10QSB 1 ingen_10qsb-022807.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2007 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from: __________ to __________ Commission File Number: 0-28704 INGEN TECHNOLOGIES, INC. ------------------------ (Exact name of registrant as specified in its charter) Georgia 88-0429044 ------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 35193 Avenue "A", Suite-C, Yucaipa, California 92399 ---------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (800) 259-9622 -------------- (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, no par value -------------------------- (Title of Class) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [x] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x] At April 10, 2007, 34,303,910 shares of the registrant's common stock (no par value) were outstanding. Transitional Small Business Disclosure Format (check one): YES / / NO /X/ INGEN TECHNOLOGIES, INC. AND SUBSIDIARY PART I. - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS FOR QUARTER ENDING FEBRUARY 28, 2007 CONSOLIDATED BALANCE SHEET (UNAUDITED) ----------------------------------------------------------------------------------------------------------- AS OF FEBRUARY 28, 2007 ------------ ASSETS Current Assets Cash $ 62,339 Inventory 85,728 Prepaid expenses 35,199 ------------ Total current assets 183,266 ------------ Property and equipment, net of accumulated depreciation of $119,232 140,077 Debt issue cost, net of accumulated amortization of $60,733 247,467 Other assets 67,345 ------------ TOTAL ASSETS $ 638,155 ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable $ 65,067 Accrued expenses 220,575 Officer's loans 4,689 ------------ Total current liabilities 290,331 ------------ Long-term Liabilities Convertible notes payable, net of unamortized discount of $1,294,226 280,774 Derivative liabilities 3,735,953 ------------ Total long-term liabilities 4,016,727 ------------ Stockholders' deficit Preferred stock Series A, no par value, 40,000,000 authorized; and 12,134,547 issued and outstanding as of February 28, 2007 588,313 Common stock, no par value, 100,000,000 shares authorized; 34,259,610 issued and outstanding as of February 28, 2007 8,106,949 Series A preferred stock subscription (220,000) Accumulated deficit (12,144,165) ------------ Total stockholders, deficit (3,668,903) ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 638,155 ============ See notes to interim unaudited consolidated financial statements 2 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) -------------------------------------------------------------------------------- For the three months ended For the nine months ended February 28, February 28, ----------------------------------- ----------------------------------- 2007 2006 2007 2006 --------------------------------------------------------------------------------------------------------------------------- Revenue $ 281,380 $ 79,184 $ 605,011 $ 846,268 Cost of Sales 160,455 33,992 342,644 228,050 ----------------- ----------------- ----------------- ----------------- Gross Profit 120,925 45,192 262,367 618,218 Selling, General and Administrative Expenses 533,693 436,444 1,379,955 1,468,751 ----------------- ----------------- ----------------- ----------------- Operating Loss (412,768) (391,252) (1,117,588) (850,533) ----------------- ----------------- ----------------- ----------------- Other (Expenses): Interest Expenses (352,808) (642) (4,051,776) (2,826) Change in Derivative Liabilities 212,276 -- 1,526,403 -- ----------------- ----------------- ----------------- ----------------- Net Loss before Taxes (553,300) (391,894) (3,642,961) (853,359) Provision for Income Taxes -- -- 1,215 800 ----------------- ----------------- ----------------- ----------------- Net Loss $ (553,300) $ (391,894) $ (3,644,176) $ (854,159) ================= ================= ================= ================= Basic and diluted net loss per share $ (0.02) $ (0.03) $ (0.12) $ (0.13) ================= ================= ================= ================= Weighted average number of common shares 32,292,943 13,312,249 30,594,250 6,689,948 See notes to interim unaudited consolidated financial statements 3 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ---------------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED FEBRUARY 28, 2007 2006 ----------- ----------- CASH FLOW FROM OPERATING ACTIVITIES: Net Loss (3,644,176) $ (854,159) Adjustments to Reconcile Net Loss to Net Cash Used in Operations: Depreciation and amortization 20,823 (34,385) Amortization of debt issue cost 44,767 -- (Increase) Decrease in: Change in derivative liabilities (1,526,403) -- Noncash interest expense and financing costs 3,965,130 -- Increase (Decrease) in: Accounts payable 16,881 8,800 Accrued expenses 40,782 14,025 Prepaid expenses (22,215) -- Expenses paid with stock 99,453 -- Litigation reserve -- (143,500) ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (1,004,958) (1,009,219) ----------- ----------- CASH FLOW FROM INVESTING ACTIVITIES Addition to (disposition of) Fixed Assets (99,405) 23,174 Addition to intangibles (7,345) -- Additions to inventory (85,728) -- ----------- ----------- NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (192,478) 23,174 ----------- ----------- CASH FLOW FROM FINANCING ACTIVITIES: Net repayments to note payable to related party (66,137) (10,000) Repayments to notes payable -- (25,000) Proceeds from issuance of common stock (52,000) 40,000 Proceeds from convertible debt 1,266,800 1,029,500 ----------- ----------- NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES 1,148,663 1,034,500 ----------- ----------- NET INCREASE (DECREASE) IN CASH (48,773) 48,455 Cash Balance at Beginning of Period 111,112 17,727 ----------- ----------- CASH BALANCE AT END OF PERIOD $ 62,339 $ 66,182 =========== =========== Supplemental Disclosures of Cash Flow Information: Interest paid $ -- $ -- Taxes paid $ -- $ -- Noncash Financing Activities: Value of issuance of warrants in connection with convertible debt $ 1,987,103 $ -- Recorded a beneficial conversion feature $ 3,275,253 $ -- Stock subscription receivable for preferred stock $ 220,000 $ -- See notes to interim unaudited consolidated financial statements 4
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 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. 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. PRESENTATION OF INTERIM INFORMATION: The accompanying consolidated financial statements for the three and nine months ended February 28, 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, 2006. In the opinion of Management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the three and nine months ended February 28, 2007 and 2006, have been made. The results of operations for the three and nine months ended February 28, 2007 are not necessarily indicative of the operating results for the full year. 5 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRINCIPLE OF CONSOLIDATION AND PRESENTATION: The accompanying consolidated financial statements include the accounts of Ingen Technologies, Inc. and its subsidiary after elimination of all inter-company accounts and transactions. Certain prior period balances have been reclassified to conform to the current period presentation. The accompanying consolidated financial statements have been retroactively adjusted to reflect the one-for-forty reverse stock split on December 7, 2005. USE OF ESTIMATES: The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates. CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES: The Company accounts for convertible notes payable and warrants in accordance with Statement of Financial Accounting Standards (SFAS) No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." This standard requires the conversion feature of convertible debt be separated from the host contract and presented as a derivative instrument if certain conditions are met. Emerging Issue Task Force (EITF) 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO AND POTENTIALLY SETTLED IN A COMPANY'S OWN STOCK" and EITF 05-2, "THE MEANING OF "CONVENTIONAL CONVERTIBLE DEBT INSTRUMENT" IN ISSUE NO. 00-19" were also analyzed to determine whether the debt instrument is to be considered a conventional convertible debt instrument and classified in stockholders' equity. The convertible notes payable issued on June 6, 2006, July 27, 2006, August 30, 2006 and January 24, 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 February 28, 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 February 28, 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. NET INCOME (LOSS) PER SHARE: Basic net income per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average number of common stock outstanding for the period. Diluted net income per share is computed by dividing net income by the weighted average number of common shares and the dilutive potential common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares and excludes dilutive potential common shares outstanding, as their effect is