underlying the $75,000 debenture. Additionally, the Investors were granted
options to purchase up to 29,000,000 shares of our common stock. Failure to
obtain stockholder approval to increase the number of authorized shares could
result in the noteholders commencing legal action against the company and
foreclosing on our assets to recover damages. Any such action would require the
company to curtail or cease operations. Further, we are also required to reserve
25,275,960 shares of common stock for conversion of the Series A Convertible
Preferred Stock and option. We also have authorized 20,000,000 shares of common
stock to be reserved under our January 2007 Non-Qualified Stock Plan. The
increase in authorized shares has been determined by the Board of Directors to
allow for these obligations and to provide for a sufficient amount of common
stock to support our expansion and future financing activities, if any. Other
than set forth in the above agreements, there are no present plans for
significant future issuances. When the Board of Directors deems it to be in the
best interest of the company and stockholders to issue additional shares of
common stock in the future from authorized shares, the Board of Directors
generally will not seek further authorization by vote of the stockholders,
unless such authorization is otherwise required by law or regulation.
22
SELLING SHAREHOLDERS MAY IMPACT OUR STOCK VALUE THROUGH THE EXECUTION OF SHORT
SALES WHICH MAY DECREASE THE VALUE OF OUR COMMON STOCK
Short sales are transactions in which a selling shareholder sells a security it
does not own. To complete the transaction, a selling shareholder must borrow the
security to make delivery to the buyer. The selling shareholder is then
obligated to replace the security borrowed by purchasing the security at the
market price at the time of replacement. The price at such time may be higher or
lower than the price at which the security was sold by the selling shareholder.
If the underlying security goes down in price between the time the selling
shareholder sells our security and buys it back, the selling shareholder will
realize a gain on the transaction. Conversely, if the underlying security goes
up in price during the period, the selling shareholder will realize a loss on
the transaction. The risk of such price increases is the principal risk of
engaging in short sales. The selling shareholders in this registration statement
could short the stock by borrowing and then selling our securities in the
market, and then converting the stock through either the Note or Warrants at a
discount to replace the security borrowed. Because the selling shareholders
control a large portion of our common stock, the selling shareholders could have
a large impact on the value of our stock if they were to engage in short selling
of our stock. Such short selling could impact the value of our stock in an
extreme and volatile manner to the detriment of other shareholders.
SHARES ELIGIBLE FOR PUBLIC SALE IN THE FUTURE COULD DECREASE THE PRICE OF OUR
SHARES OF COMMON STOCK AND REDUCE OUR FUTURE ABILITY TO RAISE CAPITAL
Sales of substantial amounts of shares of our common stock in the public market
could decrease the prevailing market price of our common stock. If this is the
case, investors in our shares of common stock may be forced to sell such shares
at prices below the price they paid for their shares, or in the case of the
investors in the July 2006 financing, prices below the price they converted
their notes and warrants into shares. In addition, a decreased market price may
result in potential future investors losing confidence in us and failing to
provide needed funding. This will have a negative effect on our ability to raise
equity capital in the future.
USE OF PROCEEDS
The selling stockholders are selling shares of common stock covered by this
prospectus for their own account. We will not receive any of the proceeds from
the resale of these shares. We have agreed to bear the expenses relating to the
registration of the shares for the selling security holders.
PENNY STOCK CONSIDERATIONS
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by certain penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system). Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. The
broker-dealer must also make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These requirements may have the effect of
reducing the level of trading activity, if any, in the secondary market for a
security that becomes subject to the penny stock rules.
23
SELLING STOCKHOLDERS
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 second funding of $600,000 (we received net proceeds of $600,000) was
completed on August 29, 2006 with the following parties and evidenced by
callable secured convertible notes: AJW Capital Partners, LLC invested $58,200;
AJW Offshore, Ltd. invested $354,000; AJW Qualified Partners, LLC invested
$180,000; and New Millennium Capital Partners II, LLC invested $7,800.
On November 21, 2006, the Securities Purchase Agreement and Registration Rights
Agreement were amended to reduce the total financing amount to $1,500,000 from
$2,000,000, with the third tranche of $200,000 funded on January 24,2007.
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.
We are presently registering 12,649,662 as follows: (i) AJW Capital Partners,
LLC - 1,227,017 shares of common stock issuable in connection with the
conversion of the callable secured convertible note; (ii) AJW Offshore, Ltd. -
7,589,799 shares of common stock issuable in connection with the conversion of
the callable secured convertible note;; (iii) AJW Qualified Partners, LLC -
3,668,401 shares of common stock issuable in connection with the conversion of
the callable secured convertible note; and (iv) New Millennium Capital Partners
II, LLC - 164,445 shares of common stock issuable in connection with the
conversion of the callable secured convertible note.
24
The following table sets forth the name of the selling stockholders, the number
of shares of common stock beneficially owned by each of the selling stockholders
as of February 11, 2008 and the number of shares of common stock being offered
by the selling stockholders. The shares being offered hereby are being
registered to permit public secondary trading, and the selling stockholders may
offer all or part of the shares for resale from time to time. However, the
selling stockholders are under no obligation to sell all or any portion of such
shares nor are the selling stockholders obligated to sell any shares immediately
upon effectiveness of this prospectus. All information with respect to share
ownership has been furnished by the selling stockholders.
PERCENT OF
SHARES OF COMMON
COMMON STOCK SHARES NUMBER OF
OWNED PRIOR OWNED PRIOR SHARES OF COMMON SHARES OWNED PERCENT OF
TO THE TO THE STOCK TO BE SOLD IN AFTER THE SHARES OWNED
NAME OF SELLING STOCKHOLDER (11) OFFERING (1) OFFERING THE OFFERING (12) OFFERING AFTER OFFERING
-------------------------------- ------------ -------- ------------------ -------- --------------
AJW Capital Partners, LLC (7) 0 0 1,227,017 (2)(3) 0 0%
AJW Offshore, Ltd. (8) 0 0 7,589,799 (2)(4) 0 0%
AJW Qualified Partners, LLC (9) 0 0 3,668,401 (2)(5) 0 0%
New Millennium Capital Partners II, LLC (10) 0 0 164,445 (2)(6) 0 0%
* Less than 1%
(1) Based on 57,933,474 shares of common stock issued and outstanding as
of February 11, 2008.
(2) The conversion has been calculated based on the maximum number of
shares the investors can receive in accordance with the 6% Callable
Secured Convertible Notes. The number of shares set forth in the
table for the selling stockholders represents an estimate of the
number of shares of common stock to be offered by the selling
stockholders. The actual number of shares of common stock issuable
upon conversion of the notes and exercise of the warrants is
indeterminate, is subject to adjustment and could be materially less
or more than such estimated number depending on factors which cannot
be predicted by us at this time including, among other factors, the
future market price of the common stock. The actual number of shares
of common stock offered in this prospectus, and included in the
registration statement of which this prospectus is a part, includes
such additional number of shares of common stock as may be issued or
issuable upon conversion of the notes and exercise of the related
warrants by reason of any stock split, stock dividend or similar
transaction involving the common stock, in accordance with Rule 416
under the Securities Act of 1933. Under the terms of the debentures,
if the debentures had actually been converted on July 26, 2006, the
conversion price would have been $.042. Under the terms of the
debentures and the related warrants, the debentures are convertible
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 debentures 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. Accordingly, the number of shares
of common stock set forth in the table for the selling stockholder
exceeds the number of shares of common stock that the selling
stockholder could own beneficially at any given time through their
ownership of the debentures and the warrants.
25
(3) Consists of 1,227,017 shares of our common stock issuable in
connection with the conversion of the callable secured convertible
note.
(4) Consists of 7,589,799 shares of our common stock issuable in
connection with the conversion of the callable secured convertible
note.
(5) Consists of 3,668,401 shares of our common stock issuable in
connection with the conversion of the callable secured convertible
note.
(6) Consists of 164,445 shares of our common stock issuable in
connection with the conversion of the callable secured convertible
note.
(7) AJW Partners, LLC is a private investment fund that is owned by its
investors and managed by SMS Group, LLC. SMS Group, LLC of which Mr.
Corey S. Ribotsky is the fund manager, has voting and investment
control over the shares listed below owned by AJW Partners, LLC.
(8) AJW Offshore, Ltd. is a private investment fund that is owned by its
investors and managed by First Street Manager II, LLC. First Street
Manager II, LLC, of which Corey S. Ribotsky is the fund manager, has
voting and investment control over the shares listed below owned by
AJW Offshore Ltd.
(9) AJW Qualified Partners, LLC is a private investment fund that is
owned by its investors and managed by AJW Manager, LLC of which
Corey S. Ribotsky and Lloyd A. Groveman are the fund managers, have
voting and investment control over the shares listed below owned by
AJW Qualified Partners, LLC.
(10) New Millennium Capital Partners II, LLC is a private investment fund
that is owned by its investors and managed by First Street Manager
II, LLC. First Street Manager II LLC of which Corey S. Ribotsky is
the fund manager, has voting and investment control over the shares
listed below owned by New Millennium Capital Partners, LLC.
(11) None of the selling stockholders are broker-dealers or affiliates of
broker-dealers.
(12) The number of shares being registered for the conversion of the
callable secured convertible notes is 12,649,662 representing 1/3 of
our issued and outstanding common shares held by non-affiliates.
PLAN OF DISTRIBUTION
All of the stock owned by the selling security holders will be registered by the
registration statement of which this prospectus is a part. The selling security
holders may sell some or all of their shares immediately after they are
registered. The selling security holders shares may be sold or distributed from
time to time by the selling stockholders or by pledgees, donees or transferees
of, or successors in interest to, the selling stockholders, directly to one or
more purchasers (including pledgees) or through brokers, dealers or underwriters
who may act solely as agents or may acquire shares as principals, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices or at fixed prices, which may be changed.
The distribution of the shares may be effected in one or more of the following
methods:
- - ordinary brokers transactions, which may include long or short sales,
- - transactions involving cross or block trades on any securities or market
where our common stock is trading,
- - purchases by brokers, dealers or underwriters as principal and resale by
such purchasers for their own accounts pursuant to this prospectus, "at
the market" to or through market makers or into an existing market for the
common stock,
- - in other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents,
- - any combination of the foregoing, or by any other legally available means.
26
In addition, the selling stockholders may enter into hedging transactions with
broker-dealers who may engage in short sales, if short sales were permitted, of
shares in the course of hedging the positions they assume with the selling
stockholders. The selling stockholders may also enter into option or other
transactions with broker-dealers that require the delivery by such
broker-dealers of the shares, which shares may be resold thereafter pursuant to
this prospectus.
Brokers, dealers, underwriters or agents participating in the distribution of
the shares may receive compensation in the form of discounts, concessions or
commissions from the selling stockholders and/or the purchasers of shares for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both (which compensation as to a particular broker-dealer may be in excess of
customary commissions). The selling stockholders and any broker-dealers acting
in connection with the sale of the shares hereunder may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act of 1933,
and any commissions received by them and any profit realized by them on the
resale of shares as principals may be deemed underwriting compensation under the
Securities Act of 1933. Neither the selling stockholders nor we can presently
estimate the amount of such compensation. We know of no existing arrangements
between the selling stockholders and any other stockholder, broker, dealer,
underwriter or agent relating to the sale or distribution of the shares.
We will not receive any proceeds from the sale of the shares of the selling
security holders pursuant to this prospectus. We have agreed to bear the
expenses of the registration of the shares, including legal and accounting fees,
and such expenses are estimated to be approximately $61,016.31.
The selling stockholders named in this prospectus must comply with the
requirements of the Securities Act and the Exchange Act in the offer and sale of
the common stock. The selling stockholders and any broker-dealers who execute
sales for the selling stockholders may be deemed to be an "underwriter" within
the meaning of the Securities Act in connection with such sales. In particular,
during such times as the selling stockholders may be deemed to be engaged in a
distribution of the common stock, and therefore be considered to be an
underwriter, they must comply with applicable laws and may among other things:
1. Not engage in any stabilization activities in connection with our common
stock;
2. Furnish each broker or dealer through which common stock may be offered,
such copies of this prospectus from time to time, as may be required by
such broker or dealer, and
3. Not bid for or purchase any of our securities or attempt to induce any
person to purchase any of our securities permitted under the Exchange Act.
REGULATION M
We have informed the Selling Shareholders that Regulation M promulgated under
the Securities Exchange Act of 1934 may be applicable to them with respect to
any purchase or sale of our common stock. In general, Rule 102 under Regulation
M prohibits any person connected with a distribution of our common stock from
directly or indirectly bidding for, or purchasing for any account in which it
has a beneficial interest, any of the Shares or any right to purchase the
Shares, for a period of one business day before and after completion of its
participation in the distribution.
27
During any distribution period, Regulation M prohibits the Selling Shareholders
and any other persons engaged in the distribution from engaging in any
stabilizing bid or purchasing our common stock except for the purpose of
preventing or retarding a decline in the open market price of the common stock.
None of these persons may effect any stabilizing transaction to facilitate any
offering at the market. As the Selling Shareholders will be offering and selling
our common stock at the market, Regulation M will prohibit them from effecting
any stabilizing transaction in contravention of Regulation M with respect to the
shares.
We also have advised the Selling Shareholders that they should be aware that the
anti-manipulation provisions of Regulation M under the Exchange Act will apply
to purchases and sales of shares of common stock by the Selling Shareholders,
and that there are restrictions on market-making activities by persons engaged
in the distribution of the shares. Under Regulation M, the Selling Shareholders
or their agents may not bid for, purchase, or attempt to induce any person to
bid for or purchase, shares of our common stock while such Selling Shareholders
are distributing shares covered by this prospectus. Regulation M may prohibit
the Selling Shareholders from covering short sales by purchasing shares while
the distribution is taking place, despite any contractual rights to do so under
the Agreement. We have advised the Selling Shareholders that they should consult
with their own legal counsel to ensure compliance with Regulation M.
LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened legal actions against us.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages as of management, and business
experience of the directors, executive officers and certain other significant
employees of our company. Our directors hold their offices for a term of one
year or until their successors are elected and qualified. Our officers serve at
the discretion of the Board of Directors. Each officer devotes as much of his
working time to our business as is required.
NAME AGE POSITION
- --------------------------------------------------------------------------------
Scott R. Sand 49 Chairman, Chief Executive Officer, and Director
Thomas J. Neavitt 76 Secretary and Chief Financial Officer
Yong Sin Khoo 43 Director
Christopher A. Wirth 52 Director
Curt A. Miedema 50 Director
Stephen O'Hara 54 Director
John Finazzo 43 Director
Brad Klearman 47 Director
28
OUR OFFICERS AND DIRECTORS
SCOTT SAND, CEO & CHAIRMAN: Scott Sand has a diversity of experience in the
health care industry both domestic and abroad which spans more than 25 years.
His contributions and accomplishments have been published in the Los Angeles
Times and the Sacramento Tribune. He has been the recipient of recognition
awards by high honored factions such as the United States Congress and the State
Assembly, receiving the highest Commendation in the County of Los Angeles for
his contributions to health care. Mr. Sand served as the CEO of Medcentrex, Inc.
for 10 years in the 1990's, a medical service provider to more than 600
physicians nationwide. He served as the Director of Sales & Marketing for Eye
Dynamics, Inc. for 7 years, a public company and manufacture of Video ENG
systems; assisting in their technology upgrades and design for VNG and
increasing their sales each quarter during that time. He resigned from Eye
Dynamics, Inc. to accept the full-time position as CEO & Chairman of Ingen
Technologies, Inc. in March of 2004. Mr. Sand received a Bachelor of Science
Degree in Computer Science from California State University and a MBA from
California State University.
THOMAS J. NEAVITT, SECRETARY AND CHAIRMAN: Thomas J. Neavitt has held a variety
of executive level positions for product and service based corporations over the
last 40 years. Mr. Neavitt's experience includes finance, marketing, business
development, sales, and collections. Additionally, Mr. Neavitt has experience in
real estate as both a broker and developer. Mr. Neavitt served in the U.S. Navy.
Mr. Neavitt left the Navy and became President and CEO of Penn-Akron Corporation
and its wholly owned subsidiary Eagle Lock Corporation. He was instrumental in
the successful acquisition of this company. Mr. Neavitt also served as President
of TR-3 Chemical Corporation for nearly 20 years who sold products throughout
the U.S. and some foreign countries. Tom now serves as a consultant to various
corporations throughout the country. Mr. Neavitt has been President of AmTech
Corporation, which manufactures stabilizing systems, for the past 5 years.
YONG SIN KHOO, DIRECTOR: Yong Sin Khoo lives in Singapore and became a director
of Ingen on March 29,2004. Mr. Khoo is presently heading his own business
management firm focusing on investments in Asia. He is also the acting general
manager of Singapower Development Pte Ltd in Singapore where his
responsibilities include the recovery of funds from disposed China investments.
Further, he is the executive vice president of the China and USA International
Cultural Communications Foundation; China Indonesia International United
Association; China Hong Kong International Daoji Stroke Treatment Association.
In addition, Mr. Khoo serves as a member of the Board of Directors of Carbon
Recovery (Asia) Pte Ltd in Singapore. Since 2001 and until September 2007, Mr.
Khoo was employed by Singapore Power Ltd. as a Deputy Director of its Strategic
Investments Division. As Deputy Director, Mr. Khoo focused on business
development and assets portfolio management with a focus on disposal of
non-performing and non-core investments. During his tour of duty as Deputy
Director, Mr. Khoo also served as acting general manager of SPI Seosan Cogen
Ltd/SPI Seosan Water Ltd. located in Singapore and Korea respectively where he
was responsible for management of cogeneration and water treatment plants. Prior
to 2001, he gained extensive experience as a logistics systems engineer in the
military and in retail engineering with the oil major, Shell. In the area of
information technology, he was responsible for managing Shell Singapore's y2k
project for the marketing function. Another IT pioneering effort was the use of
artificial intelligence to develop diagnostic tools for maintenance support for
the Army's radar systems. His current business interests are focused in the
areas of biomedical and environmental technologies. In 1984, he was awarded a
scholarship by the Singapore government to pursue electrical engineering at the
University of Queensland, Australia. He has a Bachelor's Degree in Electrical
Engineering from the University of Queensland.
29
CHRISTOPHER A. WIRTH, DIRECTOR: Christopher A. Wirth has over 20 years of
business consulting, finance, construction and real estate development
experience. He brings a working knowledge of finance and the mechanics of
syndication's, construction planning and startup business expansion skills. Mr.
Wirth has knowledge and experience in SEC, HUD, SBA, USDA, banking and
businesses. He attended San Bernardino Valley College and takes continuing
education courses. He continues to consult to environmental and renewable energy
firms, and has worked as a HUD YouthBuild construction instructor. Mr. Wirth has
previous medical background training through his service in the U.S. Navy, from
1973 to 1977, as a Hospital Corpsman. Mr. Wirth has been a director and spokes
person for AgriHouse an urban agricultural technology company, since 2000. He
has been a director of Ingen since March 29, 2004.
CURT A. MIEDEMA, DIRECTOR: Mr. Miedema has been a director of the Company since
March 29, 2004. For the last 5 years, Mr. Miedema has been self-employed with
his own investment company called Miedema Investments. Mr. Miedema graduated
from Unity Christian High School in 1975 and attended Davenport College for 1
year thereafter.
STEPHEN O'HARA, MD, DIRECTOR: The Consumer's Research Council of America, an
independent organization based in Washington, D.C. recently ranked Dr. Stephen
O'Hara among the top two percent of clinical neurologists nationwide. He
attended Stanford University and graduated in 1975 with a Bachelor's of Science
degree in biology and performed honors research in the laboratory of Dr. Donald
Kennedy, who subsequently served as President of Stanford University. Dr. O'Hara
obtained his M.D. from Northwestern University in 1979, where he became
president of the Northwestern chapter of the American Medical Student
Association, then proceeded to complete his residency in neurology at UCLA in
1983. Dr. O'Hara is board-certified in neurology through the American Board of
Psychiatry and Neurology. Since completing his residency, Dr. O'Hara has
continued to teach the residents in the neurology program at UCLA while
maintaining a private practice in Century City, California for the past 16 years
with an emphasis on geriatric neurology and disorders of balance. Mr. O'Hara
became a director of Ingen on September 22, 2005.
JOHN J. FINAZZO, MD, DIRECTOR: Dr. Finazzo graduated from the University of
California, Riverside in 1986 with a degree in Bio-Medical Sciences. He received
his MD degree from the UCLA School of Medicine in 1989. He completed a two-year
Surgical Internship at UCLA Center for Health Science in 1991. He then completed
residency in Otolaryngology - Head and Neck Surgery at the State University of
New York Health Science Center, Brooklyn in 1995. He is Board Certified in
Otolaryngology (since 1996). Dr. Finazzo joined the Company as a director on
March 20, 2006. Dr. Finazzo has been in private practice in the Palm Springs
area for eight years. He is also on the surgical staffs at the Desert Regional
Medical Center, the John F. Kennedy Medical Center and the Eisenhower Medical
Center. Dr. Finazzo is also Section Chief - Division of Otolaryngology at
Eisenhower Medical Center. He resides in Palm Springs with his wife of 15 years.
He is active in clinical research for the treatment of acute sinusitis.
BRAD KLEARMAN, DIRECTOR. Mr. Klearman is a 27-year veteran executive
salesman/consultant, business owner, and entrepreneur. He became a director of
the Company on December 14, 2007. Mr. Klearman has a career specializing in
negotiating with medical manufacturers and distributors on multi-million dollar
projects that continues to have far-reaching implications within the medical
industry. Mr. Klearman's current accomplishments include the recently secured
exclusive placement of Ingen Technologies respiratory products for the largest
respiratory manufacturing company in the world. From 2001 - 2007, Mr. Klearman
served as Executive Vice President of Medigroup Physicians Services in St.
Louis, Missouri, developing multiple relations with a myriad of medical
distributors and medical manufacturers servicing the United States. From 1998 -
2001, he served as Regional Manager of King Systems, Indiana and represented
manufacturers of the highest quality anesthesia apparatus in the country and was
responsible for making the company's third largest region into the company's
top-selling number one region within three years. From 1996 - 1998, he served as
Vice President of Two Rivers Medical, St. Louis, MO, a major contributor to
development of the company with sole purpose of distributing medical products,
equipment and pharmaceuticals to the Federal Government worldwide. From
1982-1996, Mr. Klearman worked with Midwest Medical Supply Co., Inc. in St.
Louis, MO, where he began as Territory Manager in an area which was grossing
70-thousand dollar per month and within two years, brought that average up to
$210,000 per month. In 1986, he was promoted to Executive Vice President of the
company and created a division that served the Federal Government world wide.
This division averaged 1 million dollars per month in sales at a 23% profit
margin, making it by far the most profitable division of the company which was
known as a regional distributor to hospitals, long term care facilities and
physician offices. From 1978 - 1982, Mr. Klearman attended Columbia College in
Columbia, MO, with undergraduate studies in business and marketing.
SIGNIFICANT EMPLOYEES
None.
FAMILY RELATIONSHIPS
No family relationships exist among our directors, executive officers, or
persons nominated or chosen by us to become directors or executive officers.
CERTAIN LEGAL PROCEEDINGS
No director, nominee for director, or executive officer of the Company has
appeared as a party in any legal proceeding material to an evaluation of his
ability or integrity during the past five years.
30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At February 11, 2008, 57,933,474 shares of common stock and 24,275,960 shares of
Series A Convertible Preferred Stock were issued and outstanding. The following
table sets forth certain information regarding the ownership of our common stock
as of February 11, 2008, by: (i) each director; (ii) each person who is known to
us to be the beneficial owner of more than five percent of our outstanding
common stock; (iii) each of our executive officers named in the Summary
Compensation Table; and (iv) all our current executive officers and directors of
as a group. Except as otherwise indicated in the footnotes, all information with
respect to share ownership and voting and investment power has been furnished to
us by the persons listed. Except as otherwise indicated in the footnotes, each
person listed has sole voting power with respect to the shares shown as
beneficially owned.
- ------------------------- ----------------------------- ------------------------------- ---------------------------------
Name and Address Shares of Common Shares of Series A Total Percentage of
of Beneficial Owner(1) Stock Beneficially Convertible Voting Power (4)
Owned (2) Preferred Stock
Beneficially Owned (3)
- ------------------------- ----------------------------- ------------------------------- ---------------------------------
Number % Number % Number %
- ------------------------- --------------- ------------- ----------------- ------------- ----------------- ---------------
Scott R. Sand, CEO,
Chairman, 2,285,796 3.9 % 20,275,960 83.5% 22,561,756 27.4%
Director
- ------------------------- --------------- ------------- ----------------- ------------- ----------------- ---------------
Thomas Neavitt, CFO,
Secretary 318,750 0.6% - - 318,750 0.4%
- ------------------------- --------------- ------------- ----------------- ------------- ----------------- ---------------
Yong Khoo Sin,
Director 100,000 0.2% - - 100,000 0.1%
- ------------------------- --------------- ------------- ----------------- ------------- ----------------- ---------------
Christopher A. Wirth,
Director 430,000 0.7% - - 430,000 0.5%
- ------------------------- --------------- ------------- ----------------- ------------- ----------------- ---------------
Curt A. Miedema,
Director 221,250 0.4% - - 221,250 0.3%
- ------------------------- --------------- ------------- ----------------- ------------- ----------------- ---------------
Stephen O'Hara,
Director 215,000 0.4% - - 215,000 0.3%
- ------------------------- --------------- ------------- ----------------- ------------- ----------------- ---------------
John Finazzo,
Director 2,200,000 3.8% - - 2,200,000 2.7%
Brad Klearman,
Director 100,000 0.2% 100,000 0.1%
- ------------------------- --------------- ------------- ----------------- ------------- ----------------- ---------------
Jeffrey Gleckman
3,000,000 5.2% 4,000,000 16.5% 7,000,000 8.5%
- ------------------------- --------------- ------------- ----------------- ------------- ----------------- ---------------
All officers and
directors as a group
(8 persons) 5,980,796 10.3% 20,275,960 83.5% 26,256,756 31.9 %
- ------------------------- --------------- ------------- ----------------- ------------- ----------------- ---------------
(1) Unless otherwise indicated, the address for each beneficial owner is 35193
Avenue "A", Suite-C Yucaipa, California 92399.
(2) Does not include the Series A Convertible Preferred Stock which is entitled
in some cases to a separate vote on a one for one basis with holders of common
stock.
(3) Each share of Series A Convertible Preferred Stock is entitled in some cases
to a separate vote on matters with holders of the common stock. Each share of
Series A Convertible Preferred Stock is entitled to 1 vote per share. Each share
of Series A Convertible 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 one share of fully paid and non-assessable share
of common stock.
(4) This column includes the common stock and Series A Preferred Stock held by
each person. Applicable percentages are based on 82,209,434 common and preferred
shares outstanding on February 11, 2008.
31
CHANGES IN CONTROL
No arrangements exist which may result in a change in control of us.
