-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LN047J10+D6gzILVDRxsm3vxfHy4eZzeajxBZVzF4siLwMWXJbmHANLOYO3UBMlN bAIn7BLVUb4TkbDpwT4L+w== 0001019687-08-004350.txt : 20080929 0001019687-08-004350.hdr.sgml : 20080929 20080929145257 ACCESSION NUMBER: 0001019687-08-004350 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20080531 FILED AS OF DATE: 20080929 DATE AS OF CHANGE: 20080929 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Ingen Technologies, Inc. CENTRAL INDEX KEY: 0000861058 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 880429044 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28704 FILM NUMBER: 081093825 BUSINESS ADDRESS: STREET 1: 35193 AVENUE A, SUITE C CITY: YUCAIPA STATE: CA ZIP: 92399 BUSINESS PHONE: 800-259-9622 MAIL ADDRESS: STREET 1: 35193 AVENUE A, SUITE C CITY: YUCAIPA STATE: CA ZIP: 92399 FORMER COMPANY: FORMER CONFORMED NAME: CREATIVE RECYCLING TECHNOLOGIES INC DATE OF NAME CHANGE: 19980505 FORMER COMPANY: FORMER CONFORMED NAME: CLASSIC RESTAURANTS INTERNATIONAL INC /CO/ DATE OF NAME CHANGE: 19960619 FORMER COMPANY: FORMER CONFORMED NAME: CLASSIC RESTAURANTS INC/CO DATE OF NAME CHANGE: 19960604 10KSB 1 itec_10ksb-053108.txt FORM 10-KSB ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 2008 Commission File Number 000-28704 INGEN TECHNOLOGIES, INC. (Exact name of small business issuer as specified in its charter) Georgia 84-1122431 ------- ---------- (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 UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: Common Stock, no par value -------------------------- (Title of Class) Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] 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 [ X ] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The Registrant had revenues of $252,493 for its most recent fiscal year. As of September 17, 2008, the aggregate market value of the shares of common stock of the registrant held by non-affiliates was approximately $13,934, based on the closing price of $0.03 per share for the common stock as quoted on that date.* The number of shares of Common Stock, no par value, outstanding on September 17, 2008 was 8,049,259. * Excludes 7,584,803 shares of Common Stock held by executive officers, directors and stockholders whose ownership exceeds 5% of the Common Stock outstanding on September 17, 2008. The calculation does not reflect a determination that such persons are affiliates for any other purposes. ================================================================================ TABLE OF CONTENTS Page PART I ITEM 1. Business 3 ITEM 2. Properties 10 ITEM 3. Legal Proceedings 11 ITEM 4. Submission of Matters to a Vote of Security Holders 11 PART II ITEM 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities 11 ITEM 6. Management's Discussion and Analysis 16 ITEM 7. Financial Statements 33, F-1 ITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 36 ITEM 8A. Controls and Procedures 36 ITEM 8A(T) Controls and Procedures 36 ITEM 8B. Other Information 36 PART III ITEM 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act 40 ITEM 10 Executive Compensation 43 ITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 44 ITEM 12. Certain Relationships and Related Transactions, and Director Independence 45 ITEM 13. Exhibits 49 ITEM 14. Principal Accountant Fees and Services 51 FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-KSB 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 "Business Risks" section of Item 6 and elsewhere in this Form 10-KSB, 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-KSB with the Securities and Exchange Commission. Unless the context otherwise requires, the "Company," "Ingen," "we," "us," and "our" means Ingen Technologies, Inc. and its subsidiary. 2 PART I ITEM 1. BUSINESS HISTORY Our company was incorporated under the laws of the state of Georgia in 1995 under the name Classic Restaurants International, Inc. We changed our name in 1998 to Creative Recycling Technologies, Inc. Our business plan changed from the restaurant business to recycling along with our name change. We had little business activity and no sales. Our business was dormant from the late 1990's into the first calendar quarter of 2004. In March of 2004, we merged with a Nevada company, Ingen Technologies, Inc. Ingen Technologies, Inc. survived as our subsidiary for the sole purpose of operating our new business. However, we remained a Georgia corporation, with completely new management and an active business plan in the medical devices industry, operated by our subsidiary. Shortly thereafter, we changed our name to Ingen Technologies, Inc. Ingen Technologies, Inc., the Nevada company, was founded by Scott R. Sand in 1999. Upon the merger with our Georgia corporation, Mr. Sand became the Chief Executive Officer and Chairman of the Board of Directors, positions he maintains today. Mr. Sand owns 265,790 shares of our common stock (approximately 3.3% of the 8,049,259 common shares outstanding as of September 19, 2008) and approximately 91.2% of our issued and outstanding Series A Convertible preferred shares (31,275,960 shares out of 34,279,960 outstanding shares) which vote on a one-vote-per-share basis along with our common shares. As of September 19, 2008, Mr. Sand owned approximately 74.5% of our outstanding voting shares. Prior to the merger in March of 2004, Mr. Sand financed the research and development of our product lines and operation of the business within Ingen Technologies, Inc. of Nevada. From its inception in 1999 up through and into our fiscal year 2004, Mr. Sand supplied cash loans of $72,000 and deferred management compensation of $306,000. Mr. Jeffrey Gleckman, another of our preferred stockholders, contributed approximately $300,000 to the company in exchange for preferred shares. We made major adjustments to our capital structure toward the end of 2005. We reduced the number of authorized common shares from 500 million to 100 million. The number of authorized preferred shares remained unchanged at 40 million and are designated as Series A Convertible Preferred Stock. Our stockholders authorized a reverse split of common shares on a ratio of 40 into 1 on December 5, 2005; thereby reducing the number of issued shares from 488,037,593 to 12,201,138. We also reverse split our preferred shares on a ratio of 3 into 1, reducing our issued and outstanding preferred shares from 39.9 million to 13.3 million. Our Series A Convertible preferred shares are convertible into common shares on a 1 into 1 basis upon 65 days written notice. Our Series A Convertible preferred shares are entitled to vote on an equal footing with common shares on all matters for which stockholder voting input is required. Our common stock traded under the symbol "IGTN" until December 5, 2005 and from December 8, 2005 through August 26, 2008 it traded under the trading symbol "IGTG." On August 27, 2008, we effected a reverse split of our common stock at a rate of 600 to 1 and our stock symbol changed to "ITEC." In February 2008, we amended our Articles of Incorporation to increase the number of authorized shares of common stock from 100,000,000 to 750,000,000. Our stockholders authorized a reverse split of common shares on a ratio of 600 into 1, effective on August 27, 2008; thereby reducing the number of issued and outstanding shares from 342,946,942 to 572,259. Our Series A Convertible Preferred shares were not affected by this reverse stock split. We issued an aggregate of $2,135,000 in convertible debentures from June 2006 through July 2007. We issued convertible debentures with a total face value of $2,060,000 to a group of investors and warrants representing the right to purchase 29,000,000 shares of common stock (representing the right to purchase 48,333 shares of common stock following the reverse split that was effective August 27, 2008) during the fiscal years ended May 31, 2007 and May 31, 2008. During the fiscal year ended May 31, 2008, the holders of these convertible notes converted $23,453 of these notes into 27,927,000 shares of our common stock (46,545 shares of common stock after adjusting for the reverse stock split that was effective in August 2008). If all of the notes outstanding as of May 31, 2008 were converted into common stock and all of the warrants were exercised, we would be required to issue over 6.8 billion shares of our common stock to the noteholders (this would be approximately 11.33 million shares of our common stock after the effect of the reverse stock split on August 27, 2008). 3 Subsequent to May 31, 2008, we issued $225,000 in convertible debentures to three of the convertible note holders under an agreement dated June 16, 2008 providing for the issuance of up to $500,000 in secured callable convertible notes and common stock purchase warrants covering 20,000,000 shares of our common stock. On September 5, 2008, we amended the agreement dated June 16, 2008. Under the terms of this amendment, the conversion rate and interest rate of the following convertible debentures have been adjusted. This amendment applies to the $1.5 million convertible debt entered into on July 25, 2006, the $450,000 convertible debt entered into on March 15, 2007, the $110,000 convertible note entered into on July 30, 2007 as well as the $500,000 Securities Purchase Agreement dated June 16, 2008. The "Applicable Percentage" (as defined in each of the notes to be the rate at which the note holders can convert their debt into common stock) has been adjusted to 40%. This means that the convertible note holders can now convert their debt into stock at the average of the lowest three trading prices for the common stock during the twenty day trading period prior to conversion multiplied by 40%. Also the interest rate on all convertible notes has been adjusted from 6% to 12%. This interest rate adjustment is effective as of January 1, 2008. As of May 31, 2008, this interest rate adjustment would be applied to $2,031,547 in outstanding convertible debt. OVERVIEW: Ingen Technologies, Inc. is an emerging medical device manufacturer registered with the US Food & Drug Administration and certified by the California Department of Health Services. The company develops, markets and distributes medical technologies and products with applications in the respiratory device markets and the medical diagnostics market; as well as markets in emergency response, aviation, military and consumer markets. Ingen owns a variety of intellectual property, including domestic and foreign patents. Ingen's products include Oxyview and OxyAlert, which are respiratory products; GasAlert, a commercial consumer product using the same technology as OxyAlert; and Secure Balance, a private-label product that includes a vestibular function testing system and balance therapy system. Further, the company will distribute PogaMoonga, a natural energy drink for oxygen therapy patients and consumers. PRODUCTS: Ingen Technologies manufactures the medical devices Oxyview and OxyAlert; which are products designed for the growing respiratory patient market in the USA and abroad. Oxyview and OxyAlert provide the respiratory clinicians, including pulmonologists, respiratory therapists and patient care technicians an innovative medical product that provides assurance and safety to home oxygen patients and hospitalized patients while monitoring oxygen flow during oxygen therapy. Patients using portable oxygen concentrators, home oxygen concentrators, liquid oxygen and oxygen gas can use Oxyview and OxyAlert to improve their oxygen delivery. The Oxyview and OxyAlert respiratory products have been accepted by various national respiratory foundations, including the National Home Oxygen Patient Association and the National Emphysema/COPD Foundation. Oxyview, patents pending, is a Class-I medical device as classified with the US Food and Drug Administration as an in-line oxygen flow meter that is powered by the flow of oxygen and requires no batteries. Oxyview provides a visual cue to the patient or administrator, indicating the continuous flow and volume of oxygen during therapy. It allows the user to be sure that they are receiving the proper oxygen level and alerts them if adjustments need to be made. This device will simplify the oxygen therapy process and therefore, is aimed to preserve, otherwise, costs spent by insurance companies associated with unnecessary service calls. Oxyview is reusable, requires no batteries, works all the time in any position with all liquid or gas oxygen delivery systems, and easily installs anywhere below the cannula nearest the patient where oxygen flow matters the most. Purchasers of Oxyview since its introduction in early 2007 include oxygen suppliers, respiratory equipment manufacturers, medical supply stores and patients. In addition to Oxyview, the company is set up to begin selling a natural energy drink referred to as PogaMoonga. This product is a natural drink processed from pomegranate, aloe vera and the leaves and seeds of the moringa tree. This product provides oxygen therapy patients, and consumers with a way to naturally increase their energy levels. OxyAlert, formerly named BAFI, is a multi-patented wireless digital pressure gauge with hand-remote, and audio/visual safety warning device used on stationary and remote oxygen delivery devices, such as concentrators and cylinders; used by patients, hospitals, commercial aircraft, military transport, and fire and safety equipment. OxyAlert(TM) technology uses digital sensing and wireless RF data transfer technology so that users can access a hand-held remote to monitor the actual oxygen level from a reasonable distance. OxyAlert(TM) increases safety, accuracy and convenience during oxygen therapy. OxyAlert(TM) is now under an FDA 510k evaluation required before the FDA will classify the device. 4 GasAlert, patents pending, is a commercial consumer product using the same technology as OxyAlert. This device will monitor and detect gas flow for home appliances, such as ovens, washer, dryer, refrigerator and outdoor plumbed barbeques. GasAlert uses the same technology as OxyAlert, and its application is directed towards determining gas leaks. GasAlert will be marketed upon the US Food and Drug Administration's classification and acceptance of OxyAlert. The Secure Balance product is a private-label product that includes a vestibular function testing system and balance therapy system. The vestibular (referencing organs in the inner ear) function testing system is manufactured by Interacoustics LTD. in Denmark and is referred to as the VNG. This is an accepted method among physicians to provide diagnostic testing of the inner-ear and central nervous system, in order to provide qualitative results that determine a diagnosis of a patients balance problem. The balance therapy system is manufactured by SportKAT, Inc. in San Diego, California. SportKAT provides private-label testing and balance therapy systems to others. This system is used to provide therapy to patients with balance problems through the use of computerized clinical software tools. We have our own trademark on Secure Balance. Our Secure Balance program provides balance testing/assessment equipment, education and training about balance and fall prevention to physicians and clinicians worldwide. MARKETS AND DISTRIBUTION: In June 2006 the company invested $45,000 to engage InTouch Life Sciences, LLC to perform an independent market survey for Oxyview and OxyAlert. On November 20, 2006, InTouch Life Sciences, LLC, based in Raleigh-North Carolina, submitted the final report for the sole purpose to provide Ingen with information regarding the United States market opportunity for Oxyview and OxyAlert. InTouch Life Sciences, LLC is a consulting firm that assists companies in all aspects of commercializing life science technologies by providing experienced medical device executives and consultants with expertise in company research, product development, licensing and sales. The market survey conducted in 2006 indicates that the US respiratory market represents total annual revenues of $8 billion dollars of which $4 Billion may provide market applications for Oxyview and OxyAlert, and is mainly comprised of respiratory equipment manufacturers, and home oxygen service providers. The Company's research has shown that the identified markets would be interested in acquiring the Oxyview and OxyAlert products for their applications. The physician market continues to have a growing interest in providing Oxyview units to their patients by means of assurance and safety. The company has demonstrated through contractual relations that respiratory equipment manufacturers have an interest. Further, patients and oxygen service providers continue to purchase Oxyview through our website or distribution. According to the 2002 CDC Report, there are approximately 32 million people living in the United States that suffer from Chronic Obstructive Pulmonary Disease, more commonly known as "COPD", the major cause of hospitalizations and the fifth leading cause of death in the United States. The majority of the COPD patients receive oxygen therapy and qualifies in using the respiratory products manufactured by the company. OxyAlert will use the same distribution channels that currently sell Oxyview. Ingen has focused its efforts with introducing and branding Oxyview through major industry publications, including Advanced Magazine, Respiratory Therapy Magazine, HME Today (Home Medical Equipment), AARC Times (American Academy of Respiratory Care), NHOPA (National Home Oxygen Patient Association), National COPD Foundation, and many others. The company has established a web based purchase program where patients can purchase product direct from the Ingen website. Further, the company is expanding national distribution through an established network of experienced manufacturing representatives. Since Oxyview(R)'s introduction, the company has sold approximately 30,000 Oxyview units, and continues to pioneer the product through media, print and radio sources. The list price of Oxyview is $24.95, and in comparison to other conventional flow meters, Oxyview is lower in price and differs in such that the device is gravity-independent and more accurate than other oxygen flow meters. Other oxygen flow meters rely on gravity since they are using a small ball-in-tube design that has been in existence for more than 80 years. These older style models are heavy and can only be attached to the delivery source, whereas Oxyview is made of light-weight polycarbonate, and can attach near the patient in-line with the oxygen cannula. Oxyview is more accurate than the conventional flow meter only because it works in any position real-time, versus a conventional flow meter that can only work properly if held in vertical position as to allow gravity to calibrate with the ball position and reading. Further, Oxyview is not affected by altitude, vibration, humidity or temperature, whereas the conventional flow meter can only operate properly in a cool dry environment. 5 Oxyview(R) is distributed nationally within the medical respiratory markets through various experienced exclusive manufacturer representative organizations, and the company has recently contracted distributors for Canada and Asia. In addition to a growing distribution, the company has contracted various respiratory equipment manufacturers in the United States that will include Oxyview along-side their existing products. Further, the company has effected group purchasing organization ("GPOs") contracts with major hospital networks, and continues to expand these hospital markets. Hospitals and other health care providers use group purchasing to obtain the right products at the very best price. Overall, according to Knowledge Source (a leading source of healthcare market information) about 72 percent of purchases that hospitals make are done using GPO contracts. The US healthcare industry spends over $200 billion annually in medical and non-medical products with more than 70% allocated through a GPO. GPOs save hospitals and free standing nursing homes between 10 to 15 percent of their purchasing costs. Additionally, GPOs provide valuable savings to hospitals and other providers by helping them standardize and streamline their purchasing, as well as reduce the number of non-clinical staff that hospitals must employ to negotiate purchasing contracts. There are more than 600 organizations in the United States that participate in some form of group purchasing. Oxyview is also distributed nationally within the aviation market through several experienced aviation oxygen suppliers. According to the 2007 Aircraft Owners and Pilot Association (AOPA) Statistics, there are 624,007 certified pilots in the United States and a total of 221,943 active aircraft. Each pilot and aircraft is responsible to carry a portable emergency oxygen system. Oxyview(R) has been engineered with applications for both aviation oxygen masks and nose cannulas. The mask is used for altitudes above 18,000 feet, and cannulas are required below 18,000 feet. Ingen has submitted a formal proposal to the US government and military to offer Oxyview(R) as a product for all oxygen based equipment for VA Hospitals, government transport and emergency response. The company received a letter of response on May 8, 2008 from the Department of Veterans Affairs, Office of Acquisition and Material Management stating that the Federal Supply Schedule ("FSS") Service is in receipt of Ingen's offer. We were informed that we currently lack the required sales criteria needed to procure an FSS contract ($150,000 in commercial sales). The solicitation is open and will be reconsidered any time when the company meets the required sales criteria. The company contracts with a single national exclusive distributor for Secure Balance, and currently is reorganizing the product website and marketing program due to changes with Medicare reimbursement. Specifically, in June 2007, the Centers for Medicaid and Medicare Services ("CMS") reduced the reimbursement schedule for Vestibular Function Testing, and further changed its policies regarding balance therapy. The new policy guidelines have removed the licensed physician from performing any therapy, and it is now the sole responsibility of a licensed physical therapist. The company intends to launch the new website and marketing program in January 2009 to comply with the new reimbursement codes and policy changes. According to the 2008 statistics regarding vestibular disorders and balance disorders published by the Vestibular Disorders Association; over 90 million Americans, age 17 and older, have experienced a dizziness or a balance problem. A majority of individuals over 70 years of age report problems of dizziness and imbalance, and balance-related falls account for more than one-half of the accidental deaths in the elderly. Furthermore, in a sample of persons age 65-75, one-third reported that dizziness and imbalance degraded the quality of their lives. Dizziness is a common symptom affecting about 30% of people over the age of 65. U.S. doctors reported 5,417,000 patient visits in 1991 because of dizziness or vertigo. The National Institutes of Health estimates that about 545,000 people in the U.S. have Meniere's disease and that 38,250 are diagnosed each year. The Secure Balance product diagnoses and treats Meniere's disease. SALES AND COMPETITION: All of our company's sales in the fiscal year ending May 31, 2006 ($846,783) and approximately 98% of our sales in the fiscal year ended May 31, 2007 ($704,490 out of total sales of $720,678) were sales of Secure Balance. This percentage dropped to 82.1% of our total sales resulting from sales of Secure Balance. We expect the percentage of our total sales coming from Secure Balance to continue to fall as we focus the vast majority of our sales and marketing efforts on Oxyview and as we move toward the introduction of our OxyAlert product. Our total sales in the fiscal year ended May 31, 2008 were $252,493 of which $207,358 were derived from sales of our Secure Balance privately-labeled product. 6 The company revenues indicate a decline in Secure Balance sales and an increase with Oxyview sales. The Secure Balance sales have declined due to government cuts and changes in regulations for vestibular function testing and balance therapy. Further, the company is not a manufacturer of any Secure Balance products, and as a result has no control over competitive pricing or manufacturing costs. This would affect margins and gross profits of all Secure Balance sales. The Oxyview sales have increased because the company is the manufacturer of Oxyview and can control manufacturing costs and competitive pricing for its distribution, hospital group purchasing organizations and partnerships with its respiratory equipment manufacturers. The competition with Secure Balance continues to increase, and in most instances the niche market that Secure Balance attracts is saturated with products related to vestibular function testing, balance therapy and balance medicine. For example, there are now eight major manufacturers of vestibular function testing systems, and six major manufacturers of balance therapy equipment. The total market size for Secure Balance sales consists of less than 150,000 physician specialists, inclusive of neurologists, otolaryngologists, neurotologists, audiologists and general practice physicians (according to statistics reported by the American Medical Association). The competition with Oxyview is very small. There are 3 major manufacturers of oxygen flow meters, all of whom manufacture the gravity dependent [ball in tube] flow meter that can only attach directly to the delivery system. Specifically, there are two other in-line oxygen flow meters, the Liter-Meter manufactured by Erie Medical, Inc., and the Rotameter manufactured by King Instruments. Both of these devices are gravity dependent flow meters that include glass housings and are heavier as compared to the Oxyview. Oxyview only weighs approximately 4 grams, less than 1/4 the weight of the Liter-Meter and Rotameter. It is made of medical grade polycarbonate which is lighter, more durable and less of a safety factor compared to the glass house used on the competitive models. More important, Oxyview is not gravity dependent and works in any position, providing a more accurate reading and more user friendly environment for the patients and clinicians. The Liter-Meter and Rotameter are gravity dependent, and must be held vertical to provide a reading. Oxyview is not affected by normal temperature changes and humidity, and can function at high altitudes for private and commercial aviation use; whereas the Liter-Meter and Rotameter are affected by temperature, humidity and gravity, and become even more unstable in providing a reading for oxygen flow rate. INTELLECTUAL PROPERTY: The company's patent attorney has represented all of the US and Foreign Patents, and Trademarks for all of the company's products since 2000. The first US Patent for OxyAlert(R) (formerly named BAFI(R)) was issued on October 24, 2000, US Patent no. 6,137,417 and expires May 24, 2019. A second US Patent was issued for OxyAlert(R) on December 4, 2001 and expires October 24, 2020, US Patent no. 6,326,896. Concurrently, the company received registered trademarks for BAFI(R) on November 21, 2000 registration no. 2,406,214, and for OxyAlert(R) on April 4, 2006, registration no. 3,076,716. In connection with the OxyAlert(R) trademark, the company received the registered trademark for GasAlert(R) on April 11, 2006, registration no. 3,079,488. The Oxyview(R) trademark was registered on May 20, 2008, registration no. 3,433,217. US patents for Oxyview(R) were filed June 16, 2006, pending serial no. 78-886168. Foreign patents for Oxyview(R) were filed in Japan, People's Republic of China and the European Communities; reference Japanese Patent Application no. 2006-331151, People's Republic of China Patent Application no. 200710005067.4, and European Patent Application no. 06,122,455.6. The Secure Balance(R) trademark was recently approved and published by the US Patents and Trademarks Office, no. 77-405551. Patents, trademarks and trade secrets are essential to the profitability of our products, and our company policy is to pursue intellectual property protection aggressively for all our products. LICENSE AND CERTIFICATIONS: The company's operations are located at 35193 Avenue A, Yucaipa, California. The company holds the following current licenses, registrations and certifications in good standing: Business Permit for the City of Yucaipa license no. 6857 expires June 30, 2011, Manufacturing License for the State of California Department of Health Services license no. 47146 expires July 3, 2010, Registered Medical Device Manufacturer Food and Drug Administration Establishment Registration no. 3005686869, Food and Drug Administration Export Certificate for China no. 47146, Food and Drug Administration Export Certificate for Taiwan no. 47146, and Sales Tax Permit California State Board of Equalization no. 100-780741. 7 THE HEALTH CARE INDUSTRY: According to Kaiser's most current statistics available at kaiserEDU.org, health care costs have been rising for several years. Expenditures in the United States on health care surpassed $2 trillion in 2006, almost three times the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980. Stemming this growth has become a major policy priority, as the government, employers, and consumers increasingly struggle to keep up with health care costs. In 2006, U.S. health care spending was about $7,026 per resident and accounted for 16% of the nation's Gross Domestic Product (GDP). Total health care expenditures grew at an annual rate of 6.7 percent in 2006, a slower rate than recent years, yet still outpacing inflation and the growth in national income. Although Americans benefit from this increasing investment in health care, the recent rapid cost growth, coupled with an overall economic slowdown and rising federal deficit, is placing great strains on the systems we use to finance health care, including private employer-sponsored health insurance coverage and public insurance programs such as Medicare and Medicaid. Since the year 2000, employer-sponsored health coverage premiums have increased by 87 percent. Employers are increasingly shifting costs to their employees in the form of higher premiums, deductibles, and co-payments. With workers' wages growing at a much slower pace than health care costs, many face difficulty in affording this growth in out-of-pocket spending. Largely due to the implementation of the Medicare Part D benefit in January 2006, Medicare program spending increased 18.7% in 2006. Conversely, since drug coverage for dual eligibility was transferred from Medicaid to Medicare, spending in the Medicaid program decreased 0.9% in 2006, the first drop in Medicaid spending since its creation in 1965. However, it still accounts for 40% of national health spending and comprises one of the largest items in state budgets. Controlling health care expenditures requires a solid understanding of the factors that are driving the growth in spending. Some of the major factors to consider are: o Intensity of services - The nature of health care in the U.S. has changed dramatically over the past century with longer life spans and greater prevalence of chronic illnesses. This has placed tremendous demands on the health care system, particularly an increased need for treatment of ongoing illnesses and long-term care services such as nursing homes. o Prescription drugs and technology - Spending on prescription drugs and the major advancements in health care technology have been cited as major contributors to the increase in overall health spending. After six consecutive years of slowing growth, prescription drug spending growth accelerated in 2006, due in large part to the implementation of the Medicare Part D benefit. The effect of spending on technology, such as devices, is harder to estimate. Some analysts state that the availability of more expensive, state-of-the-art drugs and technological services fuels health care spending not only because the development costs of these products must be recouped by industry but also because they generate consumer demand for more intense, costly services even if they are not necessarily cost-effective. o Aging of the population - Health expenses rise with age and as the baby boomers are now in their middle years, some say that caring for this growing population has raised costs. This trend will continue as the baby boomers will begin qualifying for Medicare in 2011 and many of the costs are shifted to the public sector. o Administrative costs - 7% of health care expenditures are for administrative costs (e.g. marketing, billing) and this portion is much lower in the Medicare program (<2%), which is operated by the federal government. Some argue that the mixed public-private system creates overhead costs that are fueling health care spending. The prohibitive costs of medical facilities have engendered the appearance of a wide spectrum of consumer based home health care products and managed care services. Such consumer activity reduces the economic burden of necessary health care. The managed care industry has structured its primary care providers to act as the "gate keeper". The company's respiratory product line will be targeted for the oxygen supplier with referrals from a primary care provider and pulmonary/respiratory therapy specialist through a manufacturing representative distribution network. Government agencies and employer insurance liability carriers have incentive to reduce bottom-line expenditures, thereby creating target markets for the Oxyview and OxyAlert product line. The company believes the product line will offer a more cost-effective approach to decreasing the number of services calls as compared to costs associated with unnecessary service calls from home oxygen patients who cannot determine oxygen flow rate and functionality. 8 PRODUCT LIABILITY Beginning with the design phase of product development, the Company has incorporated preventive measures aimed at reducing its potential exposure to liability risk. The Company's product development and manufacturing program includes high product reliability standards meant to result in high mean times between failures (MTBF). The Company plans to achieve a high MTBF factor by pursuing strict quality control procedures and by holding its manufacturing partners to such high standards by written contract. By designing and manufacturing a reliable, high quality product, the Company will minimize, but not eliminate, the possibility and occurrence of defective products. The manufacturing and marketing of the Company's products, incorporating new and unproved technology, has inherent risk. No one can be sure how each product will operate over time and under various conditions of actual use. Even if the products are successfully manufactured and marketed, the occurrence of warranty or product liability, or retraction of market acceptance due to product failure or failure of the product to meet expectations could prevent the Company from ever becoming profitable. Development of new technologies for manufacture is frequently subject to unforeseen expenses, difficulties and complications, and in some cases such development cannot be accomplished. In the opinion of management, the products, and services, as designed, have many positive attributes, but such attributes must be balanced against limited field operating experience and unknown technological changes. GOVERNMENT REGULATION MEDICAL DEVICE APPROVAL PROCESS. Medical devices are regulated by the Food and Drug Administration ("FDA") according to their classification. The FDA classifies a medical device into one of three categories based on the device's risk and what is known about the device. The three categories are as follows: o Class I devices are generally lower risk products for which sufficient information exists establishing that general regulatory controls provide reasonable assurance of safety and effectiveness. Most class I devices are exempt from the requirement for pre-market notification under section 510(k) of the Federal Food, Drug, and Cosmetic Act. FDA clearance of a pre-market notification is necessary prior to marketing a non-exempt class I device in the United States. o Class II devices are devices for which general regulatory controls are insufficient to provide a reasonable assurance of safety and effectiveness and for which there is sufficient information to establish special controls, such as guidance documents or performance standards, to provide a reasonable assurance of safety and effectiveness. A 510(k) clearance is necessary prior to marketing a non-exempt class II device in the United States. o Class III devices are devices for which there is insufficient information demonstrating that general and special controls will provide a reasonable assurance of safety and effectiveness and which are life-sustaining, life-supporting or implantable devices, or devices posing substantial risk. Unless a device is a preamendments device that is not subject to a regulation requiring a Premarket Approval ("PMA"), the FDA generally must approve a PMA prior to the marketing of a class III device in the United States. The company's Oxyview product is registered as Class-I by the U.S. Food and Drug Administration, and as such, the company is registered and conducts its quality assurance procedures under the guidelines established by the U.S. Food and Drug Administration. Further, the company must comply with the State of California Department of Health Services quality assurance policies, and on June 29, 2007, the company was audited by the Department of Health Services. Following the audit, the company received a license to conduct manufacturing of Oxyview in the State of California. LABELING AND ADVERTISING. The company is in compliance with FDA labeling guidelines. The marketing claims that we may make in the labeling and advertising of our medical devices is limited by FDA guidelines. Should we make claims exceeding those guidelines, such claims will constitute a violation of the Federal Food, Drug, and Cosmetics Act. Violations of the Federal Food, Drug, and Cosmetics Act, Public Health Service Act, or regulatory requirements at any time during the product development process, approval process, or after approval may result in agency enforcement actions, including voluntary or mandatory recall, license suspension or revocation, 510(k) withdrawal, seizure of 9 products, fines, injunctions and/or civil or criminal penalties. Any agency enforcement action could have a material adverse effect on us. The advertising of our products will also be subject to regulation by the Federal Trade Commission, under the FTC Act. The FTC Act prohibits unfair methods of competition and unfair or deceptive acts in or affecting commerce. Violations of the FTC Act, such as failure to have substantiation for product claims, would subject us to a variety of enforcement actions, including compulsory process, cease and desist orders, and injunctions. FTC enforcement can result in orders requiring, among other things, limits on advertising, corrective advertising, consumer redress, and restitution. Violations of FTC enforcement orders can result in substantial fines or other penalties. FOREIGN REGULATION. Outside the United States, our ability to market our products will also depend on receiving marketing authorizations from the appropriate regulatory authorities. The foreign regulatory approval process includes all of the risks associated with FDA procedures described above. The requirements governing the conduct of clinical trials and marketing authorization vary widely from country to country. Recently the FDA has approved Export Certification to sell Oxyview in Taiwan and People's Republic of China. The company is currently seeking FDA Export Certification for Japan, Canada and Saudi Arabia. MANUFACTURING Ingen uses a contract manufacturer to process and package Oxyview. Accent Plastics, Inc. is based in Corona-California and is ISO Certified to process and package Oxyview in a clean-room environment. The company does not manufacture any of the Secure Balance products. The vestibular (referencing organs in the inner ear) function testing system is manufactured by Interacoustics LTD. in Denmark and is referred to as the VNG. The balance therapy system is manufactured by SportKAT, Inc. in San Diego, California. RESEARCH AND DEVELOPMENT The company has invested money into research and development of its respiratory product lines, and continues to invest in improved tooling methods, product changes and studies. During fiscal year 2008, Ingen redesigned Oxyview from model IN205A to the new model IN206A. This new development resulted in a more easily read device with a wider range to monitor oxygen flow rate. Specifically, the company could save 25% in product costs by adding a special red dye to the polycarbonate piston during mold injection. This change resulted in a less costly process to color the piston and allow the user to better see the piston location from a greater distance. Further, the company was able to technologically create a low tolerance spring that resulted in the ability to measure oxygen flow rate from 0-6 liters/minute. Model IN205A was only capable to measuring flow rate from 0-4.5 liters/minute. In essence, this increased the sales potential by reaching a larger majority of users. Over the last two years, the company has spent a total of over $25,145 on research and development activities ($11,932 in the fiscal year ended May 31, 2008 and $13,213 in the fiscal year ended May 31, 2007). The company is solely responsible for these costs. EMPLOYEES Our wholly owned subsidiary currently has five full-time employees. Our company is a holding company formed in Georgia that owns or has rights to certain proprietary products and operates our business through our subsidiary, Ingen Technologies, Inc., a Nevada company. Mr. Scott R. Sand, our CEO, Founder and Chairman is employed under an employment agreement with the Company. This agreement was effective as of September 21, 2006. Under its terms Mr. Sand is entitled to $200,000 per year for a period of five years and 300,000 shares of common stock per year. As of May 31, 2008, Mr. Sand is due $1,747 for expenses paid on behalf of the company. ITEM 2. PROPERTIES We do not own real property. We lease approximately 2,000 square feet of office space in Yucaipa, California at a current rental rate of approximately $1,700 per month under the terms of a lease agreement that expires on April 1, 2011. We also rent, on an oral month-to-month basis, a portion of our Chief Executive Officer, Scott R. Sand's personal residence as a second office for Mr. Sand and for storage space. The rental on this facility is $1,600 per month for about 1,200 square feet of office and storage space. These facilities are adequate for our current requirements. 10 ITEM 3. LEGAL PROCEEDINGS We are not currently a party to any material pending litigation or other material legal proceeding. We may from time to time become a party to legal proceedings arising in the ordinary course of our business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION Our common stock trades on the "Pink Sheets." Our common stock traded under the trading symbol "IGTG" during the fiscal years reported below. The following table was supplied to us by Pink Sheets management and sets forth the high and low prices for our common stock as reported from June 1, 2006 to May 31, 2008, our last two fiscal years. The quotations reflect inter-dealer prices without retail markups, markdowns, or commissions and may not represent actual transactions. The prices have been adjusted for the reverse stock split that was effective on August 27, 2008 (at a rate of 600 to 1). TRADING INFORMATION AS REPORTED BY THE NATIONAL ASSOCIATION OF SECURITIES DEALERS COMPOSITE FEED OR OTHER QUALIFIED INTER-DEALER QUOTATION MEDIUM. THESE PRICES WERE REPORTED BY PINKSHEETS.COM. CLOSING BID HIGH* LOW* ---------------------------------------------------- JUNE 1 THRU 78.00 30.00 AUG. 31, 2006 SEPT 1 THRU 42.00 18.00 NOV. 30, 2006 DEC. 1, 2006 THRU 42.00 24.00 FEB. 28, 2007 MAR. 1 THRU MAY 31, 2007 36.00 18.00 JUNE 1 THRU 60.00 18.00 AUG. 31, 2007 SEPT 1 THRU 42.00 18.00 NOV. 30, 2007 DEC. 1, 2007 THRU 30.00 6.00 FEB. 29, 2008 MAR. 1 THRU MAY 31, 2008 9.00 0.30 * Adjusted for the reverse stock split that was effective on August 27, 2008 (at a rate of 600 to 1). On August 27, 2008, there were 624 stockholders of record of our common stock. This number does not include beneficial owners of the common stock whose shares may be held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries. 11 We have never paid any dividends on our common stock and do not plan to pay dividends on our common stock for the foreseeable future. We currently intend to retain future earnings, if any, to finance operations, capital expenditures and the expansion of our business. EQUITY COMPENSATION PLANS The following table sets forth as of May 31, 2008 compensation plans (including individual compensation arrangements) under which equity securities of the company are authorized for issuance: Equity Compensation Plan Information
Plan Category Number of securities to be issued upon exercise of Weighted-average exercise price Number of securities remaining outstanding options, warrants of outstanding options, warrants available for future issuance and rights and rights under equity compensation plans (a) (b) (excluding securities reflected in column (a)) (c) Equity compensation plans 0 0 0 approved by security holders Equity compensation plans not approved by security holders 1,000,000 shares of Series A $.04 20,000,000 shares of common stock Preferred Stock (1) 7,000,000 shares of Series A Preferred Stock (3)(4) 250,000 shares of common stock (2) $.50 Total 1,000,000 shares of Series A $.04 20,000,000 shares of common stock Preferred Stock(1) 7,000,000 shares of Series A Preferred Stock (3)(4) 250,000 shares of common stock $.50 (2)
(1) On January 18, 2007, we issued options to purchase 1,000,000 shares of Series A Preferred Stock to Peter Wilke, our then general counsel. The option price is $0.04 and the term is five years. (2) On March 31, 2008, we issued an anti-dilutive 3-year common stock purchase warrant to purchase 250,000 shares of our common stock to our legal counsel. The warrants have an exercise price of $0.50 per share and may be exercised at any time prior to March 31, 2011. (3) On January 22, 2007, we approved the January 2007 Non-Qualified Stock Plan (the "Plan"). The purpose of the Plan is to compensate key employees, advisors, service providers and consultants by issuing them shares of our common stock or options to purchase shares of common stock in exchange for services rendered. We authorized up to 20 million shares of our common stock and up to 8 million shares of our preferred stock for issuance under the Plan. (4) In November 2006, in connection with an agreement to purchase the rights of Oxyview from Francis McDermott, we agreed to issue Mr. McDermott options to purchase 2,000,000 shares of common stock at an exercise price of $.06 per share. The options were to be issued only upon the sale of at least 1,000,000 units of Oxyview and terminate five years thereafter. In May 2008, we agreed to issue 2,000,000 shares of Series A preferred stock to Mr. McDermott to cancel these options. The stock was not issued as of May 31, 2008 and we have booked $2,000 as a stock subscription. We have outstanding options held by one individual to purchase 1,000,000 shares of our Series A Convertible Preferred stock. 12
Preferred Stock (fully vested) Options Weighted-Averaged Outstanding Weighted-Average Remaining Contractual Intrinisic as of Shares Exercise Price Term Value ------ -------------- --------------------- ----- May 31, 2008 1,000,000 $0.04 4.58 years $39,535
For purposes of calculating the intrinsic value of the options to purchase Series A Preferred Stock, we used the trading value and volatility of our common shares. There is no market for the Series Preferred stock, but each share is convertible at a one-for-one rate into our common stock. The intrinsic value of the stock options will be amortized over the life of the contract. RECENT SALES OF UNREGISTERED SECURITIES During the quarter ended May 31, 2008, we sold the following securities without registration under the Securities Act of 1933 in reliance on the exemption contained in Section 4(2) and/or Regulation D promulgated thereunder. No general solicitation or advertising was used in connection with the sale of the shares and all shares were issued with a restrictive legend. Common Stock - ------------- a) In March 2008, we issued a total of 30,000 shares of our restricted common stock to our CEO, Scott Sand (adjusted for the 1 for 600 reverse stock split on August 27, 2008) originally issued as 18,000,000 shares of restricted common stock). The stock was issued to retire accrued compensation in the amount of $108,000. We valued this stock at $0.006 per share, which was the closing price of the common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $3.60 per share. b) In March 2008, we issued a total of 16,668 shares of our restricted common stock to two entities in exchange for service rendered (adjusted for the 1 for 600 reverse stock split on August 27, 2008, the stock was originally issued as 10,000,000 shares of restricted common stock). We valued this stock at $0.006 per share, which was the closing price of the common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $3.60 per share. c) In March 2008, we issued a total of 3,000 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to the seven members of our Board of Directors and an officer. This was originally issued as 1,800,000 shares of restricted common stock. 1,200,000 shares were issued for Directors' fees, 300,000 shares were issued to Scott Sand, our CEO under the terms of his employment agreement, and 300,000 shares were issued to Tom Neavitt, an officer for his services rendered as Chief Financial Officer. We valued this stock at $0.006 per share, which was the closing price of the common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $3.60 per share. The total value of the stock issued was $10,800. d) On March 31, 2008, the Company issued to a consultant an anti-dilutive warrant granting the holder the right to purchase up to 250,000 shares of common stock at $.50 per share until March 31, 2011. The Company also issued the consultant a convertible promissory note in the principal amount of $37,000. On or before September 1, 2010, the holder may convert the note into shares of the Company's common stock. In all circumstances, the holder shall receive a minimum of 400,000 shares of the Company's common stock. Furthermore, in the event of a merger, consolidation, combination, subdivision, forward split or reverse split, any portion of the unpaid amount of this note may be converted into fully-paid, non-assessable shares of the Company's common stock, at a conversion price equal to $.25 per share. e) In April 2008, we sold a total of 4,167 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to one individual. This was originally issued as 2,500,000 shares of restricted common stock. The stock was sold for cash at a price of $0.006 per share. The reverse stock split adjusted price of the common stock is $3.60 per share. The total consideration received by the Company was $15,000. 13 f) In April 2008, we issued a total of 133 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to one individual. This was originally issued as 80,000 shares of restricted common stock. The stock was issued for services rendered and was valued at a price of $0.005 per share, which was the closing price of common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $3.00 per share. The total value of the stock issued was $400. g) In April 2008, we issued a total of 10,000 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to an entity (originally issued as 6,000,000 shares of restricted common stock). The stock was issued for services rendered and was valued at a price of $0.0032 per share, which was the closing price of common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $1.92 per share. The total value of the stock issued was $19,200. h) In April 2008, we authorized the issuance for a total of 1,200,000 shares of our restricted common stock to Bradley Klearman, who is one of our directors, and as part of his consulting agreement (after the 1 for 600 reverse stock split on August 27, 2008, this was equal to 2,000 post reverse stock split shares of common stock). Under this agreement, Mr. Klearman receives $3,000 per month retainer paid either in cash or restricted shares, depending on the company's ability to pay. The company owed Mr. Klearman $3,000 for the month of February 2008, and an additional $3,000 for the month of March 2008. The total amount owed prior to April 1, 2008 was $6,000. The fair market value of the company stock at that time was $0.005 per share. The calculation of shares were derived by dividing the amount owed of $6,000 by the fair market value of $0.005. i) In April 2008, we sold a total of 4,385 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to Robert Sand, the father of our CEO. This was originally issued as 2,631,579 shares of restricted common stock. The stock was sold for cash at a price of $0.0019 per share. Our stock price was $0.002 on the date of issuance. The reverse stock split adjusted price of the common stock is $1.14 per share. The total consideration received by the Company was $5,000. j) In April 2008, we issued a total of 1,667 shares of our restricted common stock (adjusted for the 1 for 600 reverse stock split on August 27, 2008) to one individual. This was originally issued as 1,000,000 shares of restricted common stock. The stock was issued for services rendered and was valued at a price of $0.0015 per share, which was the closing price of common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $0.90 per share. The total value of the stock issued was $1,500. k) In May 2008, we sold a total of 37,292 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to five individuals. This was originally issued as 22,375,000 shares of restricted common stock. The stock was sold for cash at a price of $0.0008-0.001 per share. The reverse stock split adjusted price of the common stock is $0.48-0.60 per share. The total consideration received by the Company was $17,000. l) In May 2008, we issued a total of 10,000 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to one individual. This was originally issued as 6,000,000 shares of restricted common stock. The stock was issued for services rendered and was valued at a price of $0.0009 per share, which was the closing price of common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $0.54 per share. The total value of the stock issued was $5,400. m) In May 2008, we issued a total of 231,481 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to our CEO, Scott Sand (originally issued as 138,888,889 shares of restricted common stock). The stock was issued in lieu of compensation, to retire accrued compensation and to pay unreimbursed expenses paid on behalf of the Company in the total amount of $125,000. We valued this stock at $0.0009 per share, which was the closing price of the common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $0.54 per share. 14 Note Conversion Throughout the quarter, we issued a total of 46,545 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our common stock to our convertible note holders. This was originally issued as 27,927,000 shares of common stock. The stock was issued upon conversion of convertible notes dated June 25, 2006 and was valued at price from $0.0003-0.006 per share, which was the conversion price the notes on the dates of conversion (50% of the market price of our common stock on the dates of conversion). The reverse stock split adjusted price of the common stock is $0.18-3.60 per share. The total amount of the notes converted was equal to $23,453. Preferred Stock On March 19, 2008, the Company's CEO, Scott Sand converted a total of $72,000 in debt into 12,000,000 shares of the Company's Series A Preferred Stock. The stock was valued at $0.006 per share, which was the trading price of the Company's common stock at the time of the issuance. Subsequent to May 31, 2008, the Company reports the following issuances: Ingen entered into a Securities Purchase Agreement dated June 16, 2008 with three investors. Under the Securities Purchase Agreement, the investors agreed to purchase up to $500,000 in Secured Callable Convertible Notes (the "Notes") and Common Stock Purchase Warrants covering 20,000,000 shares of the Issuer's common stock. The initial closing occurred on June 20, 2008 and the Issuer received gross proceeds of $100,000 and delivered to the Investors $100,000 face value Notes and Common Stock Purchase Warrants covering 20,000,000 shares of the Issuer's common stock. Future closings for gross proceeds of $100,000 each were scheduled to occur at the end of July, August, September, and October 2008. Following the initial closing, the Company has issued $225,000 in additional convertible notes. On September 5, 2008, Ingen amended its Securities Purchase Agreement dated as of June 16, 2008. Under the terms of this amendment, the conversion rate and interest rate of all convertible debentures have been adjusted. This amendment applies to the $1.5 million convertible date entered into on July 25, 2006, the $450,000 convertible debt entered into on March 15, 2007, the $110,000 convertible note entered into on July 30, 2007 as well as the $500,000 Securities Purchase Agreement dated June 16, 2008. The "Applicable Percentage" (as defined in each of the notes to be the rate at which the note holders can convert their debt into common stock) has been adjusted to 40%. This means that the convertible note holders can now convert their debt into stock at the average of the lowest three trading prices for the common stock during the twenty day trading period prior to conversion multiplied by 40%. Also the interest rate on all convertible notes has been adjusted from 6% to 12%. This interest rate adjustment is effective as of January 1, 2008. As of May 31, 2008, this interest rate adjustment would be applied to $2,031,547 in outstanding convertible debt. Further, the June 16, 2008 agreement to purchase up to $500,000 in Secured Callable Convertible Notes was amended so that future purchases shall occur "on such dates as shall be mutually agreed upon by the Company and the Buyers" instead of on the scheduled closing dates originally provided for in the agreement. There is no guarantee that future purchases will occur. Subsequent to May 31, 2008, the Company issued 70,185 post-reverse shares of its common stock in connection with the above mentioned debt. On August 27, 2008, the Company engaged Media4Equity LLC, a Nevada limited liability company, to provide public relations services to the Company. Pursuant to the Media Production and Placement Services Agreement (the "Agreement"), Media4Equity is to act as production and placement agency for the Company's print and broadcast media campaign and to provide the Company with a guaranteed dollar value of national media exposure equivalent to $2,000,000 (the "Media Credit") as further set forth in the Agreement. The services provided under the Agreement shall commence at the sole discretion of the Company, but no later than twelve months from the effective date of the Agreement and the Agreement shall terminate upon the Media Credit being used in its entirety or within three years of commencement of services, whichever is earlier. Under the Agreement, the Company issued Media4Equity 3,300,000 restricted shares of its common stock, no par value, valued at $.06 per share. The shares have piggyback registration rights and Media4Equity may also make one "demand" registration request, under which Company agrees to file under the Securities Act of 1933, as amended, a registration statement covering the shares within 30 days after receipt of such request. The Company relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these securities. The shares were issued to an accredited investor. There was no general solicitation or advertising and the shares were issued with a restrictive legend. On September 17, 2008, Jeffrey Gleckman converted 4,000,000 of Series A preferred shares into common stock. Upon this conversion, Mr. Gleckman owned approximately 49.8% of our total outstanding common shares. 