anti-dilutive. Dilutive potential common shares consist primarily of stock warrants and shares issuable under convertible debt. 6 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION: The Company accounts for stock issued to non-employees in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123 and the Emerging Issue Task Force (EITF) Issue No. 00-18, "ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES." SFAS No. 123 states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Under the guidance in Issue 00-18, the measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date). In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"), "ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES, AN INTERPRETATION OF FASB STATEMENT NO. 109," which clarifies the accounting of uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, "ACCOUNTING FOR INCOME TAXES." FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provisions of this Interpretation are effective for fiscal years beginning after December 15, 2006. Management is currently evaluating the financial statement impact of the adoption of FIN 48. NOTE 2 - GOING CONCERN The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. In the near term, the Company expects operating costs to continue to exceed funds generated from operations. As a result, the Company expects to continue to incur operating losses and may not have sufficient funds to grow its business in the near future. The Company can give no assurance that it will achieve profitability or be capable of sustaining profitable operations. As a result, operations in the near future are expected to continue to use working capital. On July 25, 2006, the Company entered into a Security Purchase Agreement for sale of up to $2 million aggregate principal amount of callable secured convertible notes. As of February 28, 2007, the Company received an aggregate of $1,266,800 in cash from issuing the convertible notes (the principal balance of the notes was $1.5 million). 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 $3,644,176 for the nine months ended February 28, 2007, and as of that date, had an accumulated deficit of $12,144,165. 7 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment as of February 28, 2007 and 2006 is summarized as follow: 2007 2006 --------- --------- Automobile $ 9,500 $ 9,500 Furniture & Fixture 31,705 27,222 Machinery & Equipment 118,652 61,277 Leasehold Improvements 40,180 32,047 Molds 59,272 -- --------- --------- 259,309 130,046 Less accumulated depreciation (119,232) (93,908) --------- --------- Property and Equipment, net $ 140,077 $ 36,138 ========= ========= NOTE 4 - ACCRUED EXPENSES Accrued expenses at February 28, 2007 and 2006 consist of: 2007 2006 -------- -------- Accrued officer's compensation $158,667 $362,000 Accrued Professional Fees -- 6,000 Accrued Interest Expense 55,695 31,755 Accrued payroll 4,000 -- Accrued taxes 2,078 800 Royalty payable 135 -- -------- -------- Total $220,575 $400,555 ======== ======== NOTE 5 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES 6% $2 MILLION CONVERTIBLE DEBT ------------------------------ On July 25, 2006, the Company entered into a Security Purchase Agreement (the "Agreement") and agreed to issue and sell (i) callable secured convertible notes up to $2 million, and (ii) warrants to acquire 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%. The Company may prepay the notes in the event that no event of default exists, there are sufficient number of shares available for conversion, and the market price is at or below $0.10 per share. In addition, in the event that the average daily price of the common stock, as reported by the reporting service, for each day of the month ending on any determination date is below $0.10, the Company may repay a portion of the outstanding principal amount of the notes equal to 101% of the principal amount thereof divided by thirty-six plus one month's interest. The full principal amount of the notes is due upon default under the terms of the Notes. In addition, the Company has granted the investors a security interest in substantially all of its assets and intellectual property as well as registration rights. 8 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 5 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES (CONTINUED) The Company received the first traunch of $700,000 on July 27, 2006, less issuance costs of $295,200, the second traunch of $600,000, less issuance costs of $13,000 on August 30, 2006, and the third traunch of $200,000 was received on January 24, 2007. The Company issued seven year warrants to purchase 20,000,000 shares of its common stock at an exercise price of $0.10. The Company filed a SB-2 registration statement with the SEC on August 25, 2006, regarding the agreement; however, a registration withdrawal request was filed with the SEC on October 31, 2006. The Company intends on filing a new SB-2 to register the underlying shares of these convertible notes and 6 million additional shares once it has cured its delinquent filings with the SEC. 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. 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 traunch, with any excess charged to operations. The discount is being amortized over the life of each debenture traunch using the interest method. The following tables describe the valuation of the conversion feature of each traunch of the convertible debenture, using the Black Scholes pricing model: 7/27/2006 8/30/2006 1/24/2007 Traunch Traunch Traunch -------------- ------------- ------------- 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 $ 1,328,118 $ 1,137,929 $ 371,193
The Company recorded the fair value of the conversion feature, aggregate of $2,837,240, as a discount to the convertible debt in the accompanying balance sheet up to the proceeds received from each traunch, with the excess of $1,166,047 charged to expense. Amortization expense related to the conversion feature discount for the nine months ended February 27, 2007 was $261,438. Remaining unamortized discount as of that date was $1,238,562. 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. 9 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 5 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES (CONTINUED) 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 $ 1,987,478 The warrants were revalued as of the date of this report at a value of $1,092,556 using the Black-Scholes Option Pricing Model. For the nine months ended February 28, 2007, the Company has reported $894,547 in other income related to changes in its derivative liability associated with these warrants. 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 $437,565 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 nine months ended February 28, 2007 was $18,336. Remaining unamortized discount as of that date was $55,664. 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 February 28, 2007, the fair values of the conversion feature and the stock warrants aggregated to $3,735,953. The Company recorded a gain of $1,526,403 related to the change in fair value from the date of issuance of the convertible debt to February 28, 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. On January 18, 2007, the Company granted 100,000 options to one nonemployee. The value of the options was calculated to be $4,953. This amount has been expensed in the current period. 10 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 6 - PREFERRED STOCKS On December 7, 2005, the Company had a reverse stock split of 3 to 1 for all issued and outstanding preferred shares and converted all outstanding and authorized preferred shares into Series A preferred stock. No dividends shall accrue or be payable on the Series A preferred stock. The Company has the right to redeem each share of Series A preferred stock for $1; however, there is no obligation for this redemption. Each share of Series A preferred stock is entitled to vote on all matters with holders of the common stock; however, each Series A preferred share is entitled to 1 vote. Each share of Series A preferred stock is convertible, at the option of the holder and subject to a 65 day written notice to the Company, at any time after the date of the issuance into 1 share of fully paid and non-assessable share of common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series A preferred stock shall be entitled to be paid $1 per share before any payments or distribution of assets of the Company to the holders of the common stock or any other equity securities of the Company. The accompanying consolidated financial statements have been retroactively adjusted to reflect the reverse stock split. In April of 2006, an Investor agreed to purchase 3 million shares of the Company's restricted Series A preferred stock shares at a price of $0.0733 per share or $220,000. These shares were to be registered by the Company in an SB-2 offering. The Company has filed and subsequently withdrawn three SB-2 filings with the SEC (in April, August and December of 2006). The Company intends on filing a new SB-2 when it has cured its delinquencies in periodic filings with the SEC. The new SB-2 filing will register these shares and the underlying shares associated with its convertible debentures. As of February 28, 2007, the 3 million shares of restricted Series A preferred shares were issued and a subscription receivable of $220,000 was recorded against the Company's equity. On December 19, 2006, Scott Sand, the CEO and Chairman of the Company, converted 2 million shares of his Series A preferred stock 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 at which Mr. Sand received his last lot of Series A preferred stock in May 2006 when he accepted the Series A preferred shares in lieu of past due compensation. 