DESCRIPTION OF SECURITIES
The following description of our capital stock and provisions of our articles of
incorporation and bylaws, each as amended, is only a summary. Our authorized
capital stock consists of 750,000,000 shares of common stock, no par value per
share and 40,000,000 preferred shares, no par value per share. As of February
11, 2008, there were 57,933,474 shares of common stock issued and outstanding
and 24,275,960 Series A Convertible preferred shares issued and outstanding.
Only common stock is offered in this prospectus.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held on all
matters submitted to a vote of our shareholders. Holders of our common stock are
entitled to receive dividends ratably, if any, as may be declared by the board
of directors out of legally available funds, subject to any preferential
dividend rights of any outstanding preferred stock (there are none currently).
Upon our liquidation, dissolution or winding up, the holders of our common stock
are entitled to receive ratably our net assets available after the payment of
all debts and other liabilities and subject to the prior rights of any
outstanding preferred stock. Holders of our common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of common
stock are fully paid and non-assessable. Series A preferred shareholders have a
priority over common stockholders upon liquidation, dissolution or winding up.
The rights, preferences and privileges of holders of our common stock are
subject to, and may be adversely affected by, the rights of holders of preferred
stock which we may issue in the future without shareholder approval.
PREFERRED STOCK
All of our authorized preferred shares are Series A preferred shares. Series A
preferred shareholders have a priority over common stockholders upon
liquidation, dissolution or winding up. Series A preferred shareholders in some
cases are entitled to a separate vote on matters upon which common shareholders
can vote, with one vote per share. Preferred shares are not entitled to
dividends. We have the right to redeem each share of Series A preferred stock
for $1 per share. However, there is no obligation for this redemption. 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 one share of fully paid and non-assessable share of
common stock. In the event of any voluntary or involuntary liquidation,
dissolution or winding up, the holders of Series A preferred stock shall be
entitle to be paid $1 per share before any payments or distribution of assets to
the holders of the common stock or any other equity securities of the company.
The outstanding shares of preferred stock are fully paid and non-assessable.
32
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having prepared or certified
any part of this prospectus or having given an opinion upon the validity of the
securities being registered or upon other legal matters in connection with the
registration or offering of the common stock was employed on a contingency
basis, or had, or is to receive, in connection with the offering, a substantial
interest, direct or indirect, in the registrant or any of its parents or
subsidiaries. Nor was any such person connected with the registrant or any of
its parents or subsidiaries as a promoter, managing or principal underwriter,
voting trustee, director, officer, or employee. Anslow & Jaclin, LLP, our
independent legal counsel, has provided an opinion on the validity of our common
stock. Anslow & Jaclin, LLP has been our legal counsel since inception.
The financial statements included in this prospectus and the registration
statement have been audited by Child, Van Wagoner & Bradshaw, PLLC (current
auditors) and Spector & Wong, LLP (predecessor auditors) certified public
accountants to the extent and for the periods set forth in their report
appearing elsewhere herein and in the registration statement, and are included
in reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
DISCLOSURE OF COMMISSION POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation provide that, to the fullest extent permitted by
law, none of our directors or officers shall be personally liable to us or our
shareholders for damages for breach of any duty owed to our shareholders or us.
In addition, we have the power, by our by-laws or in any resolution of our
shareholders or directors, to undertake to indemnify the officers and directors
of ours against any contingency or peril as may be determined to be in our best
interest and in conjunction therewith, to procure, at our expense, policies of
insurance. At this time, no statute or provision of the by-laws, any contract or
other arrangement provides for insurance of any of our controlling persons,
directors or officers that would affect his or her liability in that capacity.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities, other than the payment by us of
expenses incurred or paid by our directors, officers or controlling persons in
the successful defense of any action, suit or proceedings, is asserted by such
director, officer, or controlling person in connection with any securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issues.
33
DESCRIPTION OF BUSINESS
Our company was incorporated under the laws of the state of Georgia in 1995
under the name Classic Restaurants International, Inc. We changed our name in
1998 to Creative Recycling Technologies, Inc. Our business plan changed from the
restaurant business to recycling along with our name change. We had little
business activity and no sales. Our business was dormant from the late 1990's
into the first calendar quarter of 2004.
In March of 2004, we merged with a Nevada company, Ingen Technologies, Inc.
Ingen Technologies, Inc. survived as our subsidiary for the sole purpose of
operating our new business. In December 2005, we underwent a 1:40 reverse stock
split. However, we remained a Georgia corporation, with completely new
management and an active business plan in the medical devices industry (operated
by the Nevada company with the same name). Shortly thereafter, we changed our
name to Ingen Technologies, Inc.
Ingen Technologies, Inc., the Nevada company, was founded by Scott R. Sand in
1999. Upon the merger with our Georgia corporation, Mr. Sand became the Chief
Executive Officer and Chairman of the Board of Directors, positions he maintains
today. Mr. Sand owns 2,285,796 shares of our common stock (approximately 3.9% of
the 57,933,474 common shares outstanding as of February 11, 2008) and he owns
approximately 83.5% of our issued preferred shares (20,275,960 of the 24,275,960
shares outstanding as of February 11, 2008) which in some cases are entitled to
a separate vote on a one-vote-per-share basis along with our common shares. As
of February 11, 2008, Mr. Sand owned approximately 27.4% of our outstanding
voting shares.
We made major adjustments to our capital structure toward the end of 2005. We
reduced the number of authorized common shares from 500,000,000 to 100,000,000.
The number of authorized preferred shares remained unchanged at 40 million. Our
shareholders authorized a 1-for-40 reverse split of our common shares, thereby
reducing the number of issued shares from 488,037,593 to 12,201,138. We also
undertook a reverse split of our preferred shares on 1-for-3 basis, thus
reducing our issued preferred shares from 39,000,000 to 13,300,000. Our Series A
Convertible preferred shares are convertible into common shares on a 1-for-1
basis. Our Series A Convertible preferred shares are entitled to vote on an
equal footing with common shares on all matters for which shareholder voting
input is required. Trading of our common stock under the symbol "IGTN" ended on
December 5, 2005. Trading commenced again on December 8, 2005, and continues,
under our new trading symbol "IGTG."
34
OVERVIEW
We are a medical device manufacturer and service provider for medical and
consumer markets both domestic and abroad. All of our manufacturing is currently
subcontracted. We have four products, two of which are currently generating
revenues; Secure Balance(TM) and Oxyview(TM). Oxyview(TM) is part of our product
line for wireless, digital, low gas warning systems for pressurized gas
cylinders, known as BAFI(TM). The other oxygen and gas monitoring safety devices
in our BAFI product line that are still being developed are OxyAlert(TM) and
GasAlert(TM).
The Company's flagship product is its BAFI (TM) line of products. These are the
world's first wireless digital low gas warning system for pressurized gas
cylinders. These products include Oxyview(TM), OxyAlert(TM)and GasAlert(TM). On
October 24, 2000, the Company received a U.S. Patent for the BAFI (TM) 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 Company's 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.
On November 16, 2006, the Company purchased the intellectual property rights for
Oxyview(TM). The Company had co-invented the Oxyview (TM) product with a third
party. The agreement gave the Company sole ownership of the product and
intangible pending patents associated with Oxyview (TM), which is part of the
Company's BAFI(TM) line of products. Patents for Oxyview (TM) are pending in the
United States, Japan, People's Republic of China and the European Communities.
Oxyview(TM) relates to flow meters which provide a visual signal for gas flow
through a conduit. More particularly it relates to a flow meter which provides a
visual cue viewable with the human eye, as to the flow of gas through a cannula
which conventionally employs very low pressure and gas volume to a patient using
the Oxyview(TM). The Company began recording sales of Oxyview(TM) in November of
2006.
GasAlert(TM) development is currently "on hold" and we do not intend to focus on
it until we have OxyAlert(TM) in a production and sales mode. We also have an
agri-business concept known as Pure Produce, which involves establishing
soil-less indoor farming facilities near population centers to grow food and
neutriceuticals.
The Secure Balance(TM) product is a private-label product that includes a
vestibular function testing system and balance therapy system. The vestibular
(referencing organs in the inner ear) function testing system is manufactured by
Interacoustics LTD. in Denmark and is referred to as the VNG. The balance
therapy system is manufactured by SportKAT(R), Inc. in San Diego, California.
SportKAT provides private-label testing and balance therapy systems to others.
However, we have our own trademark - Secure Balance(TM). Our Secure Balance(TM)
program provides equipment, education and training about balance and fall
prevention to physicians and clinicians worldwide. All of our company's sales in
the fiscal year ending May 31, 2006 ($846,783) and approximately 98% of our
sales in the fiscal year ended May 31, 2007 ($704,490 out of total sales of
$720,678) were sales of Secure Balance(TM).
35
SECURE BALANCE(TM) THERAPY TRAINER
Secure Balance(TM) Therapy Trainer is designed to sell to physicians, clinics
and hospitals for use with patients suffering from balance problems. It is a
patented Kinesthetic Ability Trainer (called "SPORTKAT"), an innovative tool for
the evaluation and rehabilitation of neurosensory (or balance) deficits.
SportKat focuses on the development of dynamic balance, strength, muscle
control, proprioceptive, and vestibular improvement and offers a practically
infinite range of adjustable settings to accommodate people with varied body
weights and physical activity levels.
Secure Balance(TM) Therapy Trainer provides a way to test and train the nerves
that control the muscles of the body that enable us to stand, run, jump and
otherwise perform day to day functions. These nerves are called proprioceptors.
They are an integral part of a complicated system that the body uses to
interpret all of the sensory input that it receives from external and internal
sources-- including vestibular input from the inner ear, visual input from the
eyes and proprioceptive input in order to maintain posture and mobility.
Proprioception enables the body to know where it is in space.
SportKat is an advanced Balance Training system primarily for Senior "fall
prevention" Programs, correcting vertigo in Pilots and improving the quality of
life with those that have severe motor skill diseases. The SportKat system
differentiates itself from anything else known to management because it applies
the visual, vestibular and proprioceptive systems to leverage the redundancies
in the brain thereby improving balance. It is much safer than a "wobble board"
for seniors because the air "bladder" can be inflated to match all levels of
ability, weight, etc. This product is currently used in medical centers,
hospitals, universities, and professional sports teams. SportKat is effective
with those that have the following severe motor skill diseases/challenges:
Post Acoustic Neuroma Resection (Brain Tumors)
Head Trauma
Post Concussion
Meniere's Disease
Vertiginous Migraines
Vestibular Neuronitis
Presbystasis
MS
Parkinson's
Ataxia
The SportKat 4000 is our most advanced balance assessment and training
equipment. The SportKat software includes provisions for both static and dynamic
balance training and assessment through the availability of diversified types of
tests, test patterns and difficulty levels. Users may use the built-in training
modes with a great deal of ease and flexibility. In addition, the system enables
the user, or doctor, trainer, etc., to design unique, individual training
protocols to overcome specific deficits identified during the assessment phase.
The SportKat 4000 is designed for multiple applications within the medical and
athletic environments.
The SportKat operates using a patented inflatable bladder support system and
centrally pivoted platform. Attached to the platform is a thermal accelerometer,
which measures the user's displacement from center (balancing ability),
producing a quantifiable measurement or balance index score at the conclusion of
a balance assessment or training session. This measurement provides a basis on
which the user can track improvements by completing increasingly difficult
levels of training.
The modular nature of the SportKat design allows the company to offer a variety
of SportKat models to meet the needs (and budgets) of each customer/user group.
In addition, the modular design allows users to upgrade a SportKat machine to
meet changing needs, add new features or incorporate increased levels of
technology. Each SportKat model may be classified into one of three categories:
portable, standard or computer assisted.
36
SECURE BALANCE(TM) VIDEO ENG VESTIBULAR FUNCTION TESTING
The Secure Balance(TM) VNG Modules offer complete function analysis that is easy
to administer and comfortable for the patient. The lightweight goggle is
designed with patient comfort in mind and versatility in fitting on a variety of
patient populations. The Secure Balance(TM) Video ENG improves upon limitations
of previous measurement techniques.
Video images of the eyes are obtained without direct contact using high
resolution cameras with infrared illumination. The eyes are visualized, enabling
simultaneous subjective evaluation, while eye position is analyzed by digital
image processing to obtain vertical and horizontal eye position.
The Examination Designer program within the goggle allows the creation of a
patient's own test protocol. During the examination the test view provides the
patient with graphical data and immediate analysis while simultaneously
displaying the eye images for subjective control during the exam. The examiner
can even type in comments while the test is in progress. These features greatly
reduce the number of time consuming steps often involved in generating test
data.
The Secure Balance(TM) can produce clear and detailed color reports suitable for
hardcopy storage. Reports collate patient details, traces, analysis and display
diagrams in an easy-to-read-format.
The integrated extensive database provides a practically unlimited storage
capability. The database works with both the Secure Balance(TM)/Alternate
Systems. The Secure Balance(TM) / Alternate Systems are integrated into the
Interacoustics Medical PC platform. This is designed for convenient
transportation around a clinic and the amount of extraneous equipment required
is kept to a minimum.
HEALTHCARE COMPLIANCE SERVICES
Ingen Technologies, Inc. has contracted Total Healthcare Compliance to provide
services for Secure Balance(TM) customers who purchase the Balance & Fall
Prevention program. The Secure Balance(TM) customer receives five hours of
professional assistance from Total Healthcare Compliance to incorporate accurate
information regarding vestibular function testing and therapy. These services
include, but are not limited to, the following:
CPT-Billing and ICD-9 Coding
Proper and effective use of modifiers to ensure appropriate payment
Audit requirements and Claims processing
Testing qualifications and supervision requirements
Strategies to minimize post-payment risk
Documentation strategies to improve profitability
EDUCATIONAL SERVICES AND SEMINARS
As part of our ongoing provision of services for Secure Balance (TM) purchasers,
we offer periodic seminars and classes in all aspects of the operation of Secure
Balance. These seminars feature nationally recognized experts in our field.
Our Oxyview(TM) product went into production after FDA registration in October
of 2006. Our first sale of this product was on November 11, 2006. We have
launched a marketing campaign and have entered into agreements with several
distributors to sell Oxyview(TM) units. All manufacturing of Oxyview(TM) units
has been subcontracted with Accent Plastics. The Company is the registered
manufacturer of Oxyview(TM) and owns the tooling and molds on location at the
manufacturing plant of Accent Plastics, Inc. The Company placed its first order
with Accent on October 20, 2006. The Company's arrangement with Accent is solely
based on purchase orders from the Company and invoices from Accent at an agreed
price per unit.
37
Oxyview (TM), has a U.S. (as well as in the Peoples Republic of China, Japan and
Europe) patent and trademark pending, and is a pneumatic gauge that provides
visual safety warning of oxygen flow to hospitalized patients. This product is
designed to enhance the safety, assurance and accuracy of hospitalized patients
being administered oxygen from any source. Oxyview (TM) is a lightweight
pneumatic gauge that is attached to the oxygen tubing just below the neck. It
informs the nursing staff of oxygen flow rate near the patient. It is designed
to quickly inform the hospital staff of any leak or inaccuracy between the
delivery source and the patient.
We have filed for approval with the FDA to commence marketing of our
OxyAlert(TM) units. Upon approval of the FDA, we will begin marketing and sales
of OxyAlert(TM). The OxyAlert(TM) system is intended to be used in monitoring
oxygen intake pressure to a recipient of supplemental oxygen. The caregiver is
alerted when the oxygen level falls below a predetermined threshold. The
OxyAlert Receiver Monitor is an interface that provides the caregiver with
visual or audio signals notifying them of the low oxygen levels.
Both the Oxyview (TM) and OxyAlert (TM) products are low-oxygen safety warning
devices used on remote oxygen cylinders for patients, commercial aircraft,
military transport, and fire and safety equipment. OxyAlert(TM) technology
encompasses the use of digital sensing and RF frequency transfer so that care
givers can access a hand-held remote to monitor the actual oxygen level of any
oxygen cylinder at a reasonable distance. Using the same patented and
proprietary technology, the Company also plans to offer our GasAlert(TM)
product; a device that interfaces between any gas line and accessory, such as a
water heater, dryer, stove or heater, to detect leaks. This is a mass consumer
item. We do not have an anticipated market date for GasAlert(TM).
We were issued two US Patents for our BAFI (TM) line: Patent No. 6,137,417
issued on October 24, 2000 and Patent No. 6,326,896 B1 issued on December 4,
2001. Oxyview has a patent pending. We do not have international patents but
have applied for patents in the Peoples Republic of China, Japan and Europe for
Oxyview.
BAFI(TM) (and its progeny OxyAlert(TM), Oxyview (TM) and GasAlert(TM)); referred
to hereinafter as our "BAFI(TM) product line") is a product that offers
technological innovations for various types of applications. Portable
pressurized gas systems are categorized as Diameter Index Safety Systems
(D.I.S.S.) and are used for various applications. For example, oxygen gas is
provided to patients for use in remote locations. This delivery system is a
standard medical application used in providing oxygen to patients suffering from
various respiratory and pulmonary diseases that result in oxygen deficiency
within their blood stream. Oxygen systems are prescribed by physicians and made
available through various manufacturers and oxygen suppliers. We believe our
clinical tests have shown that BAFI(TM) is reliable, user-friendly and
interfaces with most of the regulators available in the market today. The
BAFI(TM) interfaced with all oxygen cylinders.
The BAFI(TM) product line is unique in its ability to interface with most of the
regulators and all of the pressurized gas cylinders. The use of BAFI(TM) product
line provides reliability and safety for the patients and other users. The user
is periodically unaware of the pressure levels and for the first time they can
experience assurance through this real-time audio and visual warning system.
BUSINESS OPPORTUNITY
The Company is marketing Oxyview (TM) and intends to market OxyAlert(TM) within
the medical industry. According to the American Academy of Pulmonology and the
New England Journal of Medicine, Pulmonology Publication, the patient market
alone is vast and includes 8,000,000 patients in the United States and
22,000,000 worldwide, who use oxygen. Each patient uses multiple oxygen
cylinders.
We believe the elderly population is increasing significantly, and therefore,
the market will continue to expand. Other markets for GasAlert(TM) include
millions of homes, barbeques, recreation vehicles, construction, military bases,
commercial and private aircrafts, and government facilities. There is no
recognized competition.
38
PROFESSIONAL PRODUCTS
In order to promote sales of its BAFI (TM) line, the Company has established
direct sales and marketing programs with manufacturer representatives, and
medical product distributors. Our direct marketing efforts will focus on a
direct marketing campaign, infomercials, television advertising and Internet
marketing. The Company has contract agreements with independent representative
organizations for a regional sales network throughout North America, Asia and
Pacific Rim.
The Company is prepared to promote sales of our products in certain
international markets. Company management will prepare for an international
market research report on the potential of its product lines overseas. With this
report, the Company can evaluate its position to pursue compliance of ISO-9000
and CE certification for European countries. In order to sell our products in
Europe, we need to comply with the "ISO" standards which all United States
manufacturers must adhere to. The CE certification is given upon meeting the
applicable ISO standard. It is anticipated that the overseas market represents
50% of the world market for pressurized gas cylinders.
The company believes that its clinical trials have shown the BAFI(TM) system to
be an accurate and cost effective, real-time, pressurized gas warning system
that will alert the user when the gas levels are approaching empty. It offers a
convenient method in warning users before the cylinders are empty without the
physical need to view the gauge. The BAFI(TM) components are water resistant,
salt spray resistant, heat resistant, durable and FDA approved.
The BAFI(TM) technology was designed as a compliment to the current method of
monitoring the pressure within gas cylinders. The BAFI(TM) unit is adjustable
and calibrated at 500PSI (pounds per square inch) in order to warn the user of
pressure levels that fall below 500 PSI. Most pressurized oxygen cylinders can
hold 3000 PSI of gas. The BAFI(TM) will not be activated until the pressure
reaches 500 PSI. This calibrated setting is coherent with the existing gauges
that are red-lined at 500PSI and is the current method for reading pressure.
BAFI(TM) works simultaneously with the gauge and provides the additional warning
system that is now necessary in today's market. There are many instances when
the user is not attentive to the pressure reading. There are both cost factors
and safety issues that result from having an empty cylinder. When tanks are
returned empty there are additional costs for priming the tank and replacing
parts. The assurance BAFI(TM) provides for the user is greatly enhanced.
OxyAlert(TM) improves the BAFI(TM) gauge methodology by allowing a digital
read-out with remote data transmission to other caregivers, as well as a safety
gauge, with additional visual and audio aids, that warns the user of low oxygen
levels. GasAlert(TM) applies the OxyAlert(TM)/BAFI(TM) technology to other types
of pressurized gas containers.
INDUSTRY AND MARKETPLACE
Our BAFI(TM) product line falls into several categories including the health
care industry, building supplies industry, recreation vehicles industry and
aircraft industry. We are establishing distribution avenues in the medical
device industry, hospital and medical supplies, and the consumer and
institutional health care supplies market.
PURE PRODUCE - A DEVELOPING LINE OF AGRICULTURAL PRODUCTS AND FACILITIES
Our development plans for Pure Produce are currently suspended, pending the full
launch of our BAFI product line and additional funding.
Pure Produce is a continuing research & development program currently under
design. This program uses hydroponics (plants grown in water) and areoponics
(roots suspended in air) technology to grow various plants without the use of
soil, fertilizer and pesticides. This technology is sometimes referred to as
"molecular farming." As funding allows, the company anticipates entering the
nutriceutical and pharmaceutical markets within the next two years.
39
We have an agreement in place with AgroWorx, Inc., a company affiliated with one
our directors, Christopher A. Wirth. This agreement relates to Pure Produce, an
AgroWorx line of plant products. We will work in concert with AgroWorx to
develop production facilities and market the products grown therein.
We will require additional capital and/or Pure Produce net earnings to construct
and operate more than one Pure Produce facility.
If we are able to raise necessary financing, our Pure Produce facilities will be
designed to offer vegetable and herb growth efficiency. The Agro-facility will
offer what we believe to be the most efficient use of water and energy
conservation technologically available to us.
The main competitive advantage of the facilities would be to deliver off-season,
high profit margin gourmet vegetables, herbs and edible flowers. The produce
selected for planting can be customized for local consumption. We plan to locate
the facilities within major populated areas, reducing the cost of transportation
as a result (compared to the cost and logistics involved in shipping
agricultural products from rural growers to urban consumers).
COMPETITION
The BAFI(TM) product line constitutes unique warning devices. The audio and
visual warning system enhances the safety and assurance of all portable
pressurized gas delivery systems and continues to be compatible with all
portable pressurized gas cylinders as a compliment to their existing paradigm.
Our competition, as outlined in our patent search, comprises basically two
United States companies. However, neither company currently has a product for
the pressurized gas tank market, nor have they been able to deliver the designed
product they have claimed in an expired patent. Therefore, management believes
there are currently no competitors and that the market is wide open.
BAFI(TM) PRODUCT LINE PATENTS AND TRADEMARKS
The Company was notified by the US Patents and Trademarks Office that the patent
was issued on 10/24/2000 (Patent Number 6,137,417) and that the examiner had
approved all 20 claims. A second patent has been filed and approved. The name
BAFI(TM) has been trademarked.
The patent search revealed that there are no similar devices like BAFI(TM) for
portable oxygen gas cylinders. As end of this fiscal year, we are still not
aware of similar devices in the marketplace.
PRODUCT LIABILITY
Beginning with the design phase of product development, the Company has
incorporated preventive measures aimed at reducing its potential exposure to
liability risk. The Company's product development and manufacturing program
includes high product reliability standards meant to result in high mean times
between failures (MTBF). The company plans to achieve a high MTBF factor by
pursuing strict quality control procedures and by holding its manufacturing
partners to such high standards by written contract. By designing and
manufacturing a reliable, high quality product, the Company will minimize, but
not eliminate, the possibility and occurrence of defective products.
40
The manufacturing and marketing of the Company's products, incorporating new and
unproved technology, has inherent risk. No one can be sure how each product will
operate over time and under various conditions of actual use. Even if the
products are successfully manufactured and marketed, the occurrence of warranty
or product liability, or retraction of market acceptance due to product failure
or failure of the product to meet expectations could prevent the Company from
ever becoming profitable. Development of new technologies for manufacture is
frequently subject to unforeseen expenses, difficulties and complications, and
in some cases such development cannot be accomplished. In the opinion of
management, the products, and services, as designed, has many positive
attributes, but such attributes must be balanced against limited field operating
experience and unknown technological changes.
GOVERNMENT REGULATION
MEDICAL DEVICE APPROVAL PROCESS. Medical devices are regulated by the Food and
Drug Administration ("FDA") according to their classification. The FDA
classifies a medical device into one of three categories based on the device's
risk and what is known about the device. The three categories are as follows:
- Class I devices are generally lower risk products for which
sufficient information exists establishing that general regulatory
controls provide reasonable assurance of safety and effectiveness.
Most class I devices are exempt from the requirement for pre-market
notification under section 510(k) of the Federal Food, Drug, and
Cosmetic Act. FDA clearance of a pre-market notification is
necessary prior to marketing a non-exempt class I device in the
United States.
- Class II devices are devices for which general regulatory controls
are insufficient to provide a reasonable assurance of safety and
effectiveness and for which there is sufficient information to
establish special controls, such as guidance documents or
performance standards, to provide a reasonable assurance of safety
and effectiveness. A 510(k) clearance is necessary prior to
marketing a non-exempt class II device in the United States.
- Class III devices are devices for which there is insufficient
information demonstrating that general and special controls will
provide a reasonable assurance of safety and effectiveness and which
are life-sustaining, life-supporting or implantable devices, or
devices posing substantial risk. Unless a device is a preamendments
device that is not subject to a regulation requiring a Premarket
Approval ("PMA"), the FDA generally must approve a PMA prior to the
marketing of a class III device in the United States.
The company's BAFI(TM) product line and Secure Balance(TM) are "Class-II"
devices.
OxyView has been reviewed by the FDA and as a result the FDA has issued a
Registration No. 3005686889, FDA Owner/Operator No. 9085663, FDA Product Code:
BYM and FDA Listing No. E376132. OxyAlert is under review with the FDA. Secure
Balance products have been issued FDA 510(k)'s.
41
LABELING AND ADVERTISING. The nature of marketing claims that the FDA will
permit us to make in the labeling and advertising of our medical devices will be
limited to those specified in our FDA 510(k)s. Should be make claims exceeding
those that are warranted, such claims will constitute a violation of the Federal
Food, Drug, and Cosmetics Act. Violations of the Federal Food, Drug, and
Cosmetics Act, Public Health Service Act, or regulatory requirements at any time
during the product development process, approval process, or after approval may
result in agency enforcement actions, including voluntary or mandatory recall,
license suspension or revocation, 510(k) withdrawal, seizure of products, fines,
injunctions and/or civil or criminal penalties. Any agency enforcement action
could have a material adverse effect on us. The advertising of our products will
also be subject to regulation by the Federal Trade Commission, under the FTC
Act. The FTC Act prohibits unfair methods of competition and unfair or deceptive
acts in or affecting commerce. Violations of the FTC Act, such as failure to
have substantiation for product claims, would subject us to a variety of
enforcement actions, including compulsory process, cease and desist orders, and
injunctions. FTC enforcement can result in orders requiring, among other things,
limits on advertising, corrective advertising, consumer redress, and
restitution. Violations of FTC enforcement orders can result in substantial
fines or other penalties.