15 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS THE DISCUSSION IN THIS SECTION CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE RELATING TO FUTURE EVENTS OR OUR FUTURE PERFORMANCE. WORDS SUCH AS "ANTICIPATES," "BELIEVES," "EXPECTS," "INTENDS," "FUTURE," "MAY" AND SIMILAR EXPRESSIONS OR VARIATIONS OF SUCH WORDS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, BUT ARE NOT THE ONLY MEANS OF IDENTIFYING FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE ONLY PREDICTIONS AND ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS IDENTIFIED IN THIS REPORT, INCLUDING THE MATTERS SET FORTH UNDER THE CAPTION "BUSINESS RISKS," WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. OVERVIEW Ingen Technologies, Inc. is an emerging medical device manufacturer registered with the US Food & Drug Administration and certified by the Department of Health Services. The company develops, markets and distributes medical technologies and products with applications in the respiratory device markets and the medical diagnostics market; as well as markets in emergency response, aviation, military and consumer markets. Ingen owns a variety of intellectual property, including domestic and foreign patents. The company owns and manufacture Oxyview and OxyAlert; products designed for the growing respiratory patient market in the USA and abroad. Oxyview and OxyAlert provide the respiratory clinicians, inclusive of pulmonologists, respiratory therapists and patient care technicians the means to access an innovative medical product that provides assurance and safety to home oxygen patients and hospitalized patients while monitoring oxygen flow during oxygen therapy. Patients using portable oxygen concentrators, home oxygen concentrators, liquid oxygen and oxygen gas can use Oxyview and OxyAlert to improve their oxygen delivery. The Oxyview and OxyAlert respiratory products have been accepted by various national respiratory foundations, including the National Home Oxygen Patient Association and the National Emphysema/COPD Foundation. Ingen distributes two products, PogaMoonga and a private label product referred to as Secure Balance. PogaMoonga is a natural drink processed from pomegranate, aloe vera and the leaves and seeds of the moringa tree. This product provides oxygen therapy patients, and consumers with a way to naturally increase their energy levels. The Secure Balance product is a private-label product that includes a vestibular function testing system and balance therapy system. The vestibular (referencing organs in the inner ear) function testing system is manufactured by Interacoustics LTD. in Denmark and is referred to as the VNG. This is an accepted method among physicians to provide diagnostic testing of the inner-ear and central nervous system, in order to provide qualitative results that determine a diagnosis of a patients balance problem. The balance therapy system is manufactured by SportKAT, Inc. in San Diego, California. SportKAT provides private-label testing and balance therapy systems to others. This system is used to provide therapy to patients with balance problems through the use of computerized clinical software tools. However, we have our own trademark, Secure Balance(R). Our Secure Balance program provides balance testing/assessment equipment, education and training about balance and fall prevention to physicians and clinicians worldwide. We have had sales revenues from Secure Balance and Oxyview products in each of our last three fiscal years of $846,783 in the year ended May 31, 2006, $720,678 in the fiscal year ended May 31, 2007 and $252,493 in the fiscal year ended May 31, 2008. Secure Balance sales represent the majority of the revenues, as Oxyview could not be sold until classification with the US Food and Drug Administration in November 2006. Accordingly, Secure Balance represented sales of $846,783 in the year ended May 31, 2006, $704,490 in the fiscal year ended May 31, 2007 and $207,357 in the fiscal year ended May 31, 2008. Oxyview represented no sales in the year ended May 31, 2006, $5,694 in the fiscal year ended May 31, 2007 and $42,044 in the fiscal year ended May 31, 2008. The company revenues indicate a decline in Secure Balance sales and an increase with Oxyview sales. We expect the percentage of our total sales coming from Secure Balance to continue to fall as we focus the vast majority of our sales and marketing efforts on Oxyview and as we move toward the introduction of our OxyAlert product. The Secure Balance sales have declined due to government cuts and changes in regulations for vestibular function testing and balance therapy. Further, the company is not a manufacturer of any Secure Balance products, and as a result has no control over competitive pricing or manufacturing costs. This would affect margins and gross profits of all Secure Balance sales. The Oxyview sales have increased because the company is the manufacturer of Oxyview and can control manufacturing costs and competitive pricing for its distribution, hospital group purchasing organizations and partnerships with its respiratory equipment manufacturers. 16 We have had significant losses since inception. Our net loss for the past three fiscal years ended May 31, 2008, May 31, 2007 and May 31, 2006 have been $1,303,244, $5,061,482 and $1,736,868, respectively. We anticipate that we will continue to incur substantial additional operating losses in our fiscal year ending May 31, 2009 as we continue to develop our respiratory product line, increase our sales efforts for our Oxyview product, and begin anticipated manufacturing and marketing of OxyAlert. As of May 31, 2008, we had an accumulated deficit of $10,626,915 (up from $9,323,671 on May 31, 2007 and $4,262,189 as of May 31, 2006). We have restated our financial statements for the fiscal years ended May 31, 2006 and May 31, 2007. As a result of this restatement, we have included restated financial statements for both of these fiscal years in this Form 10-KSB. This restatement (as described Item 7) caused us to restate our May 31, 2007 financial statements as well as the interim financial statements for the quarters ended August 31, 2006, November 30, 2006, February 28, 2007, August 31, 2007 and November 30, 2007. Additionally, we have included a comparison of the financial results for the fiscal year ended May 31, 2006 compared to May 31, 2007 in addition to a comparison of the fiscal year ended May 31, 2007 compared to May 31, 2008 in the Management's Discussion and Analysis. CRITICAL ACCOUNTING POLICIES Our significant accounting policies are disclosed in Note 2 to our audited, consolidated financial statements. Certain of our policies require the application of management judgment in making estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes. Those estimates and assumptions are based on historical experience and various other factors deemed to be applicable and reasonable under the circumstances. The use of judgment in determining such estimates and assumptions is by nature, subject to a degree of uncertainty. Accordingly, actual results could differ from the estimates made. RESULTS OF OPERATIONS COMPARISON OF FISCAL YEARS ENDED MAY 31, 2006 AND MAY 31, 2007 We reported gross sales of $720,678 in the fiscal year ended May 31, 2007. Our total sales fell 15% from sales of $846,783 in our fiscal year ended May 31, 2006. Our sales decrease was attributable to less sales of our Secure Balance product. Our Secure Balance sales were $704,490 in the 2007 fiscal year (approximately 98% of our total sales in the fiscal year ended May 31, 2007), compared to $846,783 in the prior year (100% of our sales in the fiscal year ended May 31, 2006). Management attributes the drop in Secure Balance 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. Further, our sales of Oxyview were $5,695 (this sales figure represented approximately 0.8% of all revenues in the fiscal year ended May 31, 2007). We also reported $10,492 in freight charges that we collected and recorded as income in the fiscal year ended May 31, 2007 (our freight income represented approximately 1.5% of all revenues in the fiscal year ended May 31, 2007). The downward trend in our overall revenues in the fiscal year ended May 31, 2007 was a result of the aforementioned decrease in Secure Balance sales and a shift in management's efforts to promoting sales of Oxyview. Our cost of sales was $452,100 in the fiscal year ended May 31, 2007 and our gross profit was $268,578 (a gross margin of 37.3%). We reported cost of sales of $301,118 in the fiscal year ended May 31, 2006 with a gross profit of $545,665 (a gross margin of 64.4%). The large difference in the gross margin from the 2007 fiscal year compared to the prior year is primarily related to a change in accounting treatment of commissions and other direct cost of sales (including costs by the Company to install Secure Balance units and to train the customers to use the machine). All of these costs allocated to cost of sales are contractual obligations of the Company directly related to the sale of the Secure Balance units. The Company would have reported total cost of sales of $540,231 in the fiscal year ended May 31, 2006 had the Company utilized this same accounting treatment for its commissions and other related expenses now classified as costs of sales. This would have resulted in a gross profit of $306,552 and a gross margin of 36.2%, nearly the same as the gross margin in the fiscal year ended May 31, 2007. We anticipate our gross profit percentage to improve as we increase our Oxyview sales and our Secure Balance sales continue to fall. Our Oxyview units generate a much higher profit margin. For the fiscal year ended May 31, 2007, the cost of sales on our Oxyview units was $133 on sales of $5,695 (a gross margin of 97.7%, with a gross profit of $5,562). The cost of sales of on our Secure Balance units was $451,966 (a gross margin of 35.9%, with a gross profit of $252,824). 17 Our selling, general and administrative ("SG&A") expenses were $1,882,221 in the fiscal year ended May 31, 2007. This was a decrease of approximately 17.4% from the selling, general and administrative expenses of $2,277,881 reported in the fiscal year ended May 31, 2006. With the adjustment for the change in cost of sales discussed above, the selling, general and administrative expenses would have been $1,904,727 in the fiscal year ended May 31, 2006. The largest components of our SG&A are advertising, legal and professional services, travel associated with both sales and business development, outside services and salaries. Our advertising expense dropped from $325,761 in the fiscal year ended May 31, 2006 to $175,524 in the fiscal year ended May 31, 2007 (a decrease of 46.1%). This drop in advertising expense is due to less available capital for advertising and a decrease in advertising of our Secure Balance product. We expect advertising expense to continue to fall until we secure additional capital to allocate to advertising and promoting of Oxyview. We spent $455,049 on legal and professional fees in the fiscal year ended May 31, 2006. This amount dropped 41.4% to $266,206 in the fiscal year ended May 31, 2007. A large portion of our legal and professional fees related directly to the task of filing delinquent periodic reports required by the SEC. Our predecessor management failed to file these reports dating from the fiscal year ended May 31, 1998 through the time that Ingen Technologies, Inc. (the private Nevada company) was acquired in March of 2004. The time and expense related to filing these delinquent reports was substantial. Fortunately, we substantially completed these delinquent reports in the fiscal year ended May 31, 2008 and as a result we anticipate our legal and professional fees to continue to fall. Our travel expense increased from $228,671 in the fiscal year ended May 31, 2006 to $319,476 in the fiscal year ended May 31, 2007 (an increase of 39.7%). This increase in travel expense was due to domestic travel expenses incurred while expanding national distribution contracts for Oxyview. The amounts we paid for outside services increased from $353,320 in the fiscal year ended May 31, 2006 to $416,687 in the fiscal year ended May 31, 2007 (an increase of 17.9%). The amounts we paid for salaries increased from $112,409 in the fiscal year ended May 31, 2006 to $195,164 in the fiscal year ended May 31, 2007 (an increase of 73.6%). This increase is attributable to the increase in officer's compensation paid to Scott Sand, our CEO. We entered into an employment contract with Mr. Sand on December 1, 2006 which pays him a salary of $200,000 per year. As a result of this prorated salary and stock awards to Mr. Sand, our officer's compensation for the fiscal year ended May 31, 2007 increased to $116,667 from $60,000 in the previous fiscal year. Due to entering into $1,915,000 in convertible note agreements as of May 31, 2007, our interest expense increased dramatically. We reported interest expense of $3,852 in our fiscal year ended May 31, 2006. Our interest expense in the 2007 fiscal year was $5,028,485. The bulk of this current interest expense relates to the accounting treatment of the convertible feature of the notes payable. The interest expense accrued on the notes payable was equal to $44,109 for the year ended May 31, 2007. The other interest charges related to the amortization of debt issue costs, amortization of note discount and other financing costs were $4,984,376. We reported income due to the change in our derivative liability in the amount of $1,583,636 in the fiscal year ended May 31, 2007. This was the first year we reported such income. This income was generated as a result of the Company's treatment of certain convertible notes payable and warrants. The Company is required to value the convertible feature of each convertible note and also value the warrants when they are issued. The valuation was done again as of May 31, 2007. The changes in these values, which are based on a Black Scholes valuation, have been recorded as income. The net difference of the Black Scholes valuation at the time of the issuance of the debt and warrants compared to the valuation as of May 31, 2007 resulted in the Company reporting income of $1,583,636 (the derivative liability decreased between the time of issuance of the warrants and debt and May 31, 2007). We have not generated net profit to date and therefore have not paid any federal income taxes since inception. We paid $1,215 and $800 in franchise taxes to the state of California in the fiscal years ended May 31, 2007 and 2006, respectively. We also made a tax payment to the state of Georgia of $1,775 in the current fiscal year. We estimate that our federal tax net operating loss carryforward will be approximately $4.6 million as of May 31, 2007. This carryforward was equal to $3,009,598 as of May 31, 2006. The loss carryforward will begin to expire in 2019, if not utilized. Our ability to utilize our net operating loss and tax credit carryforwards may be limited in the event of a change in ownership. 18 LIQUIDITY AND CAPITAL RESOURCES At May 31, 2007, our current assets totaled $119,465 (including cash of $238, inventory of $85,594 and prepaid expenses of $33,633). Total current liabilities were $380,018, consisting of $84,517 in accounts payable, $196,620 in accrued expense, $84,342 in an officer's loan and $14,539 representing the current portion of long-term debt. We had a working capital deficit of $260,553 as of May 31, 2007. We had $720,678 of sales in the fiscal year ended May 31, 2007 and sales of convertible debentures on which we netted $1,566,800. Our finances were assisted by deferments from our CEO and Chairman Scott R. Sand. Mr. Sand accrued $96,667 in salary in the fiscal year, although he converted $95,311 of this accrued salary into preferred stock. As of May 31, 2007, we owed Mr. Sand $113,356 in accrued salary and an additional $84,342 for expenses that he has paid on behalf of the Company. Our current assets as of May 31, 2006 were $111,112, comprised of cash. Our current liabilities as of May 31, 2006 were $298,805 (comprised of accounts payable of $48,186, accrued expenses of $179,793 and an officer's loan of $70,826). We had a working capital deficit of $187,693 as of May 31, 2006. Operations for the fiscal year ended May 31, 2007 required $1,409,266 in cash (compared to $1,463,006 in the fiscal year ended May 31, 2006). We made investments of $344,915 in the fiscal year ended May 31, 2007 (compared to $48,583 in the fiscal year ended May 31, 2006). The investments made in the fiscal year ended May 31, 2007 included purchases of $277,570 of equipment and $67,345 for intangibles. The investment in the fiscal year ended May 31, 2006 was for equipment. Our operations for the fiscal year ended May 31, 2007 were assisted by sales of convertible loans in the amount of $1,566,800, loans from our CEO in the amount of $26,416 and other loans in the amount of $116,096. We also repaid loans of $14,105 and refunded a stock purchase for $52,000. Our future cash requirements will depend on many factors, including finishing the development of our OxyAlert product (largely completed), the costs involved in SEC regulatory filing, prosecuting and enforcing patents, competing technological and market developments and the cost of product commercialization for OxyAlert in particular, as well as our ongoing Secure Balance and Oxyview sales efforts. We intend to seek additional funding in the amount of $5,000,000 through public or private financing transactions. There is no guarantee that we will be able to obtain such funding. Future operations are subject to a number of technical and business risks, including our continued ability to obtain future funding, satisfactory product development and market acceptance for our products. RESULTS OF OPERATIONS COMPARISON OF FISCAL YEARS ENDED MAY 31, 2007 AND MAY 31, 2008 We reported gross sales of $252,493 in the fiscal year ended May 31, 2008. Our total sales fell 65% from sales of $720,678 in our fiscal year ended May 31, 2007. Our sales decrease was attributable to less sales of our Secure Balance product. Our management has decided to focus sales and marketing efforts on our proprietary higher-margin Oxyview product. We expect our sales of Oxyview to continue to increase. Our sales of Secure Balance in the fiscal year ended May 31, 2008 dropped 70.6% from $704,490 in the fiscal year ended May 31, 2007 to $207,358. As our focus continues to shift toward our Oxyview product, we expect our sales of Secure Balance to continue to fall. Our Oxyview sales increased 638% to $42,044 in the fiscal year ended May 31, 2008 from $5,695 in the prior year. We reported sales of $294 of supplies and collected $2,797 in freight charges in the fiscal year ended May 31, 2008. This is compared to $10,492 in freight charges that we collected and recorded as income in the fiscal year ended May 31, 2007. The drop in freight charges is a direct function of our decrease in Secure Balance sales. An Oxyview unit weights 4 grams, whereas the total weight of the Secure Balance system is 350 pounds; resulting in higher freight costs for Secure Balance. Our cost of sales was $167,631 in the fiscal year ended May 31, 2008 and our gross profit was $84,862 (a gross margin of 33.6%). We reported cost of sales of $452,100 in the fiscal year ended May 31, 2007 with a gross profit of $268,578 (a gross margin of 37.2%). Our cost of sales decreased 63% in our fiscal year ended May 31, 2008 compared to the fiscal year ended May 31, 2007. This decrease was due to our drop in Secure Balance sales. The gross profit on our Oxyview sales for the fiscal year ended May 31, 2008 was $31,280 (total sales of $42,044 with costs of sales of $10,764). The gross margin on our Oxyview sales was 74.4%. This is compared to the cost of sales of $156,867 on our Secure Balance sales (a gross margin of 24.3%, a gross profit of $50,491 on $207,358 in Secure Balance sales). 19 Our selling, general and administrative expenses ("SG&A") were $1,741,690 in the fiscal year ended May 31, 2008. This was a decrease of approximately 7.4% from the selling, general and administrative expenses of $1,882,221 reported in the fiscal year ended May 31, 2007. This decrease was attributable to lower advertising, sales and marketing expenses in the fiscal year ended May 31, 2008 compared to the prior fiscal year. The largest components of our SG&A in the fiscal year ended May 31, 2008 were advertising, legal and professional services, travel associated with both sales and business development, outside services and salaries. Our advertising expense dropped to $60,452 in the fiscal year ended May 31, 2008 from $175,524 in the fiscal year ended May 31, 2007 (a decrease of 65.6%). This drop in advertising expense is due to less available capital for advertising and a decrease in advertising of our Secure Balance product. We expect advertising expense to continue to fall until we secure additional capital to allocate to advertising and promoting of Oxyview. We spent $266,206 on legal and professional fees in the fiscal year ended May 31, 2007. This amount dropped 13.7% to $229,692 in the fiscal year ended May 31, 2008. A large portion of our legal and professional fees related directly to the task of filing delinquent periodic reports required by the SEC. Our predecessor management failed to file these reports dating from the fiscal year ended May 31, 1998 through the time that Ingen Technologies, Inc. (the private Nevada company) was acquired in March of 2004. The time and expense related to filing these delinquent reports was substantial. Fortunately, we substantially completed these delinquent reports in the fiscal year ended May 31, 2008 and as a result we anticipate our legal and professional fees to continue to fall. Our travel expense decreased from $319,476 in the fiscal year ended May 31, 2007 to $168,574 in the fiscal year ended May 31, 2008 (a decrease of 47.2%). This drop in travel expense is due to less available capital for travel related to the promotion of our products and our company in general. We expect travel expense to increase when we secure additional capital to allocate to travel expense. The amounts we paid for outside services increased from $416,687 in the fiscal year ended May 31, 2007 to $550,684 in the fiscal year ended May 31, 2008 (an increase of 32.2%). The amounts we paid for salaries increased from $195,194 in the fiscal year ended May 31, 2007 to $402,388 in the fiscal year ended May 31, 2008 (an increase of 106.2%). This increase is attributable to the increase in officer's compensation paid to Scott Sand, our CEO. We entered into an employment contract with Mr. Sand on December 1, 2006 which pays him a salary of $200,000 per year. We also issued Mr. Sand stock awards valued at $133,699 during the fiscal year ended May 31, 2008. As a result of his salary and stock awards to Mr. Sand, our officer's compensation for the fiscal year ended May 31, 2008 increased to $333,699 from $116,667 in the previous fiscal year. We reported interest expense of $1,265,454 in our fiscal year ended May 31, 2008. Our interest expense in the fiscal year ended May 31, 2007 was $5,028,485. This represents a decrease in interest expense of 75%. This decrease is primarily attributable to the amount booked as interest expense due to the accounting treatment of the convertible feature of the notes payable. The other interest charges related to the amortization of debt issue costs, amortization of note discount and other financing costs for the fiscal year ended May 31, 2007 were $4,984,376. This same item was $1,059,145 in the fiscal year ended May 31, 2008. The interest expense attributable to the accrued of interest on the notes payable was equal to $44,109 for the year ended May 31, 2007. The interest accrued on our notes payable in the fiscal year ended May 31, 2008 was $119,349. This accrued interest amount was an increase of 171% compared to the previous fiscal year. This increase was due to a higher average balance of notes payable outstanding during the fiscal year. We reported income due to the change in our derivative liability in the amount of $1,583,636 in the fiscal year ended May 31, 2007, compared to $1,619,848 in the current fiscal year. This income was generated as a result of the Company's treatment of certain convertible notes payable and warrants. The Company is required to value the convertible feature of each convertible note and also value the warrants when they are issued. The valuation was done again as of May 31, 2007 and May 31, 2008. The changes in these values, which are based on a Black Scholes valuation, have been recorded as income. The net difference of the Black Scholes valuation at the time of the issuance of the debt and warrants compared to the valuation as of May 31, 2007 and May 31, 2008 resulted in the Company reporting income of $1,583,636 and $1,619,848, respectively (the derivative liability decreased between the time of issuance of the warrants and debt and May 31, 2007, and then decreased again by May 31, 2008). 20 We have not generated net profit to date and therefore have not paid any federal income taxes since inception. We paid $810 and $2,990 in franchise taxes to the state of California and the state of Georgia in the fiscal years ended May 31, 2008 and 2007, respectively. We estimate that our federal tax net operating loss carryforward will be approximately $5.8 million as of May 31, 2008. This carryforward was equal to $4.6 million as of May 31, 2007. The loss carryforward will begin to expire in 2019, if not utilized. Our ability to utilize our net operating loss and tax credit carryforwards may be limited in the event of a change in ownership. LIQUIDITY AND CAPITAL RESOURCES At May 31, 2008, our current assets totaled $125,826 (including accounts receivable of $63, inventory of $74,830 and prepaid expenses of $50,933). Total current liabilities were $563,393, consisting of a cash overdraft of $530, $212,242 in accounts payable, $201,927 in accrued expense, $1,747 in an officer's loan, $82,500 in short-term loans, $49,908 in convertible notes and $14,539 representing the current portion of long-term debt. We had a working capital deficit of $437,567 as of May 31, 2008. We had $252,493 of sales in the fiscal year ended May 31, 2008, sales of common stock in the amount of $193,300, loans of $108,500 and sales of convertible debentures on which we netted $200,000. Our finances were assisted by deferments from our CEO and Chairman Scott R. Sand. Mr. Sand accrued $196,511 in salary in the fiscal year, although he converted all of this accrued salary into Series A Convertible Preferred Stock and common stock. As of May 31, 2008, we owed Mr. Sand $1,474 for expenses that he has paid on behalf of the Company. At May 31, 2007, our current assets totaled $119,465 (including cash of $238, inventory of $85,594 and prepaid expenses of $33,633). Total current liabilities were $380,018, consisting of $84,517 in accounts payable, $196,620 in accrued expense, $84,342 in an officer's loan and $14,539 representing the current portion of long-term debt. We had a working capital deficit of $260,553 as of May 31, 2007. We had $720,678 of sales in the fiscal year ended May 31, 2007 and sales of convertible debentures on which we netted $1,566,800. Our finances were assisted by deferments from our CEO and Chairman Scott R. Sand. Mr. Sand accrued $96,667 in salary in the fiscal year, although he converted $95,311 of this accrued salary into preferred stock. As of May 31, 2007, we owed Mr. Sand $113,356 in accrued salary and an additional $84,342 for expenses that he paid on behalf of the Company. Operations for the fiscal year ended May 31, 2008 required $659,283 in cash (compared to $1,409,266 in the fiscal year ended May 31, 2007). We did not make any investments in the fiscal year ended May 31, 2008 (compared to $344,915 in the fiscal year ended May 31, 2007). The investments made in the fiscal year ended May 31, 2007 included purchases of $277,570 of equipment and $67,345 for intangibles. Our operations for the fiscal year ended May 31, 2008 were assisted by sales of convertible loans in the amount of $200,000, loans from our CEO in the amount of $196,511, sales of common stock that netted $193,300 and other loans in the amount of $108,500. We also repaid loans of $39,796. 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). MATERIAL COMMITMENTS Convertible Notes Payable - The Company has entered into convertible debenture agreements that total $2,135,000 from June 2006 through July 2007. As of May 31, 2008, these notes were convertible into approximately 11.3 million shares of the Company's post-reverse split common stock. Additionally, the note holders (or their affiliates) were initially granted options to purchase up to 48,334 shares of the Company's common stock (these warrants were initially issued to purchase 29,000,000 shares of common stock, but the number has been adjusted for the 600 to 1 reverse stock split which was effective on August 27, 2008). If all of the notes were converted and the warrants were exercised, the noteholders could own more than ninety-five percent of the Company's outstanding common stock, however under the terms of the agreements the noteholders can not convert their notes into holdings that would exceed 4.99% of the Company's outstanding common stock. The notes were entered into under the terms of three different agreements. 21 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 (due to the reverse stock split effective on August 27, 2008, the warrants can now acquire 33,334 shares of the Company's common stock at a price of $60.00 per share). 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. The Company has not had a Registration Statement become effective as of the date of this Report. At May 31, 2008, only $1.5 million of the convertible notes were funded. Subsequent to May 21, 2008, on September 5, 2008, the conversion rate and interest rate of the July 2006 convertible debentures have been adjusted as set forth below. The "Applicable Percentage" (as defined in each of the notes to be the rate at which the note holders can convert their debt into common stock) has been adjusted to 40%. This means that the convertible note holders can now convert their debt into stock at the average of the lowest three trading prices for the common stock during the twenty day trading period prior to conversion multiplied by 40%. Also the interest rate on all convertible notes has been adjusted from 6% to 12%. 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. The Company received the first tranche of $700,000 on July 27, 2006, less issuance costs of $295,200, the second tranche of $600,000, less issuance costs of $13,000 on August 30, 2006, and the third tranche of $200,000 was received on January 24, 2007. The Company issued seven year warrants to purchase 20,000,000 shares of its common stock at an exercise price of $0.10. These warrants have been adjusted to purchase 33,334 shares of common stock at a price of $60.00. The issuance costs incurred in connection with the convertible notes are deferred and being amortized to interest expense over the life of each debenture tranche. 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 6,250 shares of common stock at $12.00 per share (this note was originally convertible into 3,750,000 shares of common stock at $0.02 per share, but the price has been adjusted to reflect the reverse stock split that was effective on August 27, 2008). The debenture carries an interest rate of 6% per annum, and payable annually. In the event that the debenture is not converted to common stock, any unpaid balance, including interest and the principal, becomes due on May 31, 2009. On March 15, 2007, the Company entered into a Security Purchase Agreement (the "Agreement") and agreed to issue and sell (i) callable secured convertible notes up to $450,000, and (ii) warrants to acquire an aggregate of 9 million shares of the Company's common stock (due to the reverse stock split effective on August 27, 2008, the warrants can now acquire 15,000 shares of the Company's common stock at a price of $36.00 per share). The callable secured convertible notes (4 notes, $450,000 total loan principal; 3 year term; 6% annual interest, 15% annual "default interest") are convertible into shares of our common stock at a variable conversion price based upon the applicable percentage of the average of the lowest three (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% 22 in the event that a Registration Statement is filed within thirty days of the closing and (ii) 60% in the event that the Registration Statement becomes effective within one hundred and twenty days from the closing. Under the terms of the callable secured convertible note and the related warrants, the callable secured convertible note and the warrants are exercisable by any holder only to the extent that the number of shares of common stock issuable pursuant to such securities, together with the number of shares of common stock owned by such holder and its affiliates (but not including shares of common stock underlying unconverted shares of callable secured convertible notes or unexercised portions of the warrants) would not exceed 4.99% of the then outstanding common stock as determined in accordance with Section 13(d) of the Exchange Act. The shares underlying the convertible notes are subject to a registration rights agreement. The Company also agreed to increase its number of authorized shares of common stock from 100 million to 500 million. The total number of authorized shares of common stock was increased to 750 million in February 2008. Subsequent to May 21, 2008, on September 5, 2008, the conversion rate and interest rate of the March 2007 convertible debentures have been adjusted as set forth below. The "Applicable Percentage" (as defined in each of the notes to be the rate at which the note holders can convert their debt into common stock) has been adjusted to 40%. This means that the convertible note holders can now convert their debt into stock at the average of the lowest three trading prices for the common stock during the twenty day trading period prior to conversion multiplied by 40%. Also the interest rate on all convertible notes has been adjusted from 6% to 12%. 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. The rate of prepayment ranges from 120% of face value of the notes or higher, depending on the timing of such prepayment. 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. The Company received the first tranche of $120,000 on March 15, 2007, less issuance costs of $20,000, the second tranche of $110,000, less issuance costs of $10,000 on April 16, 2007, and the third tranche of $110,000 was received on May 15, 2007, less issuance costs of $10,000. The final tranche of $110,000 was received in June 2007. An additional $110,000 was funded on July 15, 2007 under the same terms of the Securities Purchase Agreement dated March 15, 2007. The Company issued seven year warrants to purchase 9,000,000 shares of its common stock at an exercise price of $0.06. These warrants have been adjusted to reflect the reverse split on August 27, 2008 to warrants to purchase 15,000 shares of common stock at a price of $36.00. Secure Balance Agreements-We have entered into various agreements with third parties to perform certain services in connection with Secure Balance sales. These contracts require us to pay certain parties for commissions, services and/or equipment associated with the Secure Balance sales. We account for these services and/or equipment costs as cost of sales as the sales are booked. Among these contracts is an Exclusive Distribution Agreement for our Secure Balance product dated June 1, 2007 with Physical Rehabilitation Management Services, Inc. ("PRMS"). Under the terms of the agreement, we issued PRMS 500,000 shares of our restricted common stock at a price of $0.04 per share ($20,000 total). The term of the agreement is 5 years and we pay a 14% commission to PRMS on each sale of Secure Balance equipment. On March 31, 2008, the Company issued to a consultant an anti-dilutive warrant granting the holder the right to purchase up to 250,000 shares of common stock at $.50 per share until March 31, 2011. The Company also issued the consultant a convertible promissory note in the principal amount of $37,000 due September 1, 2008. On or before September 1, 2010, the holder may convert the note into shares of the Company's common stock. In all circumstances, the holder shall receive a minimum of 400,000 shares of the Company's common stock. Furthermore, in the event of a merger, consolidation, combination, subdivision, forward split or reverse split, any portion of the unpaid amount of this note may be converted into fully-paid, non-assessable shares of the Company's common stock, at a conversion price equal to $.25 per share. Employment Agreement with Chief Executive Officer, Scott R. Sand - On September 21, 2006, the Company entered into an Employment Agreement with its President and Chief Executive Officer, Scott R. Sand. The term of the agreement is five years and calls for an annual salary of $200,000. The Company is also required to issue Mr. Sand 300,000 shares of its common stock in each year of the agreement. 23 SUBSEQUENT EVENTS: Ingen entered into a Securities Purchase Agreement dated June 16, 2008 with three investors. Under the Securities Purchase Agreement, the investors agreed to purchase up to $500,000 in Secured Callable Convertible Notes (the "Notes") and Common Stock Purchase Warrants covering 20,000,000 shares of the Issuer's common stock. The initial closing occurred on June 20, 2008 and the Issuer received gross proceeds of $100,000 and delivered to the Investors $100,000 face value notes and Common Stock Purchase Warrants covering 20,000,000 shares of the Issuer's common stock. Future closings for gross proceeds of $100,000 each were scheduled to occur at the end of July, August, September, and October 2008. Ingen issued an additional $145,000 in convertible notes after the initial closing. On September 5, 2008, Ingen amended its Securities Purchase Agreement dated as of June 16, 2008. Under the terms of this amendment, the conversion rate and interest rate of the noteholders convertible debentures have been adjusted. This amendment applies to the $1.5 million convertible debt entered into on July 25, 2006, the $450,000 convertible debt entered into on March 15, 2007, the $110,000 convertible note entered into on July 30, 2007 as well as the $500,000 Securities Purchase Agreement dated June 16, 2008. The "Applicable Percentage" (as defined in each of the notes to be the rate at which the note holders can convert their debt into common stock) has been adjusted to 40%. This means that the convertible note holders can now convert their debt into stock at the average of the lowest three trading prices for the common stock during the twenty day trading period prior to conversion multiplied by 40%. Also the interest rate on all convertible notes has been adjusted from 6% to 12%. This interest rate adjustment is effective as of January 1, 2008. As of May 31, 2008, this interest rate adjustment would be applied to $2,031,547 in outstanding convertible debt. Further, the June 16, 2008 agreement to purchase up to $500,000 in Secured Callable Convertible Notes was amended so that future purchases shall occur "on such dates as shall be mutually agreed upon by the Company and the Buyers" instead of on the scheduled closing dates originally provided for in the agreement. There is no guarantee that future closings will occur. TRENDS THAT MAY IMPACT OUR LIQUIDITY Positive Trends: The United States has an increasingly elderly population. Our Secure Balance and respiratory product line (except GasAlert which targets the entire consumer 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 system, OxyAlert and Oxyview products enhance the safety of patients, and therefore, we believe, lessen the chances of medical malpractice exposure to our physician clients. We have been developing our respiratory product line since 1999. We have identified competition in the marketplace for our Oxyview and OxyAlert products. The competition with Oxyview is very small. There are 3 major manufacturers of oxygen flow meters, all of whom manufacture the gravity dependent [ball in tube] flow meter that can only attach directly to the delivery system. Specifically, there are two other in-line oxygen flow meters, the Liter-Meter manufactured by Erie Medical, Inc., and the Rotameter manufactured by King Instruments. Both of these devices are gravity dependent flow meters that include glass housings and are heavier as compared to the Oxyview. Oxyview only weighs approximately 4 grams, less than 1/4 the weight of the Liter-Meter and Rotameter. It is made of medical grade polycarbonate which is lighter, more durable and less of a safety factor compared to the glass house used on the competitive models. More important, Oxyview is not gravity dependent and works in any position, providing a more accurate reading and more user friendly environment for the patients and clinicians. The Liter-Meter and Rotameter are gravity dependent, and must be held vertical to provide a reading. Oxyview is not affected by normal temperature changes and humidity, and can function at high altitudes for private and commercial aviation use; whereas the Liter-Meter and Rotameter are effected by temperature, humidity and gravity, and become even more unstable in providing a reading for oxygen flow rate. The size of competition is expected to enhance our planned marketing campaign. 24 Negative Trends: Our product sales are impacted by government cuts and policy changes and are government dependent. Adverse economic conditions, federal budgetary concerns and politics can affect healthcare insurance regulations and could negatively impact our product sales. SEASONAL ASPECTS THAT MAY IMPACT OUR MEDICAL MARKET Traditionally, the medical market experiences an economic decrease in purchasing during the summer months. Peak months are usually October through May, followed by a decrease from June to September. 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 LEASING AND FINANCING PROGRAMS Our customers can obtain capital equipment loans through commercial third party bank leasing and financing institutions to purchase our Secure Balance products. The company is a vendor with several major banks that offer capital equipment leasing to the consumer. The banks control the application and loan approval process for any Secure Balance transactions handled accordingly. Each banking institution offers a variety of leasing programs, terms, buyouts and tax incentives, and the customer has a choice depending upon their personal credit score and credit worthiness. NEW ACCOUNTING PRONOUNCEMENTS The possible effect on our financial statements of new accounting pronouncements that have been issued for future implementation is discussed in the footnotes to our audited financial statements (see Note 2). BUSINESS RISKS The following is a summary of the many risks and uncertainties we face in our business. You should carefully read these risks and uncertainties as well as the other information in this report in evaluating our business and its prospects. WE HAVE A HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT, AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE. We have experienced significant operating losses in each period since our inception. As of May 31, 2008, we have incurred total accumulated losses of $10,626,915. 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 the development of our products and from general and administrative costs associated with operations. We expect to incur increasing operating losses in the future as a result of expenses associated with research and product development as well as general and administrative costs. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE TO SUPPORT OUR GROWTH, AND RAISING SUCH CAPITAL WILL LIKELY CAUSE SUBSTANTIAL DILUTION TO EXISTING STOCKHOLDERS. IF ADDITIONAL CAPITAL IS NOT AVAILABLE, WE MAY HAVE TO CURTAIL OR CEASE OPERATIONS. Our current plans indicate we will need significant additional capital for research and development and market penetration before we have substantial revenue generated from our BAFI(TM) product line. The actual amount of funds that we will need will be determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include: o the extent to which we enter into licensing arrangements, collaborations or joint ventures; o our progress with research and development; o the costs and timing of obtaining new patent rights; o cost of continuing operations and sales; o the extent to which we acquire or license other technologies; and o regulatory changes and competition and technological developments in the market. We will be relying on future securities sales or additional loans to enable us to grow and reach profitability. There is no guarantee we will be able to sell our securities or secure additional loans. Further, future sales of securities will likely subject our shares to dilution. 25 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 Mr. Sand has converted the amounts owed to him into shares of our common stock and Series A Convertible Preferred Stock, we 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. As of May 31, 2008, the Company owes Mr. Sand $1,747 for expenses paid on behalf of the Company. If future capital is not available from Mr. Sand or other third parties in the future, the Company's operations may be negatively affected. OUR RESPIRATORY PRODUCTS MAY NOT BE SUCCESSFULLY DEVELOPED OR COMMERCIALIZED, WHICH WOULD HARM US AND FORCE US TO CURTAIL OR CEASE OPERATIONS. We are an emerging medical device manufacturer registered with the US Food and Drug Administration where Oxyview is classified as a Class-I medical device. Oxyview is currently being sold. The OxyAlert product is still in the late stages of development as we still need manufacturing prototypes. Of the respiratory products, only Oxyview is currently being marketed and sold. Our Oxyview sales for the fiscal year ended May 31, 2008 were $42,044. Our products may not be successfully developed or commercialized on a timely basis, or at all. If we are unable, for technological or other reasons, to complete the development, introduction or scale-up of manufacturing of our 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 may not be able to establish any additional research collaborations or licensing arrangements necessary to develop and commercialize products using our technology or do so on terms favorable to us. If our collaborations are not successful or we are not able to manage multiple collaborations successfully, our programs may suffer. Collaborative agreements generally pose the following risks: o collaborators may not pursue further development and commercialization of products resulting from collaborations or may elect not to continue or renew research and development programs; o collaborators could independently develop, or develop with third parties, products that could compete with our future products; o the terms of our agreements with our current or future collaborators may not be favorable to us; o a collaborator with marketing and distribution rights to one or more products may not commit enough resources to the marketing and distribution of our products, limiting our potential revenues from the commercialization of a product; 26 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. 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 changes in usage of the Internet and online services and consumer acceptance of the Internet and online commerce, 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 purchased, intangible assets, o additional operating losses and expenses of acquired businesses, if any, and/or o impairment of relationships with existing employees, customers and business partners. SECURE BALANCE IS A PRIVATE LABEL PRODUCT THAT IS NOT EXCLUSIVE TO US. We provide education, training and services related to the SportKat product lines that all constitute what we call "Secure Balance." 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, inclusive of SportKat and Interacoustics. The non-exclusive nature of the provision of the devices to us may negatively impact our ability to capture a meaningful market share. Due to the higher margins of our Oxyview product, we are shifting our focus away from Secure Balance sales and marketing efforts until January 2009. Until this time, there will be a continued decrease of sales for any Secure Balance products and services, which could impact our revenues and income. The new sales program for Secure Balance will be comprised of a new Secure Balance website (SecureBalance.com) that will feature our current products and services, as well as includes additional new products for vestibular function testing and balance assessment/therapy. Our objective to become more competitive in the balance medicine market is to offer a variety of products and services for the customer to choose from at lower and more competitive prices. We have negotiated new distribution contracts with major manufacturers for VNG systems and balance systems and plan to implement these new products in January 2009. 27 ALTHOUGH WE HAVE MINOR COMPETITION IN RELATION TO OUR Oxyview PRODUCT LINE, WE EXPECT AN INCREASE IN THE FUTURE. Although we are aware of current competition for our Oxyview product line, we expect competition to continue to develop after marketing our products. It is unknown at this time what impact any such competition could have on us. We are a "going concern" enterprise and it is 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 OxyAlert; WHICH MAY NEGATIVELY IMPACT OUR PLANS FOR FOREIGN OPERATIONS. Although we intend to apply for international patents for our respiratory product line, we have not as yet done so for OxyAlert, except for European, Chinese and Japanese patents for Oxyview. We do not know when, and if, we will apply for such OxyAlert patents. If we do not apply for these patents, or if there are delays in obtaining the patents, or if we are unable to obtain the patents, we may not be able to adequately protect our technologies in foreign markets for OxyAlert. IF WE ARE UNABLE TO PROTECT EFFECTIVELY OUR INTELLECTUAL PROPERTY, THIRD PARTIES MAY USE OUR TECHNOLOGY, WHICH COULD IMPAIR OUR ABILITY TO COMPETE IN OUR MARKETS. Our success will depend on our ability to obtain and protect patents on our technology and to protect our trade secrets. The patents we currently own may not afford meaningful protection for our technology and products. Others may challenge our patents and, as a result, our patents could be narrowed, invalidated or unenforceable. In addition, our current and future patent applications may not result in the issuance of patents in the United States or foreign countries. Competitors might develop products similar to ours that do not infringe on our patents. In order to protect or enforce our patent rights, we may initiate interference proceedings, oppositions, or patent litigation against third parties, such as infringement suits. These lawsuits could be expensive, take significant time and divert management's attention from other business concerns. The patent position of medical firms generally is highly uncertain, involves complex legal and factual questions, and has recently been the subject of much litigation. No consistent policy has emerged from the U.S. Patent and Trademark Office or the courts regarding the breadth of claims allowed or the degree of protection afforded under biotechnology patents. In addition, there is a substantial backlog of applications at the U.S. Patent and Trademark Office, and the approval or rejection of patent applications may take several years. We cannot guarantee that our management and others associated with us will not improperly use our patents, trademarks and trade secrets. Further, others may gain access to our trade secrets or independently develop substantially equivalent proprietary information and techniques. OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS. We may be sued for infringing on the patent rights or misappropriating the proprietary rights of others. Intellectual property litigation is costly, and, even if we prevail, the cost of such litigation could adversely affect our business, financial condition and results of operations. In addition, litigation is time consuming and could divert management attention and resources away from our business. If we do not prevail in any litigation, we could be required to stop the infringing activity and/or pay substantial damages. Under some circumstances in the United States, these damages could be triple the actual damages the patent holder incurs. If we have supplied infringing products to third parties for marketing or licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or damages paid to the patent holder. 28 If a third party holding rights under a patent successfully asserts an infringement claim with respect to any of our products, we may be prevented from manufacturing or marketing our infringing product in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. Any required license may not be available to us on acceptable terms, or at all. Some licenses may be non-exclusive, and therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around a patent, we may be unable to market some of our anticipated products, which could have a material adverse effect on our business, financial condition and results of operations. IF WE LOSE OUR KEY MANAGEMENT PERSONNEL, OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION EFFORTS WOULD SUFFER. Our performance is substantially dependent on the performance of our current senior management, Board of Directors and key scientific and technical personnel and advisers. The loss of the services of any member of our senior management, in particular Mr. Sand, our CEO and Chairman, Board of Directors, scientific or technical staff or advisory board may significantly delay or prevent the achievement of product development and other business objectives and could have a material adverse effect on our business, operating results and financial condition. WE HAVE NO COMMERCIAL PRODUCTION CAPABILITY YET FOR MOST OF OUR PRODUCT LINES AND WE MAY ENCOUNTER PRODUCTION PROBLEMS OR DELAYS, WHICH COULD RESULT IN LOWER REVENUE. We have not produced the OxyAlert product for sale, although production is currently pending the review for exempt status with the US Food and Drug Administration. We have begun production and sales of our Oxyview product, but not OxyAlert or GasAlert. Customers for any potential products and regulatory agencies will require that we comply with current good manufacturing practices that we may not be able to meet. We may not be able to maintain acceptable quality standards if we ramp up production. To achieve anticipated customer demand levels, we will need to scale-up our production capability and maintain adequate levels of inventory. We may not be able to produce sufficient quantities to meet market demand. If we cannot achieve the required level and quality of production, we may need to outsource production or rely on licensing and other arrangements with third parties. This reliance could reduce our gross margins and expose us to the risks inherent in relying on others. We may not be able to successfully outsource our production or enter into licensing or other arrangements under acceptable terms with these third parties, which could adversely affect our business. WE HAVE NO MARKETING OR SALES STAFF, AND IF WE ARE UNABLE TO ENTER INTO COLLABORATIONS WITH MARKETING PARTNERS OR IF WE ARE UNABLE TO DEVELOP OUR OWN SALES AND MARKETING CAPABILITY, WE MAY NOT BE SUCCESSFUL IN COMMERCIALIZING OUR PRODUCTS. We currently have no in-house sales, marketing or distribution capability. As a result, we will depend on collaborations with third parties that have established distribution systems and direct sales forces. To the extent that we enter into co-promotion or other licensing arrangements, our revenues will depend upon the efforts of third parties, over which we may have little or no control. If we are unable to reach and maintain an agreement with one or more distribution entities or collaborators under acceptable terms, we may be required to market our products directly. This requires that we establish our own specialized sales force and marketing organization to market our products. To do this, we would have to develop a marketing and sales force with technical expertise and with supporting distribution capability. Developing a marketing and sales force is expensive and time consuming and could delay a product launch. We may not be able to develop this capacity, which would make us unable to commercialize our products. 29 IF WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS AND HAVE NOT OBTAINED ADEQUATE INSURANCE TO PROTECT AGAINST THESE CLAIMS, OUR FINANCIAL CONDITION WOULD SUFFER. As we continue to launch commercially our respiratory product line, we will face increased exposure to product liability claims. We have exposure selling Secure Balance. 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. Risks Relating to Our Common Stock 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. We have worked diligently on getting these past due filings completed and filed with the SEC. We believe that all past due filing requirements have been met. OUR STOCK IS THINLY TRADED, WHICH CAN LEAD TO PRICE VOLATILITY AND DIFFICULTY LIQUIDATING YOUR INVESTMENT. The trading volume of our stock has been low, which can cause the trading price of our stock to change substantially in response to relatively small orders. In addition, during the last two fiscal years, our common stock has traded as low as $0.30 and as high as $78.00 (adjusted for our 600 to 1 reverse split which was effective on August 27, 2008). 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. WE HAVE NOT, AND CURRENTLY DO NOT ANTICIPATE, PAYING DIVIDENDS ON OUR COMMON STOCK. We have never paid any dividends on our common stock and do not plan to pay dividends on our common stock for the foreseeable future. We currently intend to retain future earnings, if any, to finance operations, capital expenditures and the expansion of our business. THERE IS A LIMITED MARKET FOR OUR COMMON STOCK WHICH MAKES IT DIFFICULT FOR INVESTORS TO ENGAGE IN TRANSACTIONS IN OUR SECURITIES. 30 Our common stock is quoted on the Pink Sheets under the symbol "ITEC." 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; 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 stockholders sell substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, or conversion of convertible notes, 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 September 19, 2008, 336,599 shares of our issued common stock are unrestricted and 7,712,660 shares are restricted (but many may be eligible to have restrictions lifted). Further, at May 31, 2008, we had $2,031,547 in convertible notes outstanding, which may be converted into restricted common stock or if eligible, into unrestricted common stock under Rule 144. RISKS RELATING TO OUR FINANCING AGREEMENTS: EVENTS OF DEFAULT UNDER OUR CONVERTIBLE DEBENTURES We have entered into a series of convertible note agreements in the past two fiscal years; specifically, a $1.5 million convertible agreement entered into on July 25, 2006, the $450,000 convertible debt entered into on March 15, 2007, the $110,000 convertible note entered into on July 30, 2007. Under the transaction documents, we have committed various acts and failed to timely perform other acts that constitute events of default under the transaction documents. We have received assurance from counsel for the investors that "You are not in default. We [the investors] have to put you into default and we have not." There can be no assurance that the investors will not declare a default in the future. Our stockholders should be aware that if the investors provide written notice of default to us, then our liabilities would increase dramatically due to the penalties, reset provisions, and other damages specified in the transaction documents. The increase in liabilities attributed to a notice of default under the transaction documents could vastly exceed our current market capitalization and have dramatic negative affects on our financial condition. The debentures are collateralized by our assets and, in the event if we are unable to repay or restructure these debentures, there is no assurance that the holders of the debentures will not institute legal proceedings to recover the amounts owed including foreclosure on our assets. Subsequent to May 31, 2008, we entered into $500,000 Securities Purchase Agreement dated June 16, 2008 with three of the noteholders. THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE DEBENTURES COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES TO THE HOLDERS, WHICH WILL CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS. Our obligation to issue shares upon conversion of our convertible securities under the June 2006 and March 2007 agreements is essentially limitless. Further, subsequent to May 31, 2008, we entered into an agreement to issue up to $500,000 in Secured Callable Convertible Notes. An aggregate of $225,000 in convertible notes have been issued under this agreement. The following table shows the effect on the number of shares issuable upon full conversion ($2,248,167 aggregate principal)(without taking into account the 4.99% limitation or any interest, penalties, events of default or other amounts under the notes), in event our common stock price declines by 25%, 50% and 75% from the trading price at $.03* on September 19, 2008.