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 have been retroactively adjusted to reflect the reverse stock split. NOTE 8 - NET LOSS PER SHARE The following table sets forth the computation of basic and diluted net loss per share: For the three months ended For the nine months ended February 28, February 28, ----------------------------------- ----------------------------------- 2007 2006 2007 2006 Numerator: Net Loss $ (553,300) $ (394,894) $ (3,644,176) $ (854,159) Denominator: Weighted Average Number of Shares 32,292,943 13,312,249 30,594,250 6,689,948 --------------- --------------- ------------ ----------- Net loss per share-Basic and Diluted $ (0.02) $ (0.03) $ (0.12) $ (0.13)
11 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 8 - NET LOSS PER SHARE (CONTINUED) As the Company incurred net losses for the three and nine months ended February 28, 2007, it has excluded from the calculation of diluted net loss per share approximately 6,083,333 shares related to its convertible debt in accordance with EITF Issue No. 04-8, "THE EFFECT OF CONTINGENTLY CONVERTIBLE DEBT ON DILUTED EARNINGS PER SHARE". There are no dilutive items for the three and nine months ended February 28, 2006. 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 a note payable to its CEO, Scott Sand, in the amounts of $4,689 and $92,802 as of February 28, 2007 and 2006, respectively. The interest rate on the note is 6% and due upon working capital availability. The related accrued interest is $33,844 and $31,755 as of February 28, 2007 and 2006, respectively. Mr. Sand is also due $158,667 in accrued salary. This amount is included in accrued expenses on the balance sheet as of February 28, 2007. NOTE 11 - GUARANTEES The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. These contracts primarily relate to: (i) divestiture agreements, under which the Company 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 February 28, 2007. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS This Quarterly Report on Form 10-QSB contains forward-looking statements, which reflect management's current views with respect to future events and financial performance. In this report, the words "anticipates," "believes," "expects," "intends," "future," "may" and similar expressions identify forward-looking statements. These and other forward-looking statements are subject to certain risks and uncertainties, including those discussed in the Risk Factors section of this Item 2 and elsewhere in this Form 10-QSB, that could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances occurring subsequent to the filing of the Form 10-QSB with the Securities and Exchange Commission. OVERVIEW We are a medical device manufacturer and service provider for medical and consumer markets both domestic and 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 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 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 of sales of OxyAlert(TM). 13 Our business plan for the remainder of fiscal year ending May 31, 2007 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. SIGNIFICANT FINANCING IN THIS FISCAL YEAR 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 $404,800) was completed on July 26, 2006 with the following parties and evidenced by callable secured convertible notes: AJW Capital Partners, LLC invested $67,900; AJW Offshore, Ltd. invested $413,000; AJW Qualified Partners, LLC invested $210,000; and New Millennium Capital Partners II, LLC invested $9,100. The callable secured convertible notes are convertible into shares of our common stock at a variable conversion price based upon the applicable percentage of the average of the lowest three (3) Trading Prices for the Common Stock during the twenty (20) Trading Day period prior to conversion. The "Applicable Percentage" means 50%; provided, however, that the Applicable Percentage shall be increased to (i) 55% in the event that a Registration Statement is filed within thirty days of the closing and (ii) 60% in the event that the Registration Statement becomes effective within one hundred and twenty days from the Closing. Since the Company failed to file a Registration Statement within these time periods, the Applicable Percentage will be 50%. 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. On August 30, 2006 we received a second traunch of these callable secured convertible notes. This second traunch was for a total of $600,000 (we received net proceeds of $587,000). A third traunch of $200,000 was received on January 24, 2007. Upon full subscription to the Securities Purchase Agreement and the conversion in full of the Callable Secured Convertible Notes, the total shares required to be issued by the Company could be 66,666,667 based on a closing share price of $0.06 (closing share price as of February 28, 2007). Since the Company has 34,259,610 shares outstanding as of February 28, 2007, the shares required to be issued under a full subscription and conversion of the Callable Secured Convertible Notes could not be issued without increasing the number of authorized shares of common stock of the Company. 14 Lionheart Associates, LLC (d/b/a Fairhills Capital) ("Lionheart") acted as a consultant to us. In consideration for their services, we issued to them warrants representing the right to purchase up to 2,000,000 shares of our common stock at an exercise price of $.10 per share. These warrants also expire on July 26, 2013. WITHDRAWAL OF OUR SB-2 REGISTRATION STATEMENTS On July 25, 2006, we filed a Request for Withdrawal of Registration Statement. This filing withdrew our first SB-2 filing of April 5, 2006. This withdrawal was necessary in order for the company to proceed with the SB-2 as filed on August 25, 2006. This Registration Statement was filed to register a total of 31,753,471 shares of common stock, of which 2,100,000 shares were issuable under the exercise of certain options by a shareholder, 4,653,471 were shares issuable to 4 selling shareholders and 25,000,000 were issuable for sale by the Company. The SB-2 filed on August 25, 2006 was subsequently withdrawn on October 31, 2006. This Registration Statement was filed to register a total of 49,619,048 shares of common stock, of which 47,619,048 represented 100% of the amount of underlying secured convertible notes in the principal amount of $2,000,000 and 2,000,000 shares issuable upon the exercise of common stock purchase warrants that were issued in conjunction with the aforementioned notes. The warrants have an exercise price of $.10 per share. A third SB-2 was filed by the Company on December 15, 2006. This Registration Statement was withdrawn on February 13, 2007. This Registration Statement was filed to register a total of 13,554,497 shares of common stock, which represented $1,300,000 of the total amount of underlying secured convertible notes in the principal amount of $2,000,000. The Company has received $1,300,000 (net proceeds were $991,800) of these proceeds as of November 30, 2006 and received an additional $200,000 in January 2007. The Company intends on filing a new SB-2 when it has cured its delinquencies in periodic filings with the SEC. This filing would register the underlying shares associated with the convertible secured debentures and 6 million additional shares. 