FOREIGN REGULATION. Outside the United States, our ability to market our
products will also depend on receiving marketing authorizations from the
appropriate regulatory authorities. The foreign regulatory approval process
includes all of the risks associated with FDA procedures described above. The
requirements governing the conduct of clinical trials and marketing
authorization vary widely from country to country.
INTELLECTUAL PROPERTY
Patents, trademarks and trade secrets are essential to the profitability of our
products, and our company policy is to pursue intellectual property protection
aggressively for all our products. We have 2 patents for our BAFI(TM) product
line. We have a total of 4 trademarks for our products. A summary of the patents
and trademarks is provided in the following table:
TRADEMARKS
1. MARK: OXYALERT (BLOCK LETTERS) Ser./App. No. 78-609846
Int'l Class 9 - Electrical and Scientific Apparatus Goods/Services
Electronic Monitoring And Alarm Systems For Pressure Levels In Gas
Cylinders
Filing date: April 15, 2005
2. MARK: GASALERT (BLOCK LETTERS) Ser./App. No. 78-609809
Int'l Class 9 - Electrical and Scientific Apparatus Goods/Services
Electronic Monitoring And Alarm Systems For Pressure Levels In Gas
Cylinders
Filing Date: April 15, 2005
3. MARK: SECURE BALANCE (BLOCK LETTERS) Ser./App. No. 78-570158
Int'l Class 10 - Medical Apparatus Goods/Services
Medical Diagnostic Equipment For Vestibular Function Testing And Dynamic
Posturography And Related Software Sold As A Unit, And Installation And
Training In The Use Thereof
Filing date: February 17, 2005
42
4. MARK: BAFI Ser./App. No. 75-873947 Registration No. 2406214
Int'l Class 9 - Electrical and Scientific Apparatus Goods/Services
Electronic Monitoring And Alarm Systems For Pressure Levels In Gas
Cylinders
Filing date: December 18, 1999
Registration date: November 21, 2000
UNITED STATES PATENTS ABSTRACT
Patent No. 6,137,417 A warning device configured for removable mounting in combination
with a high pressure gas cylinder and a regulator used toregulate
Date issued: October 24, 2000 the high pressure gas supplied by the cylinder. The device
compression mounts between the regulator and tank outlet on
Date expires: May 24, 2019 conventional portable oxygen and gas supply systems using a
specially configured manifold.
The device features one or a combination of alarms, from a group
including audio, visual, electronic and remotely transmitted
alarms.
These alarms are activated by a pressure switch monitoring the
remaining supply in the gas cylinder through a conduit in the
manifold.
The alarm signal from the device alerts the user, or a third
party monitoring the user, of current tank pressure or will sound
an alarm when remaining high pressure gas inside the gas cylinder
drops below a predetermined level.
Patent No. 6,326,896 B1 A warning device configured for removable mounting in combination
with a high pressure gas cylinder and a regulator used to regulate
Date issued: December 4, 2001 the high pressure gas supplied by the cylinder.
Date expires: October 24, 2020 The device compression mounts between the regulator and tank
outlet on conventional portable oxygen and gas supply systems
using a specially configured manifold.
The device features one or a combination of alarms, from a group
including audio, visual, electronic and remotely transmitted
alarms.
These alarms are activated by a pressure switch monitoring the
remaining supply in the gas cylinder through a conduit in the
manifold.
The alarm signal from the device alerts the user, or a third
party monitoring the user, of current tank pressure or will sound
an alarm when remaining high pressure gas inside the gas cylinder
drops below a predetermined level.
A U.S. Provisional Patent, #60/780980, has been issued for OxyView.
Additionally, a U.S. formal patent application has been submitted along with
formal applications to Europe, China and Japan. We also have U.S. trademarks
pending for both OxyView and Pure Produce.
43
MANUFACTURING
We do not manufacture our products in-house. We have or will have contracts for
the manufacture of our products (depending on the product).
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 reps 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 OxyAlert(TM), OxyView and GasAlert(TM) products and will
sell these products utilizing a distribution network that will not include the
use of Company employees.
PRICING
The Company plans to price the medical devices so that a 45-50% gross margin is
generated. The distributor price may likely be discounted from time to time
depending upon high volume commitments. We anticipate the retail cost of
OxyAlert(tm) will be in the $300-$400 range. GasAlert(TM)'s price has yet to be
determined, but will be considerably lower. Oxyview (TM) is initially being sold
at a retail price of $14.95.
SALES AND MARKETING
Company management believes that the sales and marketing for these systems could
be achieved with a direct factory sales force. However, with the implementation
of our sales and marketing program, the increase of sales will decrease
production costs. The goal is to reduce the system manufacturing cost and
maintain margins. The Company has established relationships and contracts with
distribution and sales of its products and services through various experienced
distribution and marketing channels, including primarily medical device
marketing, government marketing and supplier outlets. The Company has recently
introduced the BAFI(TM) product line through the medium of direct Internet
marketing and advertising, which is gaining wide recognition as an effective
method of introducing products and driving customers to retail distribution
channels.
An integral part of the Company's marketing strategy, and a common theme to the
marketing plan, is its complete proprietary product offering. By offering a
proprietary line of products and services, and promoting cost-effective and
leading-edge identity, the Company can establish permanent residency in major
national and international medical supply outlets. This could afford the Company
less resistance to new products in the future.
BAFI(TM) PRODUCT LINE MARKETING PROGRAM
The Company will have an initial national distribution plan. The plan will
entail the expansion of development and distribution of its products and
services, and the development of wholesale and retail distribution through an
experienced marketing network, medical supply outlets, government agencies and
managed care organizations. The plan will also seek to garner the support of the
medical community through the sponsorship of ongoing research of oxygen delivery
programs and devices. The Company continues to negotiate distribution programs
with large and experienced distributors.
1. Institutional Health Care Distribution
The Company's management has developed active relationships with physicians,
hospitals and various suppliers in the United States and has established a
direct sales channel designed to build a network of health care institutional
distributors to actively purchase the BAFI(TM) product line.
44
The Company is preparing to significantly expand its direct sales program to
government agencies, institutions, health care providers, hospitals, managed
care organizations, urgent care centers, skilled nursing facilities and private
industry. In doing so, management intends to appoint regional sales managers in
target regions throughout the United States. These regional sales managers will
be charged with executing the Company's direct sales efforts in their respective
territories, specifically establishing new, active accounts. The Company has
focused the early thrust of its expanded marketing program within the United
States. Management believes that this is the best current practical opportunity.
2. Retail Distribution
The Company has appointed independent representatives to represent its products
on a regional basis throughout the United States. Management will continue to
appoint other firms that have extensive physician/medical penetration and
experience with medical products and continue to gain distribution through the
vast and growing network of independent medical device chain outlets.
3. International Marketing Program
The Company intends to expand its product line in certain international markets.
Management believes that the product is expected to be issued various foreign
patents and the regulatory approval to market in other countries. Currently the
company has engaged Kimihira, Shimada & Taylor, located in Torrance, California,
to seek distribution rights within Asia and the Pacific Rim.
4. Direct Response Marketing Program
An integral part of the Company's sales and marketing strategy is the use of
direct medical response advertising ("infomercials") within physician waiting
rooms and internet web site exposure, to introduce our products to the
marketplace, achieve significant sales, and develop brand name recognition. An
infomercial can be described simply as a televised commercial or web site of up
to six minutes in length, which demonstrates a product or services and attempts
to motivate the viewer to call a toll free telephone number and order the
product or service. We are utilizing an infomercial for our Secure Balance(TM)
products and services and intend to produce infomercials for OxyAlert(TM),
Oxyview and GasAlert(TM) as soon as we can.
The infomercial has proven itself to be capable of literally revitalizing entire
product categories. Because of its unique ability to provide for live
demonstration of a product to (up to) millions of people simultaneously; the
infomercial has transformed several previously small, sleepy product categories
into industry leading growth segments.
Unique to the infomercial marketing technique, products can generally be sold at
relatively high prices (compared to traditional retail) because the product's
usefulness and value can be established through demonstration. The higher price
of an infomercial product actually pays for the higher selling costs associated
with the purchase of media time.
Through our sales and marketing division, the Company has established a
relationship with several web site developers to establish a joint infomercial
marketing venture for the BAFI(TM) product line and services. The Company
intends to explore the advisability of establishing such an arrangement
regarding future products, as well as the prospects of developing our own
infomercial marketing program.
5. Independent Representative Network
A principal component of the BAFI(TM) marketing strategy involves distribution
of our product line through major national and regional medical marketing
networks. Company management, together with key senior consultants, has
extensive contacts and relationships with independent representative firms
throughout the United States. Ultimately, management intends to secure
distribution contracts with 400 or more brokers, marketing consultants, and
special instrument dealers (SID's) to spearhead the Company's sales campaign in
acceptable market areas in the United States. At such time as BAFI(TM) has
achieved adequate market penetration in the initial markets, and as production,
logistics, financing, and operational capabilities increase, the Company intends
to expand our market representation and continue to expand in new markets.
45
The Company has allocated a substantial portion of our distribution network to
advertising and promotion, including the production of 10 minute (and longer)
infomercials, and web sites designed to promote viewership of the infomercial
and product lines.
The Company has approached major medical supplies direct mail catalog houses,
and other magazine supply catalog operators for representation and sales through
such publications. The Company may choose to market through catalogs under a
special brand name.
6. Advertising & Promotion
The primary objective of the Company's advertising and promotional endeavors is
to establish the BAFI(TM) product line name and image as the top manufacturer of
leading-edge and cost effective gas warning alert system products and services
within the industry.
The Company's initial architecture for our advertising campaign is being built
around the perceived cost advantages of the BAFI(TM) product lines' systems,
including its applications and importance. The message will also seek to project
the preparedness and peace of mind that comes from owning the product dedicated
to their clinical and corporate liabilities.
Concurrently, management is of the opinion that these same efforts will
reinforce the Company's wholesale program by increasing brand name awareness
among chain and independent buyers. To accomplish these objectives, the Company
will employ a variety of proven marketing communications techniques, to include
but not be limited to, on-site demonstrations of the product, national and
regional exhibits, regional and local institutional advertising, and co-op
advertising and promotions.
Oxyview has commenced sales as of 11/10/2006 with Koike Medical Co. Ltd.
in Japan, PO No. KM111006.
SUMMARY OF MATERIAL AGREEMENTS
Ingen has agreements with Preferred Provider Care Inc., Secure Health Inc.,
Total Healthcare Compliance Inc., InTouch Life Sciences Inc., MedOx Corp.,
Agroworx Inc., LifeTime Controls Inc., and RC Product Development and
Engineering. The summary of the agreements is as follows:
(1) Ingen has exclusively engaged the services of Preferred Provider Care to
provide physician training and physician support services for all Secure
Balance(TM) customers. Preferred Provider Care also agreed to develop physician
markets for Secure Balance(TM) sales in the United States through their
affiliate, American Academy of Balance Medicine and the Southeastern
Neuroscience Institute. Ingen will use Preferred Provider Care as its exclusive
agent to provide those services. In consideration, Ingen agrees to pay a
consulting fee of $3,000 for each Secure Balance(TM) product sale that includes
a signed Acceptance Agreement from the customer. The said fee will be paid only
if the purchasing physician or institution agrees to and signs the Acceptance
Agreement to utilize training services. Further, Ingen agrees to advance $5,000
for each workshop/event.
(2) Ingen has engaged Secure Health to exclusively distribute Secure Balance(TM)
products in North America. In consideration, upon signing of the Agreement,
Secure Health will receive 500,000 restricted shares of common stock of Ingen
Technologies, Inc. Ingen agrees to pay a 14% commission of the list sale price,
not inclusive of taxes or freight, of all Secure Balance(TM) sales. Upon selling
their first 13 Secure Balance(TM) systems, Ingen will issue a total of 250,000
restricted shares of Ingen common stock to the Contractor according to the
following schedule: 100,000 shares issued after first 5 systems sold; 100,000
shares issued after first 10 systems sold; and 50,000 shares issued after first
13 systems sold.
46
(3) Ingen engaged Total Healthcare Compliance to provide professional services
in medical billing compliance and Medicare billing guidelines. These services
are offered to Ingen's clients that have purchased the Secure Balance(TM)
program. Total Healthcare Compliance ("THC") has also agreed to endorse the
Secure Balance(TM) program to their clients. Ingen will use THC as its exclusive
agent to provide these services. In consideration, Ingen agreed to issue 250,000
shares of its restricted common stock to THC upon signing of this Agreement.
Ingen will pay commissions of $4,000 for each Secure Balance(TM) VNG product
sold on leads delivered to Ingen in the form of a signed agreement between the
client and Ingen. The said transaction will be verification of acceptance and
submitted to THC. Ingen will pay THC $500 for each Secure Balance(TM) sale,
providing the client accepts THC's services. THC agrees to provide 5 hours of
services for $500. Ingen will reimburse THC for any/all travel and lodging
expenses associated with workshops that are sponsored by Ingen.
(4) Ingen engaged InTouch Life Science ("ILS") to cost effectively understand
the viable OxyView(TM) and OxyAlert(TM) business opportunities and the business
development strategy that should be pursued to secure distributor agreements. To
ensure the best terms can be negotiated with distributors, ILS will conduct a
strategic assessment of the market in North America and Europe to define current
conditions including emerging competition, competitive product features and
benefits, pricing, positioning, and promotional activities. The objectives,
methodology and deliverables are found in Attachment A ["North American (NA)
Elements of Agreement"]. The elements are the same for Europe except for the
timing of the work which the two parties will discuss after the North American
project is initiated. Compensation: the undertakings of this agreement are set
forth in greater detail in attachment A of the agreement as Parts 1A and 1B. In
consideration for the services to be provided by ILS under this agreement, Ingen
agreed to pay ILS the following payments: Phase I A & B-North America (August
through November, 2006): $44,010. Initial payment of $14,670 accompanied a
signed copy of the agreement. The remaining two installment payments of $14,670
were paid on September 15, 2006 and November 15, 2006. Compensation payments
will be considered to include personnel costs for ILS employees and affiliated
consultants, ILS' copying, postage, courier services, long distance telephone
calls and telecopy charges. ILS will bill separately for other expenses,
including video conferencing, web casts, travel, etc. only if approved in
writing in advance by Ingen.
(5) Ingen engaged the services of MedOx Corporation ("MedOx") to distribute
OxyView(TM). In consideration, Ingen agreed to pay MedOx 4% of all OxyView
revenues, less MedOx's selling price to the customer. An ongoing percentage
shall be paid to MedOx by Ingen for results of growing a global sales
organization. When MedOx sells one million OxyView(TM) units, Ingen will issue a
total of 2,000,000 restricted shares of its common stock to MedOx according to
the following schedule: This issuance is only for the first one million units
sold and does not constitute an ongoing issuance for additional sales of
OxyView(TM). MedOx will receive $60,000 for the first six months in payments of
$10,000 per month. After the first six months, these payments will cease. MedOx
will determine the customer price. MedOx has the right to set pricing directly
with his customer and the customer will purchase directly from Ingen. MedOx and
Ingen will negotiate pricing set for MedOx, and MedOx will receive 4% of MedOx
pricing and 100% of the difference between the MedOx price and the customer
price for each individual customer. The customer pricing may vary from customer
to customer. At no time, shall the MedOx price exceed or be greater than the
customer price. Ingen is responsible to initially discuss all customer pricing
with MedOx, and Ingen agrees not to discuss pricing with the customer until
MedOx has discussed pricing the customer. The term "customer" means that MedOx
has established a direct relationship/contact with a customer, and does not mean
that all customers are property of MedOx. Each customer that is a contact of
MedOx will be verified in writing between Ingen and MedOx. MedOx will be paid 7
days after receipt of all money received from the customer and for each
transaction, accordingly.
47
(6) Ingen engaged Agroworx to provide consulting services to assist in the
design of the Pure Produce(TM) program. In consideration, Ingen will issue to
Agroworx: i) 300,000 shares of restricted common stock at the time Ingen
receives initial funding for the Pure Produce(TM) program, and ii) 500,000
shares of restricted common stock 12 months after the funding of the Pure
Produce(TM) program. The definition of "Commencing" means that the first Pure
Produce(TM) facility has been built and has started operations. Upon the initial
funding of the Pure Produce(TM) program, Ingen will pay Agroworx a monthly
consulting fee of $ 3,000 to assist in the design and operations of the Pure
Produce(TM) facility(s). Ingen will pay Agrowor 2% of the net profits, before
tax, of the revenues generated from any/all of the Pure Produce(TM) facilities.
This payment will be paid annually and/or at the end of each fiscal year. Ingen
may assign other projects to Agroworx. Ingen will pay Agroworx a defined amount
pursuant to each project. Each project will include a description of the work to
be performed and the amount that Agroworx will receive. Agroworx has the right
of first refusal with each of these additional projects.
(7) Ingen engaged LifeTime Controls to build the OxyAlert(TM) engineering model
for a total cost of $69,420 commencing on August 1, 2005. The OxyAlert(TM) model
was built and is now waiting to go into production pursuant to additional
funding requirements.
(8) Ingen engaged RC Product and Engineering to design and build OxyView(TM).
The product has been designed and is in production. In consideration, Ingen paid
$30,000 and issued 1,000,000 restricted shares of its common stock.
EMPLOYEES
Our wholly owned subsidiary currently has five full-time employees. Our company
is a holding company formed in Georgia that owns or has rights to certain
proprietary products and operates our business through our subsidiary, Ingen
Technologies, Inc., a Nevada company. Mr. Scott R. Sand, our CEO, Founder and
Chairman is employed under an employment agreement with the Company. This
agreement was effective as of September 21, 2006. Under its terms Mr. Sand is
entitled to $200,000 per year for a period of five years and 300,000 shares of
common stock per year. As of November 30, 2007, Mr. Sand is due $213,356 in
accrued and unpaid salary under his employment agreement
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THE DISCUSSION IN THIS SECTION CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING
NATURE RELATING TO FUTURE EVENTS OR OUR FUTURE PERFORMANCE. WORDS SUCH AS
"ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE," "MAY" AND SIMILAR
EXPRESSIONS OR VARIATIONS OF SUCH WORDS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS, BUT ARE NOT THE ONLY MEANS OF IDENTIFYING FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS ARE ONLY PREDICTIONS AND THAT ACTUAL EVENTS OR
RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, YOU SHOULD
SPECIFICALLY CONSIDER VARIOUS FACTORS IDENTIFIED IN THIS REPORT, INCLUDING THE
MATTERS SET FORTH UNDER THE CAPTION "BUSINESS RISKS," WHICH COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING
STATEMENTS.
48
OVERVIEW
We are a medical device manufacturer and service provider for medical and
consumer markets both domestic and abroad. All of our manufacturing is currently
subcontracted. We have four products, two of which are currently generating
revenues (Secure Balance(TM) and Oxyview(TM)). The other oxygen and gas
monitoring safety devices in our BAFI product line that are still being
developed are OxyAlert(TM) and GasAlert(TM).
GasAlert(TM) development is currently "on hold" and we do not intend to focus on
it until we have Oxyview(tm) and OxyAlert(TM) in a production and sales mode. We
also have an agri-business concept known as Pure Produce, which involves
establishing soil-less indoor farming facilities near population centers to grow
food and neutriceuticals. Our development plans for Pure Produce are currently
suspended, pending the full launch of our BAFI product line and additional
funding.
Our Oxyview(TM) product went into production after FDA registration in October
of 2006. Our first sale of this product was on November 11, 2006. We have
launched a marketing campaign and have entered into agreements with several
distributors to sell Oxyview(TM) units. All manufacturing of Oxyview(TM) units
has been subcontracted with Accent Plastics. The Company is the registered
manufacturer of Oxyview(TM) and owns the tooling and molds on location at the
manufacturing plant of Accent Plastics, Inc. The Company placed its first order
with Accent on October 20, 2006. The Company's arrangement with Accent is solely
based on purchase orders from the Company and invoices from Accent at an agreed
price per unit.
We have filed for approval with the FDA to commence marketing of our
OxyAlert(TM) units. Upon approval of the FDA, we will begin marketing and sales
of OxyAlert(TM).
Our development plans for Pure Produce are currently suspended, pending the full
launch of our BAFI product line and additional funding. We have an agreement
with AgroWorx, Inc., a company affiliated with one our directors, Christopher A.
Worth. This agreement relates to "Pure Produce," an AgroWorx line of plant
products. We will work in concert with AgroWorx to develop production facilities
and market the products grown therein. We anticipate that we will need to raise
at least $2 million to construct and operate a production facility.
The Pure Produce product is a continuing research & development program
currently under design. This program uses hydroponics and aeroponics technology
to grow various plants and herbs without the use of soil, fertilizer and other
chemicals. The company anticipates entering the nutriceutical and pharmaceutical
markets over the next two years.
We will need additional investment (equity and/or debt) and/or Pure Produce net
earnings to construct and operate more than one Pure Produce facility.
Our business plan for the remainder of the fiscal year ending May 31,2008 is to
continue our efforts to increase the market share for Secure Balance(TM) and to
continue with the world-wide sales of one of our BAFI(TM) product lines,
Oxyview(TM). We will also continue to develop OxyAlert(TM) if funds allow. The
marketing costs incurred to increase the sales of Oxyview(TM) could be quite
substantial.
We have had sales revenues in each of our last two fiscal years of $846,783 in
the year ended May 31, 2006 and $720,678 in the fiscal year ended May 31, 2007.
We anticipate reversing the slight downward trend in our sales figures by
continuing to build our Secure Balance(TM) brand recognition in the market and
intensify our efforts for market penetration. Further, with the launching of our
Oxyview (TM) product in November of 2006, we hope to increase sales of this
product.
49
We have had significant losses since inception. Our net loss for the past two
fiscal years ended May 31, 2007 and May 31, 2006 have been $5,061,482 and
$1,736,868, respectively. We anticipate that we will continue to incur
substantial additional operating losses in our fiscal year ending May 31, 2008
as we continue to develop our BAFI(TM) product line, begin manufacturing and
marketing of OxyAlert and continue to seek an increase in Secure Balance(TM)
sales.
As of May 31, 2007, we had an accumulated deficit of $9,323,671 (up from
$4,262,189 as of May 31, 2006).
RESULTS OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2007 COMPARED TO THE YEAR ENDED
MAY 31, 2006
We reported gross sales of $720,678 in the fiscal year ended May 31, 2007. Our
total sales fell 15% from sales of $846,783 in our fiscal year ended May 31,
2006. Our sales decrease was attributable to less sales of our Secure Balance
(TM) product. Our Secure Balance (TM) sales were $704,490 in the current fiscal
year, compared to $846,783 in the prior year. 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. Further, our sales of Oxyview (TM) are
anticipated to increase from current levels of $5,695 as we expand sales
channels. We also reported $10,492 in freight charges that we collected and
recorded as income in the fiscal year ended May 31, 2007.
Our cost of sales was $452,100 in the fiscal year ended May 31, 2007 and our
gross profit was $268,578 (a gross margin of 37.3%). We reported cost of sales
of $301,118 in the fiscal year ended May 31, 2006 with a gross profit of
$545,665 (a gross margin of 64.4%). The large difference in the gross margin
from the current fiscal year compared to the prior year is primarily related to
a change in accounting treatment of commissions and other direct cost of sales
(including costs by the Company to install Secure Balance (TM) units and to
train the customers to use the machine). All of these costs allocated to cost of
sales are contractual obligations of the Company directly related to the sale of
the Secure Balance (TM) units. The Company would have reported total cost of
sales of $540,231 in the fiscal year ended May 31, 2006 had the Company utilized
this same accounting treatment for its commissions and other related expenses
now classified as costs of sales. This would have resulted in a gross profit of
$306,552 and a gross margin of 36.2%, nearly the same as the gross margin in the
fiscal year ended May 31, 2007.
Our selling, general and administrative expenses were $1,882,221 in the fiscal
year ended May 31, 2007. This was a decrease of approximately 17.4% from the
selling, general and administrative expenses of $2,277,881 reported in the
fiscal year ended May 31, 2006. With the adjustment for the change in cost of
sales discussed above, the selling, general and administrative expenses would
have been $1,770,686 in the fiscal year ended May 31, 2006.
Due to entering into $1,915,000 in convertible note agreements, our interest
expense has increased dramatically. We reported interest expense of $3,852 in
our fiscal year ended May 31, 2006. Our interest expense in the current fiscal
year was $5,028,485. The bulk of this current interest expense relates to the
accounting treatment of the convertible feature of the notes payable. The
interest expense accrued on the notes payable was equal to $44,109 for the year
ended May 31, 2007. The other interest charges related to the amortization of
debt issue costs, amortization of note discount and other financing costs were
$4,984,376.
50
We reported income due to the change in our derivative liability in the amount
of $1,583,636 in the fiscal year ended May 31, 2007. This was the first year we
reported such income. This income was generated as a result of the Company's
treatment of certain convertible notes payable and warrants. The Company is
required to value the convertible feature of each convertible note and also
value the warrants when they are issued. The valuation was done again as of May
31, 2007. The changes in these values, which are based on a Black Scholes
valuation, have been recorded as income. The net difference of the Black Scholes
valuation at the time of the issuance of the debt and warrants compared to the
valuation as of May 31, 2007 resulted in the Company reporting income of
$1,583,636 (the derivative liability decreased between the time of issuance of
the warrants and debt and May 31, 2007).
We have not generated net profit to date and therefore have not paid any federal
income taxes since inception. We paid $1,215 and $800 in franchise taxes to the
state of California in the fiscal years ended May 31, 2007 and 2006,
respectively. We also made a tax payment to the state of Georgia of $1,775 in
the current fiscal year. We estimate that our federal tax net operating loss
carryforward will be approximately $4.6 million as of May 31, 2007. This
carryforward was equal to $3,009,598 as of May 31, 2006. The loss carryforward
will begin to expire in 2019, if not utilized. Our ability to utilize our net
operating loss and tax credit carryforwards may be limited in the event of a
change in ownership.
LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED MAY 31, 2007 COMPARED TO THE
YEAR ENDED MAY 31, 2006
At May 31, 2007, our current assets totaled $119,465 (including cash of $238,
inventory of $85,594 and prepaid expenses of $33,633). Total current liabilities
were $380,018, consisting of $84,517 in accounts payable, $196,620 in accrued
expense, $84,342 in an officer's loan and $14,539 representing the current
portion of long-term debt. We had $720,678 of sales in the fiscal year ended May
31, 2007 and sales of convertible debentures on which we netted $1,566,800. Our
finances were assisted by deferments from our CEO and Chairman Scott R. Sand.
Mr. Sand accrued $96,667 in salary in the fiscal year, although he converted
$95,311 of this accrued salary into preferred stock. As of May 31, 2007, we owed
Mr. Sand $113,356 in accrued salary and an additional $84,342 for expenses that
he has paid on behalf of the Company.