PRICE DECREASES BY - -------------------------- ---------------- ---------------- ---------------- -------------- 9/19/08 25% 50% 75% - -------------------------- ---------------- ---------------- ---------------- -------------- Common Stock Price(1) 0.03 0.0225 0.015 0.0075 - -------------------------- ---------------- ---------------- ---------------- ---------------- Conversion Price (2) 0.012 0.009 0.006 0.003 - -------------------------- ---------------- ---------------- ---------------- ---------------- 100% Conversion Shares 187,347,250 249,796,333 374,694,500 749,389,000 - -------------------------- ---------------- ---------------- ---------------- ---------------- *adjusted for the 1 for 600 reverse stock split on August 27, 2008
32 (1) Represents the average of the lowest three (3) trading prices for the common stock during the twenty (20) trading day period prior to September 19, 2008, as calculated pursuant to the agreements. All prices have been adjusted for the 1 for 600 reverse stock split on August 27, 2008. (2) Assuming 40% applicable percentage. On September 5, 2008, Ingen amended its Securities Purchase Agreement dated as of June 16, 2008. Under the terms of this amendment, the conversion rate and interest rate of all convertible debentures to these noteholders have been adjusted. This amendment applies to the $1.5 million convertible date entered into on July 25, 2006, the $450,000 convertible debt entered into on March 15, 2007, the $110,000 convertible note entered into on July 30, 2007 as well as the $500,000 Securities Purchase Agreement dated June 16, 2008. The "Applicable Percentage" (as defined in each of the notes to be the rate at which the note holders can convert their debt into common stock) has been adjusted to 40%. This means that the convertible note holders can now convert their debt into stock at the average of the lowest three trading prices for the common stock during the twenty day trading period prior to conversion multiplied by 40%. The issuance of shares upon conversion of the convertible debentures and exercise of warrants may result in substantial dilution to the interests of other stockholders since the holders of such securities may ultimately convert and sell the full amount issuable on conversion. Although the holders of our convertible debentures and warrants may not convert and/or exercise such securities if such conversion or exercise would cause them to own more than 4.99% of our outstanding common stock, this restriction does not prevent them from converting and/or exercising some of their holdings and then converting the rest of their holdings. In this way, the holders of our convertible debentures and warrants could sell more than this limit while never holding more than this limit. There is no upper limit on the number of shares that may be issued which will have the effect of further diluting the proportionate equity interest and voting power of all holders of our common stock. In addition, the number of shares of common stock issuable upon conversion of the outstanding convertible debentures may increase if the market price of our stock declines. The sale of these shares may adversely affect the market price of our common stock. IF WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING CONVERTIBLE DEBENTURES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE, OR RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE CONVERTIBLE DEBENTURES, IF REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE SALE OF SUBSTANTIAL ASSETS. We have issued convertible debentures that total $2,360,000 ($2,135,000 were issued as of May 31, 2008 and $225,000 were issued subsequent to May 31, 2008). As of May 31, 2008, $28,453 of these notes were converted into common stock (an additional $8,380 was converted subsequent to May 31, 2008). Unless sooner converted into shares of our common stock, we are required to repay the convertible debentures. To do so, we would be required to use our working capital, if any at that time, and/or raise additional funds. If we were unable to repay the debentures when required, the debenture holders could commence legal action against us to recover the amounts due. Any such action may require us to curtail or cease operations. ITEM 7. FINANCIAL STATEMENTS We have restated our financial statements for the fiscal year ended May 31, 2006. This restatement (as described below) caused us to restate our May 31, 2007 financial statements as well as the interim financial statements for the quarters ended August 31, 2006, November 30, 2006, February 28, 2007, August 31, 2007 and November 30, 2007. The items that caused us to restate our financial statements are summarized below. The effects of the change to each line of financial statements are noted in the footnotes of the audited consolidated financial statements for the fiscal year ended May 31, 2006 in Note A. The effects of the change to each line of the interim financial statements for the aforementioned quarters are footnoted at the bottom of each page of the restated unaudited financial statements that follow. 33 The restated audited consolidated financial statements for the fiscal year ended May 31, 2006 have been adjusted for several reasons. These are summarized as follows: 1) The number of common shares outstanding, the accumulated deficit and total equity changed due to the completion of the audit of Ingen Technologies, Inc. (the private Nevada company acquired in March 2004). These audited financial statements of the private company acquired were filed with Form 8-K dated March 15, 2004 (this was originally filed on November 16, 2007 and subsequently amended by a filing made on September 10, 2008). The common stock was adjusted from $7,760 to $705,905 as of May 31, 2003. The accumulated deficit was adjusted from $539,235 to $1,069,235. Total equity as of May 31, 2003 was restated to equal $(363,330), which ties to the audited financials of the private company filed with Form 8-K dated March 15, 2004. 2) The original May 31, 2004 financial statements had a cash-to-accrual adjustment in the amount of $4,767,800. This amount was shown in error and has been eliminated. 3) In May 31, 2004, the original financial statements showed 12,088,593 shares issued for services. These shares were originally valued at $5,399,453. This value has been adjusted to $661,148 to more accurately reflect the fair market value of the shares issued. 4) We failed to properly expense the value of options issued in the fiscal year ended May 31, 2005. The beginning balances on the restated audited financial statements for the fiscal year ended May 31, 2006 have been adjusted to account for an additional expense of $197,730 which is the value of the stock options issued in the fiscal year ended May 31, 2005. This correction changes both the beginning accumulated deficit and value of our common stock account on our balance sheet (and the beginning balances on the Statement of Stockholders' Equity). 5) We failed to properly expense the value of options issued in the fiscal year ended May 31, 2006. The restated audited financial statements for the fiscal year ended May 31, 2006 have additional expense of $157,916 which is the value of the stock options issued in the fiscal year. This additional expense changes the selling, general and administrative expense for the fiscal year and also changes the value of our common stock account on our balance sheet and the balances on the Statement of Stockholders' Equity. 6) On our original financial statements for the fiscal year ended May 31, 2006, we erroneously charged off a $23,875 capital expenditure. We have properly capitalized this expenditure on the restated financial statements for the fiscal year ended May 31, 2006. This additional asset reduces our selling, general and administrative expense for the fiscal year and increases our fixed asset account on the balance sheet as of May 31, 2006. The capital expense also changed our Statement of Cash Flows for the fiscal year. 7) Our original financial statements for the fiscal year ended May 31, 2006 erroneously classified an officer loan in the amount of $70,826 as a long-term liability. This has been restated as a current liability on the restated financial statements. The effect of the above adjustments changed the beginning balances on our audited consolidated financial statements for the fiscal year ended May 31, 2007. As a result, we have restated these financial statements and have included them in our financial statements herein. The aforementioned changes also required us to restate the interim financial statements for the quarters ended August 31, 2006, November 30, 2006, February 28, 2007, August 31, 2007 and November 30, 2007. These unaudited financial statements are also included herein. 34 Index to Financial Statements: Audited Financial Statements for the years ended May 31, 2008 and May 31, 2007 (the balances for the fiscal year ended May 31, 2007 have been restated) Audited Financial Statements for the year ended May 31, 2006 (as restated) Unaudited Interim Financial Statements for the quarter ended August 31, 2006 (restated) Unaudited Interim Financial Statements for the quarter ended November 30, 2006 (restated) Unaudited Interim Financial Statements for the quarter ended February 28, 2007 (restated) Unaudited Interim Financial Statements for the quarter ended August 31, 2007 (restated) Unaudited Interim Financial Statements for the quarter ended November 30, 2007 (restated) 35 INGEN TECHNOLOGIES, INC. AUDIT REPORT FOR THE YEARS ENDED MAY 31, 2008 AND MAY 31, 2007 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and stockholders of Ingen Technologies, Inc. We have audited the accompanying consolidated balance sheets of Ingen Technologies, Inc. and subsidiary, as of May 31, 2008 and 2007 (restated), and the related consolidated statements of operations, stockholders' deficit (restated), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ingen Technologies, Inc. and subsidiary as of May 31, 2008 and 2007, and the results of its operations, changes in stockholders' deficit and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company's operating losses and working capital deficiency raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 19, the consolidated balance sheet and statement of stockholders' deficit for 2007 have been restated to correct an error. /s/ Child, Van Wagoner & Bradshaw, PLLC Certified Public Accountants Salt Lake City, Utah September 10, 2008 F-1 Ingen Technologies, Inc. Consolidated Balance Sheets May 31, 2008 and May 31, 2007 BALANCE AS BALANCE AS OF MAY 31, 2007 OF MAY 31, 2008 (RESTATED) ------------ ------------ ASSETS Current assets Cash $ -- $ 238 Accounts receivable 63 -- Inventories 74,830 85,594 Prepaid expenses 50,933 33,633 ------------ ------------ Total current assets 125,826 119,465 Property and equipment, net of accumulated depreciation of $177,656 and $119,775 229,960 287,841 Other assets Debt issue costs, net of accumulated amortization of $211,173 and $86,663 157,027 261,537 Patents, net of accumulated amortization of $4,490 and none 62,855 67,345 Deposits 31,550 1,550 ------------ ------------ Total other assets 251,432 330,432 ------------ ------------ TOTAL ASSETS $ 607,218 $ 737,738 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Cash overdraft $ 530 $ -- Accounts payable 212,242 84,517 Accrued expenses 201,927 196,620 Officer's loans 1,747 84,342 Short-term notes 82,500 -- Convertible notes payable, net of unamortized discount of $25,092 and none 49,908 -- Current portion of long-term debt 14,539 14,539 ------------ ------------ Total current liabilities 563,393 380,018 Long-term liabilities Loan payable 96,872 100,452 Convertible notes payable, net of unamortized discount of $951,792 and $1,483,176 1,079,755 431,824 Derivative liability 3,605,748 4,797,253 ------------ ------------ Total long-term liabilities 4,782,375 5,329,529 F-2 Ingen Technologies, Inc. Consolidated Balance Sheets (continued) May 31, 2008 and May 31, 2007 BALANCE AS BALANCE AS OF MAY 31, 2007 OF MAY 31, 2008 (RESTATED) ------------ ------------ Stockholders' deficit Preferred stock, Series A, no par value, preferred liquidation value of $1.00 per share, 40,000,000 shares authorized and 38,275,960 issued and outstanding as of May 31, 2008, total liquidation preference of $38,275,960 16,578,991 issued and outstanding as of May 31, 2007, total liquidation preference of $16,578,991 965,313 688,313 Common stock, no par value, authorized 750,000,000 shares, 502,073 issued and outstanding as of May 31, 2008, 58,745 issued and outstanding as of May 31, 2007 5,141,052 3,883,549 Series A preferred stock subscription 2,000 -- Series A preferred stock subscription receivable (220,000) (220,000) Accumulated deficit (10,626,915) (9,323,671) ------------ ------------ Total stockholders' deficit (4,738,550) (4,971,809) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 607,218 $ 737,738 ============ ============ See notes to consolidated financial statements F-3 Ingen Technologies, Inc. and Subsidiary Consolidated Statements of Operations For the years ended May 31, 2008 and May 31, 2007 FOR THE YEARS ENDED MAY 31, 2008 2007 ----------- ----------- Sales $ 252,493 $ 720,678 Cost of sales 167,631 452,100 ----------- ----------- Gross Profit 84,862 268,578 Selling, general and administrative expenses 1,741,690 1,882,221 ----------- ----------- Operating loss (1,656,828) (1,613,643) Other (expenses) Interest expense (1,265,454) (5,028,485) Change in derivative liability 1,619,848 1,583,636 ----------- ----------- Net loss before taxes (1,302,434) (5,058,492) Provision for income taxes 810 2,990 ----------- ----------- Net loss $(1,303,244) $(5,061,482) =========== =========== Basic and diluted net loss per share $ (16.07) $ (99.81) =========== =========== Weighted average number of shares outstanding 81,093 50,711 FOR THE YEARS ENDED MAY 31, 2008 2007 ----------- ----------- Numerator: Net loss $(1,303,244) $(5,061,482) Denominator: Weighted Average Number of Shares 81,093 50,711 Net loss per share - Basic and diluted $ (16.07) $ (99.81) See notes to consolidated financial statements F-4 Ingen Technologies, Inc. and Subsidiary Consolidated Statement of Stockholders' Deficit SERIES A PREFERRED STOCK COMMON STOCK SHARES AMOUNT SHARES AMOUNT ------------ ------------ ------------ ------------ BALANCE AT MAY 31, 2006 (RESTATED) 14,134,547 $ 734,980 49,412 $ 3,615,029 Conversion of Series A Preferred stock into common stock (2,000,000) (146,667) 3,333 146,667 Issuance of Series A Preferred stock for accrued compensation 4,444,444 100,000 Issuance of common stock for services 4,333 56,400 Issuance of common stock for patent 1,667 60,000 Adjustment to common stock subscription purchase price entered into in year ended May 31, 2006 (52,000) Value of options issued for legal fees 57,453 Net loss for year ended May 31, 2007 -- -- -- -- ------------ ------------ ------------ ------------ BALANCE AT MAY 31, 2007 (RESTATED) 16,578,991 $ 688,313 58,745 $ 3,883,549 Rounding shares issued on reverse stock split 680 Conversion of Series A Preferred stock into common stock (636,364) (15,000) 1,061 15,000 Issuance of Series A Preferred stock for accrued compensation and officer's loans 20,333,333 272,000 Issuance of Series A Preferred stock for services 2,000,000 20,000 Series A Preferred stock subscription Issuance of common stock for cash 73,369 193,300 Issuance of common stock for services 59,359 787,750 Issuance of common stock for conversions of notes 47,378 28,453 Issuance of common stock for accrued compensation and officer's loans 261,481 233,000 Net loss for year ended May 31, 2008 -- -- -- -- ------------ ------------ ------------ ------------ BALANCE AT MAY 31, 2008 38,275,960 $ 965,313 502,073 $ 5,141,052 ============ ============ ============ ============ F-5a Ingen Technologies, Inc. and Subsidiary Consolidated Statement of Stockholders' Deficit (continued) SERIES A SERIES A PREFERRED PREFERRED STOCK STOCK SUBSCRIPTION RETAINED SUSCRIPTION RECEIVABLE EARNINGS TOTAL ------------ ------------ ------------ ------------ BALANCE AT MAY 31, 2006 (RESTATED) $ -- $ (220,000) $ (4,262,189) $ (132,180) Conversion of Series A Preferred stock into common stock -- Issuance of Series A Preferred stock for accrued compensation 100,000 Issuance of common stock for services 56,400 Issuance of common stock for patent 60,000 Adjustment to common stock subscription purchase price entered into in year ended May 31, 2006 (52,000) Value of options issued for legal fees 57,453 Net loss for year ended May 31, 2007 -- -- (5,061,482) (5,061,482) ------------ ------------ ------------ ------------ BALANCE AT MAY 31, 2007 (RESTATED) $ -- $ (220,000) $ (9,323,671) $ (4,971,809) Rounding shares issued on reverse stock split Conversion of Series A Preferred stock into common stock Issuance of Series A Preferred stock for accrued compensation and officer's loans 272,000 Issuance of Series A Preferred stock for services 20,000 Series A Preferred stock subscription 2,000 2,000 Issuance of common stock for cash 193,300 Issuance of common stock for services 787,750 Issuance of common stock for conversions of notes 28,453 Issuance of common stock for accrued compensation and officer's loans 233,000 Net loss for year ended May 31, 2008 -- -- (1,303,244) (1,303,244) ------------ ------------ ------------ ------------ BALANCE AT MAY 31, 2008 $ 2,000 $ (220,000) $(10,626,915) $ (4,738,550) ============ ============ ============ ============ See notes to consolidated financial statements F-5b Ingen Technologies, Inc. and Subsidiary Consolidated Statements of Cash Flows FOR THE YEARS ENDED MAY 31, 2008 2007 ----------- ----------- Cash flow from operating activities Net loss $(1,303,244) $(5,061,482) Depreciation and amortization 62,370 21,368 Amortization of debt issue costs 124,510 86,663 Expenses paid with stock and options 1,113,063 216,400 Value of options issued for services -- 57,453 Change in derivative liabilities (1,619,848) (1,583,636) Non-cash interest expense and financing costs 934,635 4,921,588 (Increase) decrease in prepaid expenses (84,566) (33,633) (Increase) decrease in deposits (30,000) (1,550) (Decrease) increase in accounts payable 127,726 36,330 (Decrease) increase in accrued expenses 5,307 16,827 (Increase) decrease in inventory 10,764 (85,594) ----------- ----------- Net cash used in operating activities (659,283) (1,409,266) Cash flow from investing activities Purchase of intangible assets -- (67,345) Purchase of property and equipment -- (277,570) ----------- ----------- Net cash used in investing activities -- (344,915) Cash flow from financing activities Sale of common stock 193,300 -- Refund of common stock purchase -- (52,000) Proceeds from loans 108,500 116,096 Payments on loans -- (1,105) Proceeds from convertible notes payable 200,000 1,566,800 Proceeds from stockholder and officer loans 196,511 26,416 Repayments of stockholder and officer loans (39,796) (12,900) ----------- ----------- Net cash provided by financing activities 658,515 1,643,307 Net cash increase (decrease) (768) (110,874) Cash at beginning of year 238 111,112 ----------- ----------- Cash at end of year $ (530) $ 238 =========== =========== Supplemental information Cash paid for taxes $ 800 $ 800 =========== =========== Cash paid for interest expense $ 13,081 $ 2,957 =========== =========== Non-Cash Activities: Exchange of 636,364 shares of Series A preferred stock for common stock $ 15,000 $ -- Issuance of series A preferred stock to officer for accrued compensation and payment on officer's loan $ 272,000 $ 100,000 Issuance of common stock to officer for accrued compensation and payment on officer's loan $ 233,000 $ -- Value of issuance of warrants in connection with convertible debt $ -- $ 2,430,570 Recorded a beneficial conversion feature $ -- $ 3,950,318 Stock Subscription Receivable $ -- $ 220,000 See notes to consolidated financial statements F-6
NOTE 1 - NATURE OF BUSINESS Ingen Technologies, Inc., a Georgia corporation (the "Company", "Ingen" or "Ingen Technologies"), is a public company trading under NASDAQ OTC: ITEC. Ingen Technologies is a growth-oriented technology company that offers diverse and progressive services and products. Ingen Technologies, Inc. owns 100% of the capital stock of Ingen Technologies, Inc. a Nevada corporation which has been in business since 1999. Ingen'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, Ingen 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 Oxyview (TM) product is the only product in the BAFI (TM) line that Ingen is currently selling. 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. Ingen'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, Ingen purchased the intellectual property rights for Oxyview(TM). Ingen had co-invented the Oxyview (TM) product with a third party. The agreement gave Ingen sole ownership of the product and intangible pending patents associated with Oxyview (TM), which is part of Ingen'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). Ingen began recording sales of Oxyview(TM) in November of 2006. On August 27, 2008, Ingen effectuated a reverse stock split at a rate of one share for every six hundred (600) then outstanding. The Series A Preferred stock was not affected by this reverse stock split. The effect of the reverse stock split has been adjusted for in these financial statements. This reduced the number of common shares outstanding from 300,835,942 to 502,073 as of May 31, 2008. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Principle of Consolidation and Presentation: The accompanying consolidated financial statements include the accounts of Ingen Technologies, Inc. and its subsidiary after elimination of all intercompany accounts and transactions. Certain prior period balances have been reclassified to conform to the current period presentation. Use of estimates: The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates. F-7 Revenue Recognition: Ingen recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. No provisions were established for estimated product returns and allowances based on Ingen's historical experience. All orders are customized with substantial down payments. Products are released upon receipt of the remaining funds. For SecureBalance sales, the customer generally makes a down payment in the amount of 50% of the total cost. When the product is ready for delivery and the remaining purchase price is received, the product is shipped and the sale is recognized as revenue. The sale of Secure Balance products include education and training. We schedule this training to coincide with the delivery of the Secure Balance equipment to our customers. For our OxyView units, all payments are made in advance by the customers. Upon our shipment of the units, revenue is recognized. Cash Equivalents: For purposes of the statements of cash flows, Ingen considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Fair Value of Financial Instruments: Ingen Technologies' financial instruments consist principally of cash, accounts receivable, inventories, accounts payable and borrowings. Ingen 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. Inventories: Ingen carries its inventories at cost, inclusive of freight and sales taxes. Property and Equipment: Property and Equipment are valued at cost. Maintenance and repair costs are charged to expenses as incurred. Depreciation is computed on the straight-line method based on the following estimated useful lives of the assets: 3 to 5 years for computer, software and office equipment, and 5 to 7 years for furniture and fixtures. CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES: Ingen accounts for convertible notes payable and warrants in accordance with Statement of Financial Accounting Standards (SFAS) No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." This standard requires the conversion feature of convertible debt be separated from the host contract and presented as a derivative instrument if certain conditions are met. Emerging Issue Task Force (EITF) 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO AND POTENTIALLY SETTLED IN A COMPANY'S OWN STOCK" and EITF 05-2, "THE MEANING OF "CONVENTIONAL CONVERTIBLE DEBT INSTRUMENT" IN ISSUE NO. 00-19" were also analyzed to determine whether the debt instrument is to be considered a conventional convertible debt instrument and classified in stockholders' equity. The convertible notes payable issued on June 6, 2006, July 27, 2006, August 30, 2006, January 24, 2007, March 15, 2007, April 15, 2007, May 15, 2007, June 15, 2007 and July 15, 2007 were evaluated and determined not conventional convertible and, therefore, because of certain terms and provisions including liquidating damages under the associated registration rights agreement the embedded conversion option was bifurcated and has been accounted for as a derivative liability instrument. The stock warrants issued in conjunction with the convertible notes payable were also evaluated and determined to be a derivative instrument and, therefore, classified as a liability on the balance sheet. The accounting guidance also requires that the conversion feature and warrants be recorded at fair value for each reporting period with changes in fair value recorded in the consolidated statements of operations. A Black-Scholes valuation calculation was applied to both the conversion features and warrants at issuance dates and May 31, 2008. The issuance date valuation was used for the effective debt discount that these instruments represent. The debt discount is amortized over the three-year life of the debts using the effective interest method. The May 31, 2008 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. F-8 Common Stock: On August 27, 2008, Ingen effectuated a reverse stock split at a rate of one share for every six hundred (600) then outstanding. The Series A Preferred stock was not affected by this reverse stock split. The effect of the reverse stock split has been adjusted for in these financial statements. This reduced the number of common shares outstanding from 300,835,942 to 502,073 as of May 31, 2008. Preferred Stock: Ingen has authorized 40,000,000 shares of Series A Convertible Preferred Stock. The Series A stock is not entitled to dividends. Ingen has the right but not the obligation to redeem each share of Series A stock at a price of $1.00 per share. In the event of voluntary or involuntary liquidation, dissolution, or winding up of the corporation, each share of Series A shall be entitled to receive from the assets of the Company $1.00 per share, which shall be paid or set apart before the payment or distribution of any assets of the corporation to the holders of the Common Stock or any other equity securities of the Company. Each share of Series A shall be entitled to vote on all matters with the holders of the Common Stock. Each share of Series A stock shall be entitled to one vote. The holders of the Series A voting as a class shall be entitled to elect one person to serve on the Company's Board of Directors. The Series A is convertible into one share of fully paid and non-assessable share of Common Stock upon 65 days of written notice. The Series A stock shall not be affected by or subject to adjustment following any change to the amount of authorized shares of Common Stock or the amount of Common Stock issued and outstanding caused by any split or consolidation of the Company's Common Stock. Events of default under Note Agreements: Ingen has committed various acts which constitute events of default under its Securities Agreements dated July 25, 2006, March 15, 2007 and July 15, 2007 (and the notes thereunder with total principal balances of $2,031,547). The Company has received assurance from counsel for the investors that the investors have not placed the Company in default under the notes and therefore the Company does not consider itself in default. There can be no assurance that the investors will not declare a default in the future. Should such notice of default be received by the Company, its liabilities would increase dramatically due to the penalties, reset provisions, and other damages specified in the transaction documents. The increase in liabilities attributed to a notice of default under the transaction documents could exceed the Company's current market capitalization and affect negatively on its financial condition. The debentures are collateralized by the Company's assets and, in the event if the Company is unable to repay or restructure these debentures, there is no assurance that the holders of the debentures will not institute legal proceedings to recover the amounts owed including foreclosure on the Company's assets. Research and Development: Ingen incurred expenditures of $11,932 and $13,213 for research and development in the fiscal years ended May 31, 2007 and May 31, 2008, respectively. Income Taxes: Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Net Loss Per Share: Basic net loss per share includes no dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding for the period. Diluted net loss per share does not differ from basic net loss per share since potential shares of common stock are anti-dilutive for all periods presented. Potential shares consist of Series A preferred stock and outstanding warrants. In March, 2006, the FASB issued SFAS No. 156, ACCOUNTING FOR SERVICING OF FINANCIAL ASSETS, an amendment of FASB Statement No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. The pronouncement establishes standards whereby servicing assets and servicing liabilities are initially measured at fair value, where applicable. In addition, SFAS No. 156 allows subsequent measurement of servicing assets and liabilities at fair value, and where applicable, derivative instruments used to mitigate risks inherent with servicing assets and liabilities are likewise measured at fair value. SFAS No. 156 is effective for our fiscal year beginning June 1, 2007. In September, 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS. The statement defines fair value, determines appropriate measurement methods, and expands disclosure requirements about those measurements. SFAS No. 157 is effective for our fiscal year beginning June 1, 2008. F-9 In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES, including an amendment of FASB Statement No. 115. This pronouncement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective as of the beginning of our fiscal year which begins June 1, 2008. In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS, an amendment of ARB No. 51. The objective of this statement is to improve the relevance, comparability, and transparency of the financial statements by establishing accounting and reporting standards for the Noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The Company believes that this statement will not have any impact on its financial statements, unless it deconsolidates a subsidiary. In March 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 161, DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (an amendment to SFAS No. 133). This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 and requires enhanced disclosures with respect to derivative and hedging activities. The Company will comply with the disclosure requirements of this statement if it utilizes derivative instruments or engages in hedging activities upon its effectiveness. In April 2008, the FASB issued FASB Staff Position No. 142-3, DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS ("FSP No. 142-3") to improve the consistency between the useful life of a recognized intangible asset (under SFAS No. 142) and the period of expected cash flows used to measure the fair value of the intangible asset (under SFAS No. 141(R)). FSP No. 142-3 amends the factors to be considered when developing renewal or extension assumptions that are used to estimate an intangible asset's useful life under SFAS No. 142. The guidance in the new staff position is to be applied prospectively to intangible assets acquired after December 31, 2008. In addition, FSP No. 142-3 increases the disclosure requirements related to renewal or extension assumptions. The Company does not believe implementation of FSP No. 142-3 will have a material impact on its financial statements. In May 2008, the FASB issued Statement No. 162, THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This statement is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "THE MEANING OF PRESENT FAIRLY IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES." In May 2008, the FASB issued Statement No. 163, ACCOUNTING FOR FINANCE GUARANTEE INSURANCE CONTRACTS - AN INTERPRETATION OF FASB STATEMENT NO. 60. The premium revenue recognition approach for a financial guarantee insurance contract links premium revenue recognition to the amount of insurance protection and the period in which it is provided. For purposes of this statement, the amount of insurance protection provided is assumed to be a function of the insured principal amount outstanding, since the premium received requires the insurance enterprise to stand ready to protect holders of an insured financial obligation from loss due to default over the period of the insured financial obligation. This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2008. In June 2008, the FASB issued FASB Staff Position Emerging Issues Task Force (EITF) No. 03-6-1, DETERMINING WHETHER INSTRUMENTS GRANTED IN SHARE-BASED PAYMENT TRANSACTIONS ARE PARTICIPATING SECURITIES ("FSP EITF No. 03-6-1"). Under FSP EITF No. 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. FSP EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, and is not expected to have a significant impact on the Company's financial statements. F-10 NOTE 3 - GOING CONCERN The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities and commitments in the normal course of business. In the near term, the Company expects operating costs to continue to exceed funds generated from operations. As a result, the Company expects to continue to incur operating losses and may not have sufficient funds to grow its business in the future. The Company can give no assurance that it will achieve profitability or be capable of sustaining profitable operations. As a result, operations in the near future are expected to continue to use working capital. The Company believes that this situation can be crippling unless revenues can be substantially increased and/or significant additional funding can be received in order to support the Company's operations until revenues exceed operating costs. To successfully grow the business, the Company must decrease its cash burn rate, improve its cash position and its revenue base, and succeed in its ability to raise additional capital through a combination of primarily public or private equity offering or strategic alliances. The Company also depends on certain contractors and its CEO, and the loss of any of those contractors or the CEO, may harm the Company's business. Additionally, as described above the Company is technically in default under its convertible note agreements. The Company has received assurance from counsel for the investors that the investors have not placed the Company in default under the notes and therefore the Company does not consider itself in default. There can be no assurance that the investors will not declare a default in the future. Should such notice of default be received by the Company, its liabilities would increase dramatically due to the penalties, reset provisions, and other damages specified in the transaction documents. The increase in liabilities attributed to a notice of default under the transaction documents could exceed the Company's current market capitalization and affect negatively on its financial condition. The financial statements have not been adjusted to reflect the potential damages if the Company is notified of default. The Company incurred a loss of $1,303,244 and for the year ended May 31, 2008, and as of that date, had an accumulated deficit of $10,626,915. NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment is summarized as follows: As of May 31, As of May 31, 2008 2007 ------------- ------------- Vehicles $ 145,596 $ 145,596 Furniture & Fixtures 31,705 31,705 Machinery & Equipment 188,709 188,709 Leasehold Improvements 41,606 41,606 ------------- ------------- 407,616 407,616 Less accumulated depreciation (177,656) (119,775) ------------- ------------- Property and Equipment, net $ 229,960 $ 287,841 ============= ============= NOTE 5 - ACCRUED EXPENSES Accrued expenses at May 31, 2008 consist of: As of May 31, As of May 31, 2008 2007 ------------- ------------- Accrued officer's compensation $ -- $ 113,356 Accrued interest expense 193,271 73,922 Accrued taxes 8,349 9,149 Accrued royalties payable 307 193 ------------- ------------- Total $ 201,927 $ 196,620 ============= ============= F-11 NOTE 6 - INCOME TAXES Provision for income tax for the year ended May 31, 2008 consisted of $810, and was $2,990 for the year ended May 31, 2007. As of May 31, 2008 and 2007, the Company has net operating loss carryforwards, approximately, of $5,800,000 and $4,600,000, respectively, to reduce future federal and state taxable income. To the extent not utilized, the carryforwards will begin to expire through 2028. The Company's ability to utilize its net operating loss carryforwards is uncertain and thus the Company has not booked a deferred tax asset, since future profits are indeterminable. NOTE 7 - NET LOSS PER SHARE The following table sets forth the computation of basic and diluted net loss per share: FOR THE YEARS ENDED MAY 31, 2008 2007 ------------- ------------- Numerator: Net loss $ (1,303,244) $ (5,061,482) Denominator: Weighted Average Number of Shares 81,093 50,711 Net loss per share - Basic and diluted $ (16.07) $ (99.81) As the Company incurred net losses for the years ended May 31, 2008 and May 31, 2007, it has excluded from the calculation of diluted net loss per share approximately 11,398,649 and 235,548, respectively (both figures adjusted for the six hundred (600) for one reverse stock split that was effective on August 27, 2008). These shares represent the Series A preferred stock, outstanding warrants and assume that all convertible notes could be converted at the market price as of May 31, 2008 and May 31, 2007, respectively. NOTE 8 - SEGMENT INFORMATION SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" requires that a publicly traded company must disclose information about its operating segments when it presents a complete set of financial statements. The Company has only one segment; therefore, the detail information is not presented. NOTE 9 - RELATED PARTY TRANSACTIONS Ingen owes its CEO, Scott Sand, a total of $1,747 as of May 31, 2008. This amount is due to Mr. Sand as a result of business expenses paid by Mr. Sand on his personal credit cards. The Company recorded interest expense on this loan as finance charges were incurred by Mr. Sand on his personal credit cards. The bulk of the business expenses paid by Mr. Sand were paid back by Ingen through the issuance of Series A preferred stock and common stock issued during the fiscal year ended May 31, 2008. There are no written loan agreements, promissory notes or debt obligations evidencing this debt and the terms of repayment to Mr. Sand. The related accrued interest is $0 as of May 31, 2008. During the fiscal year ending May 31, 2008, Mr. Sand received a total of 20,333,333 shares of series A preferred stock and 261,481 shares of common stock (156,888,889 shares of common stock prior to the reverse stock split which was effective on August 27, 2008) for satisfaction of accrued compensation of $106,856 and for payment of $168,144 of the loan amount owed to him. These shares also resulted in an additional $130,000 of officer's compensation paid to Mr. Sand. On February 28, 2006 and March 17, 2006, we entered into two investment contracts with Jeffrey Gleckman, pursuant to which we issued an aggregate of 2,000,000 shares of our restricted common stock to Mr. Gleckman (after our reverse stock split which was effective on August 27, 2008 the total number of adjusted common shares is equal to 3,334). Mr. Gleckman is the President of MedOx Corporation, the contractor distributing OxyView(TM). MedOx was originally known as Tech-Ni-Com, Inc. Our first contract with Mr. Gleckman's company was in 2000 for distribution of the BAFI(TM) product line. However, actual sales of OxyView(TM) did not commence until November of 2006. Mr. Gleckman paid $300,000 consideration in the two transactions for the above-referenced shares. F-12 In May of 2008, Ingen issued 2,000,000 shares of our Series A Preferred shares to Mr. Gleckman. This issuance was done to satisfy an obligation in the amount of $20,000 that Ingen owed to MedOx under its distribution contract for OxyView (TM). NOTE 10 - LEASE OBLIGATION The Company leases its administrative office under an unsecured lease agreement which expires on April 1, 2011. The Company also maintains a corporate office under a month-to-month lease agreement. As of May 31, 2008, the remaining lease obligation is as follows: Year Ending Lease May 31, Obligation --------------------------------------- 2009 $ 20,400 2010 20,400 2011 20,400 2012 17,000 ------------- $ 78,200 ============= The total rent expense for the year ended May 31, 2008 was $31,000. NOTE 11 - INTANGIBLE ASSETS The Company has recorded patents at a cost of $67,345. This represents legal costs of filing for patents and the purchase of the exclusive rights for a patent for Oxyview (TM) with common stock valued at $60,000. Although the patents are still pending with the US Patent and Trademark office, since the Company is using the patents and selling its Oxyview (TM) units it has decided to begin a 15-year amortization of the costs of the patents. The Company booked amortization expense in the amount of $4,490 in the fiscal year ended May 31, 2008 on the cost of its patents. NOTE 12 - GUARANTEES The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. These contracts primarily relate to: (i) divestiture agreements, under which the Company may provide customary indemnifications to purchasers of the Company's businesses or assets; and (ii) certain agreements with the Company's officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising our of their employment relationship. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligation cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these obligations on its balance sheet as of May 31, 2008. NOTE 13 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES 6% $1.5 MILLION CONVERTIBLE DEBT On July 25, 2006, the Company entered into a Security Purchase Agreement (the "Agreement") and agreed to issue and sell (i) callable secured convertible notes up to $2 million (only $1.5 million of this amount was funded), and (ii) warrants to acquire an aggregate of 20 million shares of the Company's common stock. The notes bear interest at 6% per annum (with a default interest rate at 15% per annum), and mature three years from the date of issuance. The notes are convertible into the Company's common stock at the applicable percentage of the average of the lowest three trading prices for the Company's shares of common stock during the twenty trading day period prior to conversion. The applicable percentage is 50%; however, the percentage shall be increased to: (i) 55% in the event that a Registration Statement is filed within thirty days from July 26, 2006, and (ii) 60% in the event that the Registration Statement becomes effective within one hundred and twenty days from July 26, 2006. Since the Company has not had a Registration Statement become effective as of the date of this Report, the applicable percentage will be 50%. F-13 We may prepay the notes in the event that no event of default exists, there are a sufficient number of shares available for conversion, and the market price is at or below $0.10 per share. Prepayment of the convertible notes is to be made in cash equal to 140% of the outstanding principal and accrued interest (for prepayment occurring after the 60th day following the issue date of the notes). In addition, in the event that the reported average daily price of the common stock for each day of the month ending on any determination date is below $0.10, we may repay a portion of the outstanding principal amount of the notes equal to 101% of the principal amount divided by thirty-six plus one month's interest and this will stay all conversions for the month. Events of default under the notes generally include failure to repay the principal or interest when due, failure to issue shares of common stock upon conversion by the holder, failure to timely file a registration statement or have such registration statement declared effective, breach of certain covenants or representation or warranty in the Securities Purchase Agreement or related convertible note, the assignment or appointment of a receiver to control a substantial part of our property or business, a money judgment, writ or similar process entered or filed against us in excess of $50,000 which continues for 20 days unless consented to by the holder, the commencement of a bankruptcy, insolvency, reorganization or liquidation proceeding against us without stay or the delisting of our common stock. Upon the occurrence of an event of default, the note holders may by written notice demand repayment in an amount equal to the greater of (i) the then outstanding principal amount of the convertible notes, together with unpaid interest and any outstanding penalties times 140% or (ii) the "parity value" of the default sum, where parity value means (a) the highest number of shares of common stock issuable upon conversion of the default sum, treating the trading day immediately preceding the prepayment date as the "conversion date" for the purpose of determining the lowest applicable conversion price (unless the event of default is a result of a breach in reference to a specific conversion date), multiplied by (b) the highest closing price for the common stock during the period beginning on the date of first occurrence of the event of default and ending one day prior to the prepayment date. In addition, we granted the Investors a security interest in substantially all of our assets and intellectual property pursuant to a Security Agreement and an Intellectual Property Security Agreement. The Company paid a total of $208,200 in debt issuance costs on the $1.5 million that was received from the sale of the convertible notes. The debt issuance costs are being amortized over the term of the notes, which are due on July 25, 2009. 6% $450,000 CONVERTIBLE DEBT On March 15, 2007, we entered into a Securities Purchase Agreement with New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC (the "Investors") and agreed to issue and sell (i) callable secured convertible notes up to $450,000, and (ii) warrants to acquire an aggregate of 9 million shares of our common stock. The callable secured convertible notes (4 notes, $450,000 total loan principal; 3 year term; 6% annual interest, 15% annual "default interest") are convertible into shares of our common stock at a variable conversion price based upon the applicable percentage of the average of the lowest three trading prices for the common stock during the twenty-day trading period prior to conversion. The "Applicable Percentage" means 50%; provided, however, that the Applicable Percentage shall be increased to (i) 55% in the event that a Registration Statement is filed within thirty days of the required filing and (ii) 60% in the event that the Registration Statement becomes effective within ninety days from the required filing. The Company paid a total of $50,000 in debt issuance costs on the $450,000 that was received from the sale of the convertible notes. The debt issuance costs are being amortized over the term of the notes, which are due between March 15 and June 15, 2010. On July 30, 2007, we issued a callable secured convertible note in the amount of $110,000. This note was issued under the same terms as the 6% $450,000 Convertible Debt described above (the March 15, 2007 Securities Purchase Agreement). From March 2008 through May 2008, the Investors converted $28,453 of these notes into 28,427,000 shares of common stock (47,378 shares of common stock after taking into effect the reverse stock split on August 27, 2008). F-14 As of May 31, 2008, the total convertible notes payable due to the Investors was equal to $2,031,547. This amount is comprised of: i) the $1.5 million funded under the July 25, 2006 Securities Purchase Agreement; ii) $450,000 from the Securities Purchase Agreement dated March 15, 2007; iii) an additional $110,000 funded on July 15, 2007 under the same terms as the Securities Purchase Agreement dated March 15, 2007; and iv) a reduction in the principal amount of the July 25, 2006 note in the amount of $28,453 for the conversion of a portion of the notes into common shares. We also entered into a convertible note with another party in the amount of $75,000 on June 7, 2006. The total of the principal balance on all convertible notes is $2,106,547. The value of the convertible feature on all convertible notes exceeded the face value of these notes on the dates of issuance, therefore the initial note discount booked was the total face value of the notes. This discount is being amortized over the terms of the notes. As of May 31, 2008, the cumulative amount of amortization of the discount of the notes was equal to $1,158,116. As of May 31, 2008, the total derivative liability associated with the $1.5 million convertible notes was equal to $2,544,511. The derivative liability associated with the $450,000 convertible notes was equal to $837,089. The derivative liability associated with the $110,000 convertible note was equal to $207,132. The $75,000 convertible note had a derivative liability of $792. The derivative liability associated with the 20 million warrants that were issued as part of the $1.5 million convertible notes was $11,189 on May 31, 2008. The derivative liability associated with the 9 million warrants that were issued as part of the $450,000 convertible notes was $5,035. The total of these amounts is $3,605,748. The following tables describe the valuation of the conversion feature of each tranche of the convertible debenture issued under the $1.5 million Securities Purchase Agreement, using the Black Scholes pricing model on the date of each note: 7/27/2006 8/30/2006 1/24/2007 Tranche Tranche Tranche ------------- ------------- ------------- Approximate risk free rate 5.25% 4.80% 4.65% Average expected life 3 years 3 years 2.5 years Dividend yield 0% 0% 0% Volatility 202.01% 201.26% 138.21% Estimated fair value of conversion feature on date of notes $ 1,328,118 $ 1,137,929 $ 371,193 Estimated fair value of conversion feature as of May 31, 2008 $ 1,150,443 $ 1,042,134 $ 351,934 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 tranche, with the excess of $1,337,240 charged to expense. Amortization expense related to the conversion feature discount for the year ended May 31, 2008 was $521,318. Remaining unamortized discount as of that date was $586,203. For the year ended May 31, 2008, the Company has reported $277,446 in other income related to changes in its derivative liability associated with these notes. 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. Upon the effectuation of the reverse stock split on August 27, 2008, these warrants have been adjusted to purchase 33,334 shares of common stock at a price of $60.00 per share. The warrants were originally valued at $1,987,103 using the Black-Scholes Option Pricing Model with the following weighted-average assumptions used. 7/26/2006 -------------- Approximate risk free rate 5.23% Average expected life 7 years Dividend yield 0% Volatility 201.26% Number of warrants granted 20,000,000 Estimated fair value of total warrants granted $ 1,987,478 The warrants were revalued as of the date of this report at a value of $11,189 using the Black-Scholes Option Pricing Model. For the year ended May 31, 2008, the Company has reported $784,275 in other income related to changes in its derivative liability associated with these warrants. F-15 On June 7, 2006, the Company entered into an agreement with an accredited investor for sale of a convertible debenture. The Company received proceeds of $75,000 from the sale of the convertible debenture on June 7, 2006. The debenture is convertible at any time within a three year period into 3,750,000 shares of common stock at $0.02 per share. The debenture carries an interest rate of 6% per annum, and payable annually. In the event that the debenture is not converted to common stock, any unpaid balance, including interest and the principal, becomes due on May 31, 2009. 6/7/2006 -------------- Approximate risk free rate 4.99% Average expected life 3 years Dividend yield 0% Volatility 202.01% Estimated fair value of conversion feature on date of note issuance $ 437,565 Estimated fair value of conversion feature as of May 31, 2008 $ 792 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 year ended May 31, 2008 was $25,230. Remaining unamortized discount as of that date was $25,092. For the year ended May 31, 2008, the Company has reported $141,018 in other income related to changes in its derivative liability associated with this note. The following tables describe the valuation of the conversion feature of each tranche of the convertible debenture that were issued as part of the $450,000 Securities Purchase Agreement, using the Black Scholes pricing model on the date of each note: 3/15/2007 4/16/2007 5/15/2007 6/15/2007 Tranche Tranche Tranche Tranche -------------- -------------- -------------- -------------- Approximate risk free rate 4.47% 4.80% 4.87% 5.13% Average expected life 3 years 3 years 3 years 3 years Dividend yield 0% 0% 0% 0% Volatility 182.97% 193.30% 193.30% 235.23% Estimated fair value of conversion feature on date of notes $ 237,789 $ 218,638 $ 218,638 $ 214,099 Estimated fair value of conversion feature as of May 31, 2008 $ 223,162 $ 203,529 $ 204,659 $ 205,739