15 OFF-BALANCE SHEET ARRANGEMENTS We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities" (SPEs). RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2007 COMPARED TO THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2006 We account for our Secure Balance(TM) sales by reporting revenues upon the delivery of product. Nearly all of our sales revenues were generated through Secure Balance (TM) sales. Our total sales revenues for the three and nine months ended February 28, 2007 were $281,380 and $605,011, respectively. Of these amounts $278,080 and $601,637 were generated through Secure Balance (TM) sales. Our sales for the same periods in 2006 were $79,184 and $846,268, respectively. All of the revenues in the three and nine months ended February 28, 2006 were generated from sales of Secure Balance(TM). We have completed our prototype testing for OxyView(TM) and have recently began manufacturing and sales of OxyView (TM). Our first revenues from OxyView(TM) sales occurred in November 2006. The total sales on our OxyView(TM) Product totaled $3,300 and $3,374 in the three and nine months ended February 28, 2007, respectively. We had $281,380 in total sales for the quarter ended February 28, 2007, an increase of 255% from the revenues of $79,184 in the quarter ended February 28, 2006. The Company has begun ramping up sales of its Secure Balance(TM) product and has also added revenues from its OxyView(TM) product. Our cost of sales was $160,455 for the quarter ended February 28, 2007. This was an increase of 372% from the cost of sales of $33,992 for the quarter ended February 28, 2006. As a result, our gross profit increased from $45,192 in the quarter ended February 28, 2006 to $120,925 in the quarter ended February 28, 2007. Our total sales for the nine months ended February 28, 2007 were $605,011, down from $846,268 in the nine months ended February 28, 2006. This decrease in sales was due to a decline in sales of our Secure Balance(TM) systems. Our cost of sales was $342,644 for the nine months ended February 28, 2007 and $228,050 for the nine months ended February 28, 2006. As a result, our gross profit decreased from $618,218 in the nine months ended February 28, 2006 to $262,367 in the nine months ended February 28, 2007. 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. This increase has been exhibited in the quarter ended February 28, 2007. We have had significant losses since inception. Our net loss for the quarter ended February 28, 2007 was $553,300. This is compared with $394,894 during the quarter ended February 28, 2006. Our net loss for the nine months ended February 28, 2007 was $3,644,176. This is compared with a loss of $854,159 during the nine months ended February 28, 2006. The dramatic increase in the net loss for the Nine months ended February 28, 2007 compared to the net loss for the same period in 2006 was primarily due to interest charges associated with the Company's financings and the value of warrants and options issued from June 2006 through January 2007. Our selling, general and administrative ("SG&A") expenses for the quarter ended February 28, 2007 were $533,693 compared to $436,444 in the quarter ended February 28, 2006. Our SG&A for the current quarter was higher than the same period in 2006 primarily due to an increase in advertising and marketing costs. We have increased these costs in an effort to boost our revenues. SG&A for the nine months ended February 28, 2007 were $1,379,955 compared to $1,468,751 in the nine months ended February 28, 2006. We had higher expenses in the nine months ended February 28, 2006 due to more professional fees and higher direct costs of selling our products (due to our revenues being higher in the nine months ended February 28, 2006). The Company recorded interest expense of $352,808 and $4,051,776 in the quarter and nine months ended February 28, 2007, respectively. This was a dramatic increase from the amounts of $642 and $2,826 in the same periods ending February 28, 2006. The increase was due to the Company entering into convertible notes with a total face value of $1,575,000. The fair value of the conversion feature to the extent that it exceeded the face value of the note was booked as additional interest expense at the time of the note issuance. Additionally, due to the conversion feature of the convertible notes the Company recorded a discount on the notes equal to the face value of the notes. This discount is being amortized over the three-year term of the notes with the amortization being recorded as additional interest expense. Lastly, the Company recorded debt issuance costs in the amount of $308,200. These costs are also being amortized over the term of the notes with the amortization being recorded as additional interest expense. Our net loss increased from $394,894 for the quarter ended February 28, 2006 to $553,300 for the quarter ended February 28, 2007. Our net loss for the nine months ended February 28, 2007 was $3,644,176 compared to a loss of $854,159 in the nine months ended February 28, 2006. We expect our operating costs to fluctuate in relation to our sales results during current fiscal year. OPERATING LOSS CARRYFORWARD (CALCULATED ON A FISCAL YEAR BASIS) As of May 31, 2006 and 2005, the Company had net operating loss carryforwards, approximately, of $3,009,598 and $1,406,771, respectively, to reduce future federal and state taxable income. To the extent not utilized, the carryforwards will begin to expire through 2026. The Company's ability to utilize its net operating loss carryforwards is uncertain and thus a valuation reserve has been provided against the Company's net deferred tax assets. A valuation allowance is recorded for the full amount of deferred tax assets of approximately $1,294,127 and $602,098, for the years ended May 31, 2006 and 2005, respectively, which relates to these loss carryforwards, since future profits are indeterminable. See our Form 10-KSB for more information (filed on August 8, 2006). LIQUIDITY AND CAPITAL RESOURCES Our net cash flow from financing activities was $1,148,663 in the nine months ending February 28, 2007. Our net cash used in operating activities was $1,004,958 for the nine months ending February 28, 2007. Our net cash used in investing activities was $192,478 for the nine months ending February 28, 2007. Our cash expenditures were financed with $605,011 of sales of Secure Balance(TM) and OxyView(TM) and the Company entering into convertible callable note agreements that generated net proceeds of $1,266,800 (total principal balance of $1,575,000). As of February 28, 2007, we had cash on hand of $62,339 compared to $66,182 as of February 28, 2006. Our future cash requirements will depend on many factors, including finishing our product development programs for the rest of our BAFI(TM) product line. These expenses have been completed for OxyView(TM). We will have additional costs for tooling for manufacturing of the rest of our BAFI(TM) line. These costs have been incurred for OxyView(TM), including the purchase of inventory of OxyView(TM). We will have costs involved in filing, prosecuting and enforcing patents, including foreign patents. We will incur costs in our ongoing Secure Balance(TM) and OxyView(TM) sales efforts. We also have considerable expense involved in our effort to get up-to-date on all SEC periodic reporting filings under the Securities Exchange Act of 1934, as well as costs involved in filing current periodic reporting and securities registration (as required by contracts with investors). As of February 28, 2007 we had an accumulated deficit of $12,144,165 (up from $7,419,550 as of February 28, 2006). 16 We do not expect to generate a positive cash flow from operations at least until the large-scale launch of our OxyView(tm) product line, planned late in the fiscal year ended May 31, 2007 and possibly later given the expected cost of commercializing our products. We intend to seek additional funding through public or private financing transactions. Successful future operations are subject to a number of technical and business risks, including our continued ability to obtain future funding, satisfactory product development and market acceptance for our products. See "Business Risks" below. PLAN OF OPERATION FOR OXYVIEW On November 16, 2006, the Company purchased the intellectual property rights for OxyView(TM). The Company had jointly developed OxyView (TM) with a third party. The purchase agreement gave the Company exclusive rights and sole ownership to OxyView (TM). Patents for OxyView (TM) are pending in the United States, Japan, People's Republic of China and the European Communities. OxyView is a proprietary medical product with a United States Patent and Trademark pending that measures the accuracy of oxygen flow-rate for patients using oxygen during surgery, hospitalization, and outpatient oxygen therapy. OxyView is a disposable pneumatic analog gauge that measures the oxygen flow-rate close to the patient. It allows the medical staff and patient to quickly determine any malfunction of oxygen flow-rate between the source and the patient. OxyView can be used with any oxygen delivery source and has additional markets in aviation, fire fighting, and military. The Company paid an independent research firm to conduct market research for OxyView. It was determined that OxyView may not be a viable product to gain significant market share in hospitals, but its application within long-term care and skilled nursing facilities could be substantial. The marketing study also indicated that there is a significant need for a product like OxyView in home health care and that there may be an opportunity in direct consumer sales. Based on the results of this study, the Company has adjusted its marketing thrust accordingly. 