Our future cash requirements will depend on many factors, including finishing
the development of our BAFI(TM) product line (largely completed, as our Oxyview
product is now being sold), the costs involved in filing, prosecuting and
enforcing patents, competing technological and market developments and the cost
of product commercialization for OxyAlert in particular, as well as our ongoing
Secure Balance(TM) and Oxyview sales efforts. 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.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2007
COMPARED TO THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2006
We reported gross sales of $74,538 in the quarter ended November 30, 2007. Our
total sales fell 45% from sales of $134,473 in the quarter ended November 30,
2006. Our sales decrease was attributable to less sales of our Secure Balance
(TM) product. Our Secure Balance (TM) sales were $73,618 in the current quarter,
compared to $134,398 in the quarter ended November 30, 2006. Secure Balance (TM)
sales accounted for 99% of our current quarter's sales and 100% of the sales in
the quarter ended November 30, 2006.
We reported gross sales of $192,010 in the six months ended November 30, 2007.
Our total sales fell 41% from sales of $323,631 in the six months ended November
30, 2006. Our sales decrease was attributable to less sales of our Secure
Balance (TM) product. Our Secure Balance (TM) sales were $149,313 in the six
months ended November 30, 2007, compared to $323,556 in the six months ended
November 30, 2006. Secure Balance (TM) sales accounted for 77% of the sales in
the six months ended November 30, 2007 and and 100% of the sales in the six
months ended November 30, 2006.
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. Further, our sales of
Oxyview (TM) are anticipated to continue to increase from the current quarter's
sales as we expand sales channels. After shipping our first sale of Oxyview (TM)
in November of 2006, our sales of Oxyview (TM) were $40,774 in the six months
ended November 30, 2007 (we reported $230 of Oxyview (TM) sales in the three
months ended November 30, 2007). We also reported $180 in sales of supplies and
$1,744 in freight charges that we collected and recorded as income in the six
months ended November 30, 2007.
Our total cost of sales was $61,705 in the quarter ended November 30, 2007 and
our gross profit was $12,833 (a gross margin of 17.2%). We reported cost of
sales of $66,641 in the quarter ended November 30, 2006 with a gross profit of
$67,832 (a gross margin of 50.4%). The high percentage of Secure Balance (TM)
sales in the current quarter resulted in a reduction in the gross margin. We
also are paying higher commissions on our Secure Balance (TM) sales, which has
reduced our gross margins. We anticipate that our gross margin will improve as
we increase our Oxyview (TM) sales which generates a higher gross margin than
our Secure Balance (TM) sales. The cost of sales for our Oxyview (TM) sales was
$11 which generated a gross profit of $219 (a gross margin of 95.2%). Our sales
of Oxyview (TM) were down from the previous quarter ended August 31, 2007 due to
a bulk sale to one customer that occurred in August of 2007. This sale generated
$40,000 in sales of Oxyview (TM). Secure Balance sales in the quarter ended
November 30, 2007 generated a gross margin of 16% (cost of sales of $61,695
generating a gross profit of $11,923).
Our total cost of sales was $129,118 in the six months ended November 30, 2007
and our gross profit was $129,118 (a gross margin of 32.7%). We reported cost of
sales of $182,188 in the six months ended November 30, 2006 with a gross profit
of $141,443 (a gross margin of 43.7%). We are paying higher commissions on our
Secure Balance (TM) sales, which has reduced our gross margins.
We anticipate that our gross margin will improve as we increase our Oxyview (TM)
sales which generates a higher gross margin than our Secure Balance (TM) sales.
The cost of sales for our Oxyview (TM) sales was $10,652 for the six months
ended November 30, 2007 which generated a gross profit of $30,122 (a gross
margin of 73.9%). Secure Balance sales in the six months ended November 30, 2007
generated a gross margin of 20.7% (cost of sales of $118,466 generating a gross
profit of $30,847).
Our selling, general and administrative expenses were $339,022 in the quarter
ended November 30, 2007. This was a decrease of approximately 13.5% from the
selling, general and administrative expenses of $517,158 reported in the quarter
ended November 30, 2006. The decrease in SG&A is primarily attributable to a
decrease in accounting and legal expenses associated with our filings with the
Securities and Exchange Commission.
Our selling, general and administrative expenses were $745,747 in the six months
ended November 30, 2007. This was a decrease of approximately 11.9% from the
selling, general and administrative expenses of $846,262 reported in the
six months ended November 30, 2006.
Our interest expense for the quarter ended November 30, 2007 was $247,449. This
was an increase of 56.5% from the interest expense of $158,053 in the quarter
ended November 30, 2006. This increase was attributable to an increase in our
debt.
Our interest expense for the six months ended November 30, 2007 was $1,268,139.
This was a decrease of 65.7% from the interest expense of $3,698,968 in the six
months ended November 30, 2006. The vast majority of our interest expense in
both the six months ended November 30, 2007 and 2006 related to the accounting
treatment of the convertible feature of the notes payable. The interest expense
relating to financing costs in the six months ended November 30, 2007 and 2006
was $1,193,130 and $3,523,545, respectively. The interest expense accrued on the
notes payable and other interest paid in the six months ended November 30, 2007
and 2006 were $75,009 and $20,028, respectively.
We recorded income due to the change in our derivative liability in the amount
of $761,661 in the six months ended November 30, 2007. This is compared to the
income that we reported in the amount of $1,314,127 in the six months ended
November 30, 2006. This income was a result of the Company's treatment of
certain convertible notes payable and warrants. The Company is required to value
the convertible feature of each convertible note and also value the warrants
when they are issued. The valuation was done again as of November 30, 2007 and
2006. Any increases in these values, which are based on a Black Scholes
valuation, have been recorded as expense and decreases are recorded as income.
We have not generated net profit to date and therefore have not paid any federal
income taxes since inception. We paid $10 and $1,215 in state taxes in the six
months ended November 30, 2007 and 2006, respectively. We estimate that our
federal tax net operating loss carryforward will be approximately $4.6 million
as of May 31, 2007, the end of our last fiscal year. This carryforward was equal
to $3,009,598 as of May 31, 2006. The loss carryforward will begin to expire in
2019, if not utilized. Our ability to utilize our net operating loss and tax
credit carryforwards may be limited in the event of a change in ownership.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 2007, our current assets totaled $101,856 (including cash of
$1,161, accounts receivable of $15,271, inventory of $74,942 and prepaid
expenses of $10,481). Total current liabilities were $685,032, consisting of
$201,726 in accounts payable, $348,833 in accrued expense, $8,350 in taxes
payable, $100,850 in an officer's loan and $14,539 representing the current
portion of long-term debt. We had $192,010 of sales in the six months ended
November 30, 2007, sales of convertible debentures and other notes on which we
netted $210,000 and sales of common stock on which we netted $119,800. Our
finances were assisted by deferments from our CEO and Chairman Scott R. Sand.
Mr. Sand accrued $50,000 in salary in the current quarter and a total of
$100,000 in the six months ended November 30, 2007. As of November 30, 2007, we
owed Mr. Sand $213,356 in accrued salary and an additional $100,850 for expenses
that he has paid on behalf of the Company.
Our future cash requirements will depend on many factors, including finishing
the development of our BAFI(TM) product line (largely completed, as our Oxyview
product is now being sold), the costs involved in filing, prosecuting and
enforcing patents, competing technological and market developments and the cost
of product commercialization for OxyAlert in particular, as well as our ongoing
Secure Balance(TM) and Oxyview sales efforts. 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.
MATERIAL COMMITMENTS
Convertible Notes Payable - The Company has entered into convertible debenture
agreements that total $2,135,000 as of November 30, 2007. As of November 30,
2007, these notes were convertible into 103,000,000 shares of the Company's
common stock. Additionally, the note holders (or their affiliates) were granted
options to purchase up to 29,000,000 shares of the Company's common stock. If
all of the notes were converted and the warrants were exercised, the noteholders
could own more than fifty percent of the Company's outstanding common stock,
however under the terms of the agreements the noteholders can not convert their
notes into holdings that would exceed 4.99% of the Company's outstanding common
stock. The notes were entered into under the terms of three different
agreements.
On July 25, 2006, we entered into a Securities Purchase Agreement with New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and AJW Partners, LLC (the "Investors") and agreed to issue and sell (i)
callable secured convertible notes up to $2 million, and (ii) warrants to
acquire an aggregate of 20 million shares of our common stock. The notes bear
interest at 6% per annum (15% "default interest" per annum), and mature three
years from the date of issuance. The notes are convertible into our common stock
at the applicable percentage of the average of the lowest three trading prices
for our shares of common stock during the twenty trading day period prior 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 25, 2006, and (ii) 60% in the event that the Registration
Statement becomes effective within one hundred and twenty days from July 26,
2006. Since we did not have a Registration Statement become effective within one
hundred and twenty days of July 25, 2006, the applicable percentage is 50%.
Under the agreement, the conversion price of the secured convertible notes will
be adjusted in the event we issue securities below the fixed conversion price
and may be adjusted in certain circumstances such as merger, consolidation or if
we pay a stock dividend. At May 31, 2007, only $1.5 million of the convertible
notes were funded.
We received the first tranche of $700,000 on July 27, 2006, less issuance costs
of $295,200, the second tranche of $600,000, less issuance costs of $13,000 on
August 30, 2006, and the third tranche of $200,000 was received on January 24,
2007.
We may prepay the notes in the event that no event of default exists, there are
a sufficient number of shares available for conversion, and the market price is
at or below $0.10 per share. Prepayment of the convertible notes is to be made
in cash equal to 140% of the outstanding principal and accrued interest (for
prepayment occurring after the 60th day following the issue date of the notes).
In addition, in the event that the reported average daily price of the common
stock for each day of the month ending on any determination date is below $0.10,
we may repay a portion of the outstanding principal amount of the notes equal to
101% of the principal amount divided by thirty-six plus one month's interest and
this will stay all conversions for the month.
Events of default under the notes generally include failure to repay the
principal or interest when due, failure to issue shares of common stock upon
conversion by the holder, failure to timely file a registration statement or
have such registration statement declared effective, breach of certain covenants
or representation or warranty in the Securities Purchase Agreement or related
convertible note, the assignment or appointment of a receiver to control a
substantial part of our property or business, a money judgment, writ or similar
process entered or filed against us in excess of $50,000 which continues for 20
days unless consented to by the holders, the commencement of a bankruptcy,
insolvency, reorganization or liquidation proceeding against us without stay or
the delisting of our common stock. Upon the occurrence of an event of default,
the note holders may by written notice demand repayment in an amount equal to
the greater of (i) the then outstanding principal amount of the convertible
notes, toget her with unpaid interest and any outstanding penalties times 140%
or (ii) the 'parity value' of the default sum, where parity value means (a) the
highest number of shares of common stock issuable upon conversion of the default
sum, treating the trading day immediately preceding the prepayment date as the
'conversion date' for the purpose of determining the lowest applicable
conversion price (unless the event of default is a result of a breach in
reference to a specific conversion date), multiplied by (b) the highest closing
price for the common stock during the period beginning on the date of first
occurrence of the event of default and ending one day prior to the prepayment
date. In addition, we granted the Investors a security interest in substantially
all of our assets and intellectual property pursuant to a Security Agreement and
an Intellectual Property Security Agreement.
The warrants have an exercise price of $0.10 per share and expire after seven
years. The Investors may exercise the warrants on a cashless basis if the shares
of common stock underlying the warrants are not then registered pursuant to an
effective registration statement. In addition, the exercise price of the
warrants will be adjusted in the event we issue common stock at a price below
market, with the exception of any securities issued as of the date of the
warrants, certain issuances under our employee stock plans, or shares issued
upon exercise of the warrants.
The Investors have contractually agreed to restrict their ability to convert the
notes and exercise the warrants and receive shares of our common stock so that
the number of shares of our common stock held by them and their affiliates after
such conversion or exercise does not exceed 4.99% of the then issued and
outstanding shares of our common stock.
Without the prior written consent of a majority-in-interest of the Investors,
subject to certain exceptions as set forth in the agreement, we may not
negotiate or contract with any party to obtain additional equity financing
(including debt financing with an equity component) that involves (A) the
issuance of common stock at a discount to the market price of the common stock
on the date of issuance (taking into account the value of any warrants or
options to acquire common stock issued in connection therewith) or (B) the
issuance of convertible securities that are convertible into an indeterminate
number of shares of common stock or (C) the issuance of warrants during the
lock-up period beginning on July 25, 2006 and ending on the later of (i) two
hundred seventy (270) days from July 25, 2006 and (ii) one hundred eighty (180)
days from the date the registration statement is declared effective. In
addition, subject to certain exceptions as set forth in the agreement, we agreed
that we would not conduct any eq uity financing (including debt with an equity
component) during the period beginning on July 25, 2006 and ending two (2) years
after the end of the above lock-up period unless we have first provided to each
Investor an option to purchase its prorata share (based on the ratio of each
Investor's purchase under the Securities Purchase Agreement) of the securities
being offered in any proposed equity financing. We must provide each Investor
written notice describing any proposed equity financing at least 20 business
days prior to the closing and the option must be extended to each Investor for
15 days following delivery of the notice.
We agreed to file a registration statement for the shares underlying the notes
and the warrants within thirty days of closing, to be declared effective within
120 days of closing. We filed an SB-2 registration statement with the Securities
and Exchange Commission ("SEC") on August 25, 2006 for the securities underlying
the agreement; however, we requested withdrawal of this statement 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
traunch. On June 7, 2006, the Company entered into an agreement with an
accredited investor for sale of 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.
On March 15, 2007, we entered into a Securities Purchase Agreement with New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and AJW Partners, LLC (the "Investors") and agreed to issue and sell (i)
callable secured convertible notes up to $450,000, and (ii) warrants to acquire
an aggregate of 9 million shares of our common stock. The callable secured
convertible notes (4 notes, $450,000 total loan principal; 3 year term; 6%
annual interest, 15% annual "default interest") 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 trading prices for the common
stock during the twenty 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 required filing and (ii) 60% in the event that the
Registration Stat ement becomes effective within ninety days from the required
filing. Under the agreement, the conversion price of the secured convertible
notes will be adjusted in the event we issue securities below the fixed
conversion price and may be adjusted in certain circumstances such as merger,
consolidation or if we pay a stock dividend.
We received the first tranche of $120,000 on March 15, 2007, less issuance costs
of $20,000, the second tranche of $110,000, less issuance costs of $10,000 on
April 16, 2007, and the third tranche of $110,000 was received on May 15, 2007,
less issuance costs of $10,000 and the final tranche of $110,000 was received on
June 12, 2007.
We may prepay the notes in the event that no event of default exists, there are
a sufficient number of shares available for conversion, and the market price is
at or below $0.10 per share. Prepayment of the convertible notes is to be made
in cash equal to either (i) 120% of the outstanding principal and accrued
interest for prepayments occurring with 30 days following the issuance of the
notes, (ii) 130% of the outstanding principal and accrued interest for
prepayment occurring between 31 and 60 days following the issue dates of the
notes; and (iii) 140% of the outstanding principal and accrued interest for
prepayment occurring after the 60th day following the issue date of the notes.
In addition, in the event that the average daily price of the common stock for
each day of the month ending on any determination date is below $0.10, we may
repay a portion of the outstanding principal amount of the notes equal to 101%
of the principal amount divided by thirty-six plus one month's interest and this
will stay al l conversions for the month.
Events of default under the notes generally include failure to repay the
principal or interest when due, failure to issue shares of common stock upon
conversion by the holder, failure to timely file a registration statement or
have such registration statement declared effective, breach of certain covenants
or representation or warranty in the Securities Purchase Agreement or related
convertible note, the assignment or appointment of a receiver to control a
substantial part of our property or business, a money judgment, writ or similar
process entered or filed against us in excess of $50,000 which continues for 20
days unless consented to by the holders, the commencement of a bankruptcy,
insolvency, reorganization or liquidation proceeding against us without stay or
the delisting of our common stock. Upon the occurrence of an event of default,
the note holders may demand repayment in an amount equal to the greater of (i)
the then outstanding principal amount of the convertible notes, together with
unpaid inte rest and any outstanding penalties times 140% or (ii) the "parity
value" of the default sum, where parity value means (a) the highest number of
shares of common stock issuable upon conversion of the default sum, treating the
trading day immediately preceding the prepayment date as the "conversion date"
for the purpose of determining the lowest applicable conversion price (unless
the event of default is a result of a breach in reference to a specific
conversion date), multiplied by (b) the highest closing price for the common
stock during the period beginning on the date of first occurrence of the event
of default and ending one day prior to the prepayment date. In addition, we
granted the Investors a security interest in substantially all of our assets and
intellectual property pursuant to a Security Agreement and an Intellectual
Property Security Agreement.
We issued seven year warrants to purchase 9,000,000 shares of our common stock
at an exercise price of $0.06 per share. The Investors may exercise the warrants
on a cashless basis if the shares of common stock underlying the warrants are
not then registered pursuant to an effective registration statement. In
addition, the exercise price of the warrants will be adjusted in the event we
issue common stock at a price below market, with the exception of any securities
issued as of the date of the warrants, certain issuances under our employee
stock plans, or shares issued upon exercise of the warrants. Under the terms of
the callable secured convertible notes and the related warrants, the callable
secured convertible notes 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
unco nverted shares of callable secured convertible notes or unexercised
portions of the warrants) would not exceed 4.99% of the then outstanding common.
Per the agreement, we must file a registration statement covering two times the
number of shares underlying the notes and the shares underlying the warrants,
within 30 days of written demand. A penalty of .02% of the outstanding principal
amount per month for each month will accrue if the registration is not effective
in ninety days from filing.
Without the prior written consent of a majority-in-interest of the Investors,
subject to certain exceptions as set forth in the agreement, we may not
negotiate or contract with any party to obtain additional equity financing
(including debt financing with an equity component) that involves (i) the
issuance of common stock at a discount to the market price of the common stock
on the date of issuance (taking into account the value of any warrants or
options to acquire common stock issued in connection therewith) or (B) the
issuance of convertible securities that are convertible into an indeterminate
number of shares of common stock or (C) the issuance of warrants during the
lock-up period beginning on March 15, 2007 and ending one hundred eighty (180)
days from March 15, 2007. In addition, subject to certain exceptions as set
forth in the agreement, we agreed that we will not conduct any equity financing
(including debt with an equity component) during the period beginning on March
15, 2007 and ending two (2) years after the end of the above lock-up period
unless we have first provided to each Investor an option to purchase its prorata
share (based on the ratio of each Investor's purchase under the Securities
Purchase Agreement) of the securities being offered in any proposed equity
financing and the option must be extended to each Investor during the 15-day
period following delivery of notice.
Subject to shareholder approval, we are required to have a number of common
shares reserved for issuance equal to no less than two times the number issuable
upon conversion of the notes and the warrants (based on the conversion price of
the notes and the exercise price of the warrants in effect from time to time).
If the amount reserved is below the amount to be reserved for the Investors
under the agreement, we are required to take all corporate action necessary to
authorize and reserve a sufficient number of shares. Under the agreement, if we
fail to obtain the shareholder approval necessary to increase the number of
authorized shares within thirty days following the date which the number of
required reserve shares exceeds the authorized and reserved shares, we may be
noticed of default and required to pay the Investors liquidated damages of three
(3) percent of the outstanding amount of the notes per month plus accrued and
unpaid interest on the notes, prorated for partial months in cash or shares at t
he Investor's option.
On July 30, 2007, the Company issued a callable secured convertible note in the
amount of $110,000. This note was issued under the same terms as the 6% $450,000
Convertible Debt described above (the March 15, 2007 Securities Purchase
Agreement).
The foregoing is a general description of the securities purchase agreements and
related obligations, copies of the July 25, 2006 agreements were filed as
exhibits to our Current Report on Form 8-K, filed with the SEC on August 8, 2006
and copies of the March 15, 2007 agreements were filed as exhibits to our Form
10-KSB, filed with the SEC on August 29, 2007. Under the transaction documents,
we have committed various acts and failed to timely perform other acts that
constitute events of default under the transaction documents. We have received
assurance from counsel for the investors that "You are not in default. We [the
investors] have to put you into default and we have not." There can be no
assurance that the investors will not declare a default in the future. Our
stockholders should be aware that if the investors provide written notice of
default to us, then our liabilities would increase dramatically due to the
penalties, reset provisions, and other damages specified in the transaction
documents. The increase in liabilities attributed to a notice of default under
the transaction documents could exceed our current market capitalization and
affect negatively our financial condition by $7-13 million dollars. The
debentures are collateralized by our assets and, in the event if we are unable
to repay or restructure these debentures, there is no assurance that the holders
of the debentures will not institute legal proceedings to recover the amounts
owed including foreclosure on our assets.
Employment Agreement with Chief Executive Officer, Scott R. Sand - On September
21, 2006, the Company entered into an Employment Agreement with its President
and Chief Executive Officer, Scott R. Sand. The term of the agreement is five
years and calls for an annual salary of $200,000. The Company is also required
to issue Mr. Sand 300,000 shares of its common stock in each year of the
agreement.
54
TRENDS THAT MAY IMPACT OUR LIQUIDITY
POSITIVE TRENDS
The United States has an increasingly elderly population. Our Secure Balance(TM)
and BAFI(TM) product line (except GasAlert(TM) which targets the entire adult
population) are made to meet some of the challenges and circumstances
experienced by our senior citizens. As a result, we expect our sales to increase
in time in reflection of this positive trend.
Management also believes that our products provide increasing protection in
relation to medical malpractice issues. Use of our Secure Balance(TM) system and
OxyAlert(TM) and OxyView products enhance the safety of patients, and therefore,
we believe, lessen the chances of medical malpractice exposure to our physician
clients.
We have been developing our BAFI(TM) product line since 1999. Now, some 8 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 MAY IMPACT OUR MEDICAL MARKET
Traditionally, the medical market experiences an economic decrease in purchasing
during the summer months. Peak months are usually October through February,
followed by a decrease from March to May. This is the common "bell curve" that
has been consistent for several decades and will affect our sales during the
course of a year.
CRITICAL ACCOUNTING POLICIES
Our financial statements and related public financial information are based on
the application of accounting principles generally accepted in the United States
("GAAP"). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenue and expense amounts reported. These estimates can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition. We
believe our use if estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our financial
statements.
55
Our significant accounting policies are summarized in Note 2 of our financial
statements. While all of these significant accounting policies impact our
financial condition and results of operations, we view certain of these policies
as critical. Policies determined to be critical are those policies that have the
most significant impact on our financial statements and require management to
use a greater degree of judgment and estimates. Actual results may differ from
those estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or
estimate methodologies would cause effect on our consolidated results of
operations, financial position or liquidity for the periods presented in this
report.
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).
NEW ACCOUNTING PRONOUNCEMENTS
The possible effect on our financial statements of new accounting pronouncements
that have been issued for future implementation is discussed in the footnotes to
our audited financial statements (see Note 2).
DESCRIPTION OF PROPERTY
We do not own real property. We lease approximately 2000 square feet of office
space in Yucaipa, California at a current rental rate of approximately $1550 per
month under the terms of two lease agreements (each for $775 per month). One
lease expires on April 1, 2008, and the second expires on December 31, 2009. We
also rent, on an oral month-to-month basis, a portion of Scott R. Sand's
personal residence as a second office for Mr. Sand and for storage space. The
rental on this facility is $1400 per month for about 1200 square feet of office
and storage space. These facilities are adequate for our current requirements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 25, 2007, Mr. Sand was issued 8,333,333 shares of restricted Class A
Preferred Shares. This stock was issued in exchange for retirement of $200,000
in debt owed by the Company to Mr. Sand.
As of the end of our fiscal year May 31, 2007, our CEO and Chairman, Scott R.
Sand, was owed a total of $197,698 by the Company. This amount was comprised of
$113,356 due in accrued salary and $84,342 due for expenses paid on behalf of
the Company. There are no written loan agreements, promissory notes or debt
obligations evidencing this debt and the terms of repayment to Mr. Sand. As of
November 30, 2007, Mr. Sand was owed $213,356 in accrued salary and an
additional $100,850 due for expenses paid on behalf of the Company.
During the fiscal year ending May 31, 2007, Mr. Sand received 4,444,444 shares
of Series A Preferred for satisfaction of accrued compensation of $95,311 and
for payment of $4,689 of the loan amount owed to him.
On February 28, 2006 and March 17, 2006, we entered into two investment
contracts with Jeffrey Gleckman, pursuant to which we issued an aggregate of
2,000,000 shares of our restricted common stock to Mr. Gleckman. Mr. Gleckman is
the President of MedOx Corporation, the contractor distributing OxyView(TM).
MedOx was originally known as Tech-Ni-Com, Inc. Our first contract with Mr.
Gleckman's company was in 2000 for distribution of the BAFI(TM) product line.
However, actual sales of OxyView(TM) did not commence until November of 2006.
Mr. Gleckman paid $300,000 consideration in the two transactions for the
above-referenced shares.
56
On September 15, 2005 we entered into a Contracting Agreement with Christopher
Wirth, a member of our Board of Directors, and/or Agriworx, Inc. for design
services for the Pure Produce product line. The agreement was for consulting
services with regard to the establishment and operation of Pure Produce(TM). The
agreement commenced on September 15, 2005 and is for a 2 year period. Upon the
receipt of "initial funding" for a Pure Produce(TM) facility, we will issue
300,000 shares of our restricted common stock and another 500,000 such shares 12
months after the first Pure Produce(TM) facility "has been built and has started
operations." Upon initial funding, we will also pay Mr. Wirth a fee of $3,000
per month to assist in the design and operations of the Pure Produce(TM)
facilities. AgroWorx is also entitled to 2% of the net profits generated by Pure
Produce(TM) operations.
On January 1, 2005, we entered into a contracting agreement with Bob Sand to
market Secure Balance to physicians within the United States and abroad. Bob
Sand is Scott R. Sand's father. In consideration for Bob Sand's efforts, we
agreed to issued 100,000 restricted shares of our common stock and pay
commissions of two thousand dollars ($ 2,000) for each VNG system sold, and one
thousand dollars ($1,000) for each therapy system sold. VNG Testing is defined
as Video NystaGmography Test: Under the guidelines set forth by the American
Medical Association, Vestibular Function Testing can be performed by either a
means of a diagnostic procedure provided by a VNG or ENG test platform. ENG
(Electrode NystaGmography) was replaced by VNG in the past 5 years. It is the
means in which eye movement can be recorded with use of digital cameras and
infrared diodes. The licensed physician is trained to position the patient and
create a stimulus/target in order to measure nystagmus, velocity, phase and gain
in relationship to the responses from the central nervous system and peripheral
system.
The company's product, Secure Balance, includes a VNG Diagnostic testing system
and other technology to perform the above vestibular function test and balance
therapy.