The Company recorded the fair value of the conversion feature, aggregate of $889,164, as a discount to the convertible debt in the accompanying balance sheet up to the proceeds received from each traunch, with the excess of $489,164 charged to expense. Amortization expense related to the conversion feature discount for the year ended May 31, 2008 was $149,005. Remaining unamortized discount as of that date was $286,329. For the year ended May 31, 2008, the Company has reported $56,014 in other income related to changes in its derivative liability associated with these notes. The Company also granted warrants to purchase 9,000,000 shares of common stock in connection with the financing. The warrants are exercisable at $0.06 per share for a period of seven years, and were fully vested. Upon the effectuation of the reverse stock split on August 27, 2008, these warrants have been adjusted to purchase 15,000 shares of common stock at a price of $36.00 per share. The warrants were originally valued at $443,468 using the Black-Scholes Option Pricing Model with the following weighted-average assumptions used. 3/15/2007 -------------- Approximate risk free rate 4.47% Average expected life 7 years Dividend yield 0% Volatility 182.97% Number of warrants granted 9,000,000 Estimated fair value of total warrants granted $ 443,468 F-16 The warrants were revalued as of the date of this report at a value of $5,035 using the Black-Scholes Option Pricing Model. For the year ended May 31, 2008, the Company has reported $353,983 in other income related to changes in its derivative liability associated with these warrants. The following tables describe the valuation of the conversion feature of the $110,000 convertible debenture that was issued under the same terms as the $450,000 Securities Purchase Agreement, using the Black Scholes pricing model on the date of the note: 7/15/2007 -------------- Approximate risk free rate 4.57% Average expected life 3 years Dividend yield 0% Volatility 236.86% Estimated fair value of conversion feature on date of note $ 214,244 Estimated fair value of conversion feature as of May 31, 2008 $ 207,132 The Company recorded the fair value of the conversion feature of $214,244 as a discount to the convertible debt in the accompanying balance sheet up to the proceeds received, with the excess of $114,244 charged to expense. Amortization expense related to the conversion feature discount for the year ended May 31, 2008 was $30,740. Remaining unamortized discount as of that date was $79,260. For the year ended May 31, 2008, the Company has reported $7,112 in other income related to changes in its derivative liability associated with this note. Maturities of Notes Payable: Future maturities of our convertible notes payable due during the years ended May 31 are as follows: 2008 $ 0 2009 75,000 2010 1,811,547 2011 220,000 -------------- TOTAL $ 2,106,547 ============== Summary of Convertible Notes Payable and Derivative Liabilities The following is a summary of the convertible notes payable and derivative liability: Change in Current Derivative Unamortized Conversion Income in Debt Discount Value Current year as of 5/31/08 ------------- ------------- ------------- $1.5m Convertible Notes $ 2,544,511 $ 277,424 $ 586,203 $450,000 Convertible Notes 837,089 56,014 286,329 $110,000 Convertible Note 207,132 7,112 79,260 $75,000 Convertible Note 792 141,018 25,092 20 million warrants 11,189 784,275 -- 9 million warrants 5,035 353,983 -- ------------- ------------- ------------- $ 3,605,748 $ 1,619,848 $ 976,884 ============= ============= ============= NOTE 14 - LONG-TERM DEBT Ingen entered into a long-term note agreement to purchase a mobile demonstration unit for its Secure Balance product. The note was entered into on March 1, 2007. The original note balance was $116,096. The note has a term of 15 years and carries an interest rate of 9.5%. The monthly payments are $1,212. The note balance as of May 31, 2008 was equal to $111,441. The following summarizes the paydown: Required Payments Principal Interest ------------- ------------- ------------- May 31, 2009 $ 14,539 $ 4,141 $ 10,398 May 31, 2010 14,539 4,551 9,988 May 31, 2011 14,539 5,002 9,537 May 31, 2012 14,539 5,498 9,041 May 31, 2013 14,539 6,043 8,496 Thereafter 126,004 86,206 39,798 ------------- ------------- ------------- Total $ 198,699 $ 111,441 $ 87,258 ============= ============= ============= F-17 NOTE 15 - STOCK OPTIONS On January 18, 2007, Ingen issued a stock option to a consultant, representing the right to purchase 1,000,000 shares of Series A Convertible Preferred Stock at an exercise price of $0.04 per share, expiring January 18, 2012. We issued a series of stock options to an consultant under the terms of our agreement with him from 2004. A total of 5,500 options (originally issued as 3.3 million options prior to adjusting for our 600 for 1 reverse stock split that was effective on August 27, 2008) to purchase our common stock were issued from August 4, 2004 through January 18, 2007. The option prices varied from $6.00 to $150.00 per share after adjusting for our August 27, 2008 reverse stock split. On February 16, 2006, 1,667 split-adjusted shares were exercised and we booked an expense of $129,844 based on the fair market value of the stock issued at that date. In January 2007, the holder of the options was issued 167 split-adjusted options (included in the 5,500 shares above) to purchase an additional 167 shares of split-adjusted stock at a price of $36.00 per share. Using a Black Scholes model, these options were valued at $4,953. In February 2007, we approached the holder of the options (who now held 3,834 split-adjusted options to purchase shares between $16.20 and $150.00 per share) and offered him 1,250 split adjusted shares of restricted common stock (originally issued as 750,000 shares) to cancel these options. Our stock was trading at $42.00 per share (after adjusting for the reverse stock split) when we issued the stock to cancel the options. This stock had a total valuation of $52,500. The amount included on the Consolidated Statement of Stockholders' Deficit includes the $4,953 (the value of the new options issued in January 2007) and the $52,500 (the value of the stock issued to cancel the options). NOTE 16 - WARRANTS We issued a total of 29 million warrants to purchase our common stock in connection with the issuance of the Convertible Notes Payable described in Note 13 above. The 20 million warrants issued as part of the Securities Purchase Agreement dated July 26, 2006 are exercisable over a 7-year period (ending on July 26, 2013) at a price of $0.10 per share. The 9 million warrants issued as part of the Securities Purchase Agreement dated March 15, 2007 are exercisable over a 7-year period (ending on March 15, 2014) at a price of $0.06 per share. On March 31, 2008, the Company issued to a consultant, Weed & Co., LLP, an anti-dilutive warrant granting the holder the right to purchase up to 250,000 shares of common stock at $.50 per share until March 31, 2011. The Company also issued the consultant a convertible promissory note in the principal amount of $37,000 due September 1, 2008. On or before September 1, 2010, the holder may convert the note into shares of the Company's common stock. In all circumstances, the holder shall receive a minimum of 400,000 shares of the Company's common stock. Furthermore, in the event of a merger, consolidation, combination, subdivision, forward split or reverse split, any portion of the unpaid amount of this note may be converted into fully-paid, non-assessable shares of the Company's common stock, at a conversion price equal to $.25 per share. In connection with the Promissory Note, Ingen issued 250,000 anti-dilutive 3-year common stock purchase warrants. The warrants have an exercise price of $0.50 per share and may be exercised at any time prior to March 31, 2011. Note 17 - MATERIAL CONTRACTS We have entered into various agreements with third parties to perform certain services in connection with Secure Balance sales. These contracts require us to pay certain parties for commissions, services and/or equipment associated with the Secure Balance sales. We account for these services and/or equipment costs as cost of sales as the sales are booked. Among these contracts is an Exclusive Distribution Agreement for our Secure Balance product dated June 1, 2007 with Physical Rehabilitation Management Services, Inc. ("PRMS"). Under the terms of the agreement, we issued PRMS 500,000 shares of our restricted common stock at a price of $0.04 per share ($20,000 total). The term of the agreement is 5 years and we pay a 14% commission to PRMS on each sale of Secure Balance equipment. NOTE 18 - SUBSEQUENT EVENTS On August 27, 2008, Ingen effectuated a reverse stock split on its common stock at a rate of one share for every six hundred (600) then outstanding. This reduced the total number of outstanding common shares from 342,942,942 to approximately 572,259. The Series A Preferred shares are not subject to the reverse stock split. Ingen entered into a Securities Purchase Agreement dated June 16, 2008 with three investors. Under the Securities Purchase Agreement, the investors agreed to purchase up to $500,000 in Secured Callable Convertible Notes (the "Notes") and Common Stock Purchase Warrants covering 20,000,000 shares of the Issuer's common stock. The initial closing occurred on June 20, 2008 and the Issuer received gross proceeds of $100,000 and delivered to the Investors $100,000 face value Notes and Common Stock Purchase Warrants covering 20,000,000 shares of the Issuer's common stock. Future closings for gross proceeds of $100,000 each are scheduled to occur at the end of July, August, September, and October 2008. F-18 On September 5, 2008, Ingen amended its Securities Purchase Agreement dated as of June 16, 2008. Under the terms of this amendment, the conversion rate and interest rate of all convertible debentures have been adjusted. This amendment applies to the $1.5 million convertible date entered into on July 25, 2006, the $450,000 convertible debt entered into on March 15, 2007, the $110,000 convertible note entered into on July 30, 2007 as well as the $500,000 Securities Purchase Agreement dated June 16, 2008. The "Applicable Percentage" (as defined in each of the notes to be the rate at which the note holders can convert their debt into common stock) has been adjusted to 40%. This means that the convertible note holders can now convert their debt into stock at the average of the lowest three trading prices for the common stock during the twenty day trading period prior to conversion multiplied by 40%. Also the interest rate on all convertible notes has been adjusted from 6% to 12%. This interest rate adjustment is effective as of January 1, 2008. As of May 31, 2008, this interest rate adjustment would be applied to $2,031,547 in outstanding convertible debt. Further, the June 16, 2008 agreement to purchase up to $500,000 in Secured Callable Convertible Notes was amended so that future purchases shall occur "on such dates as shall be mutually agreed upon by the Company and the Buyers" instead of on the scheduled closing dates originally provided for in the agreement. There is no guarantee that future closings will occur. Subsequent to May 31, 2008 the Company issued 70,185 post-reverse shares of its common stock in connection with the above mentioned debt. On August 27, 2008, Ingen entered into an agreement with Media4Equity, LLC. Under the terms of this contract Ingen issued a total of 3,300,000 shares of its restricted common stock to Media4Equity, LLC and two individuals in exchange for public relations services and a media campaign. This stock was valued at $0.06 per share, or a total of $198,000. After this issuance, these three entities owned a total of 85.6% of the total outstanding common stock of Ingen. NOTE 19 - RESTATEMENT Subsequent to the issuance of the 2007 financial statements, management discovered an error related to the 2006 financial statements. The error affected the ending 2006 balances in common stock and accumulated deficit which affected the 2007 ending balances in these accounts. Accordingly, the 2007 consolidated balance sheet and statement of stockholders' deficit have been restated. F-19 SPECTOR, WONG & DAVIDIAN, LLP [LETTERHEAD HERE] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Board of Directors and stockholders of Ingen Technologies Inc. We have audited the accompanying consolidated balance sheets of Ingen Technologies Inc. and subsidiary, as of May 31, 2006, and the related statements of operations, changes in stockholders' deficit, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positions of Ingen Technologies Inc. and subsidiary as of May 31, 2006, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company's operating losses and working capital deficiency raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Since our previous report dated July 24, 2006, as described in Note 17, the Company discovered a material error in its presentation of its consolidated financial statements. However, the Company has restated the consolidated financial statements to reflect the correction of this matter. /s/ Spector, Wong & Davidian, LLP Harold Spector, Managing Partner Spector, Wong & Davidian, LLP Pasadena, California July 24, 2006 (except for Note 16, and 17, as to which the date is February 8, 2008, and for Note 1, 2, 7, 15, and 17, as to which the date is August 22, 2008) F-20 INGEN TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEET MAY 31, 2006 Balance as of May 31, 2006 ----------- ASSETS Current assets Cash $ 111,112 ----------- Total current assets 111,112 Property and equipment, net of accumulated depreciation of $98,408 55,513 ----------- TOTAL ASSETS $ 166,625 =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable $ 48,186 Accrued expenses 179,793 Officers' loans 70,826 ----------- Total current liabilities 298,805 Stockholders' deficit Preferred stock, Series A, no par value, preferred liquidation value of $1.00 per share, 40,000,000 shares authorized and 14,134,547 issued and outstanding as of May 31, 2006, total liquidation preference of $14,134,547. 734,980 Common stock, no par value, authorized 100,000,000 shares, 49,412 issued and outstanding as of May 31, 2006. 3,615,029 Series A preferred stock subscription (220,000) Accumulated deficit (4,262,189) ----------- Total stockholders' deficit (132,180) TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 166,625 =========== See notes to the Consolidated Financial Statements F-21 INGEN TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2006 Sales $ 846,783 Cost of sales 301,118 ----------- Gross Profit 545,665 Selling, general and administrative expenses 2,277,881 ----------- Operating loss (1,732,216) Other (expenses) Interest expense (3,852) ----------- Net loss before taxes (1,736,068) Provision for income taxes 800 ----------- Net loss $(1,736,868) =========== Basic and diluted net loss per share $ (115.10) =========== Weighted average number of shares outstanding 15,090 See notes to the Consolidated Financial Statements F-22 Ingen Technologies, Inc. Consolidated Statement of Stockholders' Deficit SERIES A PREFERRED SERIES A STOCK PREFERRED STOCK CONVERTIBLE PREF STOCK COMMON STOCK SUBSCRIPTION ACCUMULATED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT RECEIVABLE DEFICIT TOTAL ----------- --------- ---------- --------- ------ ---------- --------- ----------- ----------- Balance at May 31, 2005 36,900,000 $ 369,000 3,000,000 $ 30,000 5,366 $1,511,143 -- $(2,525,321) $ (615,088) Conversion of preferred stock (36,900,000) (369,000) 10,300,000 369,000 -- -- -- -- -- Conversion of preferred stock to common -- -- (7,619,999) (284,020) 12,700 284,020 -- -- -- Stock issuances for services -- -- 5,454,546 400,000 -- -- -- -- 400,000 Preferred stock issued for subscription -- -- 3,000,000 220,000 -- -- (220,000) -- -- Issuance of stock options -- -- -- -- -- 28,072 -- -- 28,072 Stock issued in cashless exercise of stock options -- -- -- -- 1,603 129,844 -- -- 129,844 Stock sold -- -- -- -- 29,743 1,661,950 -- -- 1,661,950 Net loss for year ended May 31, 2006 -- -- -- -- -- -- -- (1,736,868) (1,736,868) ----------- --------- ---------- --------- ------ ---------- --------- ----------- ----------- Balance at May 31, 2006 -- $ -- 14,134,547 $ 734,980 49,412 $3,615,029 $(220,000) $(4,262,189) $ (132,090) =========== ========= ========== ========= ====== ========== ========= =========== =========== See notes to the Consolidated Financial Statements F-23 INGEN TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended May 31, 2006 ----------- Cash flow from operating activities Net loss $(1,736,868) Depreciation and amortization 17,997 Expenses paid with stock and options 157,916 Increase in accounts payable 48,186 Increase in accrued expenses 193,263 Decrease in litigation reserve (143,500) ----------- Net cash used in operating activities (1,463,006) Cash flow from investing activities Purchase of property and equipment (48,583) ----------- Net cash used in investing activities (48,583) Cash flow from financing activities Repayments of notes payable to related party (31,976) Repayments of notes payable (25,000) Proceeds from issuance of stock 1,661,950 ----------- Net cash provided by financing activities 1,604,974 Net cash increase (decrease) 93,385 Cash at beginning of year 17,727 ----------- Cash at end of year $ 111,112 =========== Supplemental information Cash paid for taxes $ 800 =========== Non Cash Activities: Exchange of 7,619,999 shares of series A preferred stock for common stock $ 284,020 Issuance of series A preferred stock for accrued compensation $ 400,000 Stock subscription receivable incurred for issuance of series A preferred stock $ 220,000 See notes to the Consolidated Financial Statements
F-24 Ingen Technologies, Inc. Notes to consolidated financial statements For the year ended May 31, 2006 NOTE 1 - NATURE OF BUSINESS Ingen Technologies, Inc., (formerly known as Creative Recycling Technologies Inc., the "Company" or "Ingen Technologies"), is a Public Company trading under NASDAQ OTC: IGTG. Ingen Technologies is a growth-oriented technology company that offers a diverse and progressive services and products. Ingen Technologies, Inc., is a Georgia corporation ("IGTG") and owns 100% of the capital stock of Ingen Technologies, Inc., a Nevada corporation and it has been in business since 1999. The Company's flagship product is its BAFI (TM) line of products. These are the world's first wireless digital low gas warning system for pressurized gas cylinders. These products include Oxyview(TM), OxyAlert(TM)and GasAlert(TM). On October 24, 2000, the Company received a U.S. Patent for the BAFI (TM) with Patent No. 6,137,417. BAFI (TM), now in its second generation, is an accurate and cost-effective, real-time pressurized gas warning system that will alert users when gas levels are approaching empty. The BAFI (TM) line has multiple applications, inclusive but not limited to, the Medical Industry, Home Consumer, Residential Development Industry, Safety & Protection (fire and police), Aircraft Industry, and the Recreational Vehicle Industry. BAFI (TM) meets or exceeds regulatory compliance of this type of product and is completed and in production. The Company's Secure Balance (TM) product is a private-label product that includes a vestibular function testing system and balance therapy system available to physicians throughout the United States. On August 21, 2008, Ingen effectuated a reverse stock split at a rate of one share for every six hundred (600) then outstanding. The Series A Preferred stock was not effected by this reverse stock split. The effect of the reverse stock split has been retroactively adjusted for in these financial statements. This reduced the number of common shares outstanding from 29,647,110 to 49,412 as of May 31, 2006. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Principle of Consolidation and Presentation: The accompanying consolidated financial statements include the accounts of Ingen Technologies, Inc. and its subsidiaries after elimination of all intercompany accounts and transactions. Certain prior period balances have been reclassified to conform to the current period presentation Use of estimates: The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates. F-25 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition: The Company recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. No provisions were established for estimated product returns and allowances based on the Company's historical experience. All orders are customized with substantial down payments. Products are released upon receipt of the remaining funds. For our SecureBalance sales, the customer generally makes a down payment in the amount of 50% of the total cost. When the product is ready for delivery and the remaining purchase price is received, the product is shipped and the sale is recognized as revenue. The sale of Secure Balance products include education and training. We schedule this training to coincide with the delivery of the Secure Balance equipment to our customers. For our OxyView units, all payments are made in advance by the customers. Upon our shipment of the units, revenue is recognized. Cash Equivalents: For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Fair Value of Financial Instruments: The carrying amounts of the financial instruments have been estimated by management to approximate fair value. Property and Equipment: Property and Equipment are valued at cost. Maintenance and repair costs are charged to expenses as incurred. Depreciation is computed on the straight-line method based on the following estimated useful lives of the assets: 3 to 5 years for computer, software and office equipment, and 5 to 7 years for furniture and fixtures. Preferred Stock: The Company has authorized 40,000,000 shares of Series A Preferred Stock. The Series A stock is not entitled to dividends. The Company has the right but not the obligation to redeem each share of Series A stock at a price of $1.00 per share. In the event of voluntary or involuntary liquidation, dissolution, or winding up of the corporation, each share of Series A shall be entitled to receive from the assets of the Company $1.00 per share, which shall be paid or set apart before the payment or distribution of any assets of the corporation to the holders of the Common Stock or any other equity securities of the Company. Each share of Series A shall be entitled to vote on all matters with the holders of the Common Stock. Each share of Series A stock shall be entitled to one vote. The holders of the Series A voting as a class shall be entitled to elect one person to serve on the Company's Board of Directors. The Series A is convertible into one share of fully paid and non-assessable share of Common Stock. The Series A stock shall not be effected by or subject to adjustment following any change to the amount of authorized shares of Common Stock or the amount of Common Stock issued and outstanding caused by any Split or consolidation of the Company's Common Stock. Income Taxes: Income tax expense is based on pretax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. Research and Development: The Company made expenditures of $21,736 for Research And Development in the fiscal year ended May 31, 2006. F-26 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Net Loss Per Share: Basic net loss per share includes no dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common stock outstanding for the period. Diluted net loss per share does not differ from basic net loss per share since potential shares of common stock are anti-dilutive for all periods presented. Potential shares consist of series A preferred stock and stock options. The net loss per share has been retroactively adjusted for a one for six hundred reverse stock split effectuated on August 21, 2008. New Accounting Standards: In June 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 154, "Accounting Changes and Errors Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statement." SFAS 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Previously, most voluntary changes in accounting principles were required recognition via a cumulative effective adjustment within net income of the period of the change. SFAS 154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 14, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements. The Company does not believe this pronouncement will have a material impact in its consolidated financial position, results of operations or cash flows. In December 2004, the FASB issued SFAS No. 153. This statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions," is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that opinion; however, included certain exceptions to that principle. This statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this statement is issued. Management believes the adoption of this statement will have no impact on the consolidated financial statements of the Company. In December 2004, the FASB issued SFAS No. 152, which amends FASB statement No. 66, "Accounting for Sales of Real Estate," to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate Time-Sharing Transactions." This statement also amends FASB Statement No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects," to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This statement is effective for financial statements for fiscal years beginning after June 15, 2005. Management believes the adoption of this statement will have no impact on the consolidated financial statements of the Company. F-27 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which requires the measurement and recognition of compensation expense for all stock-based compensation payments and supersedes the Company's current accounting under APB 25. SFAS 123(R) is effective for the first interim or annual reporting period that begins after December 15, 2005 for small business issuers. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to the adoption of SFAS 123(R). The Company plans to use the modified prospective method to adopt this new standard and will continue to evaluate the impact of SFAS 123(R) on its operating results and financial condition. The pro forma information presented above and in Note 10 presents the estimated compensation charges under SFAS 123, "Accounting for Stock-Based Compensation." The Company's assessment of the estimated compensation charges is affected by the Company's stock price as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, the Company's stock price volatility and employee stock option exercise behaviors. The Company will recognize the compensation cost for stock-based awards issued after January 1, 2006 on a straight-line basis over the requisite service period for the entire award. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4." This statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . ." This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not believe the adoption of this consolidated statement will have any immediate material impact on the Company. NOTE 3 - GOING CONCERN The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities and commitments in the normal course of business. In the near term, the Company expects operating costs to continue to exceed funds generated from operations. As a result, the Company expects to continue to incur operating losses and may not have sufficient funds to grow its business in the future. The Company can give no assurance that it will achieve profitability or be capable of sustaining profitable operations. As a result, operations in the near future are expected to continue to use working capital. To successfully grow the individual segments of the business, the Company must decrease its cash burn rate, improve its cash position and the revenue base of each segment, and succeed in its ability to raise additional capital through a combination of primarily public or private equity offering or strategic alliances. The Company also depends on certain contractors, and its sole employee, the CEO, and the loss of any of those contractors or the employee, may harm the Company's business. The company incurred a loss of $1,736,868 for the year ended May 31, 2006, and as of that date, had an accumulated deficit of $4,262,189. F-28 NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment is summarized as follows: As of May 31, 2006 ------------------ Automobile $ 9,500 Furniture & Fixture 27,222 Machinery & Equipment 85,152 Leasehold Improvements 32,047 --------- 153,921 Less accumulated depreciation (98,408) --------- Property and Equipment, net $ 55,513 ========= NOTE 5 - ACCRUED EXPENSES Accrued expenses at May 31, 2006: Accrued officer's compensation $ 112,000 Accrued interest expense 32,782 Accrued professional fees 10,000 Accrued payroll taxes 24,211 Accrued taxes 800 --------- Total $ 179,793 ========= NOTE 6 - INCOME TAXES Provision for income tax for the year ended May 31, 2006 consisted of $800 minimum state franchise tax per year. As of May 31, 2006, the Company has net operating loss carryforwards, approximately, of $3,009,598, to reduce future federal and state taxable income. To the extent not utilized, the carryforwards will begin to expire through 2026. The Company's ability to utilize its net operating loss carryforwards is uncertain and thus a valuation reserve has been provided against the Company's net deferred tax assets. A valuation allowance is recorded for the full amount of deferred tax asset of approximately $1,294,127, for the year ended May 31, 2006, respectively, which relates to these loss carryforwards, since future profits are indeterminable. F-29 NOTE 7 - NET LOSS PER SHARE The following table sets forth the computation of basic and diluted net loss per share: FOR YEAR ENDED MAY 31, 2006 ---------------------- Numerator: Net Loss $(1,736,868) ----------- Denominator: Weighted Average Number of Shares 15,090 ----------- Net loss per share-Basic and Diluted $ (115.10) As the Company incurred a net loss for the year ended May 31, 2006, it has excluded from the calculation of diluted net loss per share approximately 17,234,547 shares related to preferred stock that can be converted to common stock as well as outstanding stock options. NOTE 8 - SEGMENT INFORMATION SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" requires that a publicly traded company must disclose information about its operating segments when it presents a complete set of financial statements. The Company has only one segment; therefore, the detail information is not presented. NOTE 9 - RELATED PARTY TRANSACTIONS The Company had notes payable to a related party in the amount of $70,826 as of May 31, 2006. The interest rate on the loan is 6% and due upon working capital availability. The related accrued interest is $32,782 as of May 31, 2006. During the fiscal year ending May 31, 2006, the CEO of the Company received 5,454,546 shares of Series A preferred stock for satisfaction of his accrued compensation of $400,000. NOTE 10 - LEASE OBLIGATION The Company leases its corporate office under an unsecured lease agreement which expires in April 1, 2008. As of May 31, 2006, the remaining lease obligation is as follows: Year Ending Lease May 31, Obligation -------------------------------------- 2007 9,300 2008 7,750 ---------- $ 17,050 ========== The total rent expense for the year ended May 31, 2006 was $9,300. F-30 NOTE 11 - INTANGIBLE ASSETS The patents were fully impaired as of May 31, 2006. NOTE 12 - GUARANTEES The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. These contracts primarily relate to: (i) divestiture agreements, under which the Company may provide customary indemnifications to purchasers of the Company's businesses or assets; and (ii) certain agreements with the Company's officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising our of their employment relationship. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligation cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these obligations on its balance sheet as of May 31, 2006. NOTE 13 - PENDING LITIGATION The pending litigation is with the previous landlord for breaking a facility lease by the Company. The management estimated and accrued a loss for $143,500 in the year ended May 31, 2004. The litigation regarding the breaking the facility lease was settled for $143,000 in August 2005. NOTE 14 - PREFERRED STOCKS On December 7, 2005, the Company had a reverse stock split of 3 to 1 for all issued and outstanding preferred shares and converted all classes of preferred shares into Series A preferred stock. The Company is authorized to issue 40,000,000 shares of no par value Series A preferred stock. As of May 31, 2006, the Company had 14,134,547 shares of preferred stocks Series A issued and outstanding. No dividends shall accrue or be payable on the Series A preferred stocks. The Company has the right to redeem each share of Series A preferred stock for $1; however, there is no obligation for this redemption. Each share of Series A preferred stock is entitled to vote on all matters with holders of the common stock; however, each Series A preferred stock is entitled to 1 vote. Each share of Series A preferred stock is convertible, at the option of the holder and subject to a 65 day written notice to the Company, at any time after the date of the issuance into 1 share of fully paid and non-assessable share of common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series A preferred stock shall be entitle to be paid $1 per share before any payments or distribution of assets of the Company to the holders of the common stock or any other equity securities of the Company. The accompanying consolidated financial statements have been retroactively adjusted to reflect the reverse stock split. During the fiscal year ending May 31, 2006, the Company authorized and converted 7,619,999 shares of Series A preferred stock to common stock. On May 21, 2006, the Company and a subscriber entered into an Investment Contract (the "Contract") providing that the Company intends to raise at least $5 million utilizing Replacement S-B of the SEC which the subscriber agreed to purchase 3million shares of the Company's restricted series A preferred shares at a price of $0.0733 per share or $220,000. These shares will be registered by the Company in the S-B offering. As of May 31, 2006, all of 3million shares of restricted series A preferred shares were issued and a subscription receivable of $220,000 was recorded against the Company's equity. F-31 NOTE 15 - COMMON STOCK On October 31, 2005, the Board approved a reverse split to reduce the authorized common shares to 100 million and also approved the reverse split of 40 to 1 outstanding and issued common shares; the split was effective on December 7, 2006. The accompanying consolidated financial statements have been retroactively adjusted to reflect the reverse stock split. On August 21, 2008, Ingen effectuated a reverse stock split at a rate of one share for every six hundred (600) then outstanding. The Series A Preferred stock was not effected by this reverse stock split. The effect of the reverse stock split has been retroactively adjusted for in these financial statements. This reduced the number of common shares outstanding from 29,647,110 to 49,412 as of May 31, 2006. NOTE 16 - STOCK OPTIONS The Company has accounted for options granted to nonemployees in accordance with FAS 123. Under FAS 123, the option award is based on the fair market value of the underlying security based on the Black-Scholes Pricing Model, less the option price. From August 6, 2004 through January 18, 2006, the Company granted a total of 3,100,000 options to one nonemployee. The value of these options was calculated to be $225,802. Of this value, $197,730 was expensed in the fiscal year ended May 31, 2005 and $28,072 was expensed in the current fiscal year. The holder of the option utilized a cash-free exercise of the options on February 16, 2006 and the Company recorded additional expense in the amount of $129,844 in the current fiscal year. The following tables summarize the calculations for stock option issuances in the current fiscal year: For the year ended May 31, 2006 Expected volatility 252% Risk free interest rate 4.52% Expected option life 5 years Dividend yield 0% Fair value of options granted $28,072 Stock option activity during the year ended May 31, 2006: Weighted Average Weighted Remaining Average Contractual Aggregate Exercise Term Intrinsic Shares Price (in years) Value ---------- ---------- --------- --------- Outstanding at May 31, 2005 3,000,000 $ 0.046 3.18 0 Granted 100,000 0.25 4.22 0 Exercised (3,100,000) -- Cancelled -- -- ---------- ---------- Outstanding at May 31, 2006 0 -- ========== ========== F-32 Fair market value at December 31, 2006 was $.07 per share, resulting in negative intrinsic value for all options. NOTE 17 - RESTATEMENT Subsequent to the issuance the financial statements, management discovered an error related to the equity accounts, stock options and asset purchases. The Company has now made the corrections and has reissued its financial statements for the year ended May 31, 2006. Accordingly, the consolidated balance sheet, consolidated statement of operations, consolidated statement of stockholders' deficit, and consolidated statement of cash flows have been revised as follows: F-33 INGEN TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEET MAY 31, 2006 Restated Original Balance as Balance as of May 31, of May 31, Effect 2006 2006 of Changes ----------- ----------- ----------- ASSETS Current assets Cash $ 111,112 $ 111,112 $ -- ----------- ----------- ----------- Total current assets 111,112 111,112 -- Property and equipment, net of accumulated depreciation of $98,408. 55,513 31,638 23,875 (1) ----------- ----------- ----------- TOTAL ASSETS $ 166,625 $ 142,750 $ 23,875 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable $ 48,186 $ 48,186 $ -- Accrued expenses 179,793 179,793 -- Officers' loans 70,826 -- 70,826 (2) ----------- ----------- ----------- Total current liabilities 298,805 227,979 70,826 Long-term liabilities Officers' loans -- 70,826 (70,826) (3) ----------- ----------- ----------- Total long-term liabilities -- 70,826 (70,826) Stockholders' deficit Preferred stock, Series A, no par value, preferred liquidation value of $1.00 per share, 40,000,000 shares authorized and 14,134,547 issued and outstanding as of May 31, 2006, total liquidation preference of $14,134,547 734,980 734,980 -- Common stock, no par value, authorized 100,000,000 shares, 49,412 issued and outstanding as of May 31, 2006 3,615,029 7,497,183 (3,882,154) (4) Series A preferred stock subscription (220,000) (220,000) -- Accumulated deficit (4,262,189) (8,168,218) 3,906,029 (5) ----------- ----------- ----------- Total stockholders' deficit (132,180) (156,055) 23,875 TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 166,625 $ 142,750 $ 23,875 =========== =========== =========== See Note A F-34 INGEN TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2006 Effect Restated Original of Changes ------------- ------------- ------------- Sales $ 846,783 $ 846,783 $ -- Cost of sales 301,118 301,118 -- ------------- ------------- ------------- Gross Profit 545,665 545,665 -- Selling, general and administrative expenses 2,277,881 2,143,840 134,041 (6) ------------- ------------- ------------- Operating loss (1,732,216) (1,598,175) (134,041) Other (expenses) Interest expense (3,852) (3,852) -- ------------- ------------- ------------- Net loss before taxes (1,736,068) (1,602,027) (134,041) Provision for income taxes 800 800 -- ------------- ------------- ------------- Net loss $ (1,736,868) $ (1,602,827) $ (134,041) ============= ============= ============= Basic and diluted net loss per share $ (115.10) $ 0.01 $ (115.11) (7) ============= ============= ============= Weighted average number of shares outstanding 15,090 208,100,842 (7) See Note A F-35 INGEN TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT PREFERRED STOCK ---------------------------------------------------------------------------- SHARES AMOUNT ---------------------------- ---------------------------- EFFECT RESTATED ORIGINAL RESTATED ORIGINAL OF CHANGES ------------ ------------ ------------ ------------ ------------ Balance at May 31, 2005 36,900,000 36,900,000 $ 369,000 $ 369,000 $ -- Conversion of preferred stock (36,900,000) (36,900,000) (369,000) (369,000) -- Conversion of preferred stock to common -- -- -- -- -- Stock issuances for services -- -- -- -- -- Preferred stock issued for subscription -- -- -- -- -- Issuance of stock options -- -- -- -- -- Stock issued in cashless exercise of stock options -- -- -- -- -- Stock sold -- -- -- -- -- Net loss for year ended May 31, 2006 -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Balance at May 31, 2006 -- -- $ -- $ -- $ -- ============ ============ ============ ============ ============ See Note A F-36 INGEN TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT SERIES A CONVERTIBLE PREF STOCK ---------------------------------------------------------------------------- SHARES AMOUNT ---------------------------- ---------------------------- EFFECT RESTATED ORIGINAL RESTATED ORIGINAL OF CHANGES ------------ ------------ ------------ ------------ ------------ Balance at May 31, 2005 1,000,000 1,000,000 $ 30,000 $ 30,000 $ -- Conversion of preferred stock 12,300,000 12,300,000 369,000 369,000 -- Conversion of preferred stock to common (7,619,999) (7,619,999) (284,020) (284,020) -- Stock issuances for services 5,454,546 5,454,546 400,000 400,000 -- Preferred stock issued for subscription 3,000,000 3,000,000 220,000 220,000 -- Issuance of stock options -- -- -- -- -- Stock issued in cashless exercise of stock options -- -- -- -- -- Stock sold -- -- -- -- -- Net loss for year ended May 31, 2006 -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Balance at May 31, 2006 14,134,547 14,134,547 $ 734,980 $ 734,980 $ -- ============ ============ ============ ============ ============ See Note A F-37 INGEN TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT COMMON STOCK ---------------------------------------------------------------------------- SHARES AMOUNT ---------------------------- ---------------------------- EFFECT RESTATED ORIGINAL RESTATED ORIGINAL OF CHANGES ------------ ------------ ------------ ------------ ------------ Balance at May 31, 2005 5,366 5,304 $ 1,511,143 $ 5,551,213 $ (4,040,070) (8) Conversion of preferred stock -- -- -- -- -- Conversion of preferred stock to common 12,700 12,700 284,020 284,020 -- Stock issuances for services Preferred stock issued for subscription Issuance of stock options -- -- 28,072 -- 28,072 (9) Stock issued in cashless exercise of stock options 1,603 -- 129,844 -- 129,844 (10) Stock sold 29,743 31,346 1,661,950 1,661,950 0 Net loss for year ended May 31, 2006 -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Balance at May 31, 2006 49,412 49,350 $ 3,615,029 $ 7,497,183 $ (3,882,154) ============ ============ ============ ============ ============ See Note A F-38 INGEN TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT SERIES A PREFERRED STOCK SUBSCRIPTION ACCUMULATED RECEIVABLE DEFICIT ---------------------------- ---------------------------- EFFECT RESTATED ORIGINAL RESTATED ORIGINAL OF CHANGES ------------ ------------ ------------ ------------ ------------ Balance at May 31, 2004 $ -- $ -- $ (2,020,336) $ (6,258,136) $ 4,237,800 (11) Issuance of stock for services -- -- -- -- -- Issuance of stock for cash -- -- -- -- -- Issuance of stock options -- -- -- -- -- Net loss for year ended May 31, 2005 -- -- (504,985) (307,255) (197,730) (12) ------------ ------------ ------------ ------------ ------------ Balance at May 31, 2005 $ -- $ -- $ (2,525,321) $ (6,565,391) $ 4,040,070 Adjustment for 40 to 1 reverse stock split effective on December 7, 2005 -- -- -- -- -- Conversion of preferred stock -- -- -- -- -- Conversion of preferred stock to common -- -- -- -- -- Stock issuances for services -- -- -- -- -- Preferred stock issued for subscription (220,000) (220,000) -- -- -- Issuance of stock options -- -- -- -- -- Stock issued in cashless exercise of stock options -- -- -- -- -- Stock sold -- -- -- -- -- Net loss for year ended May 31, 2006 -- -- (1,736,868) (1,602,827) (134,041) (13) ------------ ------------ ------------ ------------ ------------ Balance at May 31, 2006 $ (220,000) $ (220,000) $ (4,262,189) $ (8,168,218) $ 3,906,029 ============ ============ ============ ============ ============ See Note A F-39 INGEN TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT TOTAL -------------------------- EFFECT RESTATED ORIGINAL OF CHANGES ----------- ----------- ----------- Balance at May 31, 2004 $ (850,923) $ (850,923) $ -- Issuance of stock for services 399,000 399,000 -- Issuance of stock for cash 144,000 144,000 -- Issuance of stock options 197,730 -- 197,730 14) Net loss for year ended May 31, 2005 (504,985) (307,255) (197,730) 15) ----------- ----------- ----------- Balance at May 31, 2005 $ (615,178) $ (615,178) $ -- Adjustment for 40 to 1 reverse stock split effective on December 7, 2005 -- -- Conversion of preferred stock -- -- Conversion of preferred stock to common -- -- -- Stock issuances for services 400,000 400,000 -- Preferred stock issued for subscription -- -- -- Issuance of stock options 28,072 -- 28,072 16) Stock issued in cashless exercise of stock options 129,844 -- 129,844 17) Stock sold 1,661,950 1,661,950 -- Net loss for year ended May 31, 2006 (1,736,868) (1,602,827) (134,041) 18) ----------- ----------- ----------- Balance at May 31, 2006 $ (132,180) $ (156,055) $ 23,875 =========== =========== =========== See Note A F-40 INGEN TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended May 31, 2006 -------------------------- Effect Restated Original of Changes ----------- ----------- ----------- Cash flow from operating activities Net loss $(1,736,868) $(1,602,827) $ (134,041) (19) Depreciation and amortization 17,997 17,997 -- Expenses paid with stock and options 157,916 -- 157,916 (20) Increase in accounts payable 48,186 48,186 -- Increase in accrued expenses 193,263 193,263 -- Decrease in litigation reserve (143,500) (143,500) -- ----------- ----------- ----------- Net cash used in operating activities (1,463,006) (1,486,881) 23,875 Cash flow from investing activities Purchase of property and equipment (48,583) (24,708) (23,875) (21) ----------- ----------- ----------- Net cash used in investing activities (48,583) (24,708) (23,875) Cash flow from financing activities Repayments of notes payable to related party (31,976) (31,976) -- Repayments of notes payable (25,000) (25,000) -- Proceeds from issuance of stock 1,661,950 1,661,950 -- ----------- ----------- ----------- Net cash provided by financing activities 1,604,974 1,604,974 -- Net cash increase (decrease) 93,385 93,385 -- Cash at beginning of year 17,727 17,727 -- ----------- ----------- ----------- Cash at end of year $ 111,112 $ 111,112 $ -- =========== =========== =========== Supplemental information Cash paid for taxes $ 800 $ 800 $ -- =========== =========== =========== Non Cash Activities: Exchange of 7,619,999 shares of series A preferred stock for common stock $ 284,020 $ 284,020 $ -- Issuance of series A preferred stock for accrued compensation $ 400,000 $ 400,000 $ -- Stock subscription receivable incurred for issuance of series A preferred stock $ 220,000 $ 220,000 $ -- See Note A