17 TRENDS THAT MAY IMPACT OUR LIQUIDITY Positive Trends: The United States has an increasingly elderly population. Our Secure Balance(TM) and BAFI(TM) product line (except GasAlert(TM) which targets the entire adult population) are made to meet some of the challenges and circumstances experienced by our senior citizens. As a result, we expect our sales to increase in time in reflection of this positive trend. Management also believes that our products provide increasing protection in relation to medical malpractice issues. Use of our Secure Balance(TM) system and OxyAlert(TM) and OxyView(TM) products enhance the safety of patients, and therefore, we believe, lessen the chances of medical malpractice exposure to our physician clients. We have been developing our BAFI(TM) product line since 1999. Now, some 7 years later, we still have not identified competition in the marketplace for our BAFI(TM) product line. The lack of competition is expected to enhance our planned marketing campaign. We believe that Secure Balance(TM) is now among the leaders in the balance and fall prevention industry. We expect to be able to capitalize on this notoriety and increase our Secure Balance(TM) sales in fiscal year 2007 and beyond (as long as physicians are not impacted by Medicare billing changes, that may fluctuate periodically, as discussed above, and below). Negative Trends: Our product sales are impacted by Medicare, and are Medicare dependent. Adverse economic conditions, federal budgetary concerns and politics can affect Medicare regulations and could negatively impact our product sales. SEASONAL ASPECTS THAT EFFECT MAY IMPACT OUR MEDICAL MARKET Traditionally, the medical market experiences an economic decrease in purchasing during the summer months. Peak months are usually October through February, followed by a decrease from March to May. Except for the summer of 2005 (when we had better-than-expected Secure Balance(TM) sales), this is the common "bell curve" that has been consistent for several decades and will affect our sales during the course of a year. OUR SECURE BALANCE(TM) LEASING AND FINANCING PROGRAMS Our Secure Balance(TM) Leasing and Financing Programs are offered to allow our physician and medical facility clients a variety of affordable leasing and financing options. Our financing option includes a 90 day deferral program, giving clients a chance to earn revenues from Secure Balance(TM) before payments are due. 18 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. As of February 28, 2007, Mr. Sand is due $158,667 in accrued and unpaid salary under His employment agreement. Our Secure Balance(TM) systems are sold to us for re-sale on a "private label" basis; we have no part in the design or manufacture of the systems. We hire sales representatives to sell Secure Balance(TM). These reps are paid on a contractual basis and are not technically our employees. We have outsourced the manufacturing of our OxyView(tm) product and will sell these products utilizing a distribution network that will not include outside salespeople and company employees. BUSINESS RISKS EACH OF THE FOLLOWING RISKS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS, WHICH COULD CAUSE THE PRICE OF OUR SHARES TO DECLINE SIGNIFICANTLY. OUR FORWARD-LOOKING STATEMENTS ARE SUBJECT TO THE FOLLOWING RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY OUR FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS BELOW. SEE "FORWARD-LOOKING STATEMENTS." THE FOLLOWING RISKS RELATE TO OUR OBLIGATION TO FILE REPORTS UNDER THE SECURITIES EXCHANGE ACT OF 1934: THE SEC HAS THREATENED TO SUSPEND TRADING OF OUR STOCK On October 13, 2005, we received a letter from the Division of Corporate Finance of the Securities and Exchange Commission ("SEC") in connection with our failure to file periodic reports as required by the Securities Exchange Act of 1934. Specifically, as of the date of the SEC's letter, our predecessor management failed to file periodic reports dating to fiscal year ended 1998. After the Merger, we recommenced filing of our periodic reports on November 7, 2005. Based on same, we are required to file all reports not previously filed or we may face an SEC administrative hearing pursuant to which the trading of our stock could be suspended until such time as our filings become current. Our counsel has contacted the SEC in connection with this matter. To date, the SEC has not scheduled such an administrative hearing. We have began the filing of our delinquent reports and expect to have them completed by the end of the current fiscal year ended May 31, 2007. 19 Our fiscal year is from June 1 to May 31. We have filed annual reports on Form 10-KSB for our fiscal years ended May 31, 2004, 2005, and 2006 and quarterly reports on Form 10-QSB for each quarter during these fiscal years as well as other documents as contained on EDGAR. We have retained attorneys and accountants to complete the filing of all delinquent filings and anticipate this project to be completed by the end of the current fiscal year. However, there is no guarantee that we will be able to complete our back filings in a manner and within a period of time acceptable to the SEC. There is no guarantee that we will be able to maintain an uninterrupted public market for our securities. THERE IS CONSIDERABLE EFFORT AND EXPENSE INVOLVED IN OUR EFFORT TO CATCH UP ON THE DELINQUENT FILINGS We have expended considerable administrative time on our effort to bring our reporting obligation up to date and will continue to do so until we are able to catch up on all the delinquent periodic reporting filings. We have expended a considerable amount of money in fees to our auditors and counsel to commence periodic reporting. We plan to continue to expend these administrative and financial resources until such time as we are able to complete the filing of all past-due reporting on EDGAR. The Company believes that these expenses are a necessary allocation of the Company's resources and until all delinquent filings are completed. This administrative effort and expense may adversely affect our ability to operate and finance our business operations. WE MAY BE SUBJECT TO DISCIPLINE PURSUANT TO SECTION 14 OF THE SECURITIES EXCHANGE ACT OF 1934 BASED ON OUR FAILURE TO FILE A PROXY STATEMENT WITH THE SEC IN CONNECTION WITH THE EFFECTUATION OF OUR REVERSE STOCK SPLITS AND AMENDMENTS TO OUR ARTICLES OF INCORPORATION. Pursuant to Section 14 of the Securities Exchange Act of 1934, we are required to furnish a publicly-filed preliminary and/or definitive written proxy statement to any shareholder whose vote shall be solicited in connection with any proposed corporate action requiring a shareholder vote. We are also required to file such proxy statements with the Securities and Exchange Commission. Certain exemptions may apply which allow us to furnish shareholders with an information statement, as opposed to a proxy statement, which must also be filed with the Securities and Exchange Commission. Additionally, the Georgia Business Corporation Code requires us to provide shareholder notice within a reasonable time from the date shareholder approval was acquired. Based upon same, we were required to notify our shareholders and file an information statement prior to filing amendments to our Articles of Incorporation pursuant to which we reduced the number of authorized shares of our common stock from 500,000,000 to 100,000,000 with the State of Georgia, as well as prior to the effectuation of the 1-for-40 reverse split of all of our common shares and the 1-for-3 reverse stock split of our preferred shares. 20 Although such actions were approved by the holders of the majority of our outstanding shares entitled to vote thereon and although notice was sent to the shareholders as required under Georgia state law, such actions should not have been effectuated without the filing of the information statement with the SEC. Because we failed to file such information statement in a timely manner and provide our shareholders with proper notice, we may be subject to discipline by the Securities and Exchange Commission in violation of Section 14 of the Securities and Exchange Act. THE FOLLOWING RISKS RELATE PRIMARILY TO THE OPERATION OF OUR BUSINESS: NEW BUSINESS VENTURES OR ACQUISITIONS THAT WE MAY UNDERTAKE WOULD INVOLVE A NUMBER OF INHERENT RISKS, ANY OF WHICH COULD CAUSE US NOT TO REALIZE THE BENEFITS ANTICIPATED TO RESULT. We continually seek to expand our operations through acquisitions of businesses and assets, including Pure Produce. These transactions involve various inherent risks, such as: o uncertainties in assessing the value, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition or other transaction candidates; o the potential loss of key personnel of an acquired business; o the ability to achieve identified operating and financial synergies anticipated to result from an acquisition or other transaction; o problems that could arise from the integration of the acquired or new business; o unanticipated changes in business, industry or general economic conditions that affect the assumptions underlying the acquisition or other transaction rationale; and o unexpected development costs that adversely affect our profitability. Any one or more of these factors could cause us not to realize the benefits anticipated to result from the acquisition of businesses or assets or the commencement of a new business venture. WE HAVE A HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT, AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE. We have experienced significant operating losses in each period since our inception. As of February 28, 2007, we have incurred total accumulated losses of $12,144,165. 