On October 15, 2004, we entered into a Financial Procurement Development
Agreement with Mr Khoo in which certain fees are to be paid if financing is
secured by Mr. Khoo. The agreement with Mr. Khoo is a non-exclusive, best
efforts, finder's agreement in which Mr. Khoo is to be paid a fee if he
introduces financing prospects to us resulting in the procurement of financing
by us. Mr. Khoo is to be paid 5% of any such financing in shares of our
restricted common stock.
57
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock is currently traded on the Pink Sheets under the symbol "IGTG."
The following table sets forth the range of high and low bid quotations for each
quarter within the last two fiscal years. These quotations as reported by the
Pink Sheets reflect inter-dealer prices without retail mark-up, mark-down, or
commissions and may not necessarily represent actual transactions.
CLOSING BID
YEAR QUARTER HIGH LOW
- --------------------------------------------------------------------------------
2005 First (period ended August 31, 2005) 1.64 .104
2005 Second (period ending November 30, 2005) 2.20 .136
2005 Third (period ending on February 28, 2006) (1) .27 .06
2005 Fourth (period ending May 31, 2006) (1) .44 .065
2006 First (period ending August 31, 2006) .13 .05
2006 Second (period ending November 30, 2006) .07 .03
2006 Third (period ending February 28, 2007) .07 .04
2006 Fourth (period ending May 31, 2007) .06 .03
2007 First (period ending August 31, 2007) .10 .03
2007 Second (period ending November 30. 2007) .07 .03
(1) During the quarter ended February 28, 2006, we undertook a 1-for-40 reverse
split of our common stock. The high and low closing bids reflected in the table
for this period reflect the post-split high and low closing bid prices. The
effective date of the reverse split was December 8, 2005. For the 7 days prior
to the effective date, the high and low closing bid prices were $.0045 and
$.0027 respectively. On the effective date, the high and low closing bid prices
were $.12 and $.06 respectively.
HOLDERS
As of February 11, 2008 in accordance with our transfer agent records, we had
601 shareholders of record. Such shareholders of record held 57,933,474 shares
of our common stock and 24,275,960 shares of our preferred stock.
DIVIDENDS
Historically, we have not paid dividends to the holders of our common stock and
we do not expect to pay any such dividends in the foreseeable future as we
expect to retain our future earnings for use in the operation and expansion of
our business.
58
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following summary compensation table sets forth all compensation paid by us
during the fiscal years ended May 31, 2007, 2006 and 2005 in all capacities for
the accounts of the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO).
SUMMARY COMPENSATION TABLE (1)
ANNUAL LONG-TERM ALL OTHER
COMPENSATION COMPENSATION COMPENSATION
- --------------------------------------------------------------------------------
RESTRICTED
NAME YEAR (5) SALARY STOCK AWARDS ($)
- --------------------------------------------------------------------------------
2007 $116,667(2) $17,301(5) -
Scott R. Sand 2006 $60,000 -0-
Chairman; CEO 2005 $60,000 -0- -
Thomas J. Neavitt 2007 -0- - $3,000(3)
CFO; 2006 -0- - $2,000 (3)
Secretary 2005 -0- - -
(1) The columns for "Bonus", "Other Annual Compensation," "Securities
under-lying options/SARs," and "LTIP Payouts" have been omitted because there is
no compensation required to be reported.
(2) As of the September 21, 2006 Employment Agreement Mr. Sand is entitled to
receive $200,000 in salary each year. Mr. Sand has deferred payment of such
salary until we are in a position to pay such salary based on cash generated
from operations. During the year ended May 31, 2006, we issued 5,454,546 shares
of Series A preferred for satisfaction of his accrued compensation of $400,000.
As of November 30, 2007 we owe Mr. Sand $213,356 in accrued salary and an
additional $100,850 due for expenses paid on behalf of the Company.
(3) Mr. Neavitt does not receive a annual compensation. Rather, he is paid a fee
per each document he reviews as CFO or Secretary.
(4) 2007 refers to our fiscal year ended May 31, 2007, 2006 refers to our fiscal
year ended May 31, 2006, and 2005 refers to our fiscal year ended May 31, 2005.
(5) Mr. Sand was issued 300,000 shares of restricted common stock valued at
$9,000 for director's services. Mr. Sand was issued 300,000 shares of restricted
common stock in September 2006 under the terms of his employment agreement. This
stock was valued at $0.04 per share (a total of $12,000). The value of this
issuance is being amortized over a one-year period. The Company has expensed
$8,301 of this $12,000 as of May 31, 2007.
59
OPTION GRANTS TABLE. We issued options to purchase 1,000,000 shares of Series A
Preferred Stock to Peter Wilke, our general counsel. The option price is $0.04
and the term is five years.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE. There were
no stock options exercised during fiscal year ending May 31, 2007, by the
executive officer named in the Summary Compensation Table.
LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE. There were no awards made to a
named executive officer in the last completed fiscal year under any LTIP
COMPENSATION OF DIRECTORS
Our Directors are paid $500 for each Directors meeting that is actually held (as
opposed to actions taken by our Board of Directors by Resolution and Waiver of
Notice and Consent to Action Taken at a special Board of Directors' meeting).
EMPLOYMENT AGREEMENTS
Employment Agreement with Chief Executive Officer, Scott R. Sand - On September
21, 2006, the Company entered into an Employment Agreement with its President
and Chief Executive Officer, Scott R. Sand. The term of the agreement is five
years and calls for an annual salary of $200,000. The Company is also required
to issue Mr. Sand 300,000 shares of its common stock in each year of the
agreement.
FINANCIAL STATEMENTS
The Financial Statements begin on page F-1 of this prospectus.
60
CHANGES AND DISAGREEMENTS WITH ACCOUNTANT
ON ACCOUNTING AND FINANCIAL DISCLOSURE
As previously reported on Form 8-K dated February 19, 2007, as amended, the
Company had a change in its certifying accountant. In a letter dated February
19, 2007, our Chief Executive Officer was notified by Spector & Wong, LLP, the
auditors for the last three years, to take steps to find another qualified
member of the PCAOB to review our interim filings, commencing with November 30,
2006. On February 20, 2007, we entered into an agreement with Child, Van Wagoner
& Bradshaw, PLLC, ("CVWB"), a qualified member of the PCAOB, to review our
interim filings, commencing with November 30, 2006 and to audit our financial
statements for the year ending May 31, 2007. Our Board of Directors approved the
change in auditors during a board meeting on February 24, 2007.
A letter from Spector & Wong, LLP, dated February 26, 2007, addressing the
revised disclosures in the filing was filed as an Exhibit to the Form 8-K, as
amended on February 28, 2007. Spector & Wong, LLP's report on the company's
financial statements for the fiscal years ended May 31, 2006 and 2005
respectively, and the company's interim financial statements for the quarter
ended August 31, 2006 included a disclosure of uncertainty regarding the
company's ability to continue as a going concern and did not include any adverse
opinion or qualification as to audit scope or accounting principles. The content
of the going concern qualification reads as follows:
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and liabilities and
commitments in the normal course of business. In the near term, the Company
expects operating costs to continue to exceed funds generated from operations.
As a result, the Company expects to continue to incur operating losses and may
not have sufficient funds to grow its business in the future. The Company can
give no assurance that it will achieve profitability or be capable of sustaining
profitable operations. As a result, operations in the near future are expected
to continue to use working capital.
To successfully grow the individual segments of the business, the Company must
decrease its cash burn rate, improve its cash position and the revenue base of
each segment, and succeed in its ability to raise additional capital through a
combination of primarily public or private equity offering or strategic
alliances. The Company also depends on certain contractors, and its sole
employee, the CEO, and the loss of any of those contractors or the employee, may
harm the Company's business.
There were no disagreements with the former accountants on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which would have caused the former accountants to make
reference to the subject matter of the disagreement in connection with its
report. The departing accountants advised our board of directors and audit
committee that they may want to devote additional attention to the company's
accounting functions, controls, and procedures. In assisting with the transfer
of responsibilities to CVWB, Spector & Wong, LLP advised CVWB that Spector &
Wong, LLP was overloaded and could not meet the company's deadlines for review
of the company's interim financial statements.
61
AVAILABLE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act of
1933 with the Securities and Exchange Commission with respect to the shares of
our common stock offered through this prospectus. This prospectus is filed as a
part of that registration statement and does not contain all of the information
contained in the registration statement and exhibits. We refer you to our
registration statement and each exhibit attached to it for a more complete
description of matters involving us. You may inspect the registration statement
and exhibits and schedules filed with the Securities and Exchange Commission at
the Commission's principal office in Washington, D.C. Copies of all or any part
of the registration statement may be obtained from the Public Reference Section
of the Securities and Exchange Commission, 100 F Street NE, Washington, D.C.
20549. Please call the Commission at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. The Securities and Exchange
Commission also maintains a web site at http://www.sec.gov that contains
reports, proxy statements and information regarding registrants that file
electronically with the Commission. In addition, we will file electronic
versions of our annual and quarterly reports on the Commission's Electronic Data
Gathering Analysis and Retrieval, or EDGAR System. Our registration statement
and the referenced exhibits can also be found on this site as well as our
quarterly and annual reports. We will not send the annual report to our
shareholders unless requested by the individual shareholders.
62
PROSPECTUS
INGEN TECHNOLOGIES, INC.
12,649,662 SHARES OF OUR COMMON STOCK ISSUABLE IN CONNECTION
WITH THE CONVERSION OF PROMISSORY NOTES
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER
TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
UNTIL _____________, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES
WHETHER OR NOT PARTICIPATING IN THIS OFFERING MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Georgia law permits a corporation, under specified circumstances, to indemnify
its directors, officers, employees or agents against expenses (including
attorney's fees), judgments, fines and amounts paid in settlements actually and
reasonably incurred by them in connection with any action, suit or proceeding
brought by third parties by reason of the fact that they were or are directors,
officers, employees or agents of the corporation, if these directors, officers,
employees or agents acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceedings, had no reason to believe their
conduct was unlawful. In a derivative action, i.e., one by or in the right of
the corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agent in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnify for such expenses despite such
adjudication of liability.
Our Articles of Incorporation provide that, none of our directors shall be
liable to us or our stockholders for damages for breach of fiduciary duty,
unless such breach involves a breach of duty of loyalty, acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law or involve unlawful payment of dividends or unlawful stock purchases or
redemptions, or involves a transaction from which the director derived an
improper personal benefit.
In addition, our by-laws provide that we shall indemnify our officers, directors
and agents to the fullest extent permissible under Georgia law, and in
conjunction therewith, to procure, at our expense, policies of insurance. In
addition, our by-laws provide that our directors shall have no liability for
monetary damages to the fullest extent permitted under Georgia law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers, and controlling persons
pursuant to the foregoing provisions or otherwise, we have been advised that in
the opinion of the Securities Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by us of expenses incurred or paid by
our director, officer, or controlling person in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered hereunder,
we will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission
registration fee $ 16.31
Transfer Agent Fees (1) 1,000.00
Accounting fees and expenses (1) 10,000.00
Legal fees and expenses (1) 50,000.00
-------------
Total(1) $ 61,016.31
(1) Estimated
All amounts are estimates other than the Commission's registration fee. We are
paying all expenses of the offering listed above. No portion of these expenses
will be borne by the selling shareholders. The selling shareholders, however,
will pay any other expenses incurred in selling their common stock, including
any brokerage commissions or costs of sale.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On October 12, 2004, we issued 240,000 shares of our restricted common stock to
2 investors. Our shares 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 shares. 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. The purchasers were sophisticated 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 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 purchasers had the necessary investment intent as required by
Section 4(2) as 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 transaction.
On October 31, 2004, we issued 500,000 shares of our restricted common stock to
one investor. Our shares 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 shares. 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. The purchaser was a sophisticated 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 purchaser had the necessary investment intent as required by
Section 4(2) as he 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 transaction.
II-2
On November 1, 2004, we issued 500,000 shares of our restricted common stock to
one investor. Our shares 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 shares. 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. The purchaser was a sophisticated 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 purchaser had the necessary investment intent as required by
Section 4(2) as he 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 transaction.
We sold $1,090,925 of restricted shares from December of 2004 to November 30,
2005 in private transactions to accredited investors under Section 4(2) and/or
Section 4(6) of the Securities Act of 1933.
On February 13, 2006, we sold 1,666,666 of our restricted common shares to two
accredited shareholders (each shareholder purchased 833,333 shares at $0.12 per
share). These sales were pursuant to Rule 506 of Regulation D of the SEC. The
total purchase of these shares is $200,000.
We sold 1,000,000 of our restricted common shares to an accredited investor for
$150,000 on February 28, 2006 and another 1,000,000 of our restricted common
shares to the same individual for $120,000 on March 17, 2006. These sales was
pursuant to California Corporations Code section 25102(f).
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 this financing, we have also issued 20,000,000 warrants
convertible into shares of our common stock. Each Warrant entitles the 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-3
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 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.
On March 15, 2007, we entered into a Securities Purchase Agreement with New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and AJW Partners, LLC (the "Investors") and agreed to issue and sell (i)
callable secured convertible notes up to $450,000, and (ii) warrants to acquire
an aggregate of 9 million shares of our common stock. The callable secured
convertible notes (4 notes, $450,000 total loan principal; 3 year term; 6%
annual interest, 15% annual "default interest") 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 trading prices for the common
stock during the twenty 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 required filing and (ii) 60% in the event that the
Registration Statement becomes effective within ninety days from the required
filing.
II-4
We received the first tranche of $120,000 on March 15, 2007, less issuance costs
of $20,000, the second tranche of $110,000, less issuance costs of $10,000 on
April 16, 2007, and the third tranche of $110,000 was received on May 15, 2007,
less issuance costs of $10,000. The final tranche of $110,000 was received in
June 2007, after the close of the fiscal year ended May 31, 2007.
We may prepay the notes in the event that no event of default exists, there are
a sufficient number of shares available for conversion, and the market price is
at or below $0.10 per share. Prepayment of the convertible notes is to be made
in cash equal to either (i) 120% of the outstanding principal and accrued
interest for prepayments occurring with 30 days following the issuance of the
notes, (ii) 130% of the outstanding principal and accrued interest for
prepayment occurring between 31 and 60 days following the issue dates of the
notes; and (iii) 140% of the outstanding principal and accrued interest for
prepayment occurring after the 60th day following the issue date of the notes.
In addition, in the event that the average daily price of the common stock for
each day of the month ending on any determination date is below $0.10, we may
repay a portion of the outstanding principal amount of the notes equal to 101%
of the principal amount divided by thirty-six plus one month's interest and this
will stay all conversions for the month.
On July 30, 2007, the Company issued a callable secured convertible note in the
amount of $110,000. This note was issued under the same terms as the 6% $450,000
Convertible Debt described above (the March 15, 2007 Securities Purchase
Agreement).
On June 7, 2006, we entered into an agreement with an accredited investor for
sale of a convertible debenture. We 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, which
is 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.
In December 2006, the Company's CEO, Scott Sand, converted 2 million of
his Series A preferred shares into 2 million shares of restricted
common stock. The conversion was valued at $146,667. This value was
based on the value of $0.0733 per share, which was the price that Mr.
Sand received his last issuance of Series A preferred stock in May 2006.
In February 2007, the Company issued 500,000 shares of restricted common
stock to one individual under the terms of an agreement to assist the
Company in selling its Secure Balance (TM) units. The Company valued
this stock at a price of $0.06 per share, or $30,000.
In February 2007, the Company issued 750,000 shares of its restricted
common stock to one individual in consideration for the individual
canceling options to purchase 2.3 million shares of common stock at
prices from $0.027-0.25 per share. The Company valued the stock
issuance at price of $0.07 per share, the value on the date of
issuance. The total valuation of these shares was $52,500.
In March 2007, the Company issued a total of 40,000 shares of its restricted
common stock to three individuals and entities. The stock was issued for
commissions on SecureBalance(TM) sales. We valued this stock at $0.05 per share,
which was the closing price of the common stock on the date of issuance.
In April 2007, the Company issued 10,000 shares of its restricted common stock
to one entity. The stock was issued for commissions on SecureBalance(TM) sales.
We valued this stock at $0.04 per share, which was the closing price of the
common stock on the date of issuance.
In May 2007, we issued 500,000 shares of our restricted common stock to Physical
Rehabilitation Management Services, Inc. ("PRMS") as consideration for a
distribution agreement entered into between PRMS and the Company. We valued this
stock at $0.015 per share, which was the closing price of the common stock on
the date of issuance.
In May 2007, we issued 900,000 shares of our restricted common stock to
our directors in lieu of director's fees. Each director received 100,000 shares
of common stock, with the exception of Scott Sand who received 300,000 shares.
This stock was valued at $0.03 per share, which was the closing price of the
common stock on the date of issuance.
On May 23, 2007, the Company's CEO, Scott Sand converted $100,000 in debt
(comprised of $4,689 in unreimbursed expenses paid on behalf of the Company
and $95,311 in accrued salary) into 4,444,444 shares of the Company's Series
A Preferred Stock. The stock was valued at $0.0225 per share, which was 75%
of the trading price of the Company's common stock at the time of the issuance.
In June 2007, five individuals and entities purchased a total of 3,200,000
shares of restricted common stock for total consideration of $44,000. The prices
ranged from $0.01-0.02 per share.
In July 2007, we issued 500,000 shares of restricted common stock to Robert
Sand, the father of our CEO and Chairman. These shares were issued under the
terms of our agreement with GV Engineering and Design dated January 1, 2007. We
valued this stock at a price of $0.10 per share, or $50,000.
In July 2007, we issued 200,000 shares of restricted common stock to Christopher
Wirth, one of our Directors. These shares were issued under the terms of our
agreement with Mr. Wirth dated June 1, 2007. We valued this stock at a price of
$0.10 per share, or $20,000.
In July 2007, we issued 100,000 shares of restricted common stock to one
individual for services rendered. We valued this stock at a price of $0.10 per
share, or $10,000.
In July 2007, we sold 500,000 shares of restricted common stock for total
consideration of $10,000 under an agreement dated June 15, 2007. These shares
were sold at a price of $0.02 per share.
In August 2007, two preferred shareholders converted a total of 500,000
shares of Series A preferred stock into 500,000 shares of common stock. This
conversion was valued at $0.03 per share, or a total of $15,000, based on the
original valuation of the preferred shares.
In August 2007, three individuals purchased a total of 3,415,000 shares of
restricted common stock for total consideration of $65,800 under agreements
dated June 15, 2007. The prices ranged from $0.015-0.02 per share.
In September 2007, we issued 210,000 shares of restricted common stock to two
individuals for services rendered. We valued this stock at a price of $0.06 per
share, or $12,600.
II-5
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.
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 27. EXHIBITS
EXHIBIT NO. DESCRIPTION
- --------------------------------------------------------------------------------
2.1 Plan And Agreement of Merger Relating to the Merger of Ingen
Technologies, Inc. into Creative Recycling, Inc., dated March
15, 2004. (incorporated by reference to registrant's Form
10-KSB/A filed March 24, 2006)
3.1 Amended and Restated Articles of Incorporation of Ingen
Technologies, Inc., as filed with the Georgia Secretary of State
on or about March 15, 2005. (incorporated by reference to
registrant's Form 10-KSB filed November 7, 2005)
3.2 Resolution 2005.6 of the Ingen Board of Directors (signed by the
preferred shareholders as well) modifying the Amended and
Restated Articles of Incorporation with respect to the
classifications and rights of our preferred shares.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005)
3.3 Bylaws of Ingen Technologies, Inc. (incorporated by reference to
registrant's Form 10-KSB filed November 7, 2005)
3.4 Minutes of Special Shareholder meeting of March 15, 2005
amending our Bylaws by changing the date of the annual
shareholders meeting from May 15 to March 15. (incorporated by
reference to registrant's Form 10-KSB filed November 7, 2005)
3.5 Amended and Restated Articles of Incorporation of Ingen
Technologies, Inc., as filed with the Georgia Secretary of State
on or about December 28, 2005 (incorporated by reference to
registrant's Form 8-K filed January 10, 2006)
4.1 Specimen of Ingen Technologies, Inc. common stock certificate.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005)
II-6
4.2 Resolution 2006.1 of the Ingen Technologies, Inc. Board of
Directors, dated January 5, 2006 (incorporated by reference to
registrant's Form 8-K filed January 10, 2006)
4.3 Securities Purchase Agreement dated July 25, 2006 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 registrant's Form
8-K filed August 8, 2006)
4.4 Form of Callable Convertible Secured Note by and among the 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 registrant's Form
8-K filed August 8, 2006)
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 registrant'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 registrant'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 registrant'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 registrant's Form
8-K filed August 8, 2006)
4.9 Amendment to Securities Purchase Agreement dated November 21,
2006 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
4.10 Amendment to Registration Rights Agreement dated November 21,
2006 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
5.1 Opinion of legality and consent of Anslow & Jaclin, LLP, dated
October 30, 2007. *
10.1 Commercial Lease Agreement between Ingen Technologies, Inc,
Scott Sand and Abolfazl Ghias dated March 11, 2005.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005)
10.2 Contracting Agreement between Chris Wirth and/or Agroworx, Inc.
and Ingen Technologies, Inc. dated September 15, 2005 for design
services for Pure Produce program.
II-7
10.3 Contracting Agreement between Bob Sand and Ingen Technologies,
Inc. dated January 1, 2005 for Mr. Sand to market Secure Balance
to physicians within the United States and abroad. Bob Sand is
Scott R. Sand's father. (incorporated by reference to
registrant's Form 10- KSB filed November 7, 2005)
10.4 Contracting Agreement between David Winter and Ingen
Technologies, Inc. dated October 1, 2005 for Mr. Winter to
market Secure Balance to physicians in the United States and
abroad. (incorporated by reference to registrant's Form 10-KSB
filed November 7, 2005)
10.5 Contracting Agreement between Donna Eskwitt and Ingen
Technologies, Inc. dated November 4, 2004 for Ms. Eskwitt to
advise the company on Secure Balance. (incorporated by reference
to registrant's Form 10- KSB filed November 7, 2005)
10.6 Intentionally Omitted.
10.7 Contracting Agreement between Gary Hydrabadi, d/b/a Cardio-Med
Systems, Inc. and Ingen Technologies, Inc. dated March 22, 2005
to market Secure Balance to physicians within the United States
and abroad. (incorporated by reference to registrant's Form
10-KSB filed November 7, 2005)
10.8 Contracting Agreement between Joe Lawn and Ingen Technologies,
Inc. dated October 1, 2004 in for Mr. Lawn to market Secure
Balance to physicians within the United States and abroad.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005)
10.9 Consulting Agreement between Medicore and Ingen Technologies,
Inc. dated September 1, 2004 in which Medicore will market
Secure Balance to physicians in the United States and abroad.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005)
10.10 Consulting Agreement between Preferred Provider Care, Inc. and
Ingen Technologies, Inc. dated August 1, 2004 in which PPC is to
provide physician training. (incorporated by reference to
registrant's Form 10-KSB filed November 7, 2005)
10.11 Contracting Agreement between Randolph McKenzie and Ingen
Technologies, Inc. dated February 10, 2005 for Mr. McKenzie to
provide professional interpretations to physicians within the
United States who purchased or leased Secure Balance.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005)
10.12 Contracting Agreement between Rick Griffin and Ingen
Technologies, Inc. dated May 1, 2005 for Mr. Griffin to provide
installation and services of Secure Balance. (incorporated by
reference to registrant's Form 10-KSB filed November 7, 2005)
10.13 Contracting Agreement between Steve O'Hara, M.D. and Ingen
Technologies, Inc. dated May 1, 2005 to engage Dr. O'Hara to
become a member of the company's Medical Advisory Board.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005)
II-8
10.14 Contracting Agreement between Bryant Goldman and Ingen
Technologies, Inc. dated December 9, 2004 for Mr. Goldman to
provide medical billing and other professional services in
relation to Secure Balance. (incorporated by reference to
registrant's Form 10-KSB filed November 7, 2005)
10.15 Consulting Agreement between Vertex Diagnostics, Inc. and Ingen
Technologies, Inc. dated September 1, 2004 in which Vertex will
market Secure Balance to physicians within the United States.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005)
10.16 Consulting and Marketing Agreement between Xcel Associates, Inc.
and Ingen Technologies, Inc. dated February 2, 2005 in which
Xcel agrees to assist Ingen in creating market awareness in the
financial community and assist in product marketing.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005)
10.17 Stock Purchase Agreement between Yong Sin Khoo (a Director of
the company) and Ingen Technologies, Inc. dated October 15, 2004
for the purchase of 5,000,000 common shares. (incorporated by
reference to registrant's Form 10-KSB filed November 7, 2005)
10.18 Financial Procurement Development Agreement between Yong Sin
Khoo and Ingen Technologies, Inc. dated October 15, 2004 in
which certain fees are to be paid if financing is secured.
10.19 Agreement between Mr. Francis McDermott and Ingen Technologies,
Inc. dated July 11, 2005 for the purchase and sale of all rights
to United States Patents No. 6,137,417 and 6,326,896 B1.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005); Assignment of Patents from Francis McDermott;
Licensing Agreement between Francis & Bettie McDermott and Ingen
Technologies, Inc. dated June 24, 1999
10.20 Template for Regulation D Rule 504/MAIE common stock sales
during the first quarter of our fiscal year 2006. We are also
claiming exemptions under Sections 4(2) and 4(6) of the
Securities Act of 1933 (incorporated by reference to
registrant's Form 10-QSB filed January 17, 2006)
10.21 Agreement between Ingen Technologies Inc. and Siegel Performance
Systems, Inc. dated November 15, 2005 for distribution of Secure
Balance
10.22 Agreement between Ingen Technologies, Inc. and Siegal
Performance Systems, Inc. dated November 15, 2005 for
distribution of Secure Balance(TM). (incorporated by reference
to registrant's Form 10-QSB filed January 17, 2006)
10.23 Prospective Director's Agreement between Ingen Technologies,
Inc. and Stephen O'Hara, MD, dated September 21, 2005.
(incorporated by reference to registrant's Form 8-K filed
November 10, 2005)
10.24 Template for investment contract for our restricted common stock
in offers and sales to Edward Meyer, Jr. and Salvatore Amato,
dated February 13, 2006.*
II-9
10.25 Investment contract dated February 28, 2006 in which Jeffrey
Gleckman purchased 1,000,000 restricted common shares.*
10.26 Investment contract dated March 17, 2006 in which Jeffrey
Gleckman purchased 1,000,000 restricted common shares.*
10.27 Distribution Agreement (for Secure Balance(TM)) dated February
16, 2006 between Ingen Technologies, Inc. and Secure Health,
Inc.*
10.28 Agreement for Consulting Services between Ingen Technologies,
Inc. and Anita H. Beck, d/b/a Global Regulatory Services
Associates, dated February 27, 2006.*
10.29 Advertising Service Agreement between Ingen Technologies, Inc.
and Media Mix Advertising, Inc. dated March 1, 2006.*
10.30 Distribution agreement (for Secure Balance(TM)) between Ingen
Technologies, Inc. and Michael Koch, DC, dated March 10, 2006.*
10.31 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.*
23.1 Consent of Child, Van Wagoner & Bradshaw, PLLC.
23.2 Consent of Spector & Wong, LLP
99.1 United States Patent Number 6,137,417, issued October 24, 2000.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005)
99.2 United States Patent Number 6,326,896, issued December 4, 2001.
(incorporated by reference to registrant's Form 10-KSB filed
November 7, 2005)
99.3 Ingen Technologies Non-Disclosure and Confidentiality Agreement
- template. (incorporated by reference to registrant's Form
10-KSB filed November 7, 2005)
* Filed herewith
II-10
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(A) RULE 415 OFFERING:
UNDERTAKING PURSUANT TO ITEM 512(A) OF REGULATION S-B
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement, or most
recent post-effective amendment, which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement; and notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this registration
statement or any material change to such information in the
registration statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered hereby which remain unsold at the
termination of the offering.