F-41 NOTE A (1) This adjustment for $23,875 was the result of the Company erroneously charging off to expense a capital purchase. The effect of the correction of this error resulted in an increase of fixed assets and total assets in the amount of $23,875. (2) The Company erroneously classified the loans from an officer as long-term debt on its balance sheet as of May 31, 2006. This has been reclassified as a short-term liability. (3) The Company erroneously classified the loans from an officer as long-term debt on its balance sheet as of May 31, 2006. This has been reclassified as a short-term liability. (4) This change has three components. First, after the acquisition of Ingen Technologies (the private Nevada company) the ending common stock balance was originally $7,760. This amount was based on an estimate, as the financial statements of the private company were not yet audited. After the audit, this figure was adjusted to $705,905. This caused an increase in the common stock balance in the amount of $698,145. The second adjustment related to shares issued in the fiscal year ended May 31, 2004. These shares were originally booked at a valuation of $5,399,363. This valuation was later adjusted to reflect the fair market value of the shares on the dates of issuance. The revised value of these shares was $661,148. This caused a decrease in the common stock account in the amount of $4,738,215. The third component of this change was the value of the stock options expensed in the fiscal year ended May 31, 2006. This value was $157,916. The net effect of these three adjustments resulted in a decrease in the common stock balance of $3,882,154. The total difference is summarized as follows: Adjustment due to acquisition of Ingen (NV) $ 698,145 (a) Adjustment of value of shares issued in the fiscal year ended 5/31/04 (4,738,215) (b) Value of options expensed in May 31, 2006 157,916 (c) ---------- Total adjustment $3,882,154 ========== (5) This balance was adjusted as the result of several reasons. First, the accumulated deficit as of May 31, 2003 was reduced from $(539,235) to $(1,069,235) as a result of the correction of the balance from the audit of Ingen Technologies, Inc. (the private Nevada company). The original balance was based on an unaudited number and it was adjusted by $530,000. Second, an erroneous cash-to-accrual adjustment in the amount of $4,767,800 that was booked in the fiscal year ended May 31, 2004 has been eliminated. The net effect of these two adjustments increased the accumulated deficit by $4,237,870 as of May 31, 2004. This account has been further adjusted by the increase of the loss for May 31, 2005. The loss was increased from $(307,255) to $(504,985) as the result of an additional expense of $197,730 F-42 that was booked to deduct the value of stock option issued to a consultant. Lastly, there were two audit adjustments reflected in the restated financial statements for the fiscal year ended May 31, 2006. These were: i) An additional expense in the amount of $157,916 that was booked to deduct the value of stock option issued to a consultant, and ii) The decrease of an expense in the amount of $23,875 that represented a capital purchase that was originally expensed in May 31, 2006. The total change is summarized as follows: Correction of 5/31/03 balance based on audit of Ingen NV $ (530,000) (a) Reversal of cash-to-accrual adjustment originally booked in 5/31/04 4,767,800 (b) Additional expense in 5/31/05 to book options issued to a consultant (197,730) (c) Additional expense in 5/31/06 to book options issued to a consultant (157,916) (d) Reduction in expense in 5/31/06 due to capitalizing an asset previously expensed 23,875 (e) ----------- Total change to accumulated deficit as of 5/31/06 $ 3,906,029 =========== (6) The selling, general and administrative expenses for the fiscal year ended May 31, 2006 increased as a result of (d) and (e) in explanation 5 above. The increase is summarized as follows: Additional expense in 5/31/06 to book options issued to a consultant 157,916 Reduction in expense in 5/31/06 due to capitalizing an asset previously expensed (23,875) ----------- Increase in S,G&A expense $ 134,041 =========== (7) The net loss per share has been adjusted to account for the reverse stock split at a rate of one for 600. This reverse stock split was effective on August 27, 2008. The original net loss per share was erroneously stated as net income per share of $0.01. (8) This adjustment is the net effect of (a) and (b) from (4) above. Adjustment due to acquisition of Ingen (NV) $ 698,145 (a) Adjustment of value of shares issued in the fiscal year ended 5/31/04 (4,738,215) (b) ----------- Change in Common Stock balance As of May 31, 2005 $(4,040,070) =========== (9) The adjustment described as (d) in (5) above has two components. The first amount of $28,072 is the value of the options issued to the consultant. F-43 (10) The second component of (d) in (5) above is the value of the stock issued as a result of the cashless exercise option feature. This was valued at $129,844. (11) This change is the result of (a) and (b) in (5) above. The net amount is summarized as: Correction of 5/31/03 balance based on audit of Ingen NV $ (530,000) Reversal of cash-to-accrual adjustment originally booked in 5/31/04 4,767,800 ----------- Net change in Accumulated Deficit Balance as of May 31, 2004 $ 4,237,800 =========== (12) The loss for the fiscal year ended May 31, 2005 was increased from $(307,255) to $(504,985) as the result of an additional expense of $197,730 that was booked to deduct the value of stock option issued to a consultant. (13) The net loss for the fiscal year ended May 31, 2006 increased by $134,041. This was a result of an increase in selling, general and administrative expenses of $134,041 as described in (6) above. (14) The value of the stock options expensed in May 31, 2005 increased the common stock balance by $197,730. (15) See (12) above. (16) See (9) above. (17) See (10) above. (18) See (13) above. (19) See (13) above. (20) This is the total of (9) and (10) above. (21) See (e) in (5) above. F-44 INGEN TECHNOLOGIES, INC. INTERIM FINANCIAL STATEMENTS AUGUST 31, 2006 CONSOLIDATED BALANCE SHEET (UNAUDITED) UNAUDITED BALANCE ON AUGUST 31, 2006 Effect of Restated Original Change ------------ ------------ ------------ Current Assets Cash $ 824,575 $ 824,575 $ -- ------------ ------------ ------------ Total Current Assets 824,575 824,575 -- ------------ ------------ ------------ Property and equipment net of accumulated depreciation of $102,984 85,327 61,542 23,875 (1) Debt issue costs, net of accumulated amortization of $16,400 291,800 291,800 -- ------------ ------------ ------------ Total Other Assets 291,800 291,800 -- ------------ ------------ ------------ TOTAL ASSETS $ 1,201,702 $ 1,177,917 $ 23,875 ============ ============ ============ Current Liabilities Accounts payable $ 48,186 $ 48,186 -- Accrued expenses 177,655 177,655 -- Officer's loans 6,886 6,886 -- ------------ ------------ ------------ Total Current Liabilities 232,727 232,727 -- ------------ ------------ ------------ Long-term liabilities Convertible notes payable, net of unamortized discount of $1,366,929 7,290 7,290 -- Derivative liabilities 3,860,069 3,860,069 -- ------------ ------------ ------------ Total Long-term Liabilities 3,867,359 3,867,359 -- ------------ ------------ ------------ Stockholders' Deficit Preferred stock Series A, no par value, $1.00 per share liquidation preference, 40,000,000 shares authorized 14,134,547 issued and outstanding as of August 31, 2006, total liquidation preference of $14,134,547 734,980 734,980 -- Common stock, no par value, authorized 100,000,000 shares; issued and outstanding 29,709,610 as of August 31, 2006 3,614,939 7,497,183 (3,882,154) (2) Series A preferred stock subscription (220,000) (220,000) -- Accumulated Deficit (7,028,303) (10,934,332) 3,906,029 (3) ------------ ------------ ------------ Total Stockholders' Deficit (2,898,384) (2,922,169) 23,875 ------------ ------------ ------------ Total Liabilities and Stockholders' Deficit $ 1,201,702 $ 1,177,917 $ 23,875 ============ ============ ============ F-45 (1) This adjustment for $23,875 was the result of the Company erroneously charging off to expense a capital purchase. The effect of the correction of this error resulted in an increase of fixed assets and total assets in the amount of $23,875. (2) The Company has restated its financial statements for the fiscal year ended May 31, 2006. This restatement resulted in a change in the balance in the common stock account in the amount of $3,882,154. This change has three components. First, after the acquisition of Ingen Technologies (the private Nevada company) the ending common stock balance was originally $7,760. This amount was based on an estimate, as the financial statements of the private company were not yet audited. After the audit, this figure was adjusted to $705,905. This caused an increase in the common stock balance in the amount of $698,145 that was reflected on the restated audited financial statements as of May 31, 2006. The second adjustment related to shares issued in the fiscal year ended May 31, 2004. These shares were originally booked at a valuation of $5,399,363. This valuation was later adjusted to reflect the fair market value of the shares on the dates of issuance. The revised value of these shares was $661,148. This caused a decrease in the common stock account in the amount of $4,738,215. The third component of this change was the value of the stock options expensed in the fiscal year ended May 31, 2006. This value was $157,916. The net effect of these three adjustments resulted in a decrease in the common stock balance of $3,882,154. This net adjustment is reflected on the restated audited financial statements for the fiscal year ended May 31, 2006. The total difference is summarized as follows: Adjustment due to acquisition of Ingen (NV) $ 698,145 Adjustment of value of shares issued in the fiscal year ended 5/31/04 (4,738,215) Value of options expensed in May 31, 2006 157,916 ----------- Total adjustment $ 3,882,154 =========== (3) The beginning balance of the accumulated deficit was adjusted in the restated financial statements for the fiscal year ended May 31, 2006. This beginning balance was adjusted as the result of several reasons. First, the accumulated deficit as of May 31, 2003 was reduced from $(539,235) to $(1,069,235) as a result of the correction of the balance from the audit of Ingen Technologies, Inc. (the private Nevada company). The original balance was based on an unaudited number and it was adjusted by $530,000. Second, an erroneous cash-to-accrual adjustment in the amount of $4,767,800 that was booked in the fiscal year ended May 31, 2004 has been eliminated. The net effect of these two adjustments increased the accumulated deficit by $4,237,870 as of May 31, 2004. This account has been further adjusted by the increase of the loss for May 31, 2005. The loss was increased from $(307,255) to $(504,985) as the result of an additional expense of $197,730 that was booked to deduct the value of stock option issued to a consultant. Lastly, there were two audit adjustments reflected in the restated financial statements for the fiscal year ended May 31, 2006. These were: i) An additional expense in the amount of $157,916 that was booked to deduct the value of stock option issued to a consultant, and ii) The decrease of an expense in the amount of $23,875 that represented a capital purchase that was originally expensed in May 31, 2006. The total change is summarized as follows: Correction of 5/31/03 balance based on audit of Ingen NV $ (530,000) (a) Reversal of cash-to-accrual adjustment originally booked in 5/31/04 4,767,800 (b) Additional expense in 5/31/05 to book options issued to a consultant (197,730) (c) Additional expense in 5/31/06 to book options issued to a consultant (157,916) (d) Reduction in expense in 5/31/06 due to capitalizing an asset previously expensed 23,875 (e) ----------- Total change to accumulated deficit as of 8/31/06 $ 3,906,029 =========== F-46 INGEN TECHONOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED AUGUST 31, 2006 THREE MONTHS ENDED AUGUST 31, 2005 Effect of Effect of Restated Original Change Restated Original Change ------------ ------------ --------- ------------ ------------ --------- Sales $ 189,158 $ 189,158 $ -- $ 532,872 $ 532,872 $ -- Cost of Sales 115,547 115,547 -- 85,046 85,046 -- ------------ ------------ --------- ------------ ------------ --------- Gross Profit 73,611 73,611 -- 447,826 447,826 -- General and administrative expenses 329,104 329,104 -- 559,246 559,246 -- ------------ ------------ --------- ------------ ------------ --------- Operating loss (255,493) (255,493) -- (111,420) (111,420) -- Interest expense (3,540,915) (3,540,915) -- (1,542) (1,542) -- Change in derivative liabilities 1,031,094 1,031,094 -- -- -- -- ------------ ------------ --------- ------------ ------------ --------- Loss before provision for income taxes (2,765,314) (2,765,314) -- (112,962) (112,962) -- Provision for income taxes 800 800 -- 800 800 -- ------------ ------------ --------- ------------ ------------ --------- Net loss $ (2,766,114) $ (2,766,114) $ -- $ (113,762) $ (113,762) $ -- ============ ============ ========= ============ ============ ========= Basic net loss per weighted share $ (0.09) $ (0.12) $ 0.03 $ (0.05) $ (0.05) $ -- ============ ============ ========= ============ ============ ========= Basic weighted average shares outstanding 29,647,110 22,207,208 7,439,902 2,205,309 2,205,309 -- F-47 INGEN TECHNOLOGIES, INC AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED AUGUST 31, 2006 THREE MONTHS ENDED AUGUST 31, 2005 Effect of Effect of Restated Original Change Restated Original Change ----------- ----------- ------- ----------- ----------- ------- CASH FLOWS FROM OPERATIONS: Net loss (2,766,114) (2,766,114) -- (113,762) (113,762) -- Adjustments to Reconcile Net loss to Net Cash Used in Operations: Depreciation and Amortization 20,976 20,976 -- 2,965 2,965 -- (Increase) Decrease in: Accounts receivable -- -- -- (38,565) (38,565) -- Change in derivative liabilities (1,031,094) (1,031,094) -- -- -- -- Noncash interest expense and financing costs 3,523,454 3,523,454 -- -- -- -- Increase (Decrease) in: Accounts payable -- -- -- 8,241 8,241 -- Accrued expenses (2,138) (2,138) -- -- -- -- Litigation reserve -- -- -- (143,500) (143,500) -- ----------- ----------- ------- ----------- ----------- ------- NET CASH USED IN OPERATING ACTIVITIES (254,916) (254,916) -- (284,621) (284,621) -- CASH FLOW FROM INVESTING ACTIVITIES Additions to fixed assets (34,480) (34,480) -- (23,174) (23,174) -- ----------- ----------- ------- ----------- ----------- ------- NET CASH USED IN INVESTING ACTIVITIES (34,480) (34,480) -- (23,174) (23,174) -- CASH FLOW FROM FINANCING ACTIVITIES Net repayments on officer's loan (63,941) (63,941) -- (60,000) (60,000) -- Repayments on notes payable -- -- -- (25,000) (25,000) -- Proceeds from issuance of common stock -- -- -- 779,500 779,500 -- Proceeds from issuance of convertible debt 1,066,800 1,066,800 -- -- -- -- ----------- ----------- ------- ----------- ----------- ------- NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES 1,002,859 1,002,859 -- 694,500 694,500 -- ----------- ----------- ------- ----------- ----------- ------- NET INCREASE (DECREASE) IN CASH 713,463 713,463 -- 386,705 386,705 -- Cash balance at Beginning of Period 111,112 111,112 -- 17,727 17,727 -- ----------- ----------- ------- ----------- ----------- ------- CASH BALANCE AT END OF PERIOD $ 824,575 $ 824,575 $ -- $ 404,432 $ 404,432 $ -- =========== =========== ======= =========== =========== ======= Supplemental Disclosures of Cash Flow information: Interest paid $ -- $ -- $ -- $ -- $ -- $ -- Taxes paid $ -- $ -- $ -- $ -- $ -- $ -- Noncash Financing Activities Issuance of warrants in connection with convertible debt $ 1,987,478 $ 1,987,478 $ -- $ -- $ -- $ -- Recorded a beneficial conversion feature $ 2,903,777 $ 2,903,777 $ -- $ -- $ -- $ -- Stock subscription receivable $ 220,000 $ 220,000 $ -- $ -- $ -- $ -- F-48 INGEN TECHNOLOGIES, INC. INTERIM FINANCIAL STATEMENTS NOVEMBER 30, 2006 CONSOLIDATED BALANCE SHEET (UNAUDITED) UNAUDITED BALANCE ON NOVEMBER 30, 2006 Effect of Restated Original Change ------------ ------------ ------------ Current Assets Cash $ 240,984 $ 240,984 $ -- Accounts receivable 58,265 58,265 -- Prepaid expenses 9,699 9,699 -- ------------ ------------ ------------ Total Current Assets 308,948 308,948 -- ------------ ------------ ------------ Property and equipment net of accumulated depreciation of $109,666 106,310 106,310 -- Debt issue costs, net of accumulated amortization of $35,366 272,834 272,834 Other assets 67,345 67,345 -- ------------ ------------ ------------ Total Other Assets 340,179 340,179 -- ------------ ------------ ------------ TOTAL ASSETS $ 755,437 $ 755,437 $ -- ============ ============ ============ Current Liabilities Accounts payable $ 54,801 $ 54,801 $ -- Accrued expenses 177,657 177,657 -- Officer's loans 2,621 2,621 -- ------------ ------------ ------------ Total Current Liabilities 235,079 235,079 -- ------------ ------------ ------------ Long-term liabilities Convertible notes payable, net of unamortized discount of $1,228,623 146,377 146,377 -- Derivative liabilities 3,577,036 3,577,036 -- ------------ ------------ ------------ Total Long-term Liabilities 3,723,413 3,723,413 -- ------------ ------------ ------------ Stockholders' Deficit Preferred stock Series A, no par value, $1.00 per share liquidation preference, 40,000,000 shares authorized 14,134,547 issued and outstanding as of November 30, 2006, total liquidation preference of $14,134,547 734,980 734,980 -- Common stock, no par value, authorized 100,000,000 shares; issued and outstanding 31,609,610 as of November 30, 2006 3,635,029 7,872,829 (4,237,800) (4) Series A preferred stock subscription (220,000) (220,000) -- Accumulated Deficit (7,353,064) (11,590,864) 4,237,800 (5) ------------ ------------ ------------ Total Stockholders' Deficit (3,203,055) (3,203,055) -- ------------ ------------ ------------ Total Liabilities and Stockholders' Deficit $ 755,437 $ 755,437 $ -- ============ ============ ============ F-49 (4) The beginning balance in the common stock account has been reduced by the $3,882,154 in (2) above and has been further reduced by the effect of the options issued to a consultant described in (3) above. The total difference is summarized as follows: Adjustment due to acquisition of Ingen (NV) $ 698,145 Adjustment of value of shares issued in the fiscal year ended 5/31/04 (4,580,299) Additional expense in 5/31/05 to book options issued to a consultant (197,730) Additional expense in 5/31/06 to book options issued to a consultant (157,916) ----------- Total change to common stock as of 11/30/06 $(4,237,800) =========== (5) The beginning balance of the accumulated deficit was adjusted in the restated financial statements for the fiscal year ended May 31, 2006. These are detailed in (3) above. In the analysis in (3) above, adjustments (c), (d) and (e) were posted as prior period adjustments in the original balance of the accumulated deficit account as of 11/30/06. The difference in the accumulated balance as of 11/30/06 from the originally reported balance compared to the restated balance is summarized as follows (these adjustments are more fully described in (3) above: Correction of 5/31/03 balance based on audit of Ingen NV $ (530,000) Reversal of cash-to-accrual adjustment originally booked in 5/31/04 4,767,800 ----------- Total change to accumulated deficit as of 11/30/06 $ 4,237,800 =========== F-50 INGEN TECHONOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED NOVEMBER 30, 2006 THREE MONTHS ENDED NOVEMBER 30, 2005 Effect of Effect of Restated Original Change Restated Original Change ------------ ------------ --------- ------------ ------------ --------- Sales $ 134,473 $ 134,473 $ -- $ 234,212 $ 234,212 $ -- Cost of Sales 66,641 66,641 -- 109,012 109,012 -- ------------ ------------ --------- ------------ ------------ --------- Gross Profit 67,832 67,832 -- 125,200 125,200 -- General and administrative expenses 517,158 517,158 -- 473,061 473,061 -- ------------ ------------ --------- ------------ ------------ --------- Operating loss (449,326) (449,326) -- (347,861) (347,861) -- Interest expense (158,053) (158,053) -- (642) (642) -- Change in derivative liabilities 283,033 283,033 -- -- -- -- ------------ ------------ --------- ------------ ------------ --------- Loss before provision for income taxes (324,346) (324,346) -- (348,503) (348,503) -- Provision for income taxes 415 415 -- -- -- -- ------------ ------------ --------- ------------ ------------ --------- Net loss $ (324,761) $ (324,761) $ -- $ (348,503) $ (348,503) $ -- ============ ============ ========= ============ ============ ========= Basic net loss per weighted share $ (0.01) $ (0.01) $ -- $ (0.03) $ (0.03) $ -- ============ ============ ========= ============ ============ ========= Basic weighted average shares outstanding 29,684,610 29,684,610 -- 11,330,071 11,330,071 -- F-51 INGEN TECHONOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED NOVEMBER 30, 2006 SIX MONTHS ENDED NOVEMBER 30, 2005 Effect of Effect of Restated Original Change Restated Original Change ------------ ------------ ------- ----------- ----------- ----------- Sales $ 323,631 $ 323,631 $ -- $ 767,084 $ 767,084 $ -- Cost of Sales 182,188 182,188 -- 194,059 194,059 -- ------------ ------------ ------- ----------- ----------- ----------- Gross Profit 141,443 141,443 -- 573,025 573,025 -- General and administrative expenses 846,262 846,262 -- 1,032,307 1,032,307 -- ------------ ------------ ------- ----------- ----------- ----------- Operating loss (704,819) (704,819) -- (459,282) (459,282) -- Interest expense (3,698,968) (3,698,968) -- (2,184) (2,184) -- Change in derivative liabilities 1,314,127 1,314,127 -- -- -- -- ------------ ------------ ------- ----------- ----------- ----------- Loss before provision for income taxes (3,089,660) (3,089,660) -- (461,466) (461,466) -- Provision for income taxes 1,215 1,215 -- 800 800 -- ------------ ------------ ------- ----------- ----------- ----------- Net loss $ (3,090,875) $ (3,090,875) $ -- $ (462,266) $ (462,266) $ -- ============ ============ ======= =========== =========== =========== Basic net loss per weighted share $ (0.10) $ (0.10) $ -- $ (0.05) $ (0.05) $ -- ============ ============ ======= =========== =========== =========== Basic weighted average shares outstanding 29,744,904 29,744,904 -- 9,433,084 9,433,084 -- F-52 INGEN TECHNOLOGIES, INC AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED NOVEMBER 30, 2006 SIX MONTHS ENDED NOVEMBER 30, 2005 Effect of Effect of Restated Original Change Restated Original Change ------------ ------------ ------- ----------- ----------- ----------- CASH FLOWS FROM OPERATIONS: Net loss (3,090,875) (3,090,875) -- (462,266) (462,266) -- Adjustments to Reconcile Net loss to Net Cash Used in Operations: Depreciation and Amortization 46,624 46,624 -- 7,464 7,464 -- (Increase) Decrease in: Change in derivative liabilities (1,314,127) (1,314,127) -- -- -- -- Noncash interest expense and financing costs 3,697,905 3,697,905 -- -- -- -- Increase (Decrease) in: Accounts payable (4,875) (4,875) -- -- -- -- Accrued expenses 486 486 -- 7,384 7,384 -- Accounts receivable (58,265) (58,265) -- Prepaid expenses (9,699) (9,699) -- Litigation reserve -- -- -- Expenses paid with stock 12,000 12,000 -- (143,500) (143,500) -- ------------ ------------ ------- ----------- ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (720,826) (720,826) -- (590,918) (590,918) -- CASH FLOW FROM INVESTING ACTIVITIES Additions to fixed assets (85,931) (85,931) -- (23,174) (23,174) -- Addition to intangibles (7,345) (7,345) -- -- -- -- ------------ ------------ ------- ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (93,276) (93,276) -- (23,174) (23,174) -- CASH FLOW FROM FINANCING ACTIVITIES Net repayments on officer's loan (122,826) (122,826) -- (60,000) (60,000) -- Repayments on notes payable -- -- -- (25,000) (25,000) -- Proceeds from issuance of common stock -- -- -- 1,069,500 40,000 1,029,500 (6) Proceeds from issuance of convertible debt 1,066,800 1,066,800 -- -- 1,029,500 (1,029,500) (6) ------------ ------------ ------- ----------- ----------- ----------- NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES 943,974 943,974 -- 984,500 984,500 -- ------------ ------------ ------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH 129,872 129,872 -- 370,408 370,408 -- Cash balance at Beginning of Period 111,112 111,112 -- 17,727 17,727 -- ------------ ------------ ------- ----------- ----------- ----------- CASH BALANCE AT END OF PERIOD $ 240,984 $ 240,984 $ -- $ 388,135 $ 388,135 $ -- ============ ============ ======= =========== =========== =========== Supplemental Disclosures of Cash Flow information: Interest paid $ -- $ -- $ -- $ -- $ -- $ -- Taxes paid $ -- $ -- $ -- $ -- $ -- $ -- Noncash Financing Activities Issuance of warrants in connection with convertible debt $ 1,987,103 $ 1,987,103 $ -- $ -- $ -- $ -- Recorded a beneficial conversion feature $ 2,904,060 $ 2,904,060 $ -- $ -- $ -- $ -- Stock subscription receivable $ 220,000 $ 220,000 $ -- $ -- $ -- $ -- (6) A total of $1,029,500 in net proceeds from convertible debts issued in the quarter ended 11/30/05 (as reported in the Form 10-QSB for the quarter ended 11/30/06) were erroneously reported as proceeds from common stock sales. This has been adjusted on the restated financial statements. F-53 INGEN TECHNOLOGIES, INC. INTERIM FINANCIAL STATEMENTS FEBRUARY 28, 2007 Consolidated Balance Sheet (Unaudited) Unaudited Balance on February 28, 2007 Effect of Restated Original Change ------------ ------------ ------------ Current Assets Cash $ 62,339 $ 62,339 $ -- Inventory 85,728 85,728 -- Prepaid expenses 35,199 35,199 -- ------------ ------------ ------------ Total Current Assets 183,266 183,266 -- ------------ ------------ ------------ Property and equipment net of accumulated depreciation of $119,232 140,077 140,077 -- Debt issue costs, net of accumulated amortization of $60,733 247,467 247,467 -- Other assets 67,345 67,345 -- ------------ ------------ ------------ Total Other Assets 314,812 314,812 -- ------------ ------------ ------------ TOTAL ASSETS $ 638,155 $ 638,155 $ -- ============ ============ ============ Current Liabilities Accounts payable $ 65,067 $ 65,067 $ -- Accrued expenses 220,575 220,575 -- Officer's loans 4,689 4,689 -- ------------ ------------ ------------ Total Current Liabilities 290,331 290,331 -- ------------ ------------ ------------ Long-term liabilities Convertible notes payable, net of unamortized discount of $1,294,226 280,774 280,774 -- Derivative liabilities 3,735,953 3,735,953 -- ------------ ------------ ------------ Total Long-term Liabilities 4,016,727 4,016,727 -- ------------ ------------ ------------ Stockholders' Deficit Preferred stock Series A, no par value, $1.00 per share liquidation preference, 40,000,000 shares authorized 12,134,547 issued and outstanding as of February 28, 2007, total liquidation preference of $12,134,547 588,313 588,313 -- Common stock, no par value, authorized 100,000,000 shares; issued and outstanding 34,259,610 as of February 29, 2007 3,869,149 8,106,949 (4,237,800) (7) Series A preferred stock subscription (220,000) (220,000) -- Accumulated Deficit (7,906,365) (12,144,165) 4,237,800 (8) ------------ ------------ ------------ Total Stockholders' Deficit (3,668,903) (3,668,903) -- ------------ ------------ ------------ Total Liabilities and Stockholders' Deficit $ 638,155 $ 638,155 $ -- ============ ============ ============ (7) This difference is the same as that described in (4) above. (8) This difference is the same as that described in (5) above. F-54 Ingen Techonologies, Inc. Consolidated Statements of Operations (Unaudited) Three months ended February 28, 2007 Three months ended February 28, 2006 Effect of Effect of Restated Original Change Restated Original Change ------------ ------------ ------- ------------ ------------ ------------ Sales $ 281,380 $ 281,380 $ -- $ 79,184 $ 79,184 $ -- Cost of Sales 160,455 160,455 -- 33,992 33,992 -- ------------ ------------ ------- ------------ ------------ ------------ Gross Profit 120,925 120,925 -- 45,192 45,192 -- General and administrative expenses 533,693 533,693 -- 594,360 436,444 157,916 (9) ------------ ------------ ------- ------------ ------------ ------------ Operating loss (412,768) (412,768) -- (549,168) (391,252) (157,916) Interest expense (352,808) (352,808) -- (642) (642) -- Change in derivative liabilities 212,276 212,276 -- -- -- -- ------------ ------------ ------- ------------ ------------ ------------ Loss before provision for income taxes (553,300) (553,300) -- (549,810) (391,894) (157,916) (9) Provision for income taxes -- -- -- -- -- -- ------------ ------------ ------- ------------ ------------ ------------ Net loss $ (553,300) $ (553,300) $ -- $ (549,810) $ (391,894) $ (157,916) (9) ============ ============ ======= ============ ============ ============ Basic net loss per weighted share $ (0.02) $ (0.02) $ -- $ (0.04) $ (0.03) $ (0.01) (9) ============ ============ ======= ============ ============ ============ Basic weighted average shares outstanding 32,292,943 32,292,943 -- 13,312,249 13,312,249 -- (9) The general and administrative expense reported for the three months ended February 28, 2006 were increased from $436,444 to $594,360 as the result of an additional expense in the amount of $157,916 that was booked to deduct the value of stock option issued to a consultant. This is described in (3) above. This additional expense increased the loss for the quarter from $(391,894) to $(549,810). The higher loss changed the loss per share from $(0.03) per share to $(0.04) per share. F-55 Ingen Techonologies, Inc. Consolidated Statements of Operations (Unaudited) Nine months ended February 28, 2007 Nine months ended February 28, 2006 Effect of Effect of Restated Original Change Restated Original Change ------------ ------------ ------- ------------ ------------ ------------ Sales $ 605,011 $ 605,011 $ -- $ 846,268 $ 846,268 $ -- Cost of Sales 342,644 342,644 -- 228,050 228,050 -- ------------ ------------ ------- ------------ ------------ ------------ Gross Profit 262,367 262,367 -- 618,218 618,218 -- General and administrative expenses 1,379,955 1,379,955 -- 1,626,667 1,468,751 157,916 (10) ------------ ------------ ------- ------------ ------------ ------------ Operating loss (1,117,588) (1,117,588) -- (1,008,449) (850,533) (157,916) Interest expense (4,051,776) (4,051,776) -- (2,826) (2,826) -- Change in derivative liabilities 1,526,403 1,526,403 -- -- -- -- ------------ ------------ ------- ------------ ------------ ------------ Loss before provision for income taxes (3,642,961) (3,642,961) -- (1,011,275) (853,359) (157,916) Provision for income taxes 1,215 1,215 -- 800 800 -- ------------ ------------ ------- ------------ ------------ ------------ Net loss $ (3,644,176) $ (3,644,176) $ -- $ (1,012,075) $ (854,159) $ (157,916) ============ ============ ======= ============ ============ ============ Basic net loss per weighted share $ (0.12) $ (0.12) $ -- $ (0.15) $ (0.13) $ (0.02) (10) ============ ============ ======= ============ ============ ============ Basic weighted average shares outstanding 30,594,250 30,594,250 -- 6,689,948 6,689,948 -- (10) The general and administrative expense reported for the nine months ended February 28, 2006 were increased from $1,468,751 to $1,626,667 as the result of an additional expense in the amount of $157,916 that was booked to deduct the value of stock option issued to a consultant. This is described in (3) above. This additional expense increased the loss for the quarter from $(854,159) to $(1,012,075). The higher loss changed the loss per share by $(0.02) from $(0.13) per share to $(0.15) per share. F-56 Ingen Technologies, Inc and Subsidiary Consolidated Statements of Cash Flows (Unaudited) Nine months ended February 28, 2007 Nine months ended February 28, 2006 Effect of Effect of Restated Original Change Restated Original Change ------------ ------------ ------- ------------ ------------ ------------ CASH FLOWS FROM OPERATIONS: Net loss (3,644,176) (3,644,176) -- (1,012,075) (854,159) (157,916) (11) Adjustments to Reconcile Net loss to Net Cash Used in Operations: Depreciation and Amortization 65,590 65,590 -- 11,954 (34,385) 46,339 (12) (Increase) Decrease in: Change in derivative liabilities (1,526,403) (1,526,403) -- -- -- -- Noncash interest expense and financing costs 3,965,130 3,965,130 -- -- -- -- Increase (Decrease) in: Accounts payable 16,881 16,881 -- 8,800 8,800 -- Accrued expenses 40,782 40,782 -- 14,025 14,025 -- Accounts receivable -- -- -- -- -- -- Prepaid expenses (22,215) (22,215) -- -- -- -- Litigation reserve -- -- -- (143,500) (143,500) -- Additions to inventory (85,728) (85,728) -- -- -- -- Expenses paid with stock 99,453 99,453 -- 157,916 -- 157,916 (13) ----------- ----------- ------- ----------- ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (1,090,686) (1,090,686) -- (962,880) (1,009,219) 46,339 CASH FLOW FROM INVESTING ACTIVITIES Additions to fixed assets (99,405) (99,405) -- (23,174) 23,174 (46,348) Addition to intangibles (7,345) (7,345) -- -- -- -- ----------- ----------- ------- ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (106,750) (106,750) -- (23,174) 23,174 -- CASH FLOW FROM FINANCING ACTIVITIES Repayments on officer's loan (66,137) (66,137) -- (10,000) (10,000) -- Repayments on notes payable -- -- -- (25,000) (25,000) -- Proceeds from sale of stock (52,000) (52,000) -- 1,069,500 40,000 1,029,500 (14) Proceeds from issuance of convertible debt 1,266,800 1,266,800 -- -- 1,029,500 (1,029,500) (14) ----------- ----------- ------- ----------- ----------- ----------- NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES 1,148,663 1,148,663 -- 1,034,500 1,034,500 -- ----------- ----------- ------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH (48,773) (48,773) -- 48,446 48,455 (9) (15) Cash balance at Beginning of Period 111,112 111,112 -- 17,727 17,727 -- ----------- ----------- ------- ----------- ----------- ----------- CASH BALANCE AT END OF PERIOD $ 62,339 $ 62,339 $ -- $ 66,173 $ 66,182 $ (9) (15) =========== =========== ======= =========== =========== =========== Supplemental Disclosures of Cash Flow information: Interest paid $ -- $ -- $ -- $ -- $ -- $ -- Taxes paid $ -- $ -- $ -- $ -- $ -- $ -- Noncash Financing Activities Issuance of warrants in connection with convertible debt $ 1,987,103 $ 1,987,103 $ -- $ -- $ -- $ -- Recorded a beneficial conversion feature $ 3,275,253 $ 3,275,253 $ -- $ -- $ -- $ -- Stock subscription receivable $ 220,000 $ 220,000 $ -- $ -- $ -- $ -- F-57 (11) The net loss reported on the statement of cash flows for the nine months ended February 28, 2006 was decreased by $157,916 due to the change described in (10) above. (12) The original amount reported as depreciation and amortization on the statement of cash flows for the nine months ended February 28, 2006 was incorrect. This amount was originally shown as $(34,385). This amount was shown in error and the column did not properly add to the sum of $(1,009,219) originally reported as the net cash used in operating activities. The correct depreciation and amortization reported for the nine months ended has been restated to be $11,954, a difference of $46,339. (13) Expenses paid with stock reported on the statement of cash flows for the nine months ended February 28, 2006 has been restated to be equal to $157,916 (originally reported as zero). This number changed due to the change in (10) above. (14) A total of $1,029,500 in net proceeds from convertible debts issued in the nine months ended February 28, 2006 (as reported in the Form 10-QSB for the quarter ended February 28, 2007) were erroneously reported as proceeds from common stock sales. This has been adjusted on the restated financial statements. (15) The change of $9 in the net decrease of cash for the quarter ended February 28, 2006 has been corrected to the actual cash balance as of February 28, 2006. F-58 INGEN TECHNOLOGIES, INC. INTERIM FINANCIAL STATEMENTS AUGUST 31, 2007 Consolidated Balance Sheet (Unaudited) Unaudited Balance on August 31, 2007 Effect of Restated Original Change ------------ ------------ ------------ Current Assets Cash $ 7,762 $ 7,762 $ -- Accounts receivable 78,090 78,090 -- Inventory 74,953 74,953 -- Prepaid expenses 18,107 18,107 -- ------------ ------------ ------------ Total Current Assets 178,912 178,912 -- ------------ ------------ ------------ Property and equipment net of accumulated depreciation of $134,246 273,371 273,371 -- Debt issue costs, net of accumulated amortization of $112,593 255,607 255,607 Other assets 68,895 68,895 -- ------------ ------------ ------------ Total Other Assets 324,502 324,502 -- ------------ ------------ ------------ TOTAL ASSETS $ 776,785 $ 776,785 $ -- ============ ============ ============ Current Liabilities Accounts payable $ 80,654 $ 80,654 $ -- Accrued expenses 269,742 269,742 -- Taxes payable 8,350 8,350 -- Current portion of long-term debt 14,539 14,539 -- Officer's loans 92,829 92,829 -- ------------ ------------ ------------ Total Current Liabilities 466,114 466,114 -- ------------ ------------ ------------ Long-term liabilities Note payable 96,817 96,817 -- Convertible notes payable, net of unamortized discount of $1,526,176 608,824 608,824 -- Derivative liabilities 5,799,375 5,799,375 -- ------------ ------------ ------------ Total Long-term Liabilities 6,505,016 6,505,016 -- ------------ ------------ ------------ Stockholders' Deficit Preferred stock Series A, no par value, $1.00 per share liquidation preference, 40,000,000 shares authorized 16,078,991 issued and outstanding as of August 31, 2007, total liquidation preference of $16,078,991 673,313 673,313 -- Common stock, no par value, authorized 100,000,000 shares; issued and outstanding 43,537,1100 as of August 31, 2007 4,098,349 8,336,149 (4,237,800) (16) Series A preferred stock subscription (220,000) (220,000) -- Common stock subscription receivable (45,000) (45,000) -- Accumulated Deficit (10,701,007) (14,938,807) 4,237,800 (17) ------------ ------------ ------------ Total Stockholders' Deficit (6,194,345) (6,194,345) -- ------------ ------------ ------------ Total Liabilities and Stockholders' Deficit $ 776,785 $ 776,785 $ -- ============ ============ ============ (16) This difference is the same as that described in (4) above. (17) This difference is the same as that described in (5) above. F-59 Ingen Techonologies, Inc. Consolidated Statements of Operations (Unaudited) Three months ended August 31, 2007 Three months ended August 31, 2006 Effect of Effect of Restated Original Change Restated Original Change ----------- ----------- --------- ----------- ----------- ---------- Sales $ 117,471 $ 117,471 $ -- $ 189,158 $ 189,158 -- Cost of Sales 67,413 67,413 -- 115,547 115,547 -- ----------- ----------- --------- ----------- ----------- ---------- Gross Profit 50,058 50,058 -- 73,611 73,611 -- General and administrative expenses 406,694 406,694 -- 329,104 329,104 -- ----------- ----------- --------- ----------- ----------- ---------- Operating loss (356,636) (356,636) -- (255,493) (255,493) -- Interest expense (446,911) (446,911) -- (3,540,915) (3,540,915) -- Change in derivative liabilities (573,779) (573,779) -- 1,031,094 1,031,094 -- ----------- ----------- --------- ----------- ----------- ---------- Loss before provision for income taxes (1,377,326) (1,377,326) -- (2,765,314) (2,765,314) -- Provision for income taxes 10 10 -- 800 800 -- ----------- ----------- --------- ----------- ----------- ---------- Net loss $(1,377,336) $(1,377,336) $ -- $(2,766,114) $(2,766,114) $ -- =========== =========== ========= =========== =========== ========== Basic net loss per weighted share $ (0.04) $ (0.04) $ -- $ (0.09) $ (0.12) $ 0.03 (18) =========== =========== ========= =========== =========== ========== Basic weighted average shares outstanding 37,766,443 37,766,443 -- 29,647,110 22,207,208 7,439,902 (18) (18) The basic weighted average number of shares outstanding as of August 31, 2006 has been adjusted from 22,207,208 to 29,647,110. This has decreased the loss per share reported for the three months ended August 31, 2006 (as reported on the Form 10-QSB for the quarter ended August 31, 2007) by $0.03 from $(0.12) to $(0.09). F-60 Ingen Technologies, Inc and Subsidiary Consolidated Statements of Cash Flows (Unaudited) Three months ended August 31, 2007 Three months ended August 31, 2006 Effect of Effect of Restated Original Change Restated Original Change ---------- ---------- ------- ----------- ----------- ------- CASH FLOWS FROM OPERATIONS: Net loss (1,377,336) (1,377,336) -- (2,766,114) (2,766,114) -- Adjustments to Reconcile Net loss to Net Cash Used in Operations: Depreciation and Amortization 40,400 40,400 -- 20,976 20,976 -- (Increase) Decrease in: Accounts receivable -- -- -- -- -- -- Change in derivative liabilities 385,343 385,343 -- (1,031,094) (1,031,094) -- Noncash interest expense and financing costs 573,779 573,779 -- 3,523,454 3,523,454 -- Increase (Decrease) in: Accounts receivable (78,090) (78,090) -- -- -- -- Inventory 10,642 10,642 -- Accounts payable (3,863) (3,863) -- Accrued expenses 81,472 81,472 -- (2,138) (2,138) -- Prepaid expenses 15,526 15,526 -- Expenses paid with stock 80,000 80,000 -- -- -- -- ---------- ---------- ------- ----------- ----------- ------- NET CASH USED IN OPERATING ACTIVITIES (272,127) (272,127) -- (254,916) (254,916) -- CASH FLOW FROM INVESTING ACTIVITIES Additions to fixed assets -- -- -- (34,480) (34,480) -- ---------- ---------- ------- ----------- ----------- ------- NET CASH USED IN INVESTING ACTIVITIES -- -- -- (34,480) (34,480) -- CASH FLOW FROM FINANCING ACTIVITIES Repayments on officer's loan (3,000) (3,000) -- (63,941) (63,941) -- Proceeds from loan from officer 11,486 11,486 Repayments on notes payable (3,635) (3,635) -- -- -- -- Proceeds from issuance of common stock 74,800 74,800 -- -- -- -- Proceeds from issuance of convertible debt 200,000 200,000 -- 1,066,800 1,066,800 -- ---------- --------- ------- ------------ ----------- ------- NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES 279,651 279,651 -- 1,002,859 1,002,859 -- ---------- --------- ------- ------------ ----------- ------- NET INCREASE (DECREASE) IN CASH 7,524 7,524 -- 713,463 713,463 -- Cash balance at Beginning of Period 238 238 -- 111,112 111,112 -- ---------- --------- ------- ------------ ----------- ------- CASH BALANCE AT END OF PERIOD $ 7,762 $ 7,762 $ -- $ 824,575 $ 824,575 $ -- ========== ========= ======= ============ =========== ======= Supplemental Disclosures of Cash Flow information: Interest paid $ 4,988 $ 4,988 $ -- $ -- $ -- $ -- Taxes paid $ 800 $ 800 $ -- $ -- $ -- $ -- Noncash Financing Activities Issuance of warrants in connection with convertible debt $ -- $ -- $ -- $ 1,987,478 $ 1,987,478 $ -- Recorded a beneficial conversion feature $ 428,343 $ 428,343 $ -- $ 2,903,777 $ 2,903,777 $ -- Stock subscription receivable $ 45,000 $ 45,000 $ -- $ 220,000 $ 220,000 $ -- F-61 INGEN TECHNOLOGIES, INC. INTERIM FINANCIAL STATEMENTS NOVEMBER 30, 2007 Consolidated Balance Sheet (Unaudited) Unaudited Balance on November 30, 2007 Effect of Restated Original Change ------------ ------------ ------------ Current Assets Cash $ 1,161 $ 1,161 $ -- Accounts receivable 15,271 15,271 -- Inventory 74,943 74,943 Prepaid expenses 10,481 10,481 -- ------------ ------------ ------------ Total Current Assets 101,856 101,856 -- ------------ ------------ ------------ Property and equipment net of accumulated depreciation of $148,716 258,900 258,900 -- Debt issue costs, net of accumulated amortization of $148,716 229,958 229,958 Other assets 68,895 68,895 -- ------------ ------------ ------------ Total Other Assets 298,853 298,853 -- ------------ ------------ ------------ TOTAL ASSETS $ 659,609 $ 659,609 $ -- ============ ============ ============ Current Liabilities Accounts payable $ 201,726 $ 201,726 $ -- Accrued expenses 348,833 348,833 -- Taxes payable 8,350 8,350 Current portion of long-term debt 14,539 14,539 Short-term loan 10,733 10,733 Officer's loans 100,850 100,850 -- ------------ ------------ ------------ Total Current Liabilities 685,031 685,031 -- ------------ ------------ ------------ Long-term liabilities Note payable 94,333 94,333 Convertible notes payable, net of unamortized discount of $1,343,747 791,253 791,253 -- Derivative liabilities 5,037,714 5,037,714 -- ------------ ------------ ------------ Total Long-term Liabilities 5,923,300 5,923,300 -- ------------ ------------ ------------ Stockholders' Deficit Preferred stock Series A, no par value, $1.00 per share liquidation preference, 40,000,000 shares authorized 16,078,991 issued and outstanding as of November 30, 2007, total liquidation preference of $16,078,991 673,313 673,313 -- Common stock, no par value, authorized 100,000,000 shares; issued and outstanding 43,747,110 as of November 30, 2007 4,110,949 12,586,549 (8,475,600) (19) Series A preferred stock subscription (220,000) (220,000) -- Accumulated Deficit (10,512,984) (18,988,584) 8,475,600 (20) ------------ ------------ ------------ Total Stockholders' Deficit (5,948,722) (5,948,722) -- ------------ ------------ ------------ Total Liabilities and Stockholders' Deficit $ 659,609 $ 659,609 $ -- ============ ============ ============ (19) The Company attempted to post the adjustment of $4,237,800 described in (4) above, however the adjustment of $4,237,800 was posted in reverse. This caused a difference of $8,475,600. This adjustment has been correctly reversed and the restated balance of common stock is shown as $4,110,949. (20) The Company attempted to post the adjustment of $4,237,800 described in (4) above, however the adjustment of $4,237,800 was posted in reverse. This caused a difference of $8,475,600. This adjustment has been correctly reversed and the restated balance of common stock is shown as $(10,512,984). F-62 Ingen Techonologies, Inc. Consolidated Statements of Operations (Unaudited) Three months ended November 30, 2007 Three months ended November 30, 2006 Effect of Effect of Restated Original Change Restated Original Change ------------ ------------ --------- ------------ ------------ -------- Sales $ 74,538 $ 74,538 $ -- $ 134,473 $ 134,473 $ -- Cost of Sales 61,705 61,705 -- 66,641 66,641 -- ------------ ------------ --------- ------------ ------------ -------- Gross Profit 12,833 12,833 -- 67,832 67,832 -- General and administrative expenses 339,022 339,022 -- 517,158 517,158 -- ------------ ------------ --------- ------------ ------------ -------- Operating loss (326,189) (326,189) -- (449,326) (449,326) -- Interest expense (247,449) (247,449) -- (158,053) (158,053) -- Change in derivative liabilities 761,661 761,661 -- 283,033 283,033 -- ------------ ------------ --------- ------------ ------------ -------- Loss before provision for income taxes 188,023 188,023 -- (324,346) (324,346) -- Provision for income taxes -- -- -- 415 415 -- ------------ ------------ --------- ------------ ------------ -------- Net loss $ 188,023 $ 188,023 $ -- $ (324,761) $ (324,761) $ -- ============ ============ ========= ============ ============ ======== Basic net loss per weighted share nil $ (0.01) $ 0.01 $ (0.03) $ (0.03) $ -- ============ ============ ========= ============ ============ ======== Basic weighted average shares outstanding 43,667,110 43,667,110 -- 11,330,071 11,330,071 -- F-63 Ingen Techonologies, Inc. Consolidated Statements of Operations (Unaudited) Six months ended November 30, 2007 Six months ended November 30, 2006 Effect of Effect of Restated Original Change Restated Original Change ------------ ----------- ---------- ------------ ----------- ----------- Sales $ 192,010 $ 192,010 $ -- $ 323,631 $ 323,631 $ -- Cost of Sales 129,118 129,118 -- 182,188 182,188 -- ------------ ----------- ---------- ------------ ----------- ----------- Gross Profit 62,892 62,892 -- 141,443 141,443 -- General and administrative expenses 745,727 745,727 -- 846,262 846,262 -- ------------ ----------- ---------- ------------ ----------- ----------- Operating loss (682,835) (682,835) -- (704,819) (704,819) -- Interest expense (694,360) (1,268,139) 573,779 (21) (3,698,968) (3,698,968) -- Change in derivative liabilities 187,882 761,661 (573,779) (21) 1,314,127 1,314,127 -- ----------- ---------- ------------ ----------- ----------- Loss before provision for income taxes (1,189,313) (1,189,313) -- (3,089,660) (3,089,660) -- Provision for income taxes -- -- -- 1,215 1,215 -- ------------ ----------- ---------- ------------ ----------- ----------- Net loss $ (1,189,313) $(1,189,313) $ -- $ (3,090,875) $(3,090,875) $ -- ============ =========== ========== ============ =========== =========== Basic net loss per weighted share $ (0.03) $ (0.03) $ -- $ (0.10) $ (0.10) $ -- ============ =========== ========== ============ =========== =========== Basic weighted average shares outstanding 40,721,777 40,721,777 -- 29,744,904 29,744,904 -- (21) The Company misclassified the change in derivative liability for the quarter ended November 30, 2007 in the amount of $573,779 as additional interest expense. This misclassification has been corrected in the restated financial statements. F-64 Ingen Technologies, Inc and Subsidiary Consolidated Statements of Cash Flows (Unaudited) Six months ended November 30, 2007 Six months ended November 30, 2006 Effect of Effect of Restated Original Change Restated Original Change ----------- ----------- -------- ----------- ----------- ------ CASH FLOWS FROM OPERATIONS: Net loss (1,189,313) (1,189,313) -- (3,090,875) (3,090,875) -- Adjustments to Reconcile Net loss to Net Cash Used in Operations: Depreciation and Amortization 80,519 80,519 -- 46,624 46,624 -- (Increase) Decrease in: Change in derivative liabilities (761,661) (761,661) -- (1,314,127) (1,314,127) -- Noncash interest expense and financing costs 1,141,551 1,141,551 -- 3,697,905 3,697,905 -- Increase (Decrease) in: Accounts payable 117,209 117,209 -- (4,875) (4,875) -- Accrued expenses 161,296 161,296 -- 486 486 -- Accounts receivable (15,270) (15,270) -- (58,265) (58,265) -- Prepaid expenses 23,152 23,152 -- (9,699) (9,699) -- Inventory 10,653 10,653 -- -- -- -- Expenses paid with stock 92,600 92,600 -- 12,000 12,000 -- ----------- ----------- -------- ----------- ----------- ------- NET CASH USED IN OPERATING ACTIVITIES (339,264) (339,264) -- (720,826) (720,826) -- CASH FLOW FROM INVESTING ACTIVITIES Additions to fixed assets -- -- -- (85,931) (85,931) -- Addition to intangibles -- -- -- (7,345) (7,345) -- ----------- ----------- -------- ----------- ----------- ------- NET CASH USED IN INVESTING ACTIVITIES -- -- -- (93,276) (93,276) -- CASH FLOW FROM FINANCING ACTIVITIES Repayments on officer's loan (21,382) (21,382) -- (122,826) (122,826) -- Proceeds from officer's loan 37,891 37,891 Repayments on notes payable (6,119) (6,119) -- -- -- -- Proceeds from issuance of common stock 119,800 119,800 -- -- -- -- Proceeds from notes payable 10,000 10,000 Proceeds from issuance of convertible debt 200,000 200,000 -- 1,066,800 1,066,800 -- ----------- ----------- -------- ----------- ----------- ------- NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES 340,190 340,190 -- 943,974 943,974 -- ----------- ----------- -------- ----------- ----------- ------- NET INCREASE (DECREASE) IN CASH 926 926 -- 129,872 129,872 -- Cash balance at Beginning of Period 238 238 -- 111,112 111,112 -- ----------- ----------- -------- ----------- ----------- ------- CASH BALANCE AT END OF PERIOD $ 1,164 $ 1,164 $ -- $ 240,984 $ 240,984 $ -- =========== =========== ======== =========== =========== ======= Supplemental Disclosures of Cash Flow information: Interest paid $ 4,988 $ 4,988 $ -- $ -- $ -- $ -- Taxes paid $ 800 $ 800 $ -- $ -- $ -- $ -- Noncash Financing Activities Issuance of warrants in connection with convertible debt $ 428,343 $ 428,343 $ -- $ 1,987,103 $ 1,987,103 $ -- Recorded a beneficial conversion feature $ -- $ -- $ -- $ 2,904,060 $ 2,904,060 $ -- Stock subscription receivable $ 45,000 $ 45,000 $ -- $ 220,000 $ 220,000 $ --