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 general and administrative costs associated with operations. We expect to incur increasing operating losses in the future as a result of expenses associated with research and product development as well as general and administrative costs. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. 21 WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR GROWTH, AND RAISING SUCH CAPITAL WILL LIKELY CAUSE SUBSTANTIAL DILUTION TO EXISTING STOCKHOLDERS. IF ADDITIONAL CAPITAL IS NOT AVAILABLE, WE MAY HAVE TO CURTAIL OR CEASE OPERATIONS. Our current plans indicate we will need significant additional capital for research and development and market penetration before we have any substantial revenues generated from our BAFI(TM) product line. The actual amount of funds that we will need will be determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include: o the extent to which we enter into licensing arrangements, collaborations or joint ventures; o our progress with research and development; o the costs and timing of obtaining new patent rights (if any); o cost of continuing operations and sales; o the extent to which we acquire or license other technologies; and o regulatory changes and competition and technological developments in the market. We may be relying on future securities sales to enable us to grow and reach profitability. There is no guarantee we will be able to sell our securities. WE HAVE RELIED ON CAPITAL CONTRIBUTED BY RELATED PARTIES, AND SUCH CAPITAL MAY NOT BE AVAILABLE IN THE FUTURE. 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 February 28, 2007, the Company owes Mr. Sand $158,667 under his Employment contract. WE ARE SUBJECT TO NEW CORPORATE GOVERNANCE AND INTERNAL CONTROLS REPORTING REQUIREMENTS, AND OUR COSTS RELATED TO COMPLIANCE WITH, OR OUR FAILURE TO COMPLY WITH EXISTING AND FUTURE REQUIREMENTS COULD ADVERSELY AFFECT OUR BUSINESS. We face corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations subsequently adopted by the SEC. These laws, rules and regulations continue to evolve and may become increasingly stringent in the future. In particular, we will be required to include management and auditor reports on internal controls as part of our annual report for the year ended May 31, 2008 pursuant to Section 404 of the Sarbanes-Oxley Act. We cannot assure you that we will be able to fully comply with these laws, rules and regulations that address corporate governance, internal control reporting and similar matters. Failure to comply with these laws, rules and regulations could materially adversely affect our reputation, financial condition and the value of our securities. 22 OUR PRODUCTS MAY NOT BE SUCCESSFULLY DEVELOPED OR COMMERCIALIZED, WHICH WOULD HARM US AND FORCE US TO CURTAIL OR CEASE OPERATIONS. We are a relatively new company and our BAFI(TM) product line in particular is still in the late stages of development. We are manufacturing OxyView(tm) units for sale, but still need manufacturing prototypes for OxyAlert(TM) and GasAlert(TM). Our manufacturing of the OxyView(TM) units is being done by Accent Plastics under a subcontracting arrangement. These products, once marketing commences, may not be successfully commercialized on a timely basis, or at all. If we are unable, for technological or other reasons, to complete the development, introduction or scale-up of manufacturing of these products or other potential products, or if our products do not achieve a significant level of market acceptance, we would be forced to curtail or cease operations. Even if we develop our products for commercial use, we may not be able to develop products that: o are accepted by, and marketed successfully to, the medical marketplace; o are safe and effective; o are protected from competition by others; o do not infringe the intellectual property rights of others; o are developed prior to the successful marketing of similar products by competitors; or o can be manufactured in sufficient quantities or at a reasonable cost. WE MAY NOT BE ABLE TO FORM AND MAINTAIN THE COLLABORATIVE RELATIONSHIPS THAT OUR BUSINESS STRATEGY REQUIRES, AND IF WE CANNOT DO SO, OUR ABILITY TO DEVELOP PRODUCTS AND REVENUE WILL SUFFER. We must form research collaborations and licensing arrangements with several partners at the same time to operate our business successfully. To succeed, we will have to maintain our existing relationships and establish additional collaborations. We cannot be sure that we will be able to establish any additional research collaborations or licensing arrangements necessary to develop and commercialize products using our technology or that we can do so on terms favorable to us. If our collaborations are not successful or we are not able to manage multiple collaborations successfully, our programs may suffer. To date we have entered into contracts or resale arrangements with several Partners to market and sell our Secure Balance (TM) and OxyView (TM) products. Collaborative agreements generally pose the following risks: o collaborators may not pursue further development and commercialization of products resulting from collaborations or may elect not to continue or renew research and development programs; o collaborators may delay clinical trials, under-fund a clinical trial program, stop a clinical trial or abandon a product, repeat or conduct new clinical trials or require a new formulation of a product for clinical testing; o collaborators could independently develop, or develop with third parties, products that could compete with our future products; 23 o the terms of our agreements with our current or future collaborators may not be favorable to us; o a collaborator with marketing and distribution rights to one or more products may not commit enough resources to the marketing and distribution of our products, limiting our potential revenues from the commercialization of a product; o disputes may arise delaying or terminating the research, development or commercialization of our products, or result in significant litigation or arbitration; and o collaborations may be terminated and, if terminated, we would experience increased capital requirements if we elected to pursue further development of the product. SECURE BALANCE(TM) IS A PRIVATE LABEL PRODUCT THAT IS NOT EXCLUSIVE TO US. We provide education, training and services related to the SportKat product lines that constitute what we call "Secure Balance(TM)." However, the devices themselves are provided to us on a non-exclusive basis, meaning that other companies are marketing the same devices under other names (or using the SportKat name). Only time will tell if the non-exclusive nature of the provision of the devices themselves to us negatively impacts our ability to capture a meaningful market share. If our sales of Secure Balance(TM) suffer because of this non-exclusive relationship, our financial prospects and operational results will be negatively impacted. Currently, the vast majority of our sales revenues is derived from the sale of Secure Balance(TM) systems. 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 FOR ALL OF OUR BAFI (TM) PRODUCT LINE. Although we have stated that we intend to apply for international patents for all of our BAFI(TM) product line, we have not as yet done so. Patents have been applied for in Japan, People's Republic of China and the European Communities for our OxyView(TM) product. If there are delays in obtaining the patents, or if we are unable to obtain the patents, we may not be able to adequately protect our technologies in foreign markets. 