4. For determining liability of the undersigned small business issuer under
the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned small business issuer undertakes that in a
primary offering of securities of the undersigned small business issuer
pursuant to this registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the following
communications, the undersigned small business issuer will be a seller
to the purchaser and will be considered to offer or sell such securities
to such purchaser:
II-11
(a) Any preliminary prospectus or prospectus of the undersigned
small business issuer relating to the offering required to be
filed pursuant to Rule 424 (Sec. 230. 424);
(b) Any free writing prospectus relating to the offering prepared by
or on behalf of the undersigned small business issuer or used or
referred to by the undersigned small business issuer;
(c) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
small business issuer or its securities provided by or on behalf
of the undersigned small business issuer; and
(d) Any other communication that is an offer in the offering made by
the undersigned small business issuer to the purchaser.
(B) REQUEST FOR ACCELERATION OF EFFECTIVE DATE: UNDERTAKING PURSUANT TO ITEM
512(E) OF REGULATION S-B
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons pursuant to the
provisions above, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities, other than the
payment by us of expenses incurred or paid by one of our directors, officers, or
controlling persons in the successful defense of any action, suit or proceeding,
is asserted by one of our directors, officers, or controlling persons in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification is
against public policy as expressed in the Securities Act, and we will be
governed by the final adjudication of such issue.
(C) FOR PURPOSES OF DETERMINING LIABILITY UNDER THE SECURITIES ACT:
UNDERTAKING PURSUANT TO ITEM 512(G) OF REGULATION S-B
The undersigned registrant hereby undertakes that, for the purpose of
determining liability under the Securities Act to any purchaser:
Each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements
relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that
was part of the registration statement or made in any such document
immediately prior to such date of first use.
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Yucaipa, California on this the 29th day of February, 2008..
INGEN TECHNOLOGIES, INC.
By: /s/ Scott R. Sand
----------------------
Scott R. Sand
Chief Executive Officer and Chairman
By: /s/ Thomas J. Neavitt
----------------------
Thomas J. Neavitt
Secretary, Chief Financial Officer
and Controller
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
POWER OF ATTORNEY
The undersigned directors and officers of Ingen Technologies, Inc. hereby
constitute and appoint Scott R. Sand and Thomas J. Neavitt, with full power to
act without the other and with full power of substitution and resubstitution,
our true and lawful attorneys-in-fact with full power to execute in our name and
behalf in the capacities indicated below any and all amendments (including
post-effective amendments and amendments thereto) to this registration statement
under the Securities Act of 1933 and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission and hereby ratify and confirm each and every act and thing that such
attorneys- in-fact, or any them, or their substitutes, shall lawfully do or
cause to be done by virtue thereof. Pursuant to the requirements of the
Securities Act of 1933, this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- -------------------------- ---------------------------- ----------------
Chairman;
Chief Executive Officer; and
/s/ Scott R. Sand Director February 29, 2008
- -------------------------
Scott R. Sand
Secretary;
/s/ Thomas J. Neavitt Chief Financial Officer February 29, 2008
- ------------------------- and Controller
Thomas J. Neavitt
/s/ Christopher A. Wirth Director February 29, 2008
- -------------------------
Christopher A. Wirth
/s/ Yong Sin Khoo Director February 29, 2008
- -------------------------
Yong Sin Khoo
/s/ Curt A. Miedema Director February 29, 2008
- -------------------------
Curt A. Miedema
/s/ Stephen O'Hara Director February 29, 2008
Stephen O'Hara
/s/ John Finazzo Director February 29, 2008
- -------------------------
John Finazzo
/s/ Brad Klearman Director February 29, 2008
- ------------------------
Brad Klearman
II-13
INGEN TECHNOLOGIES, INC.
AUDIT REPORT
FOR THE YEARS ENDED
MAY 31, 2007
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and stockholders
of Ingen Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Ingen
Technologies, Inc. and subsidiary, as of May 31, 2007, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ingen Technologies,
Inc. and subsidiary as of May 31, 2007, and the results of its operations,
stockholders' deficit and its cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements referred to above have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 3 to the consolidated financial statements, the Company's
operating losses and working capital deficiency raise substantial doubt about
its ability to continue as a going concern. Management's plans regarding those
matters are also described in Note 3. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Child, Van Wagoner & Bradshaw, PLLC
Certified Public Accountants
Salt Lake City, Utah
August 23, 2007
F-1
<Page>
Ingen Technologies, Inc.
Consolidated Balance Sheet
May 31, 2007
As of May 31,
2007
---------------
ASSETS
Current assets
Cash $ 238
Inventory 85,594
Prepaid expenses 33,633
---------------
Total current assets 119,465
Property and equipment, net of accumulated
depreciation of $119,775 287,841
Other assets
Debt issue costs, net of accumulated
amortization of $86,663 261,537
Patents 67,345
Deposits 1,550
---------------
Total other assets 330,432
TOTAL ASSETS $ 737,738
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 84,517
Accrued expenses 196,620
Officer's loan 84,342
Current portion of long-term debt 14,539
---------------
Total current liabilities 380,018
---------------
Long-term Liabilities
Loan payable 100,452
Convertible notes payable, net of unamortized
discount of $1,483,176 431,824
Derivative liability 4,797,253
---------------
Total long-term liabilities 5,329,529
---------------
Stockholders' deficit
Preferred stock Series A, no par value, 40,000,000
authorized; and 16,578,991 issued and oustanding
as of May 31, 2007 688,313
Common stock, no par value, authorized 100,000,000
shares; issued and outstanding 35,247,110 3,883,549
Series A preferred stock subscription (220,000)
Accumulated deficit (9,323,671)
---------------
Total stockholders deficit (4,971,809)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 737,738
===============
F-2
<Page>
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 2007
-------------
Sales $ 720,678
Cost of sales 452,100
-------------
GROSS PROFIT 268,578
Selling, general and administrative
expenses 1,882,221
-------------
OPERATING LOSS (1,613,643)
-------------
Other (expenses):
Interest Expenses (5,028,485)
Change in Derivative Liabilities 1,583,636
-------------
NET LOSS BEFORE TAXES (5,058,492)
Provision for income taxes 2,990
-------------
NET LOSS $ (5,061,482)
=============
Basic and diluted net loss per share $ (0.17)
=============
Weighted average number of common shares 30,426,618
F-3
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
SERIES A PREFERRED SERIES A
CONVERTIBLE PREF STOCK
STOCK COMMON STOCK SUBSCRIPTION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT RECEIVABLE DEFICIT TOTAL
---------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT MAY 31, 2006 14,134,547 $ 734,980 29,647,110 $ 3,615,029 $ (220,000) $(4,262,189) $ (132,180)
Conversion of Series A Preferred
stock into common stock (2,000,000) 2,000,000 146,667 --
Issuance of Series A Preferred stock
For accrued compensation 4,444,444 100,000 100,000
Issuance of common stock for services 2,600,000 56,400 56,400
Issuance of common stock for patent 1,000,000 60,000 60,000
Adjustment to common stock subscription
purchase price entered into in year
ended May 31, 2006 (52,000) (52,000)
Value of options issued for legal fees 57,453 57,453
Net loss for year ended May 31, 2007 -- -- -- -- -- (5,061,482) (5,061,482)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 2007 16,578,991 $ 688,313 35,247,110 $ 3,883,549 $ (220,000) $(9,323,671) $(4,971,809)
========== =========== =========== =========== =========== =========== ===========
F-4
<Page>
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended
May 31, 2007
----------
Cash flows from Operating Activities:
Net income (net loss) (5,061,482)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 21,368
Amortization of debt issue costs 86,663
Expenses paid with stock 216,400
Value of options issued for services 57,453
Change in derivative liabilities (1,583,636)
Noncash interest expense and financing costs 4,921,588
Chages in operating assets and liabilities:
(Increase) decrease in prepaid expenses (33,633)
(Increase) decrease in deposits (1,550)
(Decrease) increase in accounts payable 36,330
(Decrease) increase in accrued expenses 16,827
----------
NET CASH USED IN OPERATING ACTIVITIES (1,323,672)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of intangible assets (67,345)
Additions to inventory (85,594)
Acquisition of property and equipment (277,570)
----------
NET CASH PROVIDED BY INVESTING ACTIVITIES (430,509)
CASH FLOWS FROM FINANCING ACTIVITIES:
Refund of common stock purchase (52,000)
Proceeds from loan 116,096
Payments on loan (1,105)
Proceeds from notes payable 1,566,800
Proceeds from shareholder and officer loans 26,416
Repayments of shareholder and officer loans (12,900)
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,643,307
----------
Net increase (decrease) in cash (110,874)
Cash, at beginning of period 111,112
----------
Cash, at end of period 238
==========
Supplemental Disclosures of Cash Flow Information:
Interest paid 2,957
Taxes paid 800
Noncash Financing Activities:
Value of issuance of warrants in connection
with convertible debt 2,430,570
Recorded a beneficial conversion feature 3,950,318
Stock subscription receivable 220,000
F-5
<Page>
NOTE 1 - NATURE OF BUSINESS
Ingen Technologies, Inc., a Georgia corporation (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 diverse and progressive services and products.
Ingen Technologies, Inc. owns 100% of the capital stock of Ingen Technologies,
Inc. a Nevada corporation which has been in business since 1999.
The Company's flagship product is its BAFI (TM) line of products. These are the
world's first wireless digital low gas warning system for pressurized gas
cylinders. These products include Oxyview(TM), OxyAlert(TM)and GasAlert(TM). On
October 24, 2000, the Company received a U.S. Patent for the BAFI (TM) 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 Company's 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.
On November 16, 2006, the Company purchased the intellectual property rights for
Oxyview(TM). The Company had co-invented the Oxyview (TM) product with a third
party. The agreement gave the Company sole ownership of the product and
intangible pending patents associated with Oxyview (TM), which is part of the
Company's BAFI(TM) line of products. Patents for Oxyview (TM) are pending in the
United States, Japan, People's Republic of China and the European Communities.
Oxyview(TM) relates to flow meters which provide a visual signal for gas flow
through a conduit. More particularly it relates to a flow meter which provides a
visual cue viewable with the human eye, as to the flow of gas through a cannula
which conventionally employs very low pressure and gas volume to a patient using
the Oxyview(TM). The Company began recording sales of Oxyview(TM) in November of
2006.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP).
Principle of Consolidation and Presentation: The accompanying consolidated
financial statements include the accounts of Ingen Technologies, Inc. and its
subsidiary after elimination of all intercompany accounts and transactions.
Certain prior period balances have been reclassified to conform to the current
period presentation.
Use of estimates: The preparation of the accompanying consolidated financial
statements in conformity with accounting principles generally accepted in the
United States 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.
Revenue Recognition: The Company generally recognizes product revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable, and collection is probable. In instances where final
acceptance of the product is specified by the customer, revenue is deferred
until all acceptance criteria have been met. No provisions were established for
estimated product returns and allowances based on the Company's historical
experience. All orders are customized with substantial down payments. Products
are released upon receipt of the remaining funds.
Cash Equivalents: For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents.
Fair Value of Financial Instruments: The Company's financial instruments consist
principally of cash, accounts receivable, inventories, 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 has been discounted to the extent that the fair value of the embedded
conversion option feature exceeds the face value of the note. This discount is
being amortized over the term of the convertible note.
Property and Equipment: Property and Equipment are valued at cost. Maintenance
and repair costs are charged to expenses as incurred. Depreciation is computed
on the straight-line method based on the following estimated useful lives of the
assets: 3 to 5 years for computer, software and office equipment, and 5 to 7
years for furniture and fixtures.
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
F-6
<Page>
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 June 6, 2006, July 27, 2006, August 30,
2006, January 24, 2007, March 15, 2007, April 15, 2007 and May 15, 2007 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 May 31, 2007. 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 May 31, 2007 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.
Income Taxes: Income tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts.
Net Loss Per Share: Basic net loss per share includes no dilution and is
computed by dividing net loss available to common stockholders by the weighted
average number of common stock outstanding for the period. Diluted net loss per
share does not differ from basic net loss per share since potential shares of
common stock are anti-dilutive for all periods presented. Potential shares
consist of Series A preferred stock and outstanding warrants.
In February, 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 155, ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS. SFAS No. 155
eliminates the temporary exemption of bifurcation requirements to securitized
financial assets, contained in SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. As a result, similar financial instruments
are accounted for similarly regardless of the form of the instruments. In
addition, in instances where a derivative would otherwise have to be bifurcated,
SFAS No. 155 allows a preparer on an instrument-by-instrument basis to elect
fair value measurement at acquisition, at issuance, or when a previously
recognized financial instrument is subject to remeasurement. SFAS No. 155 is
effective for our fiscal year beginning June 1, 2007.
In March, 2006, the FASB issued SFAS No. 156, ACCOUNTING FOR SERVICING OF
FINANCIAL ASSETS, an amendment of FASB Statement No. 140, ACCOUNTING FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES.
The pronouncement establishes standards whereby servicing assets and servicing
liabilities are initially measured at fair value, where applicable. In addition,
SFAS No. 156 allows subsequent measurement of servicing assets and liabilities
at fair value, and where applicable, derivative instruments used to mitigate
risks inherent with servicing assets and liabilities are likewise measured at
fair value. SFAS No. 156 is effective for our fiscal year beginning June 1,
2007.
In September, 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS. The
statement defines fair value, determines appropriate measurement methods, and
expands disclosure requirements about those measurements. SFAS No. 157 is
effective for our fiscal year beginning June 1, 2008.
In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES, including an amendment of FASB
Statement No. 115. This pronouncement permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. SFAS 159 is effective as of the
beginning of our fiscal year which begins June 1, 2008.
NOTE 3 - GOING CONCERN
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and liabilities and
commitments in the normal course of business. In the near term, the Company
expects operating costs to continue to exceed funds generated from operations.
As a result, the Company expects to continue to incur operating losses and may
not have sufficient funds to grow its business in the future. The Company can
give no assurance that it will achieve profitability or be capable of sustaining
profitable operations. As a result, operations in the near future are expected
to continue to use working capital.
To successfully grow the individual segments of the business, the Company must
decrease its cash burn rate, improve its cash position and the revenue base of
each segment, and succeed in its ability to raise additional capital through a
combination of primarily public or private equity offering or strategic
alliances. The Company also depends on certain contractors, and its sole
employee, the CEO, and the loss of any of those contractors or the employee, may
harm the Company's business.
F-7
<Page>
The Company incurred a loss of $5,061,482 and for the year ended May 31, 2007,
and as of that date, had an accumulated deficit of $9,323,671.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follow:
As of May 31,
2007
----------
Vehicles $ 145,596
Furniture & Fixture 31,705
Machinery & Equipment 188,709
Leasehold Improvements 41,606
----------
407,616
Less accumulated depreciation (119,775)
----------
Property and Equipment, net $ 287,841
==========
NOTE 5 - ACCRUED EXPENSES
Accrued expenses at May 31, 2007 consist of:
2007
----------
Accrued officer's compensation $ 113,356
Accrued interest expense 73,922
Accrued taxes 9,149
Accrued royalties payable 193
----------
Total $ 196,620
==========
NOTE 6 - INCOME TAXES
Provision for income tax for the year ended May 31, 2007 consisted of
$2,990.
As of May 31, 2007, the Company has net operating loss carryforwards,
approximately, of $4,600,000 to reduce future federal and state taxable income.
To the extent not utilized, the carryforwards will begin to expire through 2027.
The Company's ability to utilize its net operating loss carryforwards is
uncertain and thus the Company has not booked a deferred tax asset, since future
profits are indeterminable.
NOTE 7 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per
share:
FOR YEAR ENDED MAY 31,
2007
-------------
Numerator:Net loss $ (5,061,482)
-------------
Denominator:
Weighted Average Number of Shares 30,426,618
-------------
Net loss per share-Basic and Diluted $ (0.17)
F-8
<Page>
As the Company incurred a net loss for the year ended May 31, 2007, it has
excluded from the calculation of diluted net loss per share approximately
141,328,991. These shares represent the Series A preferred stock, outstanding
warrants and assume that all convertible notes could be converted at the market
price as of May 31, 2007.
NOTE 8 - 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. The Company has only one segment; therefore, the detail information
is not presented.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company had notes payable to its CEO, Scott Sand, in the amounts of $84,342
as of May 31, 2007. The bulk of the balance due as of May 31, 2007 was a result
of business expenses paid by Mr. Sand on his personal credit cards. The Company
will record interest in the amount of finance charges on the credit cards. The
related accrued interest is $0 as of May 31, 2007.
During the fiscal year ending May 31, 2007, Mr. Sand received 4,444,444 shares
of series A preferred for satisfaction of accrued compensation of $95,311 and
for payment of $4,689 of the loan amount owed to him.
NOTE 10 - LEASE OBLIGATION
The Company leases its administrative office under a two unsecured leases
agreement which expire on April 1, 2008 and December 31, 2009. The Company also
maintains a corporate office under a month-to-month lease agreement. As of May
31, 2007, the remaining lease obligation is as follows:
Year Ending Lease
May 31, Obligation
---------------------------------------
2008 $ 17,050
2009 9,300
2010 5,425
------------
$ 31,775
============
The total rent expense for the year ended May 31, 2007 was $24,800.
NOTE 11 - INTANGIBLE ASSETS
The Company has recorded patents at a cost of $67,345. This represents legal
costs of filing for patents and the purchase of the exclusive rights for a
patent with common stock valued at $60,000.
NOTE 12 - 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 may 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 may 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 May 31, 2007.
NOTE 13 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES
6% $1.5 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 (only $1.5 million of this amount was funded), and (ii)
warrants to acquire an aggregate of 20 million shares of the Company's common
stock. 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 prior
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. Since the Company has not had a Registration Statement become
effective as of the date of this Report, the applicable percentage will be 50%.
F-9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and stockholders of Ingen Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Ingen
Technologies, Inc. and subsidiary, as of May 31, 2006, and the related
statements of operations, changes in stockholders' deficit, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement prese ntation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial positions of Ingen Technologies,
Inc. and subsidiary as of May 31, 2006, and the results of its operations and
its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company's operating losses and working capital
deficiency raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters are also described in Note
3. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Since our previous report dated July 24, 2006, as described in Note 17, the
Company discovered a material error in its presentation of its consolidated
financial statements. However, the Company has restated the consolidated
financial statements to reflect the correction of this error.
/s/ Harold Spector, CPA
Spector & Wong, LLP
Pasadena, California
July 24, 2006 (except for Note 16 and 17,
as to which the date is February 8, 2008)
F-10
Ingen Technologies, Inc.
Consolidated Balance Sheet
May 31, 2006
Balance as
of May 31, 2006
ASSETS
Current assets
Cash $ 111,112
-----------
Total current assets 111,112
Property and equipment, net of accumulated
depreciation of $98,408 55,513
-----------
TOTAL ASSETS $ 166,625
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 48,186
Accrued expenses 179,793
Officers' loans 70,826
-----------
Total current liabilities 298,805
Stockholders' deficit
Preferred stock, Series A, no par value, preferred liquidation value of $1.00
per share, 40,000,000 shares authorized and 14,134,547 issued and
outstanding
as of May 31, 2006 734,980
Common stock, no par value, authorized
100,000,000 shares, 29,647,110
issued and outstanding as of
May 31, 2006 3,615,029
Series A preferred stock subscription (220,000)
Accumulated deficit (4,262,189)
-----------
Total stockholders' deficit (132,180)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 166,625
===========
See notes to consolidated financial statements
F-11
Ingen Technologies, Inc.
Consolidated Statement of Operations
For the year ended May 31, 2006
Sales $ 846,783
Cost of sales 301,118
-----------
Gross Profit 545,665
Selling, general and administrative expenses 2,277,881
-----------
Operating loss (1,732,216)
Other (expenses)
Interest expense (3,852)
-----------
Net loss before taxes (1,736,068)
Provision for income taxes 800
-----------
Net loss $(1,736,868)
===========
Basic and diluted net loss per share $ (0.19)
===========
Weighted average number of shares outstanding 9,053,778
See notes to consolidated financial statements
F-12
Ingen Technologies, Inc.
Consolidated Statement of Stockholders' Deficit
SERIES A
PREFERRED STOCK CONVERTIBLE PREF STOCK
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Balance at May 31, 2004
Issuance of stock for services 36,900,000 369,000 3,000,000 30,000
Issuance of stock for cash -- -- -- --
Issuance of stock options
Net loss for year ended May 31, 2005 -- -- -- --
------------- ------------- ------------- -------------
Balance at May 31, 2005 36,900,000 $ 369,000 3,000,000 $ 30,000
Adjustment for 40 to 1 reverse stock split
effective on December 7, 2005 (24,600,000) (2,000,000)
Conversion of preferred stock (12,300,000) (369,000) 12,300,000 369,000
Conversion of preferred stock to common (7,619,999) (284,020)
Stock issuances for services 5,454,546 400,000
Preferred stock issued for subscription 3,000,000 220,000
Issuance of stock options
Stock issued in cashless exercise of stock
options
Stock sold
Net loss for year ended May 31, 2006 -- -- -- --
------------- ------------- ------------- -------------
Balance at May 31, 2006 -- $ -- 14,134,547 $ 734,980
============= ============= ============= =============
[TABLE CONTINUED]
PREFERRED
STOCK
COMMON STOCK SUBSCRIPTION ACCUMULATED
SHARES AMOUNT RECEIVABLE DEFICIT TOTAL
------------- ------------- ------------- ------------- -------------
Balance at May 31, 2004 14,132,533 $ 1,169,413 $ (2,020,336) $ (850,923)
Issuance of stock for services 399,000
Issuance of stock for cash 114,423,000 144,000 144,000
Issuance of stock options 197,730 197,730
Net loss for year ended May 31, 2005 -- -- -- (504,985) (504,895)
------------- ------------- ------------- ------------- -------------
Balance at May 31, 2005 128,555,533 $ 1,511,143 $ (2,525,321) $ (615,088)
Adjustment for 40 to 1 reverse stock split
effective on December 7, 2005 (125,335,843) --
Conversion of preferred stock --
Conversion of preferred stock to common 7,619,999 284,020 --
Stock issuances for services 400,000
Preferred stock issued for subscription (220,000) --
Issuance of stock options 28,072 28,072
Stock issued in cashless exercise of stock
options 961,805 129,844 129,844
Stock sold 17,845,616 1,661,950 1,661,950
Net loss for year ended May 31, 2006 -- -- -- (1,736,868) (1,736,868)
------------- ------------- ------------- ------------- -------------
Balance at May 31, 2006 29,647,110 $ 3,615,029 $ (220,000) $ 4,262,189) $ (132,090)
============= ============= ============= ============= =============
See notes to consolidated financial statements
F-13
Ingen Technologies, Inc.
Consolidated Statement of Cash Flows
For the year
ended
May 31, 2006
-----------
Cash flow from operating activities
Net loss $(1,736,868)
Depreciation and amortization 17,997
Expenses paid with stock and options 157,916
Increase in accounts payable 48,186
Increase in accrued expenses 193,263
Decrease in litigation reserve (143,500)
-----------
Net cash used in operating activities (1,463,006)
Cash flow from investing activities
Purchase of property and equipment (48,583)
-----------
Net cash used in investing activities (48,583)
Cash flow from financing activities
Repayments of notes payable to related party (31,976)
Repayments of notes payable (25,000)
Proceeds from issuance of stock 1,661,950
-----------
Net cash provided by financing activities 1,604,974
Net cash increase (decrease) 93,385
Cash at beginning of year 17,727
-----------
Cash at end of year $ 111,112
===========
Supplemental information
Cash paid for taxes $ 800
===========
Non Cash Activities:
Exchange of 7,619,999 shares of series A preferred stock
for common stock $ 284,020
Issuance of series A preferred stock for accrued compensation $ 400,000
Stock subscription receivable incurred for issuance of
series A preferred stock $ 220,000
See notes to consolidated financial statements
F-14
Ingen Technologies, Inc.
Notes to consolidated financial statements
For the year ended May 31, 2006
NOTE 1 - NATURE OF BUSINESS
Ingen Technologies, Inc., (formerly known as Creative Recycling Technologies
Inc., the "Company" or "Ingen Technologies"), is a Public Company trading under
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) line of products. These are the
world's first wireless digital low gas warning system for pressurized gas
cylinders. These products include Oxyview(TM), OxyAlert(TM)and GasAlert(TM). On
October 24, 2000, the Company received a U.S. Patent for the BAFI (TM) 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 Company's 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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP).
Principle of Consolidation and Presentation: The accompanying consolidated
financial statements include the accounts of Ingen Technologies, Inc. and its
subsidiaries after elimination of all intercompany accounts and transactions.
Certain prior period balances have been reclassified to conform to the current
period presentation
Use of estimates: The preparation of the accompanying consolidated financial
statements in conformity with accounting principles generally accepted in the
United States 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.
Revenue Recognition: The Company generally recognizes product revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable, and collection is probable. In instances where final
acceptance of the product is specified by the customer, revenue is deferred
until all acceptance criteria have been met. No provisions were established for
estimated product returns and allowances based on the Company's historical
experience. All orders are customized with substantial down payments. Products
are released upon receipt of the remaining funds.
F-15
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Equivalents: For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents.
Fair Value of Financial Instruments: The carrying amounts of the financial
instruments have been estimated by management to approximate fair value.
Property and Equipment: Property and Equipment are valued at cost. Maintenance
and repair costs are charged to expenses as incurred. Depreciation is computed
on the straight-line method based on the following estimated useful lives of the
assets: 3 to 5 years for computer, software and office equipment, and 5 to 7
years for furniture and fixtures.
Income Taxes: Income tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts.
Net Loss Per Share: Basic net loss per share includes no dilution and is
computed by dividing net loss available to common stockholders by the weighted
average number of common stock outstanding for the period. Diluted net loss per
share does not differ from basic net loss per share since potential shares of
common stock are anti-dilutive for all periods presented. Potential shares
consist of series A preferred stock and stock options.
New Accounting Standards: In June 2005, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard (SFAS) No. 154,
"Accounting Changes and Errors Corrections, a replacement of APB Opinion No. 20,
Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in
Interim Financial Statement." SFAS 154 changes the requirements for the
accounting for and reporting of a change in accounting principle. Previously,
most voluntary changes in accounting principles were required recognition via a
cumulative effective adjustment within net income of the period of the change.