F-65 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 8A. CONTROLS AND PROCEDURES Please see the disclosure below in Item 8A(T) Controls and Procedures. ITEM 8A(T). 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. 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 our disclosure controls and procedures were effective. MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established by the Corporate Controller's Handbook of Financial Management (2007-2008 ed., CCH). Our management considers its assessment to be substantially similar to the internal control framework set out by the Committee of Sponsoring Organizations for the Treadway Commission. Based on our evaluation under the framework, including the completion and review of internal review assessment forms and the completion and review of financial reporting information systems and controls checklists in the framework, our management concluded that our internal control over financial reporting was effective as of May 31, 2008. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management's report in this annual report. 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, our internal control over financial reporting. 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. 36 Item 8B. Other Information During the quarter ended May 31, 2008, we closed on a series of transactions resulting in the issuance of more than 5% of outstanding common stock. We sold the following securities without registration under the Securities Act of 1933 in reliance on the exemption contained in Section 4(2) and/or Regulation D promulgated thereunder. No general solicitation or advertising was used in connection with the sale of the shares and all shares were issued with a restrictive legend. Common Stock - --------------- a) In March 2008, we issued a total of 30,000 shares of our restricted common stock to our CEO, Scott Sand (adjusted for the 1 for 600 reverse stock split on August 27, 2008) originally issued as 18,000,000 shares of restricted common stock. The stock was issued to retire accrued compensation in the amount of $108,000. We valued this stock at $0.006 per share, which was the closing price of the common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $3.60 per share. b) In March 2008, we issued a total of 16,668 shares of our restricted common stock to two entities in exchange for service rendered (adjusted for the 1 for 600 reverse stock split on August 27, 2008, the stock was originally issued as 10,000,000 shares of restricted common stock). We valued this stock at $0.006 per share, which was the closing price of the common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $3.60 per share. c) In March 2008, we issued a total of 3,000 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to the seven members of our Board of Directors and an officer. This was originally issued as 1,800,000 shares of restricted common stock. 1,500,000 shares were issued for Directors' fees and 300,000 shares were issued to Scott Sand, our CEO, under the terms of his employment agreement. We valued this stock at $0.006 per share, which was the closing price of the common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $3.60 per share. The total value of the stock issued was $10,800. d) On March 31, 2008, the Company issued to a consultant an anti-dilutive warrant granting the holder the right to purchase up to 250,000 shares of common stock at $.50 per share until March 31, 2011. The Company also issued the consultant a convertible promissory note in the principal amount of $37,000. On or before September 1, 2010, the holder may convert the note into shares of the Company's common stock. In all circumstances, the holder shall receive a minimum of 400,000 shares of the Company's common stock. Furthermore, in the event of a merger, consolidation, combination, subdivision, forward split or reverse split, any portion of the unpaid amount of this note may be converted into fully-paid, non-assessable shares of the Company's common stock, at a conversion price equal to $.25 per share. e) In April 2008, we sold a total of 4,167 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to one individual. This was originally issued as 2,500,000 shares of restricted common stock. The stock was sold for cash at a price of $0.006 per share. The reverse stock split adjusted price of the common stock is $3.60 per share. The total consideration received by the Company was $15,000. f) In April 2008, we issued a total of 133 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008)of our restricted common stock to one individual. This was originally issued as 80,000 shares of restricted common stock. The stock was issued for services rendered and was valued at a price of $0.005 per share, which was the closing price of common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $3.00 per share. The total value of the stock issued was $400. 37 g) In April 2008, we issued a total of 10,000 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to one entity This was originally issued as 6,000,000 shares of restricted common stock. The stock was issued for services rendered and was valued at a price of $0.0032 per share, which was the closing price of common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $1.92 per share. The total value of the stock issued was $19,200. h) In April 2008, we authorized the issuance for a total of 2,000 of our post-reverse split adjusted shares (1,200,000 shares prior to the adjustment of our 1 for 600 reverse stock split on August 27, 2008) to Bradley Klearman, who is one of our directors. This was paid under the terms of a consulting agreement. Under the terms of the agreement, Mr. Klearman is due to receive $3,000 per month paid either in cash or restricted shares, depending on the company's ability to pay. The company owed Mr. Klearman $3,000 for the month of February 2008, and an additional $3,000 for the month of March 2008. The total amount owed prior to April 1, 2008 was $6,000. The fair market value of the company stock at that time was $0.005 per share. The calculation of shares were derived by dividing the amount owed of $6,000 by the fair market value of $0.005. i) In April 2008, we sold a total of 4,385 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to Robert Sand, the father of our CEO. This was originally issued as 2,631,579 shares of restricted common stock. The stock was sold for cash at a price of $0.0019 per share. Our stock price was $0.002 on the date of issuance. The reverse stock split adjusted price of the common stock is $1.14 per share. The total consideration received by the Company was $5,000. j) In April 2008, we issued a total of 1,667 shares of our restricted common stock (adjusted for the 1 for 600 reverse stock split on August 27, 2008) to one individual. This was originally issued as 1,000,000 shares of restricted common stock. The stock was issued for services rendered and was valued at a price of $0.0015 per share, which was the closing price of common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $0.90 per share. The total value of the stock issued was $1,500. k) In May 2008, we sold a total of 37,292 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to five individuals. This was originally issued as 22,375,000 shares of restricted common stock. The stock was sold for cash at a price of $0.0008-0.001 per share. The reverse stock split adjusted price of the common stock is $0.48-0.60 per share. The total consideration received by the Company was $17,000. l) In May 2008, we issued a total of 10,000 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to one individual. This was originally issued as 6,000,000 shares of restricted common stock. The stock was issued for services rendered and was valued at a price of $0.0009 per share, which was the closing price of common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $0.54 per share. The total value of the stock issued was $5,400. m) In May 2008, we issued a total of 231,481 shares (adjusted for the 1 for 600 reverse stock split on August 27, 2008) of our restricted common stock to our CEO, Scott Sand (originally issued as 138,888,889 shares of restricted common stock). The stock was issued in lieu of compensation, to retire accrued compensation and to pay unreimbursed expenses paid on behalf of the Company in the total amount of $125,000. We valued this stock at $0.0009 per share, which was the closing price of the common stock on the date of issuance. The reverse stock split adjusted price of the common stock is $0.54 per share. 38 Subsequent to May 31, 2008, the Company reports the following transactions: Ingen entered into a Securities Purchase Agreement dated June 16, 2008 with three investors. Under the Securities Purchase Agreement, the investors agreed to purchase up to $500,000 in Secured Callable Convertible Notes (the "Notes") and Common Stock Purchase Warrants covering 20,000,000 shares of the Issuer's common stock. The initial closing occurred on June 20, 2008 and the Issuer received gross proceeds of $100,000 and delivered to the Investors $100,000 face value Notes and Common Stock Purchase Warrants covering 20,000,000 shares of the Issuer's common stock. Future closings for gross proceeds of $100,000 each were scheduled to occur at the end of July, August, September, and October 2008. Following the initial closing, the Company has issued $225,000 in additional convertible notes. On September 5, 2008, Ingen amended its Securities Purchase Agreement dated as of June 16, 2008. Under the terms of this amendment, the conversion rate and interest rate of all convertible debentures have been adjusted. This amendment applies to the $1.5 million convertible date entered into on July 25, 2006, the $450,000 convertible debt entered into on March 15, 2007, the $110,000 convertible note entered into on July 30, 2007 as well as the $500,000 Securities Purchase Agreement dated June 16, 2008. The "Applicable Percentage" (as defined in each of the notes to be the rate at which the note holders can convert their debt into common stock) has been adjusted to 40%. This means that the convertible note holders can now convert their debt into stock at the average of the lowest three trading prices for the common stock during the twenty day trading period prior to conversion multiplied by 40%. Also the interest rate on all convertible notes has been adjusted from 6% to 12%. This interest rate adjustment is effective as of January 1, 2008. As of May 31, 2008, this interest rate adjustment would be applied to $2,031,547 in outstanding convertible debt. Further, the June 16, 2008 agreement to purchase up to $500,000 in Secured Callable Convertible Notes was amended so that future purchases shall occur "on such dates as shall be mutually agreed upon by the Company and the Buyers" instead of on the scheduled closing days originally provided for in the agreement. There is no guarantee that future purchases will occur. Subsequent to May 31, 2008, the Company issued 70,185 post-reverse shares of its common stock in connection with the above mentioned debt. On August 27, 2008, the Company engaged Media4Equity LLC, a Nevada limited liability company, to provide public relations services to the Company. Pursuant to the Media Production and Placement Services Agreement (the "Agreement"), Media4Equity is to act as production and placement agency for the Company's print and broadcast media campaign and to provide the Company with a guaranteed dollar value of national media exposure equivalent to $2,000,000 (the "Media Credit") as further set forth in the Agreement. The services provided under the Agreement shall commence at the sole discretion of the Company, but no later than twelve months from the effective date of the Agreement and the Agreement shall terminate upon the Media Credit being used in its entirety or within three years of commencement of services, whichever is earlier. Under the Agreement, the Company issued Media4Equity 3,300,000 restricted shares of its common stock, no par value, valued at $.06 per share. The shares have piggyback registration rights and Media4Equity may also make one "demand" registration request, under which Company agrees to file under the Securities Act of 1933, as amended, a registration statement covering the shares within 30 days after receipt of such request. Further, the Company is to pay Media4Equity a cash fee of $2,950 per month for the duration of the media campaign, for the purpose of offsetting Media4Equity's costs in executing the campaign. However, the first payment shall not commence until twelve months after the start of the media campaign, which at the Company's request, can be delayed for a maximum of twelve months from the effective date. The Company relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these securities. The shares were issued to an accredited investor. There was no general solicitation or advertising and the shares were issued with a restrictive legend. On September 17, 2008, Jeffrey Gleckman converted 4,000,000 of Series A preferred shares into common stock. Upon this conversion, Mr. Gleckman owned approximately 49.8% of our total outstanding common shares. 39 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS The following table sets forth the names and ages of management, and business experience of the directors, and executive officers of our company. Our directors hold their offices for a term of one year or until their successors are elected and qualified. Our officers serve at the discretion of the Board of Directors. Each officer devotes as much of his working time to our business as is required. NAME AGE POSITION HELD AND TENURE - ---- --- ------------------------ Scott R. Sand 50 Chairman, Chief Executive Officer and Director (March 29, 2004 to present) Thomas J. Neavitt 77 Secretary and Chief Financial Officer (March 29, 2004 to present) Yong Sin Khoo 44 Director (March 29, 2004 to present) Christopher A. Wirth 53 Chief Operations Officer, Director (March 29, 2004 to present) Curt A. Miedema 51 Director (March 29, 2004 to present) Stephen O'Hara 55 Director (September 22, 2005 to present) John Finazzo 43 Director (March 20, 2006 to present) Brad Klearman 47 Director (December 14, 2007 to present) OUR OFFICERS AND DIRECTORS: SCOTT SAND, CEO & CHAIRMAN: Scott Sand has a diversity of experience in the health care industry both domestic and abroad which spans more than 25 years. His contributions and accomplishments have been published in the Los Angeles Times and the Sacramento Tribune. He has been the recipient of recognition awards by high honored factions such as the United States Congress and the State Assembly, receiving the highest Commendation in the County of Los Angeles for his contributions to health care. Mr. Sand served as the CEO of Medcentrex, Inc. for 10 years in the 1990's, a medical service provider to more than 600 physicians nationwide. He served as the Director of Sales & Marketing for Eye Dynamics, Inc. for 7 years, a public company and manufacturer of Video VNG systems; assisting in their technology upgrades and design for VNG and increasing their sales each quarter during that time. He resigned from Eye Dynamics, Inc. to accept the full-time position as CEO & Chairman of Ingen Technologies, Inc. in 2004. Mr. Sand received a Bachelor of Science Degree in Computer Science from California State University and an MBA from California State University. THOMAS J. NEAVITT, SECRETARY AND CHAIRMAN: Thomas J. Neavitt has held a variety of executive level positions for product and service based corporations over the last 40 years. Mr. Neavitt's experience includes finance, marketing, business development, sales, and collections. Additionally, Mr. Neavitt has experience in real estate as both a broker and developer. Mr. Neavitt served in the U.S. Navy. Mr. Neavitt left the Navy and became President and CEO of Penn-Akron Corporation and its wholly owned subsidiary Eagle Lock Corporation. He was instrumental in the successful acquisition of this company. Mr. Neavitt also served as President of TR-3 Chemical Corporation for nearly 20 years who sold products throughout the U.S. and some foreign countries. Tom now serves as a consultant to various corporations throughout the country. Mr. Neavitt has been President of AmTech Corporation, which manufactures stabilizing systems, for the past 5 years. 40 YONG SIN KHOO, DIRECTOR: Yong Sin Khoo lives in Singapore. He worked as an engineer for 12 years and a further 5 years in managing a portfolio of business assets. He has been a deputy director in the Strategic Investments Division of Singapore Power Limited since 2001. He has extensive experience as a logistics systems engineer in the military and retail engineering. In addition, he has significant experience in the area of mergers & acquisitions. In 1984, he was awarded a scholarship by the Singapore government to pursue electrical engineering at the University of Queensland, Australia. In the area of information technology, he was responsible for managing Shell Singapore's y2k project for the marketing function. Another IT pioneering effort was the use of artificial intelligence to develop diagnostic tools for maintenance support for the Army's radar systems. His current business interests are focused in the areas of biomedical and environmental technologies. He has a Bachelor's Degree in Electrical Engineering from the University of Queensland. CHRISTOPHER A. WIRTH, CHIEF OPERATIONS OFFICER, DIRECTOR: Christopher A. Wirth has over 20 years of business consulting, finance, construction and real estate development experience. He brings a working knowledge of finance and the mechanics of syndications, construction planning and startup business expansion skills. Mr. Wirth has knowledge and experience in SEC, HUD, SBA, USDA, banking and businesses. He attended San Bernardino Valley College and takes continuing education courses. He continues to consult to environmental and renewable energy firms, and has worked as a HUD YouthBuild construction instructor. Mr. Wirth has previous medical background training through his service in the U.S. Navy, from 1973 to 1977, as a Hospital Corpsman. Mr. Wirth has been a director and spokes person for AgriHouse, an urban agricultural technology company, since 2000. CURT A. MIEDEMA, DIRECTOR. For the last 5 years, Mr. Miedema has been self-employed with his own investment company called Miedema Investments. Mr. Miedema graduated from Unity Christian High School in 1975 and attended Davenport College for 1 year thereafter. STEPHEN O'HARA, MD, DIRECTOR. The Consumer's Research Council of America, an independent organization based in Washington, D.C. recently ranked Dr. Stephen O'Hara among the top two percent of clinical neurologists nationwide. He attended Stanford University and graduated in 1975 with a Bachelor of Science degree in biology and performed honors research in the laboratory of Dr. Donald Kennedy, who subsequently served as President of Stanford University. Dr. O'Hara obtained his M.D. from Northwestern University in 1979, where he became president of the Northwestern chapter of the American Medical Student Association, then proceeded to complete his residency in neurology at UCLA in 1983. Dr. O'Hara is board-certified in neurology through the American Board of Psychiatry and Neurology. Since completing his residency, Dr. O'Hara has continued to teach the residents in the neurology program at UCLA while maintaining a private practice in Century City, California for the past 16 years with an emphasis on geriatric neurology and disorders of balance. JOHN J. FINAZZO, MD, DIRECTOR. Dr. Finazzo graduated from the University of California, Riverside in 1986 with a degree in Bio-Medical Sciences. He received his MD degree from the UCLA School of Medicine in 1989. He completed a two-year Surgical Internship at UCLA Center for Health Science in 1991. He then completed residency in Otolaryngology - Head and Neck Surgery at the State University of New York Health Science Center, Brooklyn in 1995. He is Board Certified in Otolaryngology (since 1996). Dr. Finazzo has been in private practice in the Palm Springs area for eight years. He is also on the surgical staffs at the Desert Regional Medical Center, the John F. Kennedy Medical Center and the Eisenhower Medical Center. Dr. Finazzo is also Section Chief - Division of Otolaryngology at Eisenhower Medical Center. He resides in Palm Springs with his wife of 15 years. He is active in clinical research for the treatment of acute sinusitis. BRAD KLEARMAN, DIRECTOR. Mr. Klearman is a 27-year veteran executive salesman/consultant, business owner, and entrepreneur. Mr. Klearman has a career specializing in negotiating with medical manufacturers and distributors on multi-million dollar projects that continues to have far-reaching implications within the medical industry. Mr. Klearman's current accomplishments include the recently secured exclusive placement of Ingen Technologies respiratory products for the largest respiratory manufacturing company in the world. From 2001 - 2007, Mr. Klearman served as Executive Vice President of Medigroup Physicians 41 Services in St. Louis, Missouri, developing multiple relations with a myriad of medical distributors and medical manufacturers servicing the United States. From 1998 - 2001, he served as Regional Manager of King Systems, Indiana and represented manufacturers of the highest quality anesthesia apparatus in the country and was responsible for making the company's third largest region into the company's top-selling number one region within three years. From 1996 - 1998, he served as Vice President of Two Rivers Medical, St. Louis, MO, a major contributor to development of the company with sole purpose of distributing medical products, equipment and pharmaceuticals to the Federal Government worldwide. From 1982-1996, Mr. Klearman worked with Midwest Medical Supply Co., Inc. in St. Louis, MO, where he began as Territory Manager in an area which was grossing 70-thousand dollars per month and within two years, brought that average up to $210,000 per month. In 1986, he was promoted to Executive Vice President of the company and created a division that served the Federal Government world wide. This division averaged 1 million dollars per month in sales at a 23% profit margin, making it by far the most profitable division of the company which was known as a regional distributor to hospitals, long-term care facilities and physician offices. From 1978 - 1982, Mr. Klearman attended Columbia College in Columbia, MO, with undergraduate studies in business and marketing. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act requires our officers, directors and persons who own more than 10% of a class of our securities registered under Section 12(g) of the Exchange Act to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of copies of the forms furnished to us and information involving securities transactions of which we are aware, we are aware of officers, directors and holders of more than 10% of the outstanding common stock of the Company who failed to file or failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the last fiscal year. To our knowledge, at May 31, 2008, Bradley Klearman, a director of the Company, did not file a Form 3 and a Form 4 for one transaction. Thomas Neavitt, an officer of the Company, Stephen O'Hara, Curt A. Miedema, John J. Finazzo, Yong Sin Khoo and Christopher Wirth, directors of the Company, each did not file a Form 4 during the year ended May 31, 2008 for one acquisition. Scott R. Sand, our CEO and a director, filed a late Form 4 on October 31, 2007 for five transactions, a late Form 4 on May 20, 2008 for sixteen transactions and a late report on May 28, 2008 for one transaction. MANAGEMENT CODE OF ETHICS AND BUSINESS CONDUCT We have adopted a "Management Code of Ethics and Business Conduct" ("Code"), a code of ethics that will apply to our employees (once hired), and applies to our officers and directors. A copy of the Code is posted on our Internet site at www.ingen-tech.com. In the event we make any amendments to, or grant any waiver of, a provision of the Code that applies to the principal executive officer, principal financial officer, or principal accounting officer that requires disclosure under applicable SEC rules, we intend to disclose such amendment or waiver and the reasons therefore on a Form 8-K or on our next periodic report. COMMITTEES We do not have a separately designated nominating or compensation committee. We do not have an audit committee and are not required to have one under Section 302 of Sarbanes-Oxley. Our financial matters and relationship with our independent auditors is overseen by our two officers, the CEO and Secretary-CFO. AUDIT COMMITTEE FINANCIAL EXPERT We do not have an audit committee and therefore do not have an audit committee financial expert. 42 ITEM 10. EXECUTIVE COMPENSATION COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth the annual and other compensation paid by us to Scott R. Sand, our CEO and chairman in the last two fiscal years.
Summary Compensation Table --------------------------- NAME AND PRINCIPAL YEAR Salary Bonus Stock Awards Option Non-Equity Non-Qualified All Other Total POSITION ($) ($) ($) Awards Incentive Deferred Compen- ($) ($) Plan Comp. ($) Comp. Sation Earnings ($) ($) Scott R. Sand, 2008 $200,000 - $135,499(2) -- -- -- -- $335,499 Chairman and Chief Executive Officer(1) 2007 $116,667 - $17,301(3) -- -- -- -- $133,968
(1)We entered into an employment agreement with Mr. Sand effective as of October 1, 2006. This agreement calls for an annual salary of $200,000 and 300,000 shares of our restricted stock to be issued to Mr. Sand each year of the five-year term of the agreement. (2) We charged $3,699 of stock that was issued in September of 2006 to officer's compensation in the fiscal year ended May 31, 2008 (we had previously valued this at $12,000 and expensed $8,301 in the fiscal year ended May 31, 2007). Mr. Sand also converted accrued salary and other loans made to the company into shares of our common stock and Series A preferred stock. These shares were initially valued below market value. We revalued the shares to the market price at the date of issuance and charged an additional $130,000 to officer's compensation in the fiscal year ended May 31, 2008. Mr. Sand was also issued shares valued at $1,800 (500 split adjusted shares, originally issued as 300,000 shares) under his employment agreement). (3) Mr. Sand was issued 300,000 shares of restricted common stock valued at $9,000 for director's services. Mr. Sand was issued 300,000 shares of restricted common stock in September 2006 under the terms of his employment agreement. This stock was valued at $0.04 per share (a total of $12,000). The value of this issuance is being amortized over a one-year period. The Company expensed $8,301 of this $12,000 in the fiscal year ended May 31, 2007 and the remaining $3,699 in the fiscal year ended May 31, 2008. There were no options granted to executive officers or directors during fiscal year 2008. DIRECTOR COMPENSATION Set forth below is information regarding compensation paid to each director during 2008.
NAME FEES EARNED OR STOCK AWARDS ($) OPTION AWARDS NON-EQUITY CHANGE IN ALL OTHER TOTAL ($) PAID IN CASH ($) INCENTIVE PLAN PENSION VALUE COMPENSATION ($) ($) COMPENSATION ($) AND NON-QUALIFIED DEFERRED COMPENSATION EARNINGS - ------------------------------------------------------------------------------------------------------------------------------------ SCOTT R. SAND, - -- -- -- -- -- -- CHAIRMAN CURT A. MIEDEMA - 1,200 -- -- -- -- 1,200 CHRISTOPHER A. - 1,200 -- -- -- -- 1,200 WIRTH STEPHEN O'HARA - 1,200 -- -- -- -- 1,200 JOHN FINAZZO - 1,200 -- -- -- -- 1,200 YONG SIN KHOO - 1,200 -- -- -- -- 1,200 BRAD KLEARMAN 1,200 1,200
43 Our Directors (with the exception of our Chairman) are paid $500 for each Directors meeting that is actually held (as opposed to actions taken by our Board of Directors by Resolution and Waiver of Notice and Consent to Action Taken). ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS As of September 19, 2008, 8,049,259 shares of common stock of Ingen Technologies, Inc. and 34,279,960 shares of Series A Preferred Stock were issued and outstanding. The following table sets forth, as of such date, certain information regarding beneficial ownership of our shares by (i) each person who is known by us to beneficially own more than 5% of our voting securities; (ii) by each of our officers and directors, and (iii) by all of our officers and directors as a group. Beneficial ownership has been determined in accordance with Rule 13d-3 of the Exchange Act. Under this Rule, beneficial ownership includes voting or investment power over a security. Further, securities are deemed to be beneficially owned by a person if the person has the right to acquire beneficial ownership within 60 days of the date of the table pursuant to options, warrants, conversion privileges or other rights. Except as otherwise indicated in the footnotes, all information with respect to share ownership and voting and investment power has been furnished to us by the persons listed. Except as otherwise indicated in the footnotes and subject to applicable community property laws, each person listed has sole voting and investment power with respect to the shares shown as beneficially owned.
Name and Shares of Shares of Series A Total Percentage Address of Common Stock Convertible Preferred of Voting Beneficial Beneficially Stock Power (4) Owner (1) Owned (2) Beneficially Owned (3) Number % Number % Number % Scott R. Sand, CEO, 265,790 3.3% 31,275,960 91.2% 31,541,750 74.5% Chairman, Director Thomas Neavitt, CFO, 1,033 * - - 1,033 * Secretary Yong Khoo Sin, Director 677 * - - 677 * Christopher A. Wirth, COO, 1,053 * - - 1,053 * Director Curt A. Miedema, Director 703 * - - 703 * Stephen O'Hara, Director 693 * - - 693 * John Finazzo, Director 7,336 * - - 7,336 * Brad Klearman, Director 2,518 * - - 2,518 * Jeffrey Gleckman 4,005,000 49.8% - - 4,005,000 9.5% Weed & Co., LLP (5) 650,000 7.5%(6) - - 650,000 1.5%(6) 4695 MacArthur Ct., Suite 1430 Newport Beach, CA 92660 Media4Equity, LLC 3,300,000 41.0% - 3,300,000 7.8% All officers and directors 279,803 3.5% 31,275,960 91.2% 31,555,763 74.5% as a group (8 persons)
* Less than one percent. (1) Unless otherwise indicated, the address for each beneficial owner is 35193 Avenue "A", Suite-C Yucaipa, California 92399. (2) Does not include the Series A Preferred Stock which is entitled to vote on all matters with holders of common stock. 44 (3) Each share of Series A Preferred Stock is entitled to vote on all matters with holders of the common stock. Each Series A Preferred Stock is entitled to 1 vote per share. Each share of Series A Convertible Preferred Stock is convertible, at the option of the holder and subject to a 65 day written notice to the Company, at any time after the date of the issuance into one share of fully paid and non-assessable share of common stock. (4) This column includes the common stock and Series A Convertible Preferred Stock held by each person. Applicable percentages are based on 42,329,219 common and preferred shares outstanding on September 19, 2008. (5) Represents an anti-dilutive warrant to purchase 250,000 shares of common stock of Ingen at a price of $0.50 per share expiring March 31, 2011 and a promissory note convertible into a minimum of 400,000 shares of common stock. (6) Based upon an additional 650,000 shares outstanding assuming the conversion of the warrants and options held by Weed & Co LLP. CHANGES IN CONTROL We have entered into a series of convertible note agreements in the past two fiscal years, specifically, $1.5 million convertible agreement entered into on July 25, 2006, the $450,000 convertible debt entered into on March 15, 2007, the $110,000 convertible note entered into on July 30, 2007. Under the transaction documents, we have committed various acts and failed to timely perform other acts that constitute events of default under the transaction documents. We have received assurance from counsel for the investors that "You are not in default. We [the investors] have to put you into default and we have not." There can be no assurance that the investors will not declare a default in the future. Our stockholders should be aware that if the investors provide written notice of default to us, then our liabilities would increase dramatically due to the penalties, reset provisions, and other damages specified in the transaction documents. The increase in liabilities attributed to a notice of default under the transaction documents could vastly exceed our current market capitalization and have dramatic negative affects on our financial condition. The debentures are collateralized by our assets and, in the event if we are unable to repay or restructure these debentures, there is no assurance that the holders of the debentures will not institute legal proceedings to recover the amounts owed including foreclosure on our assets. Subsequent to May 31, 2008, we entered into a $500,000 Securities Purchase Agreement dated June 16, 2008 with three of the noteholders. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE As of the end of our fiscal year May 31, 2008, our CEO and Chairman, Scott R. Sand, was owed a total of $1,747 by the Company due for expenses paid on behalf of the Company. There are no written loan agreements, promissory notes or debt obligations evidencing this debt and the terms of repayment to Mr. Sand. During the fiscal year ending May 31, 2008, Mr. Sand received 20,333,333 shares of Series A Preferred stock and 261,482 shares of common stock (adjusted for the reverse stock split on August 27, 2008) for satisfaction of accrued compensation of $306,856 and for payment of $169,144 of the loan amount owed to him (a total of $476,000 in debts converted into stock). The stock was valued at an aggregate price of $606,000, which represented the fair market value of the stock upon the dates of issuance (the closing price of the stock). The excess of fair market value ($600,000) over the conversion amount ($476,000) was charged to expense as additional officer's compensation ($130,000). On March 18, 2008, we issued 2,000,000 shares of our Series A preferred stock to Jeffrey Gleckman, an over 10% shareholder of our Series A Convertible Preferred Stock. These shares were due under an agreement with MedOx, Inc. which was dated August 1, 2007. The value of these shares, under the terms of the contract, was $20,000. 45 In April 2008, we authorized the issuance for a total of 2,000 of our post-reverse split adjusted shares (1,200,000 shares prior to the adjustment of our 1 for 600 reverse stock split on August 27, 2008) to Bradley Klearman, who is one of our directors. This was paid under the terms of a consulting agreement. Under the terms of the agreement, Mr. Klearman is due to receive $3,000 per month paid either in cash or restricted shares, depending on the company's ability to pay. The company owed Mr. Klearman $3,000 for the month of February 2008, and an additional $3,000 for the month of March 2008. The total amount owed prior to April 1, 2008 was $6,000. The fair market value of the company stock at that time was $0.005 per share. The calculation of shares were derived by dividing the amount owed of $6,000 by the fair market value of $0.005. On September 17, 2008, Jeffrey Gleckman converted 4,000,000 of Series A preferred shares into common stock. Upon this conversion, Mr. Gleckman owned 49.8% of our total outstanding common shares. DIRECTOR INDEPENDENCE As we are quoted on Pink Sheets and not one of the national securities exchanges, we are not subject to director independence requirements. Pursuant to Rule 10A-3 promulgated under the Exchange Act, Scott R. Sand and Christopher A. Wirth do not qualify as independent directors due to their affiliation with us as officers. Further, Brad Klearman is a director and not an officer, however he is contracted and receives compensation for non-director services, and does not qualify as an independent director. Our Board of Directors has determined that Khoo Yong Sin, Curt A. Miedema, Stephen O'Hara, and John Finazzo are "independent," as that term is defined by the NASDAQ Stock Market. ITEM 13. EXHIBITS Original agreements are filed in our offices. Exhibit No. Document Description ----------- -------------------- 2.1 Plan and Agreement of Merger Relating to the Merger of Ingen Technologies, Inc. into Creative Recycling, Inc., dated March 15, 2004. (incorporated by reference to registrant's Form 10-KSB/A filed March 24, 2006) 3.1 Amended and Restated Articles of Incorporation of Ingen Technologies, Inc., as filed with the Georgia Secretary of State on or about March 15, 2005. (incorporated by reference to registrant's Form 10-KSB filed November 7, 2005) 3.2 Resolution 2005.6 of the Ingen Board of Directors (signed by the preferred shareholders as well) modifying the Amended and Restated Articles of Incorporation with respect to the classifications and rights of our preferred shares. (incorporated by reference to registrant's Form 10-KSB filed November 7, 2005) 3.3 Bylaws of Ingen Technologies, Inc. (incorporated by reference to registrant's Form 10-KSB filed November 7, 2005) 3.4 Minutes of Special Shareholder meeting of March 15, 2005 amending our Bylaws by changing the date of the annual shareholders meeting from May 15 to March 15. (incorporated by reference to registrant's Form 10-KSB filed November 7, 2005) 3.5 Amended and Restated Articles of Incorporation of Ingen Technologies, Inc., as filed with the Georgia Secretary of State on or about December 28, 2005 (incorporated by reference to registrant's Form 8-K filed January 10, 2006) 46 3.6 Articles of Amendment to Articles of Incorporation of Ingen Technologies, Inc. as filed with the Georgia Secretary of State (incorporated by reference to registrant's Form 10-QSB filed April 21, 2008) 3.7 Articles of Amendment to Articles of Incorporation of Ingen Technologies, Inc., as filed with the Georgia Secretary of State on August 27, 2008* 4.1 Specimen of Ingen Technologies, Inc. common stock certificate (exhibit 4.1 of our 10-KSB for the fiscal year ended May 31, 2005 incorporated herein by this reference). 10.1 Agreement between Ingen Technologies Inc. and Elizabeth Wald dated October 15, 2005 for the provision of telephone answering services (included as an exhibit to our 10-QSB filed with the SEC on January 17, 2006 and incorporated herein by this reference). 10.2 Agreement between Ingen Technologies, Inc. and Siegal Performance Systems, Inc. dated November 15, 2005 for distribution of Secure Balance(TM) (included as an exhibit to our 10-QSB filed with the SEC on January 17, 2006 and incorporated herein by this reference). 10.3 Contract signed regarding Peter J. Wilke as our General Counsel, dated January 30, 2006 (included as an exhibit to our 10-QSB filed with the SEC on April 7, 2006 and incorporated herein by this reference). 10.4 Template for investment contract for our restricted common stock in offers and sales to Edward Meyer, Jr. and Salvatore Amato, dated February 13, 2006 (included as an exhibit to our 10-QSB filed with the SEC on April 7, 2006 and incorporated herein by this reference). 10.5 Investment contract dated February 28, 2006 in which Jeffrey Gleckman purchased 1,000,000 restricted common shares (included as an exhibit to our 10-QSB filed with the SEC on April 7, 2006 and incorporated herein by this reference). 10.6 Distribution Agreement (for Secure Balance(TM)) dated February 16, 2006 between Ingen Technologies, Inc. and Secure Health, Inc. (included as an exhibit to our 10-QSB filed with the SEC on April 7, 2006 and incorporated herein by this reference). 10.7 Agreement for Consulting Services between Ingen Technologies, Inc. and Anita H. Beck, d/b/a Global Regulatory Services Associates, dated February 27, 2006 (included as an exhibit to our 10-QSB filed with the SEC on April 7, 2006 and incorporated herein by this reference). 10.8 Advertising Service Agreement between Ingen Technologies, Inc. and Media Mix Advertising, Inc. dated March 1, 2006 (included as an exhibit to our Form SB-2 filed with the SEC on April 5, 2006 and incorporated herein by this reference). 10.9 Distribution agreement (for Secure Balance(TM)) between Ingen Technologies, Inc. and Michael Koch, DC, dated March 10, 2006 (included as an exhibit to our Form SB-2 filed with the SEC on April 5, 2006 and incorporated herein by this reference). 10.10 Securities Purchase Agreement dated July 25, 2006 by and among the Company and New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC (included as an exhibit to our Form 8-K dated July 26, 2006 and incorporated herein by this reference). 10.11 Form of Callable Convertible Secured Note by and among the Company and New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC dated July 25, 2006 (included as an exhibit to our Form 8-K dated July 26, 2006 and incorporated herein by this reference). 47 10.12 Form of Stock Purchase Warrant entered into by and among the Company and New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC on July 25, 2006 (included as an exhibit to our Form 8-K dated July 26, 2006 and incorporated herein by this reference). 10.13 Registration Rights Agreement entered into by and among the Company and New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC on July 25, 2006 (included as an exhibit to our Form 8-K dated July 26, 2006 and incorporated herein by this reference). 10.14 Security Agreement entered into by and among the Company and New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC on July 25, 2006 (included as an exhibit to our Form 8-K dated July 26, 2006 and incorporated herein by this reference). 10.15 Intellectual Property Security Agreement entered into by and among the Company and New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC on July 25, 2006 (included as an exhibit to our Form 8-K dated July 26, 2006 and incorporated herein by this reference). 10.16 Employment Agreement between the Company and its Chief Executive Officer and Chairman, Scott R. Sand, dated September 21, 2006 (included as an exhibit to our Form 8-K dated October 3, 2006 and incorporated herein by this reference). 10.17 Technology And Patent Pending Purchase and Sale Agreement between Ingen Technologies, Inc. and Richard Campbell, grantor, dated November 7, 2006 (included as an exhibit to our Form 8-K dated November 16, 2006 and incorporated herein by this reference). 10.18 Technology And Patent Pending Purchase and Sale Agreement between Ingen Technologies, Inc. and Francis McDermott, grantor, dated November 7, 2006(included as an exhibit to our Form 8-K dated November 16, 2006 and incorporated herein by this reference). 10.19 Distribution Agreement between Ingen Technologies, Inc. and MedOx Corporation, dated December 1, 2006, for the distribution of Oxyview(TM) (included as an exhibit to our Form 8-K dated December 1, 2006 and incorporated herein by this reference). 10.20 Exclusive Distribution Agreement between Ingen Technologies, Inc. and Secure Health, Inc., dated December 1, 2006, for the distribution of Secure Balance(TM) (included as an exhibit to our Form 8-K dated December 1, 2006 and incorporated herein by this reference). 10.21 Non-qualified stock plan dated January 22, 2007, authorizing the Company to issue up to 20% of the company's authorized common stock (20 million shares) and preferred stock (8 million shares) under the plan. (included as an exhibit to our Form 8-K dated January 18, 2007 and incorporated herein by this reference). 10.22 Option agreements dated January 22, 2007 (included as an exhibit to our Form 8-K dated January 18, 2007 and incorporated herein by this reference). 10.23 Distribution Agreement between Ingen Technologies, Inc. and Physical Rehabilitation Management Services, Inc., effective as of June 1, 2007 (included as an exhibit to our Form 8-K dated May 14, 2007 and incorporated herein by this reference). 48 10.24 Securities Purchase Agreement dated March 15, 2007 by and among the Company and New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC (included as an exhibit to our Form 10-KSB dated August 29, 2007 and incorporated herein by this reference) 10.25 Stock Purchase Warrant entered into by and among the Company and AJW Offshore, Ltd. on March 15, 2007 (included as an exhibit to our Form 10-KSB dated August 29, 2007 and incorporated herein by this reference) 10.26 Stock Purchase Warrant entered into by and among the Company and AJW Partners, LLC on March 15, 2007 (included as an exhibit to our Form 10-KSB dated August 29, 2007 and incorporated herein by this reference) 10.27 Stock Purchase Warrant entered into by and among the Company and AJW Qualified Partners, LLC on March 15, 2007 (included as an exhibit to our Form 10-KSB dated August 29, 2007 and incorporated herein by this reference) 10.28 Stock Purchase Warrant entered into by and among the Company and New Millennium Capital Partners II, LLC on March 15, 2007 (included as an exhibit to our Form 10-KSB dated August 29, 2007 and incorporated herein by this reference) 10.29 Registration Rights Agreement entered into by and among the Company and New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC on March 15, 2007 (included as an exhibit to our Form 10-KSB dated August 29, 2007 and incorporated herein by this reference) 10.30 Intellectual Property Security Agreement entered into by and among the Company and New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC on March 15, 2007 (included as an exhibit to our Form 10-KSB dated August 29, 2007 and incorporated herein by this reference) 10.31 Investment contract dated December 1, 2006 in which Jeffrey Gleckman purchased 2,000,000 restricted common shares (included as an exhibit to our Form 10-KSB dated August 29, 2007 and incorporated herein by this reference) 10.32 Agreement entered into by and among the Company and MedOx, Inc. dated August 1, 2007* 10.33 Securities Purchase Agreement dated June 16, 2008 (included as an exhibit to our Form 8-K dated June 20, 2008 and incorporated herein by this reference) 10.34 Registration Rights Agreement dated June 16, 2008 (included as an exhibit to our Form 8-K dated June 20, 2008 and incorporated herein by this reference) 10.35 Security Agreement dated June 16, 2008 (included as an exhibit to our Form 8-K dated June 20, 2008 and incorporated herein by this reference) 10.36 Intellectual Property Security Agreement dated June 16, 2008(included as an exhibit to our Form 8-K dated June 20, 2008 and incorporated herein by this reference) 10.37 Callable Secured Convertible Note to AJW Partners, LLC (included as an exhibit to our Form 8-K dated June 20, 2008 and incorporated herein by this reference) 10.38 Callable Secured Convertible Note to AJW Master Fund, Ltd. (included as an exhibit to our Form 8-K dated June 20, 2008 and incorporated herein by this reference) 10.39 Callable Secured Convertible Note to New Millennium Capital Partners II, LLC (included as an exhibit to our Form 8-K dated June 20, 2008 and incorporated herein by this reference) 49 10.40 Common Stock Purchase Warrant to AJW Partners, LLC (included as an exhibit to our Form 8-K dated June 20, 2008 and incorporated herein by this reference) 10.41 Common Stock Purchase Warrant to AJW Master Fund, Ltd. (included as an exhibit to our Form 8-K dated June 20, 2008 and incorporated herein by this reference) 10.42 Common Stock Purchase Warrant to New Millennium Capital Partners II, LLC (included as an exhibit to our Form 8-K dated June 20, 2008 and incorporated herein by this reference) 10.44 Media Production And Placement Services Agreement with Media4Equity LLC* 10.45 Agreement with Brad Klearman dated January 1, 2008* 10.46 Amendment No. 1 to the Securities Purchase Agreement Dated as of June 16, 2008 by and among Ingen Technologies, Inc., AJW Partners, LLC, New Millennium Capital Partners II, LLC and AJW Master Fund, Ltd.* 10.47 Callable Secured Convertible Note to AJW Partners, LLC dated August 29, 2008* 10.48 Callable Secured Convertible Note to AJW Master Fund, Ltd. dated August 29, 2008* 10.49 Callable Secured Convertible Note to New Millennium Capital Partners II, LLC dated August 29, 2008* 10.50 Amendment of Notes Agreement with AJW Partners, LLC, New Millennium Capital Partners II, LLC, AJW Master Fund, Ltd., AJW Offshore, Ltd., and AJW Qualified Partners, LLC* 21.1 Subsidiaries of Ingen Technologies, Inc. (included as an exhibit to our Form 10-KSB dated August 29, 2007 and incorporated herein by this reference) 31.1 Certification of Scott R. Sand, Principal Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2 Certification of Thomas J. Neavitt, Principal Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Scott R. Sand, Principal Executive Officer and Thomas J. Neavitt, Principal Financial Officer.* * filed herewith 50 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table summarizes the aggregate fees billed to the company by Child, Van Wagoner and Bradshaw, PLLC, our independent auditor, for the fiscal years ended May 31, 2007 and May 31, 2008. Type of Fee 2008 2007 - ----------- ---- ---- Audit Fees (1) $38,000 $29,500 Audit-related fees $ 0 $ 0 Tax Fees (2) $ 3,000 $ 3,000 All Other Fees $ 0 $ 0 Total $41,000 $32,500 (1) Fees for audit services billed in the fiscal year ended May 31, 2007 consisted of the aggregate fees paid by us for the fiscal year indicated for professional services rendered by Child, Van Wagoner and Bradshaw, PLLC for the audit of our annual financial statements and review of financial statements included in our reports on Form 10-KSB and Forms 10-QSB for the quarters ended November 30, 2006 and February 28, 2007 (another firm reviewed our Form 10-QSB for the quarter ended August 31, 2006). The fees for audit services billed in the fiscal year ended May 31, 2008 consisted of the aggregate fees paid by us for the fiscal year indicated for professional services rendered by Child, Van Wagoner and Bradshaw, PLLC for the audit of our annual financial statements and review of financial statements included in our reports on Form 10-KSB and Forms 10-QSB for the quarters ended August 31, 2007, November 30, 2007 and February 29, 2008. (2) Fees for tax services estimated for the fiscal years ended May 31, 2007 and May 31, 2008 to be rendered by Child Van Wagoner and Bradshaw, PLLC for tax compliance. Tax compliance services are rendered based on facts already in existence or transactions that have already occurred to document, compute and obtain governmental approval for amounts to be included in tax filings and consisted of: federal and state income tax return assistance. AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES We do not have an audit committee. 51 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INGEN TECHNOLOGIES, INC. By: /s/ Scott R. Sand ----------------- Scott R. Sand Chief Executive Officer and Chairman (Principal Executive Officer) Date: September 29, 2008 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of registrant in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- Chief Executive Officer and Chairman (Principal Executive September 29, 2008 /s/ Scott R. Sand Officer) - ---------------------------------- Scott R. Sand Secretary and Chief Financial September 29, 2008 Officer (Principal Financial /s/ Thomas J. Neavitt and Accounting Officer) - ---------------------------------- Thomas J. Neavitt /s/ Khoo Yong Sin Director September 29, 2008 - ---------------------------------- Khoo Yong Sin /s/ Christopher A. Wirth Chief Operations Officer, Director September 29, 2008 - ---------------------------------- Christopher A. Wirth /s/ Curt A. Miedema Director September 29, 2008 - ---------------------------------- Curt A. Miedema /s/ Stephen O'Hara Director September 29, 2008 - ---------------------------------- Stephen O'Hara /s/ John Finazzo Director September 29, 2008 - ---------------------------------- John Finazzo /s/ Brad Klearman Director September 29, 2008 - ---------------------------------- Brad Klearman