24 IF WE ARE UNABLE TO PROTECT EFFECTIVELY OUR INTELLECTUAL PROPERTY, THIRD PARTIES MAY USE OUR TECHNOLOGY, WHICH COULD IMPAIR OUR ABILITY TO COMPETE IN OUR MARKETS. Our success will depend on our ability to obtain and protect patents on our technology and to protect our trade secrets. The patents we have applied for may not afford meaningful protection for our technology and products. Others may challenge our patents and, as a result, our patents could be narrowed, invalidated or unenforceable. In addition, our current and future patent applications may not result in the issuance of patents in the United States or foreign countries. Competitors might develop products similar to ours that do not infringe on our patents. In order to protect or enforce our patent rights, we may initiate interference proceedings, oppositions, or patent litigation against third parties, such as infringement suits. These lawsuits could be expensive, take significant time and divert management's attention from other business concerns. The patent position of medical firms generally is highly uncertain, involves complex legal and factual questions, and has recently been the subject of much litigation. No consistent policy has emerged from the U.S. Patent and Trademark Office or the courts regarding the breadth of claims allowed or the degree of protection afforded under biotechnology patents. In addition, there is a substantial backlog of applications at the U.S. Patent and Trademark Office, and the approval or rejection of patent applications may take several years. We cannot guarantee that our management and others associated with us will not improperly use our patents, trademarks and trade secrets. Further, others may gain access to our trade secrets or independently develop substantially equivalent proprietary information and techniques. OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS. We may be sued for infringing on the patent rights or misappropriating the proprietary rights of others. Intellectual property litigation is costly, and, even if we prevail, the cost of such litigation could adversely affect our business, financial condition and results of operations. In addition, litigation is time consuming and could divert management attention and resources away from our business. If we do not prevail in any litigation, we could be required to stop the infringing activity and/or pay substantial damages. Under some circumstances in the United States, these damages could be triple the actual damages the patent holder incurs. If we have supplied infringing products to third parties for marketing or licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or damages paid to the patent holder. If a third party holding rights under a patent successfully asserts an infringement claim with respect to any of our products, we may be prevented from manufacturing or marketing our infringing product in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. Any required license may not be available to us on acceptable terms, or at all. Some licenses may be non-exclusive, and therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around a patent, we may be unable to market some of our anticipated products, which could have a material adverse effect on our business, financial condition and results of operations. 25 IF WE LOSE OUR KEY MANAGEMENT PERSONNEL, OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION EFFORTS WOULD SUFFER. Our performance is substantially dependent on the performance of our current senior management, Board of Directors and key scientific and technical personnel and advisers. The loss of the services of any member of our senior management, in particular Mr. Sand, our CEO and Chairman, Board of Directors, scientific or technical staff may significantly delay or prevent the achievement of product development and other business objectives and could have a material adverse effect on our business, operating results and financial condition. We have recently purchased a life insurance policy for Mr. Sand. WE HAVE NO COMMERCIAL PRODUCTION CAPABILITY YET FOR OUR BAFI(TM) PRODUCT LINE AND WE MAY ENCOUNTER PRODUCTION PROBLEMS OR DELAYS, WHICH COULD RESULT IN LOWER REVENUE. To date, we have only produced one of our BAFI(TM) products for sale (OxyView(TM)). We are currently manufacturing OxyView(TM) units under a subcontracting arrangement with a third party (Accent Plastics). All manufacturing is currently being done in compliance with ISO and FDA regulations. We may not be able to maintain acceptable quality standards if we ramp up production. To achieve anticipated customer demand levels, we will need to scale-up our production capability and maintain adequate levels of inventory. We may not be able to produce sufficient quantities to meet market demand. If we cannot achieve the required level and quality of production, we may need to further outsource production or rely on licensing and other arrangements with third parties. This reliance could reduce our gross margins and expose us to the risks inherent in relying on others. We may not be able to successfully outsource our production or enter into licensing or other arrangements under acceptable terms with these third parties, which could adversely affect our business. 26 IF WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS AND HAVE NOT OBTAINED ADEQUATE INSURANCE TO PROTECT AGAINST THESE CLAIMS, OUR FINANCIAL CONDITION WOULD SUFFER. Since we have launched the first product in our BAFI(TM) product line, we could face exposure to product liability claims. We have exposure selling Secure Balance(TM). We have limited product liability insurance coverage, but there is no guarantee that it is adequate coverage. There is also a risk that third parties for which we have agreed to indemnify could incur liability. We cannot predict all of the possible harms or side effects that may result and, therefore, the amount of insurance coverage we obtain may not be adequate to protect us from all liabilities. We may not have sufficient resources to pay for any liabilities resulting from a claim beyond the limit of, or excluded from, our insurance coverage. SHAREHOLDERS MUST RELY ON MANAGEMENT FOR THE OPERATION OF THE COMPANY All decisions with respect to the operation of Ingen and development, production and marketing of our products, will be made exclusively by management. Our success will, to a large extent, depend on the quality of the management of the company. In particular, we will depend on the services of our board members and officers. Management believes that these individuals have the necessary business experience to supervise the management of the company and production and commercial exploitation of our products, however, there can be no assurance that they will perform adequately or that our operations will be successful. Shareholders will have no right or power to take part in the management of the company, for the most part, except to the extent of voting for the members of the Board of Directors each year. 27 INDEMNIFICATION PROVISIONS MAY ADVERSELY AFFECT THE COMPANY The Corporation's Articles of Incorporation provide that under certain circumstances management and other agents will be indemnified by the company for any liabilities or losses arising out of management's activities in connection with the company. Indemnification under such provision could reduce or deplete the assets of the company. OUR QUARTERLY OPERATING RESULTS WILL FLUCTUATE Our quarterly operating results will fluctuate for many reasons, including: o our ability to retain existing customers, attract new customers and satisfy our customers' demands, o our ability to acquire merchandise, manage our inventory and fulfill orders, o changes in gross margins of our current and future products, services, and markets, o introduction of our new sites, services and products or those of competitors, o changes in usage of the Internet and online services and consumer acceptance of the Internet and online commerce, o timing of upgrades and developments in our systems and infrastructure o the level of traffic on our Web site, o the effects of acquisitions and other business combinations, and related integration, o technical difficulties, system downtime or Internet brownouts, o our ability to properly anticipate demand, o our ability to prevent fraud perpetrated by third parties through credit card transactions, and payments transactions, o our level of merchandise returns, o disruptions in service by common shipping carriers due to strikes or otherwise, o disruption of our ongoing business, o problems retaining key technical and managerial personnel, o expenses associated with amortization of goodwill and other purchased intangible assets, o additional operating losses and expenses of acquired businesses, if any, o impairment of relationships with existing employees, customers and business partners 28 RISKS RELATED TO FRAUD Although we have developed systems and processes to mitigate fraudulent credit card transactions, failure to prevent such fraud may impact our financial results and may create liability for us in the sale of our products. In addition, the steps we take to protect our proprietary rights may not be adequate and third parties may infringe or misappropriate our copyrights, trademarks, trade dress, patents and similar proprietary rights. Other parties may claim that we infringed their proprietary rights. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources. THE FOLLOWING RISKS RELATE PRINCIPALLY TO OUR COMMON STOCK AND ITS MARKET VALUE: A SUBSTANTIAL NUMBER OF SHARES WE HAVE ISSUED IN EXEMPT TRANSACTIONS ARE, OR ARE BEING MADE, AVAILABLE FOR SALE ON THE OPEN MARKET. THE RESALE OF THESE SECURITIES MIGHT ADVERSELY AFFECT OUR STOCK PRICE. Some of our "restricted" common shares have been held by our shareholders for periods of one or two years or longer. Some of these shares have had restrictions lifted. We will undoubtedly have unrestricted shares issued in the future. We have little in the way of contractual restrictions in our agreements for the sale of privately placed shares. There is no way to control the sale of these shares on the secondary market (we trade on the Pink Sheets). The resale of these unrestricted shares might adversely affect our stock price. OUR STOCK IS THINLY TRADED, WHICH CAN LEAD TO PRICE VOLATILITY AND DIFFICULTY LIQUIDATING YOUR INVESTMENT. The trading volume of our stock has been low, which can cause the trading price of our stock to change substantially in response to relatively small orders. In addition, since our reverse stock split on December 6, 2005, our common stock has traded as low as $0.025 and as high as $0.41 (as of February 28, 2007). Both volume and price could also be subject to wide fluctuations in response to various factors, many of which are beyond our control, including: o actual or anticipated variations in quarterly and annual operating results; o announcements of technological innovations by us or our competitors; o developments or disputes concerning patent or proprietary rights; and o general market perception of medical device and provider companies. 