SFAS 154 requires retrospective application to prior periods' financial
statements, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. SFAS 154 is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 14, 2005; however, the Statement does not change the transition
provisions of any existing accounting pronouncements. The Company does not
believe this pronouncement will have a material impact in its consolidated
financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 153. This statement addresses the
measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No.
29, "Accounting for Nonmonetary Transactions," is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that opinion; however, included certain
exceptions to that principle. This statement amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. This statement is effective for financial statements for fiscal
years beginning after June 15, 2005. Earlier application is permitted for
nonmonetary asset exchanges incurred during fiscal years beginning after the
date of this statement is issued. Management believes the adoption of this
statement will have no impact on the consolidated financial statements of the
Company.
F-16
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In December 2004, the FASB issued SFAS No. 152, which amends FASB statement No.
66, "Accounting for Sales of Real Estate," to reference the financial accounting
and reporting guidance for real estate time-sharing transactions that is
provided in AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate
Time-Sharing Transactions." This statement also amends FASB Statement No. 67,
"Accounting for Costs and Initial Rental Operations of Real Estate Projects," to
state that the guidance for (a) incidental operations and (b) costs incurred to
sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This statement is effective for financial statements for
fiscal years beginning after June 15, 2005. Management believes the adoption of
this statement will have no impact on the consolidated financial statements of
the Company.
In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123(R)"), which requires the measurement and recognition of
compensation expense for all stock-based compensation payments and supersedes
the Company's current accounting under APB 25. SFAS 123(R) is effective for the
first interim or annual reporting period that begins after December 15, 2005 for
small business issuers. In March 2005, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to the adoption of
SFAS 123(R).
The Company plans to use the modified prospective method to adopt this new
standard and will continue to evaluate the impact of SFAS 123(R) on its
operating results and financial condition. The pro forma information presented
above and in Note 10 presents the estimated compensation charges under SFAS 123,
"Accounting for Stock-Based Compensation." The Company's assessment of the
estimated compensation charges is affected by the Company's stock price as well
as assumptions regarding a number of complex and subjective variables and the
related tax impact. These variables include, but are not limited to, the
Company's stock price volatility and employee stock option exercise behaviors.
The Company will recognize the compensation cost for stock-based awards issued
after January 1, 2006 on a straight-line basis over the requisite service period
for the entire award.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment
of ARB No. 43, Chapter 4." This statement amends the guidance in ARB No. 43,
Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . .
under some circumstances, items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs may be so abnormal as to require
treatment as current period charges. . . ." This statement requires that those
items be recognized as current-period charges regardless of whether they meet
the criterion of "so abnormal." In addition, this statement requires that
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. This statement is effective
for inventory costs incurred during fiscal years beginning after June 15, 2005.
Management does no t believe the adoption of this consolidated statement will
have any immediate material impact on the Company.
NOTE 3 - GOING CONCERN
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and liabilities and
commitments in the normal course of business. In the near term, the Company
expects operating costs to continue to exceed funds generated from operations.
As a result, the Company expects to continue to incur operating losses and may
not have sufficient funds to grow its business in the future. The Company can
give no assurance that it will achieve profitability or be capable of sustaining
profitable operations. As a result, operations in the near future are expected
to continue to use working capital.
F-17
NOTE 3 - GOING CONCERN (continued)
To successfully grow the individual segments of the business, the Company must
decrease its cash burn rate, improve its cash position and the revenue base of
each segment, and succeed in its ability to raise additional capital through a
combination of primarily public or private equity offering or strategic
alliances. The Company also depends on certain contractors, and its sole
employee, the CEO, and the loss of any of those contractors or the employee, may
harm the Company's business.
The company incurred a loss of $1,736,868 for the year ended May 31, 2006, and
as of that date, had an accumulated deficit of $4,262,189.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follow:
As of May 31,
2006
---------
Automobile $ 9,500
Furniture & Fixture 27,222
Machinery & Equipment 85,152
Leasehold Improvements 32,047
---------
153,921
Less accumulated depreciation (98,408)
---------
Property and Equipment, net $ 55,513
=========
NOTE 5 - ACCRUED EXPENSES
Accrued expenses at May 31, 2006:
Accrued officer's compensation $ 112,000
Accrued interest expense 32,782
Accrued professional fees 10,000
Accrued payroll taxes 24,211
Accrued taxes 800
---------
Total $ 179,793
=========
NOTE 6 - INCOME TAXES
Provision for income tax for the year ended May 31, 2006 consisted of $800
minimum state franchise tax per year.
As of May 31, 2006, the Company has net operating loss carryforwards,
approximately, of $3,009,598, 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 asset of approximately $1,294,127, for the year ended May 31,
2006, respectively, which relates to these loss carryforwards, since future
profits are indeterminable.
F-18
NOTE 7 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per
share:
FOR YEAR ENDED MAY 31,
2006
-----------
Numerator:
Net Loss $(1,736,868)
-----------
Denominator:
Weighted Average Number of Shares 9,053,778
-----------
Net loss per share-Basic and Diluted $ (0.19)
===========
As the Company incurred a net loss for the year ended May 31, 2006, it has
excluded from the calculation of diluted net loss per share approximately
17,234,547 shares related to preferred stock that can be converted to common
stock as well as outstanding stock options.
NOTE 8 - 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. The Company has only one segment; therefore, the detail information
is not presented.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company had notes payable to a related party in the amount of $70,826 as of
May 31, 2006. The interest rate on the loan is 6% and due upon working capital
availability. The related accrued interest is $32,782 as of May 31, 2006.
During the fiscal year ending May 31, 2006, the CEO of the Company received
5,454,546 shares of Series A preferred stock for satisfaction of his accrued
compensation of $400,000.
NOTE 10 - LEASE OBLIGATION
The Company leases its corporate office under an unsecured lease agreement which
expires in April 1, 2008. As of May 31, 2006, the remaining lease obligation is
as follows:
Year Ending Lease
May 31, Obligation
---------------------------------------
2007 9,300
2008 7,750
----------
$ 17,050
==========
The total rent expense for the year ended May 31, 2006 was $9,300.
NOTE 11 - INTANGIBLE ASSETS
The patents were fully impaired as of May 31, 2006.
F-19
NOTE 12 - 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 may 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 may 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 May 31, 2006.
NOTE 13 - PENDING LITIGATION
The pending litigation is with the previous landlord for breaking a facility
lease by the Company. The management estimated and accrued a loss for $143,500
in the year ended May 31, 2004. The litigation regarding the breaking the
facility lease was settled for $143,000 in August 2005.
NOTE 14 - 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. The Company is authorized to issue
40,000,000 shares of no par value Series A preferred stock. As of May 31, 2006,
the Company had 14,134,547 shares of preferred stocks Series A issued and
outstanding. 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 entitle to be paid $1 per share before any payments or
distribution of assets of the Company to the holders of the common stock or any
other equity securities of the Company. The accompanying consolidated financial
statements have been retroactively adjusted to reflect the reverse stock split.
During the fiscal year ending May 31, 2006, the Company authorized and converted
7,619,999 shares of Series A preferred stock to common stock.
On May 21, 2006, the Company and a subscriber entered into an Investment
Contract (the "Contract") providing that the Company intends to raise at least
$5 million utilizing Replacement S-B of the SEC which the subscriber agreed to
purchase 3million shares of the Company's restricted series A preferred 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 May 31, 2006, all of 3million shares of
restricted series A preferred shares were issued and a subscription receivable
of $220,000 was recorded against the Company's equity.
F-20
NOTE 15 - COMMON STOCK
On October 31, 2005, the Board approved a 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 split was effective on December 7,
2006. The accompanying consolidated financial statements have been retroactively
adjusted to reflect the reverse stock split.
NOTE 16 - STOCK OPTIONS
The Company has accounted for options granted to nonemployees in accordance with
FAS 123. Under FAS 123, the option award is based on the fair market value of
the underlying security based on the Black-Scholes Pricing Model, less the
option price. From August 6, 2004 through January 18, 2006, the Company granted
a total of 3,100,000 options to one nonemployee. The value of these options was
calculated to be $225,802. Of this value, $197,730 was expensed in the fiscal
year ended May 31, 2005 and $28,072 was expensed in the current fiscal year. The
holder of the option utilized a cash-free exercise of the options on February
16, 2006 and the Company recorded additional expense in the amount of $129,844
in the current fiscal year. The following tables summarize the calculations for
stock option issuances in the current fiscal year:
For the year ended
May 31, 2006
Expected volatility 252%
Risk free interest rate 4.52%
Expected option life 5 years
Dividend yield 0%
Fair value of options granted $28,072
F-21
Stock option activity during the year ended May 31, 2006:
Weighted Average Aggregate
Remaining Intrinsic Value
Weighted Contractual Term
Average (in years)
Shares Exercise Price
Outstanding at May 31, 2005 3,000,000 $ 0.046 3.18 0
Granted 100,000 0.25 4.22 0
Exercised (3,100,000) --
Cancelled - --
-------------- -----------------
Outstanding at May 31, 2006 0 --
=============
Fair market value at December 31, 2006 was $.07 per share, resulting in negative
intrinsic value for all options.
The following table summarizes information concerning outstanding and
exercisable common stock options under the 2005 Plan at December 31, 2006:
F-22
NOTE 17 - RESTATEMENT
Subsequent to the issuance the financial statements, management discovered an
error related to the equity accounts, stock options and asset purchases. The
Company has now made the corrections and has reissued its financial statements
for the year ended May 31, 2006.
Accordingly, the consolidated balance sheet, consolidated statement of
operations, consolidated statement of stockholders' deficit, and consolidated
statement of cash flows have been revised as follows:
F-23
Ingen Technologies, Inc.
Consolidated Balance Sheet
May 31, 2006
Restated Original
Balance as Balance as
of May 31, 2006 of May 31, 2006
----------- -----------
ASSETS
Current assets
Cash $ 111,112 $ 111,112
----------- -----------
Total current assets 111,112 111,112
Property and equipment, net of accumulated
depreciation of $98,408 55,513 31,638
----------- -----------
TOTAL ASSETS $ 166,625 $ 142,750
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 48,186 $ 48,186
Accrued expenses 179,793 179,793
Officers' loans 70,826 --
----------- -----------
Total current liabilities 298,805 227,979
Long-term liabilities
Officers' loans -- 70,826
----------- -----------
Total long-term liabilities -- 70,826
Stockholders' deficit
Preferred stock, Series A, no par value, preferred liquidation value of $1.00
per share, 40,000,000 shares authorized and 14,134,547 issued and
outstanding
as of May 31, 2006 734,980 734,980
Common stock, no par value, authorized
100,000,000 shares, 29,647,110
issued and outstanding as of
May 31, 2006 3,615,029 7,497,183
Series A preferred stock subscription (220,000) (220,000)
Accumulated deficit (4,262,189) (8,168,218)
----------- -----------
Total stockholders' deficit (132,180) (156,055)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 166,625 $ 142,750
=========== ===========
F-24
Ingen Technologies, Inc.
Consolidated Statement of Operations
For the year ended May 31, 2006
Restated Original
Sales $ 846,783 $ 846,783
Cost of sales 301,118 301,118
------------- -------------
Gross Profit 545,665 545,665
Selling, general and administrative expenses 2,277,881 2,143,840
------------- -------------
Operating loss (1,732,216) (1,598,175)
Other (expenses)
Interest expense (3,852) (3,852)
------------- -------------
Net loss before taxes (1,736,068) (1,602,027)
Provision for income taxes 800 800
------------- -------------
Net loss $ (1,736,868) $ (1,602,827)
============= =============
Basic and diluted net loss per share $ (0.19) $ 0.01
============= =============
Weighted average number of shares outstanding 9,055,446 208,100,842
F-25
Ingen Technologies, Inc.
Consolidated Statement of Stockholders' Deficit
PREFERRED STOCK
---------------
SHARES AMOUNT
RESTATED ORIGINAL RESTATED ORIGINAL
----------- ----------- ----------- -----------
Balance at May 31, 2004
Issuance of stock for services 36,900,000 36,900,000 $ 369,000 $ 369,000
Issuance of stock for cash -- -- -- --
Issuance of stock options -- -- -- --
Net loss for year ended May 31, 2005 -- -- -- --
----------- ----------- ----------- -----------
Balance at May 31, 2005 36,900,000 36,900,000 $ 369,000 $ 369,000
Adjustment for 40 to 1 reverse stock split
effective on December 7, 2005 (24,600,000) (24,600,000)
Conversion of preferred stock (12,300,000) (12,300,000) (369,000) (369,000)
Conversion of preferred stock to common
Stock issuances for services
Preferred stock issued for subscription
Issuance of stock options
Stock issued in cashless exercise of options
Stock sold
Net loss for year ended May 31, 2006 -- -- -- --
----------- ----------- ----------- -----------
Balance at May 31, 2006 -- -- $ -- $ --
=========== =========== =========== ===========
SERIES A
CONVERTIBLE PREF STOCK
----------------------
SHARES AMOUNT
RESTATED ORIGINAL RESTATED ORIGINAL
----------- ----------- ----------- -----------
Balance at May 31, 2004
Issuance of stock for services 3,000,000 3,000,000 $ 30,000 $ 30,000
Issuance of stock for cash -- -- -- --
Issuance of stock options -- -- -- --
Net loss for year ended May 31, 2005 -- -- -- --
----------- ----------- ----------- -----------
Balance at May 31, 2005 3,000,000 3,000,000 $ 30,000 $ 30,000
Adjustment for 40 to 1 reverse stock split
effective on December 7, 2005 (2,000,000) (2,000,000)
Conversion of preferred stock 12,300,000 12,300,000 369,000 369,000
Conversion of preferred stock to common (7,619,999) (7,619,999) (284,020) (284,020)
Stock issuances for services 5,454,546 5,454,546 400,000 400,000
Preferred stock issued for subscription 3,000,000 3,000,000 220,000 220,000
Issuance of stock options
Stock issued in cashless exercise of options
Stock sold
Net loss for year ended May 31, 2006 -- -- -- --
----------- ----------- ----------- -----------
Balance at May 31, 2006 14,134,547 14,134,547 $ 734,980 $ 734,980
=========== =========== =========== ===========
continued on next page
continued from previous page
Ingen Technologies, Inc.
Consolidated Statement of Stockholders' Deficit
COMMON STOCK
------------
SHARES AMOUNT
RESTATED ORIGINAL RESTATED ORIGINAL
------------ ------------ ------------ ------------
Balance at May 31, 2004 14,132,533 12,864,593 $ 1,169,413 $ 5,407,213
Issuance of stock for services
Issuance of stock for cash 114,423,000 114,423,000 144,000 144,000
Issuance of stock options -- -- 197,730 --
Net loss for year ended May 31, 2005 -- -- -- --
------------ ------------ ------------ ------------
Balance at May 31, 2005 128,555,533 127,287,593 $ 1,511,143 $ 5,551,213
Adjustment for 40 to 1 reverse stock split
effective on December 7, 2005 (125,335,843) (124,105,403)
Conversion of preferred stock
Conversion of preferred stock to common 7,619,999 7,619,999 284,020 284,020
Stock issuances for services
Preferred stock issued for subscription
Issuance of stock options -- -- 28,072 --
Stock issued in cashless exercise of options 961,805 -- 129,844 --
Stock sold 17,845,616 18,807,421 1,661,950 1,661,950
Net loss for year ended May 31, 2006 -- -- -- --
------------ ------------ ------------ ------------
Balance at May 31, 2006 29,647,110 29,609,610 $ 3,615,029 $ 7,497,183
============ ============ ============ ============
Ingen Technologies, Inc.
Consolidated Statement of Stockholders' Deficit
SERIES A
PREFERRED STOCK
SUBSCRIPTION ACCUMULATED
RECEIVABLE DEFICIT TOTAL
---------- ------- -----
RESTATED ORIGINAL RESTATED ORIGINAL RESTATED ORIGINAL
----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 2004 -- -- $(2,020,336) $(6,258,136) $ (850,923) $ (850,923)
Issuance of stock for services 399,000 399,000
Issuance of stock for cash 144,000 144,000
Issuance of stock options -- -- 197,730 --
Net loss for year ended May 31, 2005 -- -- (504,985) (307,255) (504,895) (307,255)
----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 2005 $(2,525,321) $(6,565,391) $ (615,088) $ (615,178)
Adjustment for 40 to 1 reverse stock
split effective on December 7, 2005 --
Conversion of preferred stock --
Conversion of preferred stock to common --
Stock issuances for services 400,000 400,000
Preferred stock issued for subscription (220,000) (220,000) -- --
Issuance of stock options 28,072 --
Stock issued in cashless exercise of options 129,844 --
Stock sold 1,661,950 1,661,950
Net loss for year ended May 31, 2006 -- -- (1,736,868) (1,602,827) (1,736,868) (1,602,827)
----------- ----------- ----------- ----------- ----------- -----------
Balance at May 31, 2006 $ (220,000) $ (220,000) $(4,262,189) $(8,168,218) $ (132,090) $ (156,055)
=========== =========== =========== =========== =========== ===========
F-26
Ingen Technologies, Inc.
Consolidated Statement of Cash Flows
For the year
ended
May 31, 2006
Restated Original
----------- -----------
Cash flow from operating activities
Net loss $(1,736,868) $(1,602,827)
Depreciation and amortization 17,997 17,997
Expenses paid with stock and options 157,916 --
Increase in accounts payable 48,186 48,186
Increase in accrued expenses 193,263 193,263
Decrease in litigation reserve (143,500) (143,500)
----------- -----------
Net cash used in operating activities (1,463,006) (1,486,881)
Cash flow from investing activities
Purchase of property and equipment (48,583) (24,708)
----------- -----------
Net cash used in investing activities (48,583) (24,708)
Cash flow from financing activities
Repayments of notes payable to related party (31,976) (31,976)
Repayments of notes payable (25,000) (25,000)
Proceeds from issuance of stock 1,661,950 1,661,950
----------- -----------
Net cash provided by financing activities 1,604,974 1,604,974
Net cash increase (decrease) 93,385 93,385
Cash at beginning of year 17,727 17,727
----------- -----------
Cash at end of year $ 111,112 $ 111,112
=========== ===========
Supplemental information
Cash paid for taxes $ 800 $ 800
=========== ===========
Non Cash Activities:
Exchange of 7,619,999 shares of series A
preferred stock for common stock $ 284,020 $ 284,020
Issuance of series A preferred stock for
accrued compensation $ 400,000 $ 400,000
Stock subscription receivable incurred
for issuance of series A preferred stock $ 220,000 $ 220,000
F-27
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS FOR QUARTER ENDED NOVEMBER 30, 2007
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
- ---------------------------------------------------------------------------------------------
AS OF NOVEMBER 30,
2007
------------
ASSETS
Current Assets
Cash $ 1,161
Accounts receivable 15,271
Inventory 74,943
Prepaid expenses 10,481
------------
Total current assets 101,856
------------
Property and equipment, net of accumulated depreciation
of $148,716 258,900
Debt issue cost, net of accumulated amortization of $138,242 229,958
Other assets 68,895
------------
TOTAL ASSETS $ 659,609
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 201,726
Accrued expenses 348,833
Taxes payable 8,350
Current portion of long-term debt 14,539
Short-term note 10,733
Officer's loans 100,850
------------
Total current liabilities 685,031
------------
Long-term Liabilities
Note payable 94,333
Convertible notes payable, net of unamortized discount of $1,343,747 791,253
Derivative liabilities 5,037,714
------------
Total long-term liabilities 5,923,300
------------
Stockholders' deficit
Preferred stock Series A, no par value, 40,000,000
authorized; and 16,078,991 issued and outstanding
as of November 30, 2007 673,313
Common stock, no par value, 100,000,000 shares authorized;
43,747,110 issued and outstanding as of
November 30, 2007 12,586,549
Series A preferred stock subscription receivable (220,000)
Accumulated deficit (18,988,584)
------------
Total stockholders' deficit (5,948,722)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 659,609
============
See notes to interim unaudited consolidated financial statements
F-28
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- - -----------------------------------------------------------------------------
For the three months ended
November 30,
------------------------------
2007 2006
------------ ------------
Revenue $ 74,538 $ 134,473
Cost of Sales 61,705 66,641
------------ ------------
Gross Profit 12,833 67,832
Selling, General and Administrative Expenses 339,022 517,158
------------ ------------
Operating Loss (326,189) (449,326)
------------ ------------
Other (Expenses):
Interest Expenses (247,449) (158,053)
Change in Derivative Liabilities 761,661 283,033
------------ ------------
Net Loss before Taxes 188,022 (324,346)
Provision for Income Taxes -- 415
------------ ------------
Net Loss $ 188,022 $ (324,761)
============ ============
Basic and diluted net loss per share $ (0.01) $ (0.01)
============ ============
Weighted average number of common shares 43,667,110 29,684,610
See notes to interim unaudited consolidated financial statements
F-29
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------------------
For the six months ended
November 30,
----------------------------
2007 2006
------------ ------------
Revenue $ 192,010 $ 323,631
Cost of Sales 129,118 182,188
------------ ------------
Gross Profit 62,892 141,443
Selling, General and Administrative Expenses 745,727 846,262
------------ ------------
Operating Loss (682,835) (704,819)
------------ ------------
Other (Expenses):
Interest Expenses (1,268,139) (3,698,968)
Change in Derivative Liabilities 761,661 1,314,127
------------ ------------
Net Loss before Taxes (1,189,313) (3,089,660)
Provision for Income Taxes -- 1,215
------------ ------------
Net Loss $ (1,189,313) $ (3,090,875)
============ ============
Basic and diluted net loss per share $ (0.03) $ (0.10)
============ ============
Weighted average number of common shares 40,721,777 29,744,904
See notes to interim unaudited consolidated financial statements
F-30
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- - ---------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2007 2006
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss $(1,189,313) $(3,090,875)
Adjustments to Reconcile Net Loss to Net Cash Used in Operations:
Depreciation and amortization 28,940 11,258
Amortization of debt issue cost 51,579 35,366
(Increase) Decrease in:
Change in derivative liabilities (761,661) (1,314,127)
Noncash interest expense and financing costs 1,141,551 3,697,905
Changes in operating assets and liabilities:
Increase in accounts receivable (15,270) (58,265)
Decrease in inventory 10,653 --
Increase (Decrease) in accounts payable 117,209 (4,875)
Increase (Decrease) in accrued expenses 161,296 486
Decrease (Increase)in prepaid expenses 23,152 (9,699)
Expenses paid with stock 92,600 12,000
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (339,264) (720,826)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Addition to fixed assets -- (85,931)
Addition to intangibles -- (7,345)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES -- (93,276)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayments of loan owed to officer (21,382) (122,826)
Proceeds from loan from officer 37,891 --
Repayments of notes payable (6,119) --
Proceeds from issuance of common stock 119,800 --
Net proceeds from convertible debt 200,000 1,066,800
Net proceeds from notes payable 10,000 --
----------- -----------
NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES 340,190 943,974
----------- -----------
NET INCREASE IN CASH 926 129,872
Cash Balance at Beginning of Period 238 111,112
----------- -----------
CASH BALANCE AT END OF PERIOD $ 1,164 $ 240,984
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 12,976 $ --
Taxes paid $ 800 $ --
Noncash Financing Activities:
Value of issuance of warrants in connection with convertible debt $ -- $ 1,987,103
Recorded a beneficial conversion feature $ 428,343 $ 2,903,777
Stock subscription receivable for preferred stock $ -- $ 220,000
See notes to interim unaudited consolidated financial statements
F-31
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- - ------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ingen Technologies, Inc., a Georgia corporation (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 diverse and progressive services and products.
Ingen Technologies, Inc. owns 100% of the capital stock of Ingen Technologies,
Inc. a Nevada corporation that has been in business since 1999.
The Company's flagship product is its BAFI (TM) line of products. These are the
world's first wireless digital low gas warning system for pressurized gas
cylinders. These products include Oxyview(TM), OxyAlert(TM)and GasAlert(TM). On
October 24, 2000, the Company received a U.S. Patent for the BAFI (TM) 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 Company's 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.
On November 16, 2006, the Company purchased the intellectual property rights for
Oxyview(TM). The Company had co-invented the Oxyview (TM) product with a third
party. The agreement gave the Company sole ownership of the product and
intangible pending patents associated with Oxyview (TM), which is part of the
Company's BAFI(TM) line of products. Patents for Oxyview (TM) are pending in the
United States, Japan, People's Republic of China and the European Communities.
Oxyview(TM) relates to flow meters which provide a visual signal for gas flow
through a conduit. More particularly it relates to a flow meter which provides a
visual cue viewable with the human eye, as to the flow of gas through a cannula
which conventionally employs very low pressure and gas volume to a patient using
the Oxyview(TM). The Company began recording sales of Oxyview(TM) in November of
2006.
Presentation of Interim Information: The accompanying consolidated financial
statements for the three and six months ended November 30, 2007 and 2006, 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, 2007.
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 for the three and six months ended November
30, 2007 and 2006, have been made. The results of operations for the three and
six months ended November 30, 2007 are not necessarily indicative of the
operating results for the full year.
Principle of Consolidation and Presentation: The accompanying consolidated
financial statements include the accounts of Ingen Technologies, Inc. and its
subsidiary after elimination of all intercompany accounts and transactions.
Certain prior period balances have been reclassified to conform to the current
period presentation.
F-32
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Fair Value of Financial Instruments: The Company's financial instruments consist
principally of cash, accounts receivable, inventories, 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 has been discounted to the extent that the fair value of the embedded
conversion option feature exceeds the face value of the note. This discount is
being amortized over the term of the convertible note.
Cash Equivalents: For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents.
Revenue Recognition: The Company generally recognizes product revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable, and collection is probable. In instances where final
acceptance of the product is specified by the customer, revenue is deferred
until all acceptance criteria have been met. No provisions were established for
estimated product returns and allowances based on the Company's historical
experience. All orders are customized with substantial down payments. Products
are released upon receipt of the remaining funds.
Use of estimates: The preparation of the accompanying consolidated financial
statements in conformity with accounting principles generally accepted in the
United States 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.
Property and Equipment: Property and Equipment are valued at cost. Maintenance
and repair costs are charged to expenses as incurred. Depreciation is computed
on the straight-line method based on the following estimated useful lives of the
assets: 3 to 5 years for computer, software and office equipment, and 5 to 7
years for furniture and fixtures.
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 June 6, 2006, July 27, 2006, August 30,
2006, January 24, 2007, March 15, 2007, April 15, 2007, May 15, 2007, June 15,
2007 and July 31, 2007 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 November 30, 2007. 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 November 30, 2007 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.
Income Taxes: Income tax expense is based on pretax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts.
Net Loss Per Share: Basic net loss per share includes no dilution and is
computed by dividing net loss available to common stockholders by the weighted
average number of common stock outstanding for the period. Diluted net loss per
share does not differ from basic net loss per share since potential shares of
common stock are anti-dilutive for all periods presented. Potential shares
consist of Series A preferred stock and outstanding warrants.