29 WE MAY ISSUE PREFERRED STOCK IN THE FUTURE, AND THE TERMS OF THE PREFERRED STOCK MAY REDUCE THE VALUE OF YOUR COMMON STOCK. We are authorized to issue up to 40,000,000 shares of Series A preferred stock. If we issue more preferred stock, it could affect your rights or reduce the value of your common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with or sell our assets to a third party. These terms may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions. WE HAVE NOT, AND CURRENTLY DO NOT ANTICIPATE, PAYING DIVIDENDS ON OUR COMMON STOCK. We have never paid dividends on our common stock and do not plan to pay dividends on our common stock for the foreseeable future. We currently intend to retain future earnings, if any, to finance operations, capital expenditures and the expansion of our business. THERE IS A LIMITED MARKET FOR OUR COMMON STOCK WHICH MAKES IT DIFFICULT FOR INVESTORS TO ENGAGE IN TRANSACTIONS IN OUR SECURITIES. Our common stock is quoted on the Pink Sheets under the symbol "IGTG." There is a limited trading market for our common stock. If public trading of our common stock does not increase, a liquid market will not develop for our common stock. The potential effects of this include difficulties for the holders of our common shares to sell our common stock at prices they find attractive. If liquidity in the market for our common stock does not increase, investors in our company may never realize a profit on their investment. OUR STOCK PRICE IS VOLATILE WHICH MAY MAKE IT DIFFICULT FOR INVESTORS TO SELL OUR SECURITIES FOR A PROFIT. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including: o technological innovations or new products and services by us or our competitors; o additions or departures of key personnel; o sales of our common stock, 30 o our ability to integrate operations, technology, products and services; o our ability to execute our business plan; o operating results below expectations; o loss of any strategic relationship; o industry developments; o economic and other external factors; and o period-to-period fluctuations in our financial results. Because we have a limited operating history with little revenues to date, you may consider any one of these factors to be material. Our stock price may fluctuate widely as a result of any of the above. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. OUR COMMON STOCK IS DEEMED A "PENNY STOCK" UNDER THE RULES OF THE SEC, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME. Our common stock is currently listed for trading on the Pink Sheets which is generally considered to be a less efficient market than markets such as NASDAQ or other national exchanges, and which may cause difficulty in conducting trades and difficulty in obtaining future financing. Further, our securities are subject to the "penny stock rules" adopted pursuant to Section 15 (g) of the Securities Exchange Act of 1934, as amended, or Exchange Act. The penny stock rules apply to non-NASDAQ companies whose common stock trades at less than $5.00 per share or which have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). Such rules require, among other things, that brokers who trade "penny stock" to persons other than "established customers" complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade "penny stocks" because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. In the event that we remain subject to the "penny stock rules" for any significant period, there may develop an adverse impact on the market, if any, for our securities. Because our securities are subject to the "penny stock rules," investors will find it more difficult to dispose of our securities. Further, for companies whose securities are traded on the Pink Sheets, it is more difficult: (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services, such as the Dow Jones News Service, generally do not publish press releases about such companies, and (iii) to obtain needed capital. 31 A SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK MAY CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE. If our shareholders sell substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, the market price of our common stock could fall. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. As of February 28, 2007, 18,134,547 shares of our issued common stock are unrestricted and 16,125,063 shares are restricted (but many may be eligible to have restrictions lifted). ITEM 3. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures designed to ensure that material information related to our company is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. (a) As of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934). Based upon that evaluation, our CEO and CFO concluded, as of the date of such evaluation, that the design and operation of such disclosure controls and procedures were effective. (b) No changes were made in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. (c) Limitations. Our management, including our CEO and CFO, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 32 PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We may from time to time become a party to legal proceedings arising in the ordinary course of business. We are not currently a party to any material pending litigation or material legal proceeding. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the quarter ended February 28, 2007, the Registrant sold the following securities without registration under the Securities Act of 1933 in reliance on the exemption contained in Section 4(2) and Regulation D promulgated thereunder: Common Stock ------------- a) 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 lot of Series A preferred stock in May 2006. b) 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. c) In February 2007 the Company issued 750,000 shares of its restricted common stock to one individual in consideration for the individual cancelling 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. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5 - OTHER INFORMATION None. ITEM 6. EXHIBITS (All exhibits with original signatures are contained in the corporate office files of Ingen Technologies, Inc. ("Ingen")) Exhibit No. Document Description ----------- -------------------- 4.5 Form of Stock Purchase Warrant by and among Ingen Technologies, Inc. and the New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC. (incorporated by reference to Ingen's Form 8-K filed August 8, 2006) 4.6 Registration Rights Agreement by and among Ingen Technologies, Inc. and the New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC. (incorporated by reference to Ingen's Form 8-K filed August 8, 2006) 4.7 Security Agreement by and among Ingen Technologies, Inc. and the New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC. (incorporated by reference to Ingen's Form 8-K filed August 8, 2006) 4.8 Intellectual Property Security Agreement by and among Ingen Technologies, Inc. and the New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC. (incorporated by reference to Ingen's Form 8-K filed August 8, 2006) 10.1 Investment Agreement with Salvatore Amato, dated May 31, 2006 (incorporated by reference to Ingen's Form 10-QSB for the quarter ended August 31, 2006) 10.2 Consulting Agreement between National Financial Communications Corp. and Ingen Technologies, Inc. dated July 24, 2006 pursuant to which NFC will render public relations, communications, advisory and consulting services ((incorporated by reference to Ingen's Form 10-QSB for the quarter ended August 31, 2006) 31.1 Certification of Chief Executive Officer as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2 Certification of Chief Financial Officer as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.3 Certification of Chief Executive Officer and Chief Financial Officer as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* ------------ * Filed herewith. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INGEN TECHNOLOGIES, INC. April 23, 2007 /s/ Scott R. Sand ------------------------------------- Scott R. Sand Chief Executive Officer and Chairman April 23, 2007 /s/ Thomas J. Neavitt ------------------------------------- Thomas J. Neavitt Secretary and Chief Financial Officer