F-33
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In February, 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 155, ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS. SFAS No. 155
eliminates the temporary exemption of bifurcation requirements to securitized
financial assets, contained in SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. As a result, similar financial instruments
are accounted for similarly regardless of the form of the instruments. In
addition, in instances where a derivative would otherwise have to be bifurcated,
SFAS No. 155 allows a preparer on an instrument-by-instrument basis to elect
fair value measurement at acquisition, at issuance, or when a previously
recognized financial instrument is subject to remeasurement. SFAS No. 155 is
effective for our fiscal year beginning June 1, 2007.
In March, 2006, the FASB issued SFAS No. 156, ACCOUNTING FOR SERVICING OF
FINANCIAL ASSETS, an amendment of FASB Statement No. 140, ACCOUNTING FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES.
The pronouncement establishes standards whereby servicing assets and servicing
liabilities are initially measured at fair value, where applicable. In addition,
SFAS No. 156 allows subsequent measurement of servicing assets and liabilities
at fair value, and where applicable, derivative instruments used to mitigate
risks inherent with servicing assets and liabilities are likewise measured at
fair value. SFAS No. 156 is effective for our fiscal year beginning June 1,
2007.
In September, 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS. The
statement defines fair value, determines appropriate measurement methods, and
expands disclosure requirements about those measurements. SFAS No. 157 is
effective for our fiscal year beginning June 1, 2008.
In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES, including an amendment of FASB
Statement No. 115. This pronouncement permits entities to choose to measure many
financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. SFAS 159 is effective as of the
beginning of our fiscal year which begins June 1, 2008.
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and liabilities and
commitments in the normal course of business. In the near term, the Company
expects operating costs to continue to exceed funds generated from operations.
As a result, the Company expects to continue to incur operating losses and may
not have sufficient funds to grow its business in the future. The Company can
give no assurance that it will achieve profitability or be capable of sustaining
profitable operations. As a result, operations in the near future are expected
to continue to use working capital.
To successfully grow the individual segments of the business, the Company must
decrease its cash burn rate, improve its cash position and the revenue base of
each segment, and succeed in its ability to raise additional capital through a
combination of primarily public or private equity offering or strategic
alliances. The Company also depends on certain contractors, and its sole
employee, the CEO, and the loss of any of those contractors or the employee, may
harm the Company's business.
In the six months ended November 30, 2007, the Company received net proceeds
from the sale of callable secured convertible notes of $200,000 (the principal
balance of the notes was $220,000). The Company also made equity sales which
netted $119,800 in the period. 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 $1,189,313 for the six months ended November 30,
2007, and as of that date, had an accumulated deficit of $18,988,584.
F-34
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment as of November 30, 2007 and 2006 is summarized as follow:
2007 2006
--------- ---------
Automobile $ 9,500 $ 9,500
Mobile Demonstration Unit 136,096 --
Furniture & Fixture 31,706 27,222
Machinery & Equipment 120,252 117,350
Leasehold Improvements 41,606 32,047
Molds 68,457 29,857
--------- ---------
407,617 217,976
Less accumulated depreciation (148,716) (109,666)
--------- ---------
Property and Equipment, net $ 258,901 $ 106,310
========= =========
NOTE 4 - ACCRUED EXPENSES
Accrued expenses at November 30, 2007 and 2006 consist of:
2007 2006
-------- --------
Accrued officer's compensation $213,356 $112,000
Accrued Professional Fees -- 6,000
Accrued Interest Expense 135,221 33,844
Accrued taxes -- 25,810
Royalty payable 256 3
-------- --------
Total $348,833 $177,657
======== ========
NOTE 5 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES
6% $75,000 DEBT
On June 7, 2006, the Company entered into an agreement with an accredited
investor for sale of 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
on date of note issuance $437,565
Estimated fair value of conversion feature
as of November 30, 2007 $132,569
The Company recorded the fair value of the conversion feature of $437,565, as a
discount to the convertible debt in the accompanying balance sheet up to the
proceeds received with the excess of $362,565 charged to expense. Amortization
expense related to the conversion feature discount for the quarter ended
November 30, 2007 was $6,373. Remaining unamortized discount as of that date was
$37,707.
F-35
CALLABLE SECURED CONVERTIBLE NOTES AND WARRANTS
July 25, 2006 Securities Purchase Agreement ($1.5 Million Convertible Debt)
On July 25, 2006, we entered into a Securities Purchase Agreement with New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and AJW Partners, LLC (the "Investors") and agreed to issue and sell (i)
callable secured convertible notes up to $2 million, and (ii) warrants to
acquire an aggregate of 20 million shares of our common stock. The notes bear
interest at 6% per annum (15% "default interest" per annum), and mature three
years from the date of issuance. The notes are convertible into our common stock
at the applicable percentage of the average of the lowest three trading prices
for our shares of common stock during the twenty trading day period prior 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 25, 2006, and (ii) 60% in the event that the Registration
Statement becomes effective within one hundred and twenty days from July 26,
2006. Since we did not have a Registration Statement become effective within one
hundred and twenty days of July 25, 2006, the applicable percentage is 50%.
Under the Agreement, the conversion price of the secured convertible notes will
be adjusted in the event we issue securities below the fixed conversion price
and may be adjusted in certain circumstances such as merger, consolidation or if
we pay a stock dividend. At May 31, 2007, only $1.5 million of the convertible
notes were funded.
We received the first tranche of $700,000 on July 27, 2006, less issuance costs
of $295,200, the second tranche of $600,000, less issuance costs of $13,000 on
August 30, 2006, and the third tranche of $200,000 was received on January 24,
2007.
We may prepay the notes in the event that no event of default exists, there are
a sufficient number of shares available for conversion, and the market price is
at or below $0.10 per share. Prepayment of the convertible notes is to be made
in cash equal to 140% of the outstanding principal and accrued interest (for
prepayment occurring after the 60th day following the issue date of the notes).
In addition, in the event that the reported average daily price of the common
stock for each day of the month ending on any determination date is below $0.10,
we may repay a portion of the outstanding principal amount of the notes equal to
101% of the principal amount divided by thirty-six plus one month's interest and
this will stay all conversions for the month.
Events of default under the notes generally include failure to repay the
principal or interest when due, failure to issue shares of common stock upon
conversion by the holder, failure to timely file a registration statement or
have such registration statement declared effective, breach of certain covenants
or representation or warranty in the Securities Purchase Agreement or related
convertible note, the assignment or appointment of a receiver to control a
substantial part of our property or business, a money judgment, writ or similar
process entered or filed against us in excess of $50,000 which continues for 20
days unless consented to by the holder, the commencement of a bankruptcy,
insolvency, reorganization or liquidation proceeding against us without stay or
the delisting of our common stock. Upon the occurrence of an event of default,
the note holders may by written notice demand repayment in an amount equal to
the greater of (i) the then outstanding principal amount of the convertible
notes, together with unpaid interest and any outstanding penalties times 140% or
(ii) the "parity value" of the default sum, where parity value means (a) the
highest number of shares of common stock issuable upon conversion of the default
sum, treating the trading day immediately preceding the prepayment date as the
"conversion date" for the purpose of determining the lowest applicable
conversion price (unless the event of default is a result of a breach in
reference to a specific conversion date), multiplied by (b) the highest closing
price for the common stock during the period beginning on the date of first
occurrence of the event of default and ending one day prior to the prepayment
date. In addition, we granted the Investors a security interest in substantially
all of our assets and intellectual property pursuant to a Security Agreement and
an Intellectual Property Security Agreement.
The warrants have an exercise price of $0.10 per share and expire after seven
years. The Investors may exercise the warrants on a cashless basis if the shares
of common stock underlying the warrants are not then registered pursuant to an
effective registration statement. In addition, the exercise price of the
warrants will be adjusted in the event we issue common stock at a price below
market, with the exception of any securities issued as of the date of the
warrants, certain issuances under our employee stock plans, or shares issued
upon exercise of the warrants.
The Investors have contractually agreed to restrict their ability to convert the
notes and exercise the warrants and receive shares of our common stock so that
the number of shares of our common stock held by them and their affiliates after
such conversion or exercise does not exceed 4.99% of the then issued and
outstanding shares of our common stock.
Without the prior written consent of a majority-in-interest of the Investors,
subject to certain exceptions as set forth in the agreement, we may not
negotiate or contract with any party to obtain additional equity financing
(including debt financing with an equity component) that involves (A) the
issuance of common stock at a discount to the market price of the common stock
on the date of issuance (taking into account the value of any warrants or
options to acquire common stock issued in connection therewith) or (B) the
issuance of convertible securities that are convertible into an indeterminate
number of shares of common stock or (C) the issuance of warrants during the
lock-up period beginning on July 25, 2006 and ending on the later of (i) two
hundred seventy (270) days from July 25, 2006 and (ii) one hundred eighty (180)
days from the date the registration statement is declared effective. In
addition, subject to certain exceptions as set forth in the agreement, we agreed
that we would not conduct any equity financing (including debt with an equity
component) during the period beginning on July 25, 2006 and ending two (2) years
after the end of the above lock-up period unless we have first provided to each
Investor an option to purchase its prorata share (based on the ratio of each
Investor's purchase under the Securities Purchase Agreement) of the securities
being offered in any proposed equity financing. We must provide each Investor
written notice describing any proposed equity financing at least 20 business
days prior to the closing and the option must be extended to each Investor for
15 days following delivery of the notice.
We agreed to file a registration statement for the shares underlying the notes
and the warrants within thirty days of closing, to be declared effective within
120 days of closing. We filed an SB-2 registration statement with the Securities
and Exchange Commission ("SEC") on August 25, 2006 for the securities underlying
the agreement; however, we requested withdrawal of this statement on October 31,
2006. We intend to file a new SB-2 to register the underlying shares of these
convertible notes and 6 million additional shares once we have cured our
delinquent filings with the SEC. Because the required registration statement was
not effective by the due date, we may be declared to be in default under the
agreement. Further, per the agreement, we are subject to liquidated damages in
the amount of 0.02% of the outstanding principal amount of the notes per month,
payable in cash or common stock, until the registration is effective.
F-36
We also agreed to increase our number of authorized shares of common stock from
100 million to 500 million within thirty days of the agreement. From this
reserved amount, we are required to have a number of common shares reserved for
issuance equal to no less than two times the number issuable upon conversion of
the notes and the warrants (based on the conversion price of the notes and the
exercise price of the warrants in effect from time to time). If the amount
reserved is below the amount to be reserved for the Investors under the
agreement, we are required to take all corporate action necessary to authorize
and reserve a sufficient number of shares. Under the agreement, if we fail to
obtain the shareholder approval necessary to increase the number of authorized
shares within thirty days following the date which the number of required
reserve shares exceeds the authorized and reserved shares, we may be noticed of
an event of default and required to pay the Investors liquidated damages of
three (3) percent of the outstanding amount of the notes per month plus accrued
and unpaid interest on the notes, prorated for partial months, in cash or shares
at the Investor's option. We currently do not have enough shares reserved under
the agreement.
The issuance costs incurred in connection with the convertible notes are
deferred and being amortized to interest expense over the life of each debenture
tranche.
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 tranche, with any excess charged to interest and
financing expense. The discount is being amortized over the life of each
debenture tranche using the interest method.
The following tables describe the valuation of the conversion feature of each
tranche of the convertible debenture, using the Black Scholes pricing model on
the date of each note:
7/27/2006 8/30/2006 1/24/2007
Tranche Tranche Tranche
------------- ------------- -------------
Approximate risk free rate 5.25% 4.80% 4.65%
Average expected life 3 years 3 years 2.5 years
Dividend yield 0% 0% 0%
Volatility 202.01% 201.26% 138.21%
Estimated fair value
of conversion feature
on date of notes $ 1,328,118 $ 1,137,064 $ 371,193
Estimated fair value
of conversion feature
as of November 30, 2007 $ 1,256,454 $ 1,086,258 $ 357,187
The Company recorded the fair value of the conversion feature, aggregate of
$2,836,375, as a discount to the convertible debt in the accompanying balance
sheet up to the proceeds received from each tranche, with the excess of
$1,336,375 charged to expense. Amortization expense related to the conversion
feature discount for the quarter ended November 30, 2007 was $129,617. Remaining
unamortized discount as of that date was $846,862.
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
were originally valued at $1,987,103 using the Black-Scholes Option Pricing
Model with the following weighted-average assumptions used.
7/26/2006
-------------
Approximate risk free rate 5.23%
Average expected life 7 years
Dividend yield 0%
Volatility 201.26%
Number of warrants granted 20,000,000
Estimated fair value of total warrants granted $ 1,987,103
The warrants were revalued as of the date of this report at a value of
$1,192,270 using the Black-Scholes Option Pricing Model. For the quarter ended
November 30, 2007, the Company has reported $401,438 in other income related to
changes in its derivative liability associated with these warrants.
F-37
March 15, 2007 Securities Purchase Agreement ($450,000 Convertible Debt)
On March 15, 2007, we entered into a Securities Purchase Agreement with New
Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore,
Ltd. and AJW Partners, LLC (the "Investors") and agreed to issue and sell (i)
callable secured convertible notes up to $450,000, and (ii) warrants to acquire
an aggregate of 9 million shares of our common stock. The callable secured
convertible notes (4 notes, $450,000 total loan principal; 3 year term; 6%
annual interest, 15% annual "default interest") 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 trading prices for the common
stock during the twenty 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 required filing and (ii) 60% in the event that the
Registration Statement becomes effective within ninety days from the required
filing. Under the Agreement, the conversion price of the secured convertible
notes will be adjusted in the event we issue securities below the fixed
conversion price and may be adjusted in certain circumstances such as merger,
consolidation or if we pay a stock dividend.
We received the first tranche of $120,000 on March 15, 2007, less issuance costs
of $20,000, the second tranche of $110,000, less issuance costs of $10,000 on
April 16, 2007, and the third tranche of $110,000 was received on May 15, 2007,
less issuance costs of $10,000 and the final tranche of $110,000 was received on
June 12, 2007.
We may prepay the notes in the event that no event of default exists, there are
a sufficient number of shares available for conversion, and the market price is
at or below $0.10 per share. Prepayment of the convertible notes is to be made
in cash equal to either (i) 120% of the outstanding principal and accrued
interest for prepayments occurring within 30 days following the issuance of the
notes, (ii) 130% of the outstanding principal and accrued interest for
prepayment occurring between 31 and 60 days following the issue dates of the
notes; and (iii) 140% of the outstanding principal and accrued interest for
prepayment occurring after the 60th day following the issue date of the notes.
In addition, in the event that the average daily price of the common stock for
each day of the month ending on any determination date is below $0.10, we may
repay a portion of the outstanding principal amount of the notes equal to 101%
of the principal amount divided by thirty-six plus one month's interest and this
will stay all conversions for the month.
Events of default under the notes generally include failure to repay the
principal or interest when due, failure to issue shares of common stock upon
conversion by the holder, failure to timely file a registration statement or
have such registration statement declared effective, breach of certain covenants
or representation or warranty in the Securities Purchase Agreement or related
convertible note, the assignment or appointment of a receiver to control a
substantial part of our property or business, a money judgment, writ or similar
process entered or filed against us in excess of $50,000 which continues for 20
days unless consented to by the holder, the commencement of a bankruptcy,
insolvency, reorganization or liquidation proceeding against us without stay or
the delisting of our common stock. Upon the occurrence of an event of default,
the note holders may demand repayment in an amount equal to the greater of (i)
the then outstanding principal amount of the convertible notes, together with
unpaid interest and any outstanding penalties times 140% or (ii) the "parity
value" of the default sum, where parity value means (a) the highest number of
shares of common stock issuable upon conversion of the default sum, treating the
trading day immediately preceding the prepayment date as the "conversion date"
for the purpose of determining the lowest applicable conversion price (unless
the event of default is a result of a breach in reference to a specific
conversion date), multiplied by (b) the highest closing price for the common
stock during the period beginning on the date of first occurrence of the event
of default and ending one day prior to the prepayment date. In addition, we
granted the Investors a security interest in substantially all of our assets and
intellectual property pursuant to a Security Agreement and an Intellectual
Property Security Agreement.
We issued seven year warrants to purchase 9,000,000 shares of our common stock
at an exercise price of $0.06 per share. The Investors may exercise the warrants
on a cashless basis if the shares of common stock underlying the warrants are
not then registered pursuant to an effective registration statement. In
addition, the exercise price of the warrants will be adjusted in the event we
issue common stock at a price below market, with the exception of any securities
issued as of the date of the warrants, certain issuances under our employee
stock plans, or shares issued upon exercise of the warrants. Under the terms of
the callable secured convertible notes and the related warrants, the callable
secured convertible notes 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. Per the
agreement, we must file a registration statement covering two times the number
of shares underlying the notes and the shares underlying the warrants, within 30
days of written demand. A penalty of .02% of the outstanding principal amount
per month for each month will accrue if the registration is not effective in
ninety days from filing.
Without the prior written consent of a majority-in-interest of the Investors,
subject to certain exceptions as set forth in the agreement, we may not
negotiate or contract with any party to obtain additional equity financing
(including debt financing with an equity component) that involves (i) the
issuance of common stock at a discount to the market price of the common stock
on the date of issuance (taking into account the value of any warrants or
options to acquire common stock issued in connection therewith) or (B) the
issuance of convertible securities that are convertible into an indeterminate
number of shares of common stock or (C) the issuance of warrants during the
lock-up period beginning on March 15, 2007 and ending one hundred eighty (180)
days from March 15, 2007. In addition, subject to certain exceptions as set
forth in the agreement, we agreed that we will not conduct any equity financing
(including debt with an equity component) during the period beginning on March
15, 2007 and ending two (2) years after the end of the above lock-up period
unless we have first provided to each Investor an option to purchase its prorata
share (based on the ratio of each Investor's purchase under the Securities
Purchase Agreement) of the securities being offered in any proposed equity
financing and the option must be extended to each Investor during the 15-day
period following delivery of notice.
F-38
Subject to shareholder approval, we are required to have a number of common
shares reserved for issuance equal to no less than two times the number issuable
upon conversion of the notes and the warrants (based on the conversion price of
the notes and the exercise price of the warrants in effect from time to time).
If the amount reserved is below the amount to be reserved for the Investors
under the agreement, we are required to take all corporate action necessary to
authorize and reserve a sufficient number of shares. Under the agreement, if we
fail to obtain the shareholder approval necessary to increase the number of
authorized shares within thirty days following the date which the number of
required reserve shares exceeds the authorized and reserved shares, we may be
noticed of default and required to pay the Investors liquidated damages of three
(3) percent of the outstanding amount of the notes per month plus accrued and
unpaid interest on the notes, prorated for partial months in cash or shares at
the Investor's option.
The issuance costs incurred in connection with the convertible notes are
deferred and being amortized to interest expense over the life of each debenture
tranche.
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 tranche, with any excess charged to interest and
financing expense. The discount is being amortized over the life of each
debenture tranche using the interest method.
The following tables describe the valuation of the conversion feature of each
tranche of the convertible debenture, using the Black Scholes pricing model on
the date of each note:
3/15/2007 4/16/2007 5/15/2007 6/12/2007
Tranche Tranche Tranche Tranche
------------- ------------- ------------- ------------
Approximate risk free rate 4.47% 4.80% 4.87% 5.13%
Average expected life 3 years 3 years 3 years 3 years
Dividend yield 0% 0% 0% 0%
Volatility 182.97% 193.30% 193.30% 235.23%
Estimated fair value
of conversion feature
on date of notes $ 237,789 $ 218,638 $ 218,638 $ 214,099
Estimated fair value
of conversion feature
as of November 30, 2007 $ 224,333 $ 207,320 $ 208,105 $ 208,898
The Company recorded the fair value of the conversion feature, aggregate of
$889,164, as a discount to the convertible debt in the accompanying balance
sheet up to the proceeds received from each tranche, with the excess of $439,164
charged to expense. Amortization expense related to the conversion feature
discount for the quarter ended November 30, 2007 was $37,399. Remaining
unamortized discount as of that date was $361,534.
The Company also granted warrants to purchase 9,000,000 shares of common
stock in connection with the financing. The warrants are exercisable at $0.06
per share for a period of seven years, and were fully vested. The warrants were
originally valued at $443,468 using the Black-Scholes Option Pricing Model with
the following weighted-average assumptions used.
3/15/2007
-------------
Approximate risk free rate 4.47%
Average expected life 7 years
Dividend yield 0%
Volatility 182.97%
Number of warrants granted 9,000,000
Estimated fair value of total warrants granted $ 443,468
The warrants were revalued as of the date of this report at a value of
$538,320 using the Black-Scholes Option Pricing Model. For the quarter ended
November 30, 2007, the Company has reported $182,445 in other income related to
changes in its derivative liability associated with these warrants.
July 30, 2007 Callable Secured Convertible Note ($110,000 Convertible Debt)
On July 30, 2007, the Company issued a callable secured convertible note in the
amount of $110,000. This note was issued under the same terms as the 6% $450,000
Convertible Debt above (the March 15, 2007 Securities Purchase Agreement).
F-39
The issuance cost of $10,000 incurred in connection with the convertible note is
deferred and being amortized to interest expense over the life of the note.
The Company is accounting for the conversion option in the debenture 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 the note,
with any excess charged to interest and financing expense. The discount is being
amortized over the life of the note using the interest method.
The following tables describe the valuation of the conversion feature of the
convertible debenture, using the Black Scholes pricing model on the date of the
note:
7/30/2007
-------------
Approximate risk free rate 4.57%
Average expected life 3 years
Dividend yield 0%
Volatility 236.86%
Estimated fair value
of conversion feature
on date of notes $ 214,244
Estimated fair value
of conversion feature
as of November 30, 2007 $ 209,883
The Company recorded the fair value of the conversion feature at $214,244, as a
discount to the convertible debt in the accompanying balance sheet up to the
proceeds received, with the excess of $104,244 charged to expense. Amortization
expense related to the conversion feature discount for the quarter ended
November 30, 2007 was $9,142. Remaining unamortized discount as of that date was
$97,644.
EVENTS OF DEFAULT UNDER NOTE AGREEMENTS
The Company has committed various acts which constitute events of default under
its Securities Agreements dated July 25, 2006, March 15, 2007 and July 30, 2007
(and the notes thereunder with a total principal balances of $2,060,000). The
Company has received assurance from counsel for the investors that the investors
have not placed the Company in default under the notes and therefore the Company
does not consider itself in default. There can be no assurance that the
investors will not declare a default in the future. Should such notice of
default be received by the Company, its liabilities would increase dramatically
due to the penalties, reset provisions, and other damages specified in the
transaction documents. The increase in liabilities attributed to a notice of
default under the transaction documents could exceed the Company's current
market capitalization and affect negatively on its financial condition by $7-13
million dollars. The debentures are collateralized by the Company's assets and,
in the event if the Company is unable to repay or restructure these debentures,
there is no assurance that the holders of the debentures will not institute
legal proceedings to recover the amounts owed including foreclosure on the
Company's assets.
DERIVATIVE LIABILITIES
In accordance with 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 November 30, 2007, the fair values of the conversion
feature and the stock warrants aggregated to $5,037,714. The Company recorded
income of $761,661 related to the change in fair value from the last date of
valuation of the convertible debt to November 30, 2007. 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.
NONEMPLOYEE OPTIONS
The Company has accounted for options granted to nonemployees in accordance with
FAS 123. Under FAS 123, the option award is based on the fair market value of
the underlying security based on the Black-Scholes Pricing Model, less the
option price.
F-40
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. The Company is authorized to issue
40,000,000 shares of no par value Series A preferred stock. As of August 31,
2007, the Company had 16,078,991 shares of preferred stock Series A issued and
outstanding. 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.
During the six months ended November 30, 2007, holders of the Company's Series A
preferred stock converted 500,000 shares of their Series A preferred stock into
500,000 shares of the Company's common stock.
On May 21, 2006, the Company and a subscriber entered into an Investment
Contract (the "Contract") in which the subscriber agreed to purchase 3 million
shares of the Company's restricted series A preferred shares at a price of
$0.0733 per share or $220,000. Under the Contract, these shares are to be
registered by the Company on Form SB-2. Such registration has not occurred. As
of August 31, 2007, all 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.
NOTE 7 - COMMON STOCK
On October 31, 2005, the Board approved a 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 date was on December 7,
2005. The accompanying consolidated financial statements reflect the reverse
stock split.
On June 15, 2007, the Company entered into an Investment Contract with an
existing shareholder to purchase 2,500,000 shares of its restricted common stock
for a price of $50,000 ($0.02 per share). The purchase price was payable in full
on or before September 15, 2007. The Investor paid $5,000 as of August 31, 2007.
The remaining $45,000 has been booked as a stock subscription receivable. The
remaining $45,000 was paid in September of 2007.
NOTE 8 - NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per
share:
For the six months ended
November 3
--------------------------------
2007 2006
Numerator:
Net Loss $ (1,189,313) $ (3,090,875)
Denominator:
Weighted Average Number of Shares 40,721,777 29,744,904
------------ ------------
Net loss per share-Basic and Diluted $ (0.03) $ (0.10)
F-41
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - NET LOSS PER SHARE (CONTINUED)
As the Company incurred a net loss for the six months ended November 30, 2007
and 2006, it has excluded from the calculation of diluted net loss per share
approximately 121,162,326 and 6,083,333 shares, respectively. These shares
represent the Series A preferred stock, outstanding warrants and assume that all
convertible notes could be converted at the market price as of November 30, 2007
and 2006, respectively.
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 detailed information of the
reportable segment is not presented.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company had notes payable to its CEO, Scott Sand, in the amounts of $100,850
and $2,621 as of November 30, 2007 and 2006, respectively. Interest on the loan
was accrued at 6% for the quarter ended November 30, 2006. The bulk of the
balance due as of November 30, 2007 was a result of business expenses paid by
Mr. Sand on his personal credit cards. The Company will record interest in the
amount of finance charges on the credit cards. The related accrued interest of
$12,976 is included in the note balance as of November 30, 2007. In addition to
the note amounts, the Company also has accrued salary expense payable to Mr.
Sand in the amounts of $213,356 and $112,000 as of November 30, 2007 and 2006,
respectively.
NOTE 11 - LEASE OBLIGATION
The Company leases its administrative office under a two unsecured leases
agreement which expire on April 1, 2008 and December 31, 2009. The Company also
maintains a corporate office under a month-to-month lease agreement. As of
August 31, 2007, the remaining lease obligation is as follows:
Year Ending Lease
May 31, Obligation
---------------------------------------
2008 $ 4,550
2009 9,300
2010 5,425
------------
$ 19,275
============
The total rent expense for the three and six months ended November 30, 2007 was
$7,850 and $14,200, respectively.
NOTE 12 - INTANGIBLE ASSETS
The Company has recorded patents at a cost of $67,345. This represents legal
costs of filing for patents and the purchase of the exclusive rights for a
patent with common stock valued at $60,000.
NOTE 13 - 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 may 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 may be required to
indemnify such persons for liabilities arising out 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, 2007.
F-42