52 EX-3.7 2 itec_10kex0307.txt ARTICLES OF AMENDMENT EXHIBIT 3.7 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF INGEN TECHNOLOGIES, INC. Pursuant to the provisions of the Georgia Business Corporation Code, the undersigned corporation hereby amends its Articles of Incorporation, as amended and restated (the "Articles of Incorporation"), and for that purpose, submits the following statement: 1. The name of the corporation is: INGEN TECHNOLOGIES, INC. The articles of incorporation of Ingen Technologies, Inc. (the "Company") are amended as follows: (i) Article Three of the Articles of Incorporation is amended by adding the following paragraph to Article Three: "At close of business on the Effective Date (as defined below), of filing of these Articles of Amendment with the Georgia Secretary of State, each six hundred (600) shares of the Company's common stock, no par value, (the "Common Stock") issued and outstanding shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one (1) share of Common Stock of the corporation and the authorized shares of this corporation shall remain as set forth in the Articles of Incorporation. No fractional shares shall be issued in connection with the foregoing reverse stock split. To the extent that a shareholder holds a number of shares of Common Stock immediately after the Effective Date that is not a whole number, such shareholder shall receive the additional fraction of a share to provide the shareholder a whole share. The outstanding Series A Convertible Preferred Stock will not be subject to the reverse stock split. Further the conversion rate of the outstanding Series A Convertible Preferred Stock and the voting rights of the outstanding Series A Convertible Preferred Stock will not adjust as a result of the reverse stock split. The Effective Date of the Amendment shall be August 21, 2008. The effective date for trading purposes of the Common Stock may be later than the Effective Date as determined by the FINRA." (ii) Following the reverse stock split, Article Three of the Company's Articles of Incorporation shall read as follows: 3.1 The corporation has the authority to issue not more than: (a) Seven Hundred Fifty Million (750,000,000) shares of Common Stock of no par value per share (the "common stock"); and (b) Forty Million (40,000,000) shares of preferred stock of no par value per share (the "Preferred Stock") which may be issued in one or more classes or one or more series by the Board of Directors as hereinafter provided. 3.2 The shares of Common Stock shall be entitled to receive the net assets of the corporation upon dissolution and shall be entitled to one (1) vote per share on all matters and shall be entitled to receive distributions from time to time, from legally available funds, as determined by the board of directors. 3.3 The shares of Preferred Stock of the corporation may be issued from time to time in one or more classes or one or more series. The Preferred Stock shall have such voting rights, no voting rights, or such special voting rights as the Board of Directors may fix and determine in issuing such stock, and shall have rights to receive cumulative, noncumulative, or partially cumulative dividends as the Board of Directors shall fix and determine. Moreover, the shares of Preferred Stock shall have such other rights and preferences, including, but not limited to redemption, liquidation preference, conversion, and dilution rights as may be allowed under the Georgia Business Corporation Code and set forth by the Board of Directors in writing and filed with the Georgia Secretary of State at the time such class or series is designated. 3.4 The corporation designates Forty Million (40,000,000) shares of its Preferred Stock as the Series A Convertible Preferred Stock (the "Series A") with the following rights, preferences and limitations. (a) CLASS OR SERIES. The number of shares of Preferred Stock constituting the Series A shall be Forty Million (40,000,000). (b) DIVIDENDS. The Series A shall not be entitled to receive any dividends from the corporation. (c) REDEMPTION. The corporation shall have the right, but not the obligation to redeem each share of Series A for One Dollar ($1.00) per share. (d) LIQUIDATION RIGHTS. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the corporation, each share of Series A shall be entitled to receive from the assets of the corporation One Dollar ($1.00) per share, which shall be paid or set apart before the payment or distribution of any assets of the corporation to the holders of the Common Stock or any other equity securities of the corporation. (e) VOTING RIGHTS. Each share of Series A shall be entitled to vote on all matters with the holders of the Common Stock. Each share of Series A shall be entitled to one (1) vote. Further, the holders of the Series A voting as a class shall be entitled to elect one person to serve on the corporation's Board of Directors. (f) CONVERSION RIGHTS. Each share of Series A shall be convertible, at the option of the holder thereof and subject to notice requirements of paragraph (f)(i) below, at any time after the date of issuance of such share into one (1) share of fully paid and non-assessable share of Common Stock. (i) Each Series A stockholder who desires to convert into the corporation's Common Stock must provide a 65,day written notice to the corporation of their intent to convert one or more shares of Series A into Common Stock. The corporation may, in its sole discretion, waive the written notice requirement and allow the immediate exercise of the right to convert. Before any holder shall be entitled to convert, he shall surrender the certificate or certificates representing Series A to be converted, duly endorsed or accompanied by proper instruments of transfer, at the office of the corporation or of any transfer agent, and shall given written notice to the corporation at such office that he elects to convert the same. The corporation shall, as soon as practicable thereafter, issue a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled. The corporation shall reserve and keep available out of its authorized, but unissued Common Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect conversion of the Series A. (g) DILUTION PROTECTION. The shares of Series shall not be effected by or subject to adjustment following any change to the amount of authorized shares of Common Stock or the amount of Common Stock issued and outstanding caused by any split or consolidation of the corporation's Common Stock. (iii) All other provisions of the Articles of Incorporation shall remain in full force and effect. 3. The date of adoption of the amendment by the shareholders was June 30, 2008. 4. The amendment was duly approved by the shareholders in accordance with the provisions of Code Section 14-2-1003. Date: 6/30/08 INGEN TECHNOLOGIES, INC. By: /s/ Scott R. Sand ----------------------------- Name: Scott R. Sand Title: Chief Executive Officer and Chairman of the Board of Directors EX-10.44 3 itec_10kex10-44.txt MEDIA PRODUCTION AND PLACEMENT SERVICES AGREEMENT EXHIBIT 10.44 MEDIA PRODUCTION AND PLACEMENT SERVICES AGREEMENT This Media Production and Placement Services Agreement (the "Agreement") is entered into on the date indicated on the signature page (the "Effective Date"), by and between Media4Equity LLC, a Nevada limited liability company ("M4E") and Ingen Technologies, Inc. 35193 Avenue "A" Yucaipa, CA 92399, (the "Company"). (Ingen and M4E are referred to collectively herein as the "Parties"). Whereas, M4E produces and distributes nationally syndicated print and radio features for its clients in exchange for equity in its clients' businesses; and Whereas, M4E wishes to accept the Company as a client; and Whereas, the Company desires to further develop and promote its general business, technologies, and/or products and services in order to enhance overall brand awareness, stimulate new business, and build long-term value for its shareholders; and Whereas, the Company desires to utilize M4E's services to act as production and placement agency for Company's print and broadcast media campaign. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and other good and valuable consideration, the Parties agree as follows: 1. MEDIA CREDIT M4E hereby provides the Company with a guaranteed dollar value of national media exposure (the "Media Credit"), which Media Credit shall be reduced by the "Media Value" of features placed, as further defined in Section 3(c), below, of placements of print and radio features obtained by M4E on behalf of Company. The value of the Media Credit shall be equivalent to two million dollars ($2,000,000.00 U.S.) in Media Value. 2. MEDIA CAMPAIGN a) Consultation. M4E shall consult with Company regarding the content of the Media Campaign. M4E shall develop, write, edit and deliver proofs of any and all print media and any and all radio scripts (collectively referred to herein as the "Copy," and all placements throughout the term of the Agreement referred to as the "Media Campaign") to the Company for inspection and approval. No print or radio feature shall be distributed without Company's prior written approval. M4E shall not be liable for the Company's failure to review and approve Copy on a timely basis, or for any actions or inactions of the Company. Parties agree that the initiation of the Media Campaign shall commence at the sole discretion of the Company, but no later than 12 months from the Effective Date, and shall terminate upon the earlier to occur of the Media Credit being redeemed in its entirety, or three (3) years from the commencement of said Media Campaign, (the "Redemption Period"). b) Content. (i) PRINT FEATURES. Each Print Feature shall consist of a news story that features the Company's name, products and/or service, contact information, web address and such other information as the Company may approve. (ii) RADIO FEATURES. Each Radio Feature shall consist of two, 30-second nationally syndicated radio scripts under one heading. Each Radio Feature will be specifically about the Company and written and read by radio media professionals. c) Distribution. (i) All print media approved by Company for distribution pursuant to Section 2(a) hereof, shall be distributed on computer disks, by direct electronic feed, in a hard copy camera-ready format and/or over the Internet to over ten thousand (10,000) daily and weekly newspapers, news, and wire services, which may publish the features, at their sole discretion, free of copyright, fees or other charges. (ii) All radio features, formatted as either scripts and/or audio recordings, shall be sent directly, and/or indirectly via radio networks, to over six thousand (6,000) radio stations in the United States. 1 3. M4E PERFORMANCE a) Redemption of Media Credit. Upon Company's request, further pursuant to the guidelines detailed herein, M4E shall submit for Company review and approval Copy for the first print or radio feature within five business days of such request. b) Production/Distribution/Publication. During the Redemption Period M4E shall produce, distribute and gain placement/publication of nationally syndicated newspaper features and/or nationally syndicated radio features (final recordings to be provided to Company upon completion by M4E) on behalf of Company. Each published feature shall be ascribed a Media Value, and the Media Value of all respective features shall be applied against and reduce the Media Credit. The entire value of the Media Credit shall be utilized within three (3) years, commencing on the date the Company first reviews and approves copy pursuant to Section 2(a) herein, and in no case commencing later than one (1) year from the Effective Date hereof. c) Media Value. For purposes of this Agreement, the Media Value of each aired radio feature and each published newspaper feature shall be equivalent to each respective radio station's or newspaper's official ad rate pricing policies, measured by length in column inches of each complete story for print placements and in total seconds of each radio feature for radio placements. d) Reduction of Media Credit. The Media Value of all published news features and all broadcasted radio features shall reduce the Media Credit, notwithstanding any Company error in Copy approval or any subsequent editing by newspapers, radio broadcasters, or any other third parties. e) "MEDIA PLACEMENT GUARANTEE." M4E guarantees that the aggregate Media Value of all published print and all broadcast radio features shall be equal to or greater than the Media Credit created by this Agreement. In the event that the Minimum Placement Guarantee is not met by the end of the Term, M4E shall create additional, and/or re-distribute existing features at no cost to the Company until the Media Placement Guarantee is reached. f) Reports. M4E shall deliver weekly reports to the Company beginning ten (10) weeks from the distribution date of each print and radio feature, and continuing for a period of one (1) year. Reports shall include Media Value, estimated listener and readership information, and actual newspaper clippings of all reported published print features. 4. COMPANY PERFORMANCE a) Redemption of Media Credit. The Company shall have one (1) year to begin Campaign and thereby commence redemption of the Media Credit. Once commenced, the redemption of the Media Credit must be completed within three (3) years. b) Consultation and Cooperation. The Company shall consult with M4E pursuant to Section 2(a) herein and use its best reasonable efforts to provide M4E with information necessary to write Copy for the Campaign and to ensure the Company's review of same. c) Timeliness. The Company shall make a good faith effort to approve or submit corrections to all Copy within seventy-two (72) hours of receipt thereof. Failure of Company to approve or return corrected Copy within one (1) week of receipt by Company shall constitute a material breach of this Agreement. d) Investor Relations. When, and if, Company becomes publicly traded, Company agrees to implement an investor relations plan and campaign reasonably acceptable to M4E. 2 5. M4E COMPENSATION & ISSUANCE OF SHARES a) Grant of Common Stock Shares. In consideration of M4E's commitment of the Media Credit, the Company shall transfer to M4E, and/or its designee(s) listed in "Exhibit A," attached hereto, within five business days of the Effective Date Three Million Three Hundred Thousand (3,300,000) restricted shares and or units of Company's common stock ("Compensation Shares"). M4E's performance hereunder is contingent upon Company's timely transfer of Compensation Shares. b) Transfer Agent Instructions. Upon the execution of this Agreement, the Company shall issue instructions to the Company's transfer agent effecting the provisions of Section 6(a) herein. Failure of Company to fully perform Section 6(a) or this Section 5(b) shall be a material breach and shall excuse any further performance by M4E under this Agreement. c) Nature of Compensation Shares. The Parties acknowledge and agree that: (i) the rights and obligations defined by this Agreement become binding upon execution of this Agreement; and (ii) the consideration for all Compensation Shares transferred hereby, regardless of the date of transfer, is represented solely by M4E's obligations hereunder, and M4E's interest in all Compensation Shares transferred hereunder immediately and irrevocably vests in M4E upon the execution of this Agreement; and (iii) the effective date of all Compensation Shares transferred hereby, regardless of the actual date of transfer, shall be the Effective Date hereof, and the tolling of any and all time periods relating to the Shares, including but not limited to those relating to any restriction, shall be calculated from the Effective Date hereof; and (iv) all Compensation Shares transferred hereby shall be fully paid, non assessable, common shares of the Company; (v) the number of Compensation Shares shall be adjusted for any stock splits, stock dividends, combinations, recapitalizations and the like; and (vi) no Shares transferred hereby shall be blocked in any way or subject to rescission or cancellation for any reason except gross negligence or malfeasance. d) Intrinsic Value of Compensation Shares. The Parties acknowledge and agree: (i) the market value of Company shares, calculated using a price quoted on the exchange on which such shares trade, may not necessarily reflect a true and accurate valuation of the Shares; (ii) the Media Value may bear no relationship to the current or future value of the Compensation Shares. e) Securities Documentation. M4E agrees to submit with an executed copy of this Agreement any such documentation, including but not limited to a Confidential Investor Questionnaire and Subscription Agreement, as Company's counsel may deem necessary to comply with applicable securities laws related to the issuance of the Compensation Shares. f) Opinion Letter. Company agrees to accept and represent to Company's transfer agent as valid, any opinion letter from M4E's counsel regarding restricted stock status and the removal of the legend thereon. g) Execution Fee. Company shall pay M4E an Execution Fee, payable in cash, of two thousand nine hundred fifty dollars US ($2,950.00) per month for the duration of the Campaign, for the express purpose of offsetting a portion of M4E's costs associated with executing the Campaign. However, first payment under this provision shall not commence until twelve (12) months after the start of the Media Campaign, which, at company's request can be delayed for a maximum of twelve (12) months (Section 2 a) from the Effective Date. 6. REGISTRATION RIGHTS a) Piggyback and Demand Registration Rights. If, at any time or from time to time after the Effective Date, the Company proposes to file a registration statement covering any securities of the Company, other than an offering registered on Form S-8 or Form S-4 (or successor forms relating to employee stock plans and certain business combinations), the Company shall, not less than thirty (30) days prior to the proposed filing date of the registration statement, give written notice of the proposed registration to M4E. Company agrees to include in such registration statement, all Compensation Shares as M4E so instructs, which instructions shall be delivered in writing to the Company within 20 days of M4E's receipt of Company's notice of such registration. If M4E requests, or as the Parties may agree, that fewer shares than M4E then owns be included in such registration statement, M4E shall continue to have piggyback registration rights for succeeding registration statements until all Compensation Shares have been registered. M4E may make one "demand" registration request, under which Company agrees to file under the Securities Act of 1933, as amended, a registration statement covering the Compensation Shares within 30 days after receipt of such request. b) Registration Costs. Company will bear all expenses attendant to registering the securities. 3 c) Liquidated Damages. In the event that the Company is required to include the Compensation Shares in a registration statement pursuant to Section 6(a) herein, and the Company fails to register the Compensation Shares, or if the Compensation Shares are or become eligible for sale pursuant to Rule 144 and the Company does not provide all required documents, including but not limited to any required legal opinion letter to remove any stock restrictions, within one week of written request from M4E, the Company shall pay as liquidated damages to M4E, in legal tender of the United States, an amount equal to five percent (5%) of the total value of this Agreement, for every thirty (30) day period until the restrictions are lifted. The Parties hereto agree that damages due to Company's breech hereunder are difficult to determine as of the Effective Date, and the Liquidated Damages hereunder are meant to approximate M4E's damages, and are not punitive. 7. DEFAULT Any failure of the Company to (i) transfer Stock as required by Section 5, herein; (ii) timely review and approve Copy supplied by M4E for review; or (iii) act in good faith to effectuate the terms of this Agreement, shall constitute a default. Upon Company's default, all amounts due M4E hereunder shall be due and payable, and M4E may in its sole discretion immediately suspend performance and terminate this Agreement. 8. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION For the purposes of this Agreement, the expression "Confidential Information" means all information of any nature previously, presently, or subsequently disclosed by one party (the "Disclosing Party") to the other party (the "Receiving Party"), relating to the Disclosing Party's business, including, but not limited to, the terms of this Agreement, information concerning any entities and/or interested parties and any analyses, compilations, studies other documents which contain or otherwise reflect or are generated from such information, all information relating to business, financial, customer and product development plans, forecasts, lists, methods, strategies, compilations and other information, inventions and ideas, including without limitation, ideas, know how, inventions (whether patentable or not), schematics and other technical information. However, Confidential Information does not include any information that is generally known in the Receiving Party's industry at the time of the signing of this Agreement, any information that the Receiving Party rightfully had in its possession prior to the disclosure of such information to the Receiving Party by the Disclosing Party, or any information disclosed after the termination of this agreement. The Disclosing Party Shall: Keep all Confidential Information secret and confidential; Not use any Confidential Information to obtain any financial, commercial, trading and/or other advantage, but rather use Confidential Information for the sole purpose of effectuating the mutual transaction(s) contemplated hereby; Not disclose Confidential Information to any third party whatsoever except as necessary to effectuate the terms of this Agreement. 9. INDEMNIFICATION Company shall indemnify and hold harmless M4E its agents, employees, legal representatives, heirs, executors or assigns from and against any and all losses, damages, expenses and liabilities (collectively "Liabilities") or actions, investigations, inquiries, arbitrations, claims or other proceedings in respect thereof, including enforcement of this Agreement (collectively "Actions") (Liabilities and Actions are herein collectively referred to as "Losses"). Losses include, but are not limited to all reasonable legal fees, court costs and other expenses incurred in connection with investigating, preparing, defending, paying, settling or compromising any suit in law or equity arising out of this Agreement or for any breach of this Agreement notwithstanding the absence of a final determination as to a Company's obligation to reimburse any of M4E Covenantees for such Losses and the possibility that such payments might later be held to have been improper. 10. CHOICE OF LAW/ARBITRATION This Agreement shall be governed by and construed in accordance with laws and judicial decisions of the Commonwealth of Virginia, without regard to its principles of conflicts of laws. The resolution of all disputes, actions or proceedings arising out of this Agreement shall be determined solely and exclusively by arbitration, by a single arbitrator, under the rules of the American Arbitration Association as then in effect. The place of arbitration shall be Alexandria, Virginia. Any decision rendered by the Arbitrator shall be final and binding, and any judgment upon any award rendered by the Arbitrator may be entered in any court having jurisdiction. 11. PUBLIC ANNOUNCEMENTS The Parties will jointly agree to the form of a public announcement of this Agreement and the proposed services. Neither party will, without the other's prior written consent and approval, issue any press release and/or other public announcement relating to the terms and conditions set forth in (or the existence of) this agreement or any additional press releases mentioning Media4Equity LLC 4 or any employee thereof, except for such disclosure to the public or to governmental agencies as its counsel shall deem necessary to comply with any and all applicable laws, rules or regulations. Company explicitly acknowledges and agrees that no public announcement of any kind may be made until Compensation Shares are issued pursuant to Section 5, above. 12. TERM/TERMINATION a) Term. The terms of this Agreement shall be effective as of the Effective Date, and continue until the later of (i) one (1) year from the date the Company first approves media for placement (which approval shall not be unreasonably withheld); or (ii) four (4) years from the Effective Date. The terms, conditions, and obligations of Sections 9, 10, and 11 hereof shall survive the termination of this Agreement. b) Term Certain. As the execution of this Agreement triggers the reallocation of M4E's staff and resources, the Company may not terminate or cancel this Agreement prior to the expiration of the Term set forth in Section 12(a) herein. 13. SUCCESSORS AND ASSIGNS The Parties may not assign their rights or obligations hereunder except that M4E may in its sole discretion assign the right to receive any compensation due hereunder including without limitation any and all interest in the Compensation Shares. 14. COUNTERPARTS This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. A telefaxed copy of this Agreement shall be deemed an original. 15. HEADINGS The headings used in this Agreement are for convenience of reference only and shall not be deemed to limit, characterize or in any way affect the interpretation of any provision of this Agreement. 16. MODIFICATION AND WAIVERS No change, modification or waiver of any provision of this Agreement shall be valid or binding unless it is in writing, dated subsequent to the Effective Date of this Agreement, and signed by both the Company and M4E. No waiver of any breach, term, condition or remedy of this Agreement by any party shall constitute a subsequent waiver of the same or any other breach, term, condition or remedy. 17. SEVERABILITY If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 18. ENTIRE AGREEMENT This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence, agreements, understandings duties or obligations between the parties with respect to the subject matter hereof. 19. FURTHER ASSURANCES From and after the date of this Agreement, upon the request of M4E, the Company shall execute and deliver such instruments, documents or other writings as may be reasonably necessary or desirable to carry out and effectuate fully the intents and purposes of this Agreement. 5 20. NOTICES All notices or other communications required or permitted by this Agreement shall be in writing and shall be deemed to have been duly received: (i) if given by telecopier, when transmitted and the appropriate telephonic confirmation received if transmitted on a business day and during normal business hours of the recipient, and otherwise on the next business day following transmission, (ii) if given by certified or registered mail, return receipt requested, postage prepaid, three business days after being deposited in the U.S. mails, or (iii) if given by courier or other means, when received or personally delivered, and, in any such case, to the address and contacts indicated on the signature page. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on August 27, 2008: Media4Equity LLC: /s/ R.D. Smith - ---------------------------- Richard Smith/President 2841 Hartland Road #301 Falls Church, VA 22043 Company Name Ingen Technologies, Inc. /s/ Scott Sand - --------------------------- Scott Sand, CEO and Chairman 35193 Avenue A Yucaipa CA 92399 6 EX-10.45 4 itec_10kex10-45.txt AGREEMENT Exhibit 10.45 INGEN TECHNOLOGIES, INC. 35193 Avenue A, Suite C Yucaipa, CA 92399 (909) 790-7180 FAX: (909) 790-7185 AGREEMENT This Agreement made effective as of this 1st day of January, 2008, by and Between Brad Klearman, further referred to as the ("Contractor") whose principal address is 11620 Misty Moss Ct., St. Louis MO 63146; and INGEN TECHNOLOGIES, INC., A Nevada Corporation, further referred to as the ("Company"), whose principal address is 35193 Avenue A, Yucaipa, California 92399 , and is made with reference to the following. RECITALS A. The Company is a Medical Device Manufacturer, and in the business of providing medical products and services on a global basis. Said products and services are inclusive of, but not limited to, vestibular function testing and balance testing, referred to as Secure Balance(TM), and respiratory care products referred to as OxyAlert(TM) and OxyView(TM). B. The Company desires to engage the services of the Contractor to increase sales of its product line, inclusive of but not limited to, Oxyview(TM), OxyAlert(TM) and Secure Balance(TM). C. The Contractor agrees to serve as a Director and member of the Board of Directors for Ingen Technologies, Inc. and agrees to perform on a "best efforts" basis. D. The Company desires to utilize the Contractor's expertise, knowledge and other resources as described in the above recitals. NOW, THEREFORE, the Parties mutually agree as follows: 1. In consideration of the Contractor furnishing the expertise, knowledge and other resources in providing said services; a) The Company agrees to pay the Contractor a 10%/5% cash/stock under the terms of a FINDER'S FEE AGREEMENT for related funding and capital financing activities. b) The Company will continue with the existing Agreement regarding commissions Paid for all Oxyview(TM) sales. c) The Contractor will receive 200,000 shares of Restricted Common Stock for each year served as a member of the Board of Directors. In addition, the Contractor will receive $500 per Board Meeting and material review as authorized by the Chairman. d) The Contractor will receive a $3,000 per month retainer paid either in cash or restricted shares, depending on the company's ability to pay. The Contractor will receive an employment contract to act as COO in value of $200,000 annually plus benefits effective upon the first $1,000,000 produced through Oxyview(TM) sales through Invacare Supply Group or other third party distributors. This salary will continue for a 12 month period, at which time it will continue upon Invacare Supply Group's/third party distirbutors ability to purchase $2,000,000 or more of product on an annual basis thereafter. It is understood that Oxyview(TM) product sales need to be consistent in order to maintain the employment contract. The $3,000 retainer will be off-set from the employment salary when it becomes effective. Further, in case of early termination of this contract, the company is not responsible to make any further cash or stock disbursements after the date of termination. 1 2. The Company holds harmless and indemnifies the Contractor from all liabilities associated with any claims or lawsuits. 3. Except for the amounts paid to the Contractor as stated in paragraph-1 and within the Recitals herein, the Contractor shall not be entitled to other payment and/or reimbursement for expenses incurred pursuant to this Agreement. All costs and expenses incurred by the Contractor in rendering said services shall be reimbursed or advanced by the Company only upon written authorization to the Contractor by the Company. 4. The Company agrees to provide full and proper assistance to the Contractor inclusive of administrative support, technical support, and professional support on a best efforts basis and within regulatory guidelines and laws set forth for providing said services and without penalty to the Contractor. 5. The Contractor agrees to provide the Company with proper tax documentation and identification upon the signing of this Agreement in accordance to State and Federal tax laws. 6. The relationship between both parties created by this Agreement is that of principal ("the Company") and Outside Contractor ("the Contractor") in that the time spent and the professional manner in which the services are performed shall solely be the responsibility of the Contractor. However, the Contractor agrees to use their best and most diligent efforts, within all laws, to provide the resources and expertise under the terms and conditions set forth herein. 7. During the term of this Agreement the Contractor does not have the right to promote services, either directly and/or indirectly, to any entity that has a similar products as provided by the Company for the duration of this Agreement. 8. In consideration of the importance of confidentiality, non-disclosure and trade secrets, the Contractor acknowledges that during the course of this Agreement between the Company and the Contractor, the Contractor has had access to and will continue to have access to various confidential information and trade secrets consisting of compilations of information, records, specifications and trade lists, which are owned by the Company and which are regularly used in the operation of the Company's business. The Contractor specifically agrees to NOT distribute the product pricing of the Company, nor use the brand name on any of their pricing to their clients. Further, the Contractor will agree to keep confidential all material related to or made a part of this Agreement from any client, employee, associate and/or the like. In consideration of continued engagement through this Agreement during the period of the Agreement by the Company, the Contractor shall not disclose any of the aforesaid confidential information or trade secrets, directly or indirectly, nor use them in any way, either during the term of this Agreement or at any time thereafter, except as required in the Contractor's engagement with the Company, but does not include information already within the public domain at the time the information is acquired by the Contractor, or information that subsequently becomes public through no act or omission of the Contractor. In further consideration of continued engagement and during the period of the Agreement, all files, records, documents, drawings, specifications, equipment and similar items relating to the business of the Company, whether prepared by the Contractors or otherwise, coming into the Contractor's possession shall remain the exclusive property of the Company and shall not be removed from the Company's premises under any circumstances whatsoever without prior written consent of the Company. 2 9. This Agreement shall continue in effect for a period of three years (3-yrs), and may be continued thereafter only by the express mutual agreement of both parties. This agreement can only be terminated by breech of contract. One or both parties must submit, in writing, with a 30 day notice, any termination. 10. This document contains the entire Agreement of the parties relating to this Agreement and correctly sets forth the rights, duties and obligations of all parties hereto. Any prior agreements, promises, negotiations and/or representations not expressly set forth in this Agreement is of no force and effect. 11. No waiver of any term or condition of this Agreement shall be deemed or construed to be a waiver of such term or condition in the future, or of any preceding or subsequent breach of the same or any other term or condition of this or any other agreement. All remedies, rights, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either party hereto. 12. No amendment or modification of this Agreement or of any covenant, condition or limitation herein contained shall be valid unless in writing and duly executed by the party to be charged therewith. Unless otherwise specifically set forth under a particular provision, any amendment or modification shall require the overall consent of both parties. 13. Nothing contained in this Agreement shall be construed so as to require the commission of any act contrary to law, and whenever there is a conflict between any provision of this Agreement and any statute, law, ordinance, rule, order or regulation, the later shall prevail, but in such event any such provision of this Agreement shall be curtailed and limited only to the extent necessary to bring it within the legal requirements. 14. This Agreement, and all rights and obligations contained herein shall be binding on and inure to the benefit of the parties hereto and their respective heirs, executors, legal and personal representatives, successors and assigns. It is also specifically agreed and understood that this Agreement shall be binding upon any successor-in-interest to the Company by way of merger, consolidation or otherwise. 15. Any controversy arising out of or in connection with this Agreement, or any amendment thereof, shall be determined and settled by arbitration in accordance with the rules of the American Arbitration Association. The venue for such arbitration shall be exclusively San Bernardino County, the State of California, and any award rendered shall be final and binding on each and all of the parties thereto and their successor-in-interest, and judgment may be entered thereon in any court having jurisdiction thereon. In any such proceeding, the Arbitrator shall be and hereby is empowered to render an award directing specific performance. Each individual party shall take responsibility for obligations pertaining to costs associated with their own legal representation. 16. All notices among the parties hereto shall be in writing and shall be deemed duly served when personally delivered to another party or, in lieu of such personal service, when deposited in the United States mail, certified and return receipt requested, with first class postage prepaid thereon, addressed as set forth above, or in such other place as may be specified in any written notice given pursuant to this paragraph as the address for service of notice. All notices shall be delivered to the parties addresses as witnessed below. Company: Scott Sand, CEO & Chairman Ingen Technologies, Inc. 285 E. County Line Rd. Calimesa, CA 92320 (800) 259-9622 Tax ID No. 88-0429044 3 Contractor: Brad Klearman 11620 Misty Moss Ct. St. Louis, MO 63146 Tax ID. ###-##-#### 314-256-9399 Brad@medigroup.com 17. This Agreement shall be governed and construed in accordance with laws of the State of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above and agree to all of the terms and conditions of this Agreement setforth herein. The Contractor: /s/ Brad Klearman 12/12/2007 ----------------------------- ------------------ Brad Klearman Date The Company: /s/ Scott Sand December 7th, 2007 ----------------------------- ------------------ Scott Sand, CEO Date 4 EX-10.46 5 itec_10kex10-46.txt AMENDMENT NO. 1 TO THE SECURITIES PURCHASE AGREEMENT EXHIBIT 10.46 AMENDMENT NO. 1 TO THE SECURITIES PURCHASE AGREEMENT DATED AS OF JUNE 16, 2008, BY AND AMONG INGEN TECHNOLOGIES, INC., AJW PARTNERS, LLC, NEW MILLENNIUM CAPITAL PARTNERS II, LLC AND AJW MASTER FUND, LTD. THIS AMENDMENT No. 1, dated as of September 5, 2008, by and among Ingen Technologies, Inc., AJW Partners, LLC, New Millennium Capital Partners II, LLC and AJW Master Fund, Ltd. amends the Securities Purchase Agreement dated as of June 16, 2008 among the parties hereto (the "SECURITIES PURCHASE AGREEMENT"). All the terms of the Securities Purchase Agreement are incorporated herein by reference, except as otherwise stated herein. Capitalized terms used herein that are not defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement. W I T N E S S E T H: WHEREAS, pursuant to the Securities Purchase Agreement, the Buyers purchased and the Company issued Notes in the aggregate principal amount of Two Hundred Thousand Dollars ($200,000) through the date hereof; and WHEREAS, the Company and the Buyers desire to amend certain provisions of the Securities Purchase Agreement. NOW, THEREFORE, in consideration of the premises contained herein, and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto agree as follows: 1. Recital A of the Securities Purchase Agreement hereby is amended and replaced in its entirety with the following: Buyers desire to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement (i) 6% convertible notes of the Company, in the form attached hereto as EXHIBIT "A", in the aggregate principal amount of up to Five Hundred Thousand Dollars ($500,000) (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the "NOTES"), convertible into shares of common stock, no par value per share, of the Company (the "COMMON STOCK"), upon the terms and subject to the limitations and conditions set forth in such Notes and (ii) warrants, in the form attached hereto as EXHIBIT "B", to purchase Twenty Million (20,000,000) shares of Common Stock (the "WARRANTS"). 2. Section 1(a) of the Securities Purchase Agreement hereby is amended and replaced in its entirety with the following: PURCHASE OF NOTES AND WARRANTS. On the Closing Date (as defined below), the Company shall issue and sell to each Buyer and each Buyer severally agrees to purchase from the Company such principal amount of Notes and number of Warrants as is set forth immediately below such Buyer's name on the signature pages hereto, which, together with the subsequent closings provided in Section 1(d) below, may aggregate up to Five Hundred Thousand Dollars ($500,000) principal amount of Notes and Warrants to purchase an aggregate of Twenty Million (20,000,000) shares of Common Stock. 3. Section 1(d) of the Securities Purchase Agreement hereby is amended and replaced in its entirety with the following: SUBSEQUENT CLOSINGS. On such dates as shall be mutually agreed upon by the Company and the Buyers (each, a "Funding Date"), the Company shall issue and sell to the Buyers and the Buyers shall purchase from the Company additional Notes in such principal amounts as shall be mutually agreed upon. On each Funding Date, the Buyers will transfer the appropriate Purchase Price by wire transfer of immediately available funds to the Company. In addition, on each Funding Date, an authorized officer of the Company shall deliver to the Buyers a closing certificate in form and substance satisfactory to the Buyers. 4. Except as expressly set forth herein, the Securities Purchase Agreement shall remain in full force and effect. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this Amendment to be duly executed as of the date first above written. INGEN TECHNOLOGIES, INC. /s/ Scott R. Sand - -------------------------------- Scott R. Sand Chief Executive Officer AJW PARTNERS, LLC By: SMS Group, LLC /s/ Corey S. Ribotsky - -------------------------------- Corey S. Ribotsky Manager NEW MILLENNIUM CAPITAL PARTNERS II, LLC By: First Street Manager II, LLC /s/ Corey S. Ribotsky - ------------------------------------ Corey S. Ribotsky Manager AJW MASTER FUND, LTD. By: First Street Manager II, LLC /s/ Corey S. Ribotsky - -------------------------------------- Corey S. Ribotsky Manager EX-10.47 6 itec_10kex10-47.txt CALLABLE SECURED CONVERTIBLE NOTE EXHIBIT 10.47 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT. CALLABLE SECURED CONVERTIBLE NOTE Yucaipa, California August 29, 2008 $5,000 FOR VALUE RECEIVED, INGEN TECHNOLOGIES, INC., a Georgia Corporation (hereinafter called the "BORROWER"), hereby promises to pay to the order of AJW Partners, LLC or registered assigns (the "HOLDER") the sum of $5,000 on August 29, 2011 (the "MATURITY DATE"), and to pay interest on the unpaid principal balance hereof at the rate of twelve percent (12%) (the "INTEREST RATE") per annum from August 29, 2008 (the "ISSUE DATE") until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of fifteen percent (15%) per annum from the due date thereof until the same is paid ("DEFAULT INTEREST"). Interest shall commence accruing on the Issue Date, shall be computed on the basis of a 365-day year and the actual number of days elapsed and shall be payable quarterly provided that no interest shall be due and payable for any month in which the Trading Price (as such term is defined below) is greater than $41.09 for each Trading Day (as such term is defined below) of the month. All payments due hereunder (to the extent not converted into common stock, no par value per share (the "COMMON STOCK") in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term "business day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or 1 executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement, dated June 16, 2008, pursuant to which this Note was originally issued (the "PURCHASE AGREEMENT"). This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof. The obligations of the Borrower under this Note shall be secured by that certain Security Agreement and that certain Intellectual Property Security Agreement, each dated June 16, 2008 by and between the Borrower and the Holder. The following terms shall apply to this Note: ARTICLE I. CONVERSION RIGHTS 1.1 CONVERSION RIGHT. The Holder shall have the right from time to time, and at any time on or prior to the earlier of (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional Prepayment Amount (as defined in Section 5.1 or any payments pursuant to Section 1.7, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the "CONVERSION PRICE") determined as provided herein (a "CONVERSION"); PROVIDED, HOWEVER, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower (including, without limitation, the warrants issued by the Borrower pursuant to the Purchase Agreement) subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock and PROVIDED FURTHER that the Holder shall not be entitled to convert any portion of this Note during any month immediately succeeding a Determination Date on which the Borrower exercises its prepayment option pursuant to Section 5.2 of this Note. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the "NOTICE OF CONVERSION"), delivered to the Borrower by the Holder 2 in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the "CONVERSION DATE"). The term "CONVERSION AMOUNT" means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion PLUS (2) accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, provided, however, that the Company shall have the right to pay any or all interest in cash PLUS (3) Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) PLUS (4) at the Holder's option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights Agreement, dated as of June 16, 2008, executed in connection with the initial issuance of this Note and the other Notes issued on the Issue Date (the "REGISTRATION RIGHTS AGREEMENT"). The term "DETERMINATION DATE" means the last business day of each month after the Issue Date. 1.2 CONVERSION PRICE. (a) CALCULATION OF CONVERSION PRICE. The Conversion Price shall be the Variable Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "VARIABLE CONVERSION PRICE" shall mean the Applicable Percentage (as defined herein) multiplied by the Market Price (as defined herein). "MARKET PRICE" means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the twenty (20) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower via facsimile (the "CONVERSION DATE"). "TRADING Price" means, for any security as of any date, the intraday trading price on the Over-the-Counter Bulletin Board (the "OTCBB") as reported by a reliable reporting service ("REPORTING SERVICE") mutually acceptable to Borrower and Holder and hereafter designated by Holders of a majority in interest of the Notes and the Borrower or, if the OTCBB is not the principal trading market for such security, the intraday trading price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no intraday trading price of such security is available in any of the foregoing manners, the average of the intraday trading prices of any market makers for such security that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. "TRADING DAY" shall mean any day on which the Common Stock is traded for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. "APPLICABLE PERCENTAGE" shall mean 40%. (b) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly 3 announces a tender offer to purchase 50% or more of the Borrower's Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the "ANNOUNCEMENT DATE"), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE" shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative. 1.3 AUTHORIZED SHARES. The Borrower covenants that upon the increase in the number of authorized shares of the Company's Common Stock to 500,000,000 shares within thirty (30) days from the date hereof and during the period the conversion right exists thereafter, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note and the other Notes issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved two times the number of shares that is actually issuable upon full conversion of the Notes (based on the Conversion Price of the Notes or the Exercise Price of the Warrants in effect from time to time) (the "RESERVED AMOUNT"). The Reserved Amount shall be increased from time to time in accordance with the Borrower's obligations pursuant to Section 4(h) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note. If, at any time a Holder of this Note submits a Notice of Conversion, and the Borrower does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in accordance with the provisions of this Article I (a "CONVERSION DEFAULT"), subject to Section 4.8, the Borrower shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion. The portion of this Note which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the "EXCESS 4 AMOUNT") shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the Holder's option at any time after) the date additional shares of Common Stock are authorized by the Borrower to permit such conversion, at which time the Conversion Price in respect thereof shall be the lesser of (i) the Conversion Price on the Conversion Default Date (as defined below) and (ii) the Conversion Price on the Conversion Date thereafter elected by the Holder in respect thereof. In addition, the Borrower shall pay to the Holder payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount of (x) the SUM OF (1) the then outstanding principal amount of this Note PLUS (2) accrued and unpaid interest on the unpaid principal amount of this Note through the Authorization Date (as defined below) PLUS (3) Default Interest, if any, on the amounts referred to in clauses (1) and/or (2), MULTIPLIED BY (y) .24, MULTIPLIED BY (z) (N/365), where N = the number of days from the day the holder submits a Notice of Conversion giving rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date (the "AUTHORIZATION DATE") that the Borrower authorizes a sufficient number of shares of Common Stock to effect conversion of the full outstanding principal balance of this Note. The Borrower shall use its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Borrower or that the Borrower otherwise becomes aware that there are or likely will be insufficient authorized and unissued shares to allow full conversion thereof and (ii) a Conversion Default. The Borrower shall send notice to the Holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of Holder's accrued Conversion Default Payments. The accrued Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible into Common Stock (at such time as there are sufficient authorized shares of Common Stock) at the applicable Conversion Price, at the Borrower's option, as follows: (a) In the event Holder elects to take such payment in cash, cash payment shall be made to Holder by the fifth (5th) day of the month following the month in which it has accrued; and (b) In the event Holder elects to take such payment in Common Stock, the Holder may convert such payment amount into Common Stock at the Conversion Price (as in effect at the time of conversion) at any time after the fifth day of the month following the month in which it has accrued in accordance with the terms of this Article I (so long as there is then a sufficient number of authorized shares of Common Stock). The Holder's election shall be made in writing to the Borrower at any time prior to 6:00 p.m., New York, New York time, on the third day of the month following the month in which Conversion Default payments have accrued. If no election is made, the Holder shall be deemed to have elected to receive cash. Nothing herein shall limit the Holder's right to pursue actual damages (to the extent in excess of the Conversion Default Payments) for the Borrower's failure to maintain a sufficient number of authorized shares of Common Stock, and each holder shall have the right to pursue all remedies available at law or in equity (including degree of specific performance and/or injunctive relief). 5 1.4 METHOD OF CONVERSION. (a) MECHANICS OF CONVERSION. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower. (b) SURRENDER OF NOTE UPON CONVERSION. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof. (c) PAYMENT OF TAXES. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder's account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid. (d) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon receipt by the Borrower from the Holder of a facsimile transmission (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) (such third business day being hereinafter referred to as the "DEADLINE") in accordance with the terms hereof and the Purchase Agreement (including, without limitation, in accordance with the requirements of Section 2(g) of the Purchase Agreement that certificates for shares of Common Stock issued on or after the effective date of the Registration Statement upon conversion of this Note shall not bear any restrictive legend). 6 (e) OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date. (f) DELIVERY OF COMMON STOCK BY ELECTRONIC TRANSFER. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. (g) FAILURE TO DELIVER COMMON STOCK PRIOR TO DEADLINE. Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is more than three (3) business days after the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. 7 1.5 CONCERNING THE SHARES. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) ("RULE 144") or (iv) such shares are transferred to an "affiliate" (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act as contemplated by the Registration Rights Agreement or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT." The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefor free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act and the shares are so sold or transferred, (ii) such Holder provides the Borrower or its transfer agent with reasonable assurances that the Common Stock issuable upon conversion of this Note (to the extent such securities are deemed to have been acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. Nothing in this Note shall (i) limit the Borrower's obligation under the Registration Rights Agreement or (ii) affect in any way the Holder's obligations to comply with applicable prospectus delivery requirements upon the resale of the securities referred to herein. 8 1.6 EFFECT OF CERTAIN EVENTS. (a) EFFECT OF MERGER, CONSOLIDATION, ETC. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. "PERSON" shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization. (b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not effect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges. (c) ADJUSTMENT DUE TO DISTRIBUTION. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then the 9 Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. (d) ADJUSTMENT DUE TO DILUTIVE ISSUANCE. If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Variable Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a "DILUTIVE ISSUANCE"), then immediately upon the Dilutive Issuance, the Variable Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance; PROVIDED that only one adjustment will be made for each Dilutive Issuance. The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "OPTIONS") and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Variable Conversion Price then in effect, then the Variable Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon the exercise of such Options" is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options. Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Variable Conversion Price then in effect, then the Variable Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon such conversion or exchange" is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or 10 sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Variable Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (e) PURCHASE RIGHTS. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the "PURCHASE Rights") pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (f) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder of a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note. 1.7 TRADING MARKET LIMITATIONS. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the "MAXIMUM SHARE AMOUNT"), which shall be 19.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued (the date of which is hereinafter referred to as the "MAXIMUM CONVERSION Date"), if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower's ability to issue shares of Common Stock in excess of the Maximum Share Amount (a "TRADING MARKET PREPAYMENT EVENT"), in lieu of any further right to convert this Note, and in full satisfaction of the Borrower's obligations under this Note, the Borrower shall pay to the Holder, within fifteen (15) business days of the Maximum Conversion Date (the "TRADING MARKET PREPAYMENT DATE"), an amount equal to 130% TIMES the SUM of (a) the then 11 outstanding principal amount of this Note immediately following the Maximum Conversion Date, PLUS (b) accrued and unpaid interest on the unpaid principal amount of this Note to the Trading Market Prepayment Date, PLUS (c) Default Interest, if any, on the amounts referred to in clause (a) and/or (b) above, PLUS (d) any optional amounts that may be added thereto at the Maximum Conversion Date by the Holder in accordance with the terms hereof (the then outstanding principal amount of this Note immediately following the Maximum Conversion Date, PLUS the amounts referred to in clauses (b), (c) and (d) above shall collectively be referred to as the "REMAINING CONVERTIBLE AMOUNT"). With respect to each Holder of Notes, the Maximum Share Amount shall refer to such Holder's PRO RATA share thereof determined in accordance with Section 4.8 below. In the event that the sum of (x) the aggregate number of shares of Common Stock issued upon conversion of this Note and the other Notes issued pursuant to the Purchase Agreement PLUS (y) the aggregate number of shares of Common Stock that remain issuable upon conversion of this Note and the other Notes issued pursuant to the Purchase Agreement, represents at least one hundred percent (100%) of the Maximum Share Amount (the "TRIGGERING EVENT"), the Borrower will use its best efforts to seek and obtain Shareholder Approval (or obtain such other relief as will allow conversions hereunder in excess of the Maximum Share Amount) as soon as practicable following the Triggering Event and before the Maximum Conversion Date. As used herein, "SHAREHOLDER APPROVAL" means approval by the shareholders of the Borrower to authorize the issuance of the full number of shares of Common Stock which would be issuable upon full conversion of the then outstanding Notes but for the Maximum Share Amount. 1.8 STATUS AS SHAREHOLDER. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder's allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder's rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower's failure to convert this Note. 12 ARTICLE II. CERTAIN COVENANTS 2.1 DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders' rights plan which is approved by a majority of the Borrower's disinterested directors. 2.2 RESTRICTION ON STOCK REPURCHASES. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares. 2.3 BORROWINGS. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, create, incur, assume or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business or (c) borrowings, the proceeds of which shall be used to repay this Note. 2.4 SALE OF ASSETS. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition. The Holder will have ten (10) days to respond to said sale and Holder's consent can not be unreasonably withheld. 2.5 ADVANCES AND LOANS. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $50,000. 2.6 CONTINGENT LIABILITIES. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, which shall not be unreasonably withheld, assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection and except assumptions, guarantees, endorsements and contingencies (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, and (b) similar transactions in the ordinary course of business. 13 ARTICLE III. EVENTS OF DEFAULT If any of the following events of default (each, an "EVENT OF DEFAULT") shall occur: 3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon a Trading Market Prepayment Event pursuant to Section 1.7, upon acceleration or otherwise; 3.2 CONVERSION AND THE SHARES. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note or the Registration Rights Agreement, or fails to remove any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note or the Registration Rights Agreement (or makes any announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Borrower shall have been notified thereof in writing by the Holder; 3.3 FAILURE TO TIMELY FILE REGISTRATION OR EFFECT REGISTRATION. The Borrower fails to file the Registration Statement within thirty (30) days following the receipt of written demand of the Investors or obtain effectiveness with the Securities and Exchange Commission of the Registration Statement within one hundred twenty (120) days following the receipt of written demand of the Investors or such Registration Statement lapses in effect (or sales cannot otherwise be made thereunder effective, whether by reason of the Borrower's failure to amend or supplement the prospectus included therein in accordance with the Registration Rights Agreement or otherwise) for more than ten (10) consecutive days or twenty (20) days in any twelve month period after the Registration Statement becomes effective; 3.4 BREACH OF COVENANTS. The Borrower breaches any material covenant or other material term or condition contained in Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder; 3.5 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement and the Registration Rights Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note, the Purchase Agreement or the Registration Rights Agreement; 14 3.6 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed; 3.7 JUDGMENTS. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld; 3.8 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower, unless such proceeding shall be stayed within thirty (30) days; 3.9 DELISTING OF COMMON STOCK. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange; or 3.10 DEFAULT UNDER OTHER NOTES. An Event of Default has occurred and is continuing under any of the other Notes issued pursuant to the Purchase Agreement, then, upon the occurrence and during the continuation of any Event of Default specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the aggregate principal amount of the outstanding Notes issued pursuant to the Purchase Agreement exercisable through the delivery of written notice to the Borrower by such Holders (the "DEFAULT NOTICE"), and upon the occurrence of an Event of Default specified in Section 3.6 or 3.8 (unless, under Section 3.8, such proceeding shall be stayed within 30 days), the Notes shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 140% TIMES the SUM of (w) the then outstanding principal amount of this Note PLUS (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the "MANDATORY PREPAYMENT DATE") PLUS (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) PLUS (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights Agreement (the then outstanding principal amount of this Note to the date of payment PLUS the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "DEFAULT SUM") or (ii) the "parity value" of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for purposes of determining the lowest applicable Conversion Price, unless the Default Event 15 arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), MULTIPLIED BY (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect. ARTICLE IV. MISCELLANEOUS 4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. 4.2 NOTICES. Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by courier or sent by United States mail and shall be deemed to have been given upon receipt if personally served (which shall include telephone line facsimile transmission) or sent by courier or three (3) days after being deposited in the United States mail, certified, with postage pre-paid and properly addressed, if sent by mail. For the purposes hereof, the address of the Holder shall be as shown on the records of the Borrower; and the address of the Borrower shall be 35193 Avenue "A", Suite-C, Yucaipa, CA 92399, facsimile NUMBER: (909) 790-7185. Both the Holder and the Borrower may change the address for service by service of written notice to the other as herein provided. 4.3 AMENDMENTS. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented. 4.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a BONA FIDE margin account or other lending arrangement. 16 4.5 COST OF COLLECTION. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys' fees. 4.6 GOVERNING LAW. THIS NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE. 4.7 CERTAIN AMOUNTS. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock. 4.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT. The Maximum Share Amount and Reserved Amount shall be allocated pro rata among the Holders of Notes based on the principal amount of such Notes issued to each Holder. Each increase to the Maximum Share Amount and Reserved Amount shall be allocated pro rata among the Holders of Notes based on the principal amount of such Notes held by each Holder at the time of the increase in the Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or otherwise transfer any of such Holder's Notes, each transferee shall be allocated a pro rata portion of such transferor's Maximum Share Amount and Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount which remains allocated 17 to any person or entity which does not hold any Notes shall be allocated to the remaining Holders of Notes, pro rata based on the principal amount of such Notes then held by such Holders. 4.9 DAMAGES SHARES. The shares of Common Stock that may be issuable to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights Agreement ("DAMAGES SHARES") shall be treated as Common Stock issuable upon conversion of this Note for all purposes hereof and shall be subject to all of the limitations and afforded all of the rights of the other shares of Common Stock issuable hereunder, including without limitation, the right to be included in the Registration Statement filed pursuant to the Registration Rights Agreement. For purposes of calculating interest payable on the outstanding principal amount hereof, except as otherwise provided herein, amounts convertible into Damages Shares ("DAMAGES AMOUNTS") shall not bear interest but must be converted prior to the conversion of any outstanding principal amount hereof, until the outstanding Damages Amounts is zero. 4.10 DENOMINATIONS. At the request of the Holder, upon surrender of this Note, the Borrower shall promptly issue new Notes in the aggregate outstanding principal amount hereof, in the form hereof, in such denominations of at least $50,000 as the Holder shall request. 4.11 PURCHASE AGREEMENT. By its acceptance of this Note, each Holder agrees to be bound by the applicable terms of the Purchase Agreement. 4.12 NOTICE OF CORPORATE EVENTS. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower's shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.12. 4.13 REMEDIES. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. 18 Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required. ARTICLE V. CALL OPTION 5.1 CALL OPTION. Notwithstanding anything to the contrary contained in this Article V, so long as no Event of Default or Trading Market Prepayment Event shall have occurred and be continuing, the Borrower has a sufficient number of authorized shares of Common Stock reserved for issuance upon full conversion of the Notes, then at any time after the Issue Date, and the Common Stock is trading at or below $41.09 per share, the Borrower shall have the right, exercisable on not less than ten (10) Trading Days prior written notice to the Holders of the Notes (which notice may not be sent to the Holders of the Notes until the Borrower is permitted to prepay the Notes pursuant to this Section 5.1), to prepay all of the outstanding Notes in accordance with this Section 5.1. Any notice of prepayment hereunder (an "OPTIONAL PREPAYMENT") shall be delivered to the Holders of the Notes at their registered addresses appearing on the books and records of the Borrower and shall state (1) that the Borrower is exercising its right to prepay all of the Notes issued on the Issue Date and (2) the date of prepayment (the "OPTIONAL PREPAYMENT NOTICE"). On the date fixed for prepayment (the "OPTIONAL PREPAYMENT Date"), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holders as specified by the Holders in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Notes, the Borrower shall make payment to the holders of an amount in cash (the "OPTIONAL PREPAYMENT AMOUNT") equal to either (i) 120% (for prepayments occurring within thirty (30) days of the Issue Date), (ii) 130% for prepayments occurring between thirty-one (31) and sixty (60) days of the Issue Date, or (iii) 140% (for prepayments occurring after the sixtieth (60th) day following the Issue Date), multiplied by the sum of (w) the then outstanding principal amount of this Note PLUS (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date PLUS (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) PLUS (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights Agreement (the then outstanding principal amount of this Note to the date of payment PLUS the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "OPTIONAL PREPAYMENT SUM"). Notwithstanding notice of an Optional Prepayment, the Holders shall at all times prior to the Optional Prepayment Date maintain the right to convert all or any portion of the Notes in accordance with Article I and any portion of Notes so converted after receipt of an Optional Prepayment Notice and prior to the Optional Prepayment Date set forth in such notice and payment of the aggregate Optional Prepayment Amount shall be deducted from the principal amount of Notes which are otherwise subject to prepayment pursuant to such notice. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holders of the Notes within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to redeem the Notes pursuant to this Section 5.1. 19 5.2 PARTIAL CALL OPTION. Notwithstanding anything to the contrary contained in this Article V, in the event that the Trading Price of the Common Stock, as reported by the Reporting Service, for each day of the month ending on any Determination Date is below the Initial Market Price, the Borrower may, at its option, prepay a portion of the outstanding principal amount of the Notes equal to 101% of the principal amount hereof divided by thirty-six (36) plus one month's interest and this will stay all conversions for the month. The term "INITIAL MARKET PRICE" shall mean the volume weighted average price of the Common Stock for the five (5) Trading Days immediately preceding the Closing which is $0.0943. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 20 IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this 29th day of August, 2008. INGEN TECHNOLOGIES, INC. By: /s/ Scott Sand ---------------------------- Scott R. Sand Chief Executive Officer 21 EXHIBIT A NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Notes) The undersigned hereby irrevocably elects to convert $__________ principal amount of the Note (defined below) into shares of common stock, no par value per share ("COMMON STOCK"), of Ingen Technologies, Inc., a Georgia corporation (the "BORROWER") according to the conditions of the convertible Notes of the Borrower dated as of August 29, 2008 (the "NOTES"), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. A copy of each Note is attached hereto (or evidence of loss, theft or destruction thereof). The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC TRANSFER"). Name of DTC Prime Broker:______________________________________________ Account Number:________________________________________________________ In lieu of receiving shares of Common Stock issuable pursuant to this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder's calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: Name: _________________________________________________________________ Address: ______________________________________________________________ The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Notes shall be made pursuant to registration of the securities under the Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from registration under the Act. Date of Conversion:___________________________ Applicable Conversion Price:____________________ Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Notes:______________ Signature:___________________________________ Name:______________________________________ Address:____________________________________ The Borrower shall issue and deliver shares of Common Stock to an overnight courier not later than three business days following receipt of the original Note(s) to be converted, and shall make payments pursuant to the Notes for the number of business days such issuance and delivery is late. EX-10.48 7 itec_10kex10-48.txt CALLABLE SECURED CONVERTIBLE NOTE EXHIBIT 10.48 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT. CALLABLE SECURED CONVERTIBLE NOTE Yucaipa, California August 29, 2008 $5,000 FOR VALUE RECEIVED, INGEN TECHNOLOGIES, INC., a Georgia Corporation (hereinafter called the "BORROWER"), hereby promises to pay to the order of AJW Master Fund, Ltd. or registered assigns (the "HOLDER") the sum of $5,000 on August 29, 2011 (the "MATURITY DATE"), and to pay interest on the unpaid principal balance hereof at the rate of twelve percent (12%) (the "INTEREST RATE") per annum from August 29, 2008 (the "ISSUE Date") until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of fifteen percent (15%) per annum from the due date thereof until the same is paid ("DEFAULT Interest"). Interest shall commence accruing on the Issue Date, shall be computed on the basis of a 365-day year and the actual number of days elapsed and shall be payable quarterly provided that no interest shall be due and payable for any month in which the Trading Price (as such term is defined below) is greater than $41.09 for each Trading Day (as such term is defined below) of the month. All payments due hereunder (to the extent not converted into common stock, no par value per share (the "COMMON STOCK") in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term "business day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement, dated June 16, 2008, pursuant to which this Note was originally issued (the "PURCHASE AGREEMENT"). 1 This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof. The obligations of the Borrower under this Note shall be secured by that certain Security Agreement and that certain Intellectual Property Security Agreement, each dated June 16, 2008 by and between the Borrower and the Holder. The following terms shall apply to this Note: ARTICLE I. CONVERSION RIGHTS 1.1 CONVERSION RIGHT. The Holder shall have the right from time to time, and at any time on or prior to the earlier of (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional Prepayment Amount (as defined in Section 5.1 or any payments pursuant to Section 1.7, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the "CONVERSION PRICE") determined as provided herein (a "CONVERSION"); PROVIDED, HOWEVER, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower (including, without limitation, the warrants issued by the Borrower pursuant to the Purchase Agreement) subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock and PROVIDED FURTHER that the Holder shall not be entitled to convert any portion of this Note during any month immediately succeeding a Determination Date on which the Borrower exercises its prepayment option pursuant to Section 5.2 of this Note. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the "NOTICE OF CONVERSION"), delivered to the Borrower by the Holder 2 in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the "CONVERSION DATE"). The term "CONVERSION AMOUNT" means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion PLUS (2) accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, provided, however, that the Company shall have the right to pay any or all interest in cash PLUS (3) Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) PLUS (4) at the Holder's option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights Agreement, dated as of June 16, 2008, executed in connection with the initial issuance of this Note and the other Notes issued on the Issue Date (the "REGISTRATION RIGHTS AGREEMENT"). The term "DETERMINATION DATE" means the last business day of each month after the Issue Date. 1.2 CONVERSION PRICE. (a) CALCULATION OF CONVERSION PRICE. The Conversion Price shall be the Variable Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "VARIABLE CONVERSION PRICE" shall mean the Applicable Percentage (as defined herein) multiplied by the Market Price (as defined herein). "MARKET PRICE" means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the twenty (20) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower via facsimile (the "CONVERSION DATE"). "TRADING Price" means, for any security as of any date, the intraday trading price on the Over-the-Counter Bulletin Board (the "OTCBB") as reported by a reliable reporting service ("REPORTING SERVICE") mutually acceptable to Borrower and Holder and hereafter designated by Holders of a majority in interest of the Notes and the Borrower or, if the OTCBB is not the principal trading market for such security, the intraday trading price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no intraday trading price of such security is available in any of the foregoing manners, the average of the intraday trading prices of any market makers for such security that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. "TRADING DAY" shall mean any day on which the Common Stock is traded for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. "APPLICABLE PERCENTAGE" shall mean 40%. (b) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the 3 Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower's Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the "ANNOUNCEMENT DATE"), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE" shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative. 1.3 AUTHORIZED SHARES. The Borrower covenants that upon the increase in the number of authorized shares of the Company's Common Stock to 500,000,000 shares within thirty (30) days from the date hereof and during the period the conversion right exists thereafter, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note and the other Notes issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved two times the number of shares that is actually issuable upon full conversion of the Notes (based on the Conversion Price of the Notes or the Exercise Price of the Warrants in effect from time to time) (the "RESERVED AMOUNT"). The Reserved Amount shall be increased from time to time in accordance with the Borrower's obligations pursuant to Section 4(h) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note. If, at any time a Holder of this Note submits a Notice of Conversion, and the Borrower does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in accordance with the provisions of this Article I (a "CONVERSION DEFAULT"), subject to Section 4.8, the Borrower shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion. The portion of this Note which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the "EXCESS 4 AMOUNT") shall, notwithstanding anything to the contrary contained herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the Holder's option at any time after) the date additional shares of Common Stock are authorized by the Borrower to permit such conversion, at which time the Conversion Price in respect thereof shall be the lesser of (i) the Conversion Price on the Conversion Default Date (as defined below) and (ii) the Conversion Price on the Conversion Date thereafter elected by the Holder in respect thereof. In addition, the Borrower shall pay to the Holder payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount of (x) the SUM OF (1) the then outstanding principal amount of this Note PLUS (2) accrued and unpaid interest on the unpaid principal amount of this Note through the Authorization Date (as defined below) PLUS (3) Default Interest, if any, on the amounts referred to in clauses (1) and/or (2), MULTIPLIED BY (y) .24, MULTIPLIED BY (z) (N/365), where N = the number of days from the day the holder submits a Notice of Conversion giving rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date (the "AUTHORIZATION DATE") that the Borrower authorizes a sufficient number of shares of Common Stock to effect conversion of the full outstanding principal balance of this Note. The Borrower shall use its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Borrower or that the Borrower otherwise becomes aware that there are or likely will be insufficient authorized and unissued shares to allow full conversion thereof and (ii) a Conversion Default. The Borrower shall send notice to the Holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of Holder's accrued Conversion Default Payments. The accrued Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible into Common Stock (at such time as there are sufficient authorized shares of Common Stock) at the applicable Conversion Price, at the Borrower's option, as follows: (a) In the event Holder elects to take such payment in cash, cash payment shall be made to Holder by the fifth (5th) day of the month following the month in which it has accrued; and (b) In the event Holder elects to take such payment in Common Stock, the Holder may convert such payment amount into Common Stock at the Conversion Price (as in effect at the time of conversion) at any time after the fifth day of the month following the month in which it has accrued in accordance with the terms of this Article I (so long as there is then a sufficient number of authorized shares of Common Stock). The Holder's election shall be made in writing to the Borrower at any time prior to 6:00 p.m., New York, New York time, on the third day of the month following the month in which Conversion Default payments have accrued. If no election is made, the Holder shall be deemed to have elected to receive cash. Nothing herein shall limit the Holder's right to pursue actual damages (to the extent in excess of the Conversion Default Payments) for the Borrower's failure to maintain a sufficient number of authorized shares of Common Stock, and each holder shall have the right to pursue all remedies available at law or in equity (including degree of specific performance and/or injunctive relief). 5 1.4 METHOD OF CONVERSION. (a) MECHANICS OF CONVERSION. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower. (b) SURRENDER OF NOTE UPON CONVERSION. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof. (c) PAYMENT OF TAXES. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder's account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid. (d) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon receipt by the Borrower from the Holder of a facsimile transmission (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) (such third business day being hereinafter referred to as the "DEADLINE") in accordance with the terms hereof and the Purchase Agreement (including, without limitation, in accordance with the requirements of Section 2(g) of the Purchase Agreement that certificates for shares of Common Stock issued on or after the effective date of the Registration Statement upon conversion of this Note shall not bear any restrictive legend). 6 (e) OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date. (f) DELIVERY OF COMMON STOCK BY ELECTRONIC TRANSFER. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. (g) FAILURE TO DELIVER COMMON STOCK PRIOR TO DEADLINE. Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is more than three (3) business days after the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. 7 1.5 CONCERNING THE SHARES. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) ("RULE 144") or (iv) such shares are transferred to an "affiliate" (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act as contemplated by the Registration Rights Agreement or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT." The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefor free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act and the shares are so sold or transferred, (ii) such Holder provides the Borrower or its transfer agent with reasonable assurances that the Common Stock issuable upon conversion of this Note (to the extent such securities are deemed to have been acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. Nothing in this Note shall (i) limit the Borrower's obligation under the Registration Rights Agreement or (ii) affect in any way the Holder's obligations to comply with applicable prospectus delivery requirements upon the resale of the securities referred to herein. 8 1.6 EFFECT OF CERTAIN EVENTS. (a) EFFECT OF MERGER, CONSOLIDATION, ETC. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. "PERSON" shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization. (b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not effect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges. (c) ADJUSTMENT DUE TO DISTRIBUTION. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then the 9 Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. (d) ADJUSTMENT DUE TO DILUTIVE ISSUANCE. If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Variable Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a "DILUTIVE ISSUANCE"), then immediately upon the Dilutive Issuance, the Variable Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance; PROVIDED that only one adjustment will be made for each Dilutive Issuance. The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "OPTIONS") and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Variable Conversion Price then in effect, then the Variable Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon the exercise of such Options" is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options. Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Variable Conversion Price then in effect, then the Variable Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon such conversion or exchange" is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of 10 additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Variable Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (e) PURCHASE RIGHTS. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the "PURCHASE Rights") pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (f) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder of a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note. 1.7 TRADING MARKET LIMITATIONS. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the "MAXIMUM SHARE AMOUNT"), which shall be 19.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued (the date of which is hereinafter referred to as the "MAXIMUM CONVERSION Date"), if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower's ability to issue shares of Common Stock in excess of the Maximum Share Amount (a "TRADING MARKET PREPAYMENT EVENT"), in 11 lieu of any further right to convert this Note, and in full satisfaction of the Borrower's obligations under this Note, the Borrower shall pay to the Holder, within fifteen (15) business days of the Maximum Conversion Date (the "TRADING MARKET PREPAYMENT DATE"), an amount equal to 130% TIMES the SUM of (a) the then outstanding principal amount of this Note immediately following the Maximum Conversion Date, PLUS (b) accrued and unpaid interest on the unpaid principal amount of this Note to the Trading Market Prepayment Date, PLUS (c) Default Interest, if any, on the amounts referred to in clause (a) and/or (b) above, PLUS (d) any optional amounts that may be added thereto at the Maximum Conversion Date by the Holder in accordance with the terms hereof (the then outstanding principal amount of this Note immediately following the Maximum Conversion Date, PLUS the amounts referred to in clauses (b), (c) and (d) above shall collectively be referred to as the "REMAINING CONVERTIBLE AMOUNT"). With respect to each Holder of Notes, the Maximum Share Amount shall refer to such Holder's PRO RATA share thereof determined in accordance with Section 4.8 below. In the event that the sum of (x) the aggregate number of shares of Common Stock issued upon conversion of this Note and the other Notes issued pursuant to the Purchase Agreement PLUS (y) the aggregate number of shares of Common Stock that remain issuable upon conversion of this Note and the other Notes issued pursuant to the Purchase Agreement, represents at least one hundred percent (100%) of the Maximum Share Amount (the "TRIGGERING EVENT"), the Borrower will use its best efforts to seek and obtain Shareholder Approval (or obtain such other relief as will allow conversions hereunder in excess of the Maximum Share Amount) as soon as practicable following the Triggering Event and before the Maximum Conversion Date. As used herein, "SHAREHOLDER APPROVAL" means approval by the shareholders of the Borrower to authorize the issuance of the full number of shares of Common Stock which would be issuable upon full conversion of the then outstanding Notes but for the Maximum Share Amount. 1.8 STATUS AS SHAREHOLDER. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder's allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder's rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower's failure to convert this Note. 12 ARTICLE II. CERTAIN COVENANTS 2.1 DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders' rights plan which is approved by a majority of the Borrower's disinterested directors. 2.2 RESTRICTION ON STOCK REPURCHASES. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares. 2.3 BORROWINGS. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, create, incur, assume or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business or (c) borrowings, the proceeds of which shall be used to repay this Note. 2.4 SALE OF ASSETS. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition. The Holder will have ten (10) days to respond to said sale and Holder's consent can not be unreasonably withheld. 2.5 ADVANCES AND LOANS. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $50,000. 2.6 CONTINGENT LIABILITIES. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, which shall not be unreasonably withheld, assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection and except assumptions, guarantees, endorsements and contingencies (a) in 13 existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, and (b) similar transactions in the ordinary course of business. ARTICLE III. EVENTS OF DEFAULT If any of the following events of default (each, an "EVENT OF DEFAULT") shall occur: 3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon a Trading Market Prepayment Event pursuant to Section 1.7, upon acceleration or otherwise; 3.2 CONVERSION AND THE SHARES. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note or the Registration Rights Agreement, or fails to remove any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note or the Registration Rights Agreement (or makes any announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Borrower shall have been notified thereof in writing by the Holder; 3.3 FAILURE TO TIMELY FILE REGISTRATION OR EFFECT REGISTRATION. The Borrower fails to file the Registration Statement within thirty (30) days following the receipt of written demand of the Investors or obtain effectiveness with the Securities and Exchange Commission of the Registration Statement within one hundred twenty (120) days following the receipt of written demand of the Investors or such Registration Statement lapses in effect (or sales cannot otherwise be made thereunder effective, whether by reason of the Borrower's failure to amend or supplement the prospectus included therein in accordance with the Registration Rights Agreement or otherwise) for more than ten (10) consecutive days or twenty (20) days in any twelve month period after the Registration Statement becomes effective; 3.4 BREACH OF COVENANTS. The Borrower breaches any material covenant or other material term or condition contained in Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder; 3.5 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement and the Registration Rights Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will 14 have) a material adverse effect on the rights of the Holder with respect to this Note, the Purchase Agreement or the Registration Rights Agreement; 3.6 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed; 3.7 JUDGMENTS. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld; 3.8 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower, unless such proceeding shall be stayed within thirty (30) days; 3.9 DELISTING OF COMMON STOCK. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange; or 3.10 DEFAULT UNDER OTHER NOTES. An Event of Default has occurred and is continuing under any of the other Notes issued pursuant to the Purchase Agreement, then, upon the occurrence and during the continuation of any Event of Default specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the aggregate principal amount of the outstanding Notes issued pursuant to the Purchase Agreement exercisable through the delivery of written notice to the Borrower by such Holders (the "DEFAULT NOTICE"), and upon the occurrence of an Event of Default specified in Section 3.6 or 3.8 (unless, under Section 3.8, such proceeding shall be stayed within 30 days), the Notes shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 140% TIMES the SUM of (w) the then outstanding principal amount of this Note PLUS (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the "MANDATORY PREPAYMENT DATE") PLUS (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) PLUS (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights Agreement (the then outstanding principal amount of this Note to the date of payment PLUS the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "DEFAULT SUM") or (ii) the "parity value" of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for purposes of determining the lowest applicable Conversion Price, unless the Default Event 15 arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), MULTIPLIED BY (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect. ARTICLE IV. MISCELLANEOUS 4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. 4.2 NOTICES. Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by courier or sent by United States mail and shall be deemed to have been given upon receipt if personally served (which shall include telephone line facsimile transmission) or sent by courier or three (3) days after being deposited in the United States mail, certified, with postage pre-paid and properly addressed, if sent by mail. For the purposes hereof, the address of the Holder shall be as shown on the records of the Borrower; and the address of the Borrower shall be 35193 Avenue "A", Suite-C, Yucaipa, CA 92399, facsimile NUMBER: (909) 790-7185. Both the Holder and the Borrower may change the address for service by service of written notice to the other as herein provided. 4.3 AMENDMENTS. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented. 4.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a BONA FIDE margin account or other lending arrangement. 16 4.5 COST OF COLLECTION. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys' fees. 4.6 GOVERNING LAW. THIS NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE. 4.7 CERTAIN AMOUNTS. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock. 4.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT. The Maximum Share Amount and Reserved Amount shall be allocated pro rata among the Holders of Notes based on the principal amount of such Notes issued to each Holder. Each increase to the Maximum Share Amount and Reserved Amount shall be allocated pro rata among the Holders of Notes based on the principal amount of such Notes held by each Holder at the time of the increase in the Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or otherwise transfer any of such Holder's Notes, each transferee shall be allocated a pro rata portion of such transferor's Maximum Share Amount and Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount which remains allocated 17 to any person or entity which does not hold any Notes shall be allocated to the remaining Holders of Notes, pro rata based on the principal amount of such Notes then held by such Holders. 4.9 DAMAGES SHARES. The shares of Common Stock that may be issuable to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights Agreement ("DAMAGES SHARES") shall be treated as Common Stock issuable upon conversion of this Note for all purposes hereof and shall be subject to all of the limitations and afforded all of the rights of the other shares of Common Stock issuable hereunder, including without limitation, the right to be included in the Registration Statement filed pursuant to the Registration Rights Agreement. For purposes of calculating interest payable on the outstanding principal amount hereof, except as otherwise provided herein, amounts convertible into Damages Shares ("DAMAGES AMOUNTS") shall not bear interest but must be converted prior to the conversion of any outstanding principal amount hereof, until the outstanding Damages Amounts is zero. 4.10 DENOMINATIONS. At the request of the Holder, upon surrender of this Note, the Borrower shall promptly issue new Notes in the aggregate outstanding principal amount hereof, in the form hereof, in such denominations of at least $50,000 as the Holder shall request. 4.11 PURCHASE AGREEMENT. By its acceptance of this Note, each Holder agrees to be bound by the applicable terms of the Purchase Agreement. 4.12 NOTICE OF CORPORATE EVENTS. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower's shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.12. 18 4.13 REMEDIES. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required. ARTICLE V. CALL OPTION 5.1 CALL OPTION. Notwithstanding anything to the contrary contained in this Article V, so long as no Event of Default or Trading Market Prepayment Event shall have occurred and be continuing, the Borrower has a sufficient number of authorized shares of Common Stock reserved for issuance upon full conversion of the Notes, then at any time after the Issue Date, and the Common Stock is trading at or below $41.09 per share, the Borrower shall have the right, exercisable on not less than ten (10) Trading Days prior written notice to the Holders of the Notes (which notice may not be sent to the Holders of the Notes until the Borrower is permitted to prepay the Notes pursuant to this Section 5.1), to prepay all of the outstanding Notes in accordance with this Section 5.1. Any notice of prepayment hereunder (an "OPTIONAL PREPAYMENT") shall be delivered to the Holders of the Notes at their registered addresses appearing on the books and records of the Borrower and shall state (1) that the Borrower is exercising its right to prepay all of the Notes issued on the Issue Date and (2) the date of prepayment (the "OPTIONAL PREPAYMENT NOTICE"). On the date fixed for prepayment (the "OPTIONAL PREPAYMENT Date"), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holders as specified by the Holders in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Notes, the Borrower shall make payment to the holders of an amount in cash (the "OPTIONAL PREPAYMENT AMOUNT") equal to either (i) 120% (for prepayments occurring within thirty (30) days of the Issue Date), (ii) 130% for prepayments occurring between thirty-one (31) and sixty (60) days of the Issue Date, or (iii) 140% (for prepayments occurring after the sixtieth (60th) day following the Issue Date), multiplied by the sum of (w) the then outstanding principal amount of this Note PLUS (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date PLUS (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) PLUS (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights Agreement (the then outstanding principal amount of this Note to the date of payment PLUS the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "OPTIONAL PREPAYMENT SUM"). Notwithstanding notice of an Optional Prepayment, the Holders shall at all times prior to the Optional Prepayment Date maintain the right to convert all or any portion of the Notes in accordance with Article I and any portion of Notes so converted after receipt of an Optional Prepayment Notice and prior to the Optional Prepayment Date set forth in such notice and payment of the aggregate Optional Prepayment Amount shall be deducted from the principal amount of Notes which are otherwise subject to prepayment pursuant to such notice. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holders of the Notes within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to redeem the Notes pursuant to this Section 5.1. 19 5.2 PARTIAL CALL OPTION. Notwithstanding anything to the contrary contained in this Article V, in the event that the Trading Price of the Common Stock, as reported by the Reporting Service, for each day of the month ending on any Determination Date is below the Initial Market Price, the Borrower may, at its option, prepay a portion of the outstanding principal amount of the Notes equal to 101% of the principal amount hereof divided by thirty-six (36) plus one month's interest and this will stay all conversions for the month. The term "INITIAL MARKET PRICE" shall mean the volume weighted average price of the Common Stock for the five (5) Trading Days immediately preceding the Closing which is $0.0943. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 20 IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this 29th day of August, 2008. INGEN TECHNOLOGIES, INC. By: /s/ Scott Sand ---------------------------- Scott R. Sand Chief Executive Officer 21 EXHIBIT A NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Notes) The undersigned hereby irrevocably elects to convert $__________ principal amount of the Note (defined below) into shares of common stock, no par value per share ("COMMON STOCK"), of Ingen Technologies, Inc., a Georgia corporation (the "BORROWER") according to the conditions of the convertible Notes of the Borrower dated as of August 29, 2008 (the "NOTES"), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. A copy of each Note is attached hereto (or evidence of loss, theft or destruction thereof). The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC TRANSFER"). Name of DTC Prime Broker: _____________________________________________ Account Number:________________________________________________________ In lieu of receiving shares of Common Stock issuable pursuant to this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder's calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: Name:__________________________________________________________________ Address:_______________________________________________________________ The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Notes shall be made pursuant to registration of the securities under the Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from registration under the Act. Date of Conversion:___________________________ Applicable Conversion Price:____________________ Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Notes:______________ Signature:___________________________________ Name:______________________________________ Address:____________________________________ The Borrower shall issue and deliver shares of Common Stock to an overnight courier not later than three business days following receipt of the original Note(s) to be converted, and shall make payments pursuant to the Notes for the number of business days such issuance and delivery is late. EX-10.49 8 itec_10kex10-49.txt CALLABLE SECURED CONVERTIBLE NOTE Exhibit 10.49 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT. CALLABLE SECURED CONVERTIBLE NOTE Yucaipa, California August 29, 2008 $15,000 FOR VALUE RECEIVED, INGEN TECHNOLOGIES, INC., a Georgia Corporation (hereinafter called the "BORROWER"), hereby promises to pay to the order of New Millennium Capital Partners II, LLC or registered assigns (the "HOLDER") the sum of $15,000 on August 29, 2011 (the "MATURITY DATE"), and to pay interest on the unpaid principal balance hereof at the rate of twelve percent (12%) (the "INTEREST RATE") per annum from August 29, 2008 (the "ISSUE DATE") until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of fifteen percent (15%) per annum from the due date thereof until the same is paid ("DEFAULT INTEREST"). Interest shall commence accruing on the Issue Date, shall be computed on the basis of a 365-day year and the actual number of days elapsed and shall be payable quarterly provided that no interest shall be due and payable for any month in which the Trading Price (as such term is defined below) is greater than $41.09 for each Trading Day (as such term is defined below) of the month. All payments due hereunder (to the extent not converted into common stock, no par value per share (the "COMMON STOCK") in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term "business day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement, dated June 16, 2008, pursuant to which this Note was originally issued (the "PURCHASE AGREEMENT"). 1 This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof. The obligations of the Borrower under this Note shall be secured by that certain Security Agreement and that certain Intellectual Property Security Agreement, each dated June 16, 2008 by and between the Borrower and the Holder. The following terms shall apply to this Note: ARTICLE I. CONVERSION RIGHTS 1.1 CONVERSION RIGHT. The Holder shall have the right from time to time, and at any time on or prior to the earlier of (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional Prepayment Amount (as defined in Section 5.1 or any payments pursuant to Section 1.7, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the "CONVERSION PRICE") determined as provided herein (a "CONVERSION"); PROVIDED, HOWEVER, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower (including, without limitation, the warrants issued by the Borrower pursuant to the Purchase Agreement) subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock and PROVIDED FURTHER that the Holder shall not be entitled to convert any portion of this Note during any month immediately succeeding a Determination Date on which the Borrower exercises its prepayment option pursuant to Section 5.2 of this Note. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the "NOTICE OF CONVERSION"), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is 2 submitted by facsimile (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the "CONVERSION DATE"). The term "CONVERSION AMOUNT" means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion PLUS (2) accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, provided, however, that the Company shall have the right to pay any or all interest in cash PLUS (3) Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) PLUS (4) at the Holder's option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights Agreement, dated as of June 16, 2008, executed in connection with the initial issuance of this Note and the other Notes issued on the Issue Date (the "REGISTRATION RIGHTS AGREEMENT"). The term "DETERMINATION DATE" means the last business day of each month after the Issue Date. 1.2 CONVERSION PRICE. (a) CALCULATION OF CONVERSION PRICE. The Conversion Price shall be the Variable Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "VARIABLE CONVERSION PRICE" shall mean the Applicable Percentage (as defined herein) multiplied by the Market Price (as defined herein). "MARKET PRICE" means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the twenty (20) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower via facsimile (the "CONVERSION DATE"). "TRADING Price" means, for any security as of any date, the intraday trading price on the Over-the-Counter Bulletin Board (the "OTCBB") as reported by a reliable reporting service ("REPORTING SERVICE") mutually acceptable to Borrower and Holder and hereafter designated by Holders of a majority in interest of the Notes and the Borrower or, if the OTCBB is not the principal trading market for such security, the intraday trading price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no intraday trading price of such security is available in any of the foregoing manners, the average of the intraday trading prices of any market makers for such security that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. "TRADING DAY" shall mean any day on which the Common Stock is traded for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. "APPLICABLE PERCENTAGE" shall mean 40%. (b) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower's Common Stock 3 (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the "ANNOUNCEMENT DATE"), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE" shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative. 1.3 AUTHORIZED SHARES. The Borrower covenants that upon the increase in the number of authorized shares of the Company's Common Stock to 500,000,000 shares within thirty (30) days from the date hereof and during the period the conversion right exists thereafter, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note and the other Notes issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved two times the number of shares that is actually issuable upon full conversion of the Notes (based on the Conversion Price of the Notes or the Exercise Price of the Warrants in effect from time to time) (the "RESERVED AMOUNT"). The Reserved Amount shall be increased from time to time in accordance with the Borrower's obligations pursuant to Section 4(h) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note. If, at any time a Holder of this Note submits a Notice of Conversion, and the Borrower does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in accordance with the provisions of this Article I (a "CONVERSION DEFAULT"), subject to Section 4.8, the Borrower shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion. The portion of this Note which the Holder included in its Conversion Notice and which exceeds the amount which is then convertible into available shares of Common Stock (the "EXCESS AMOUNT") shall, notwithstanding anything to the contrary contained herein, not 4 be convertible into Common Stock in accordance with the terms hereof until (and at the Holder's option at any time after) the date additional shares of Common Stock are authorized by the Borrower to permit such conversion, at which time the Conversion Price in respect thereof shall be the lesser of (i) the Conversion Price on the Conversion Default Date (as defined below) and (ii) the Conversion Price on the Conversion Date thereafter elected by the Holder in respect thereof. In addition, the Borrower shall pay to the Holder payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount of (x) the SUM OF (1) the then outstanding principal amount of this Note PLUS (2) accrued and unpaid interest on the unpaid principal amount of this Note through the Authorization Date (as defined below) PLUS (3) Default Interest, if any, on the amounts referred to in clauses (1) and/or (2), MULTIPLIED BY (y) .24, MULTIPLIED BY (z) (N/365), where N = the number of days from the day the holder submits a Notice of Conversion giving rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date (the "AUTHORIZATION DATE") that the Borrower authorizes a sufficient number of shares of Common Stock to effect conversion of the full outstanding principal balance of this Note. The Borrower shall use its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the Borrower or that the Borrower otherwise becomes aware that there are or likely will be insufficient authorized and unissued shares to allow full conversion thereof and (ii) a Conversion Default. The Borrower shall send notice to the Holder of the authorization of additional shares of Common Stock, the Authorization Date and the amount of Holder's accrued Conversion Default Payments. The accrued Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible into Common Stock (at such time as there are sufficient authorized shares of Common Stock) at the applicable Conversion Price, at the Borrower's option, as follows: (a) In the event Holder elects to take such payment in cash, cash payment shall be made to Holder by the fifth (5th) day of the month following the month in which it has accrued; and (b) In the event Holder elects to take such payment in Common Stock, the Holder may convert such payment amount into Common Stock at the Conversion Price (as in effect at the time of conversion) at any time after the fifth day of the month following the month in which it has accrued in accordance with the terms of this Article I (so long as there is then a sufficient number of authorized shares of Common Stock). The Holder's election shall be made in writing to the Borrower at any time prior to 6:00 p.m., New York, New York time, on the third day of the month following the month in which Conversion Default payments have accrued. If no election is made, the Holder shall be deemed to have elected to receive cash. Nothing herein shall limit the Holder's right to pursue actual damages (to the extent in excess of the Conversion Default Payments) for the Borrower's failure to maintain a sufficient number of authorized shares of Common Stock, and each holder shall have the right to pursue all remedies available at law or in equity (including degree of specific performance and/or injunctive relief). 5 1.4 METHOD OF CONVERSION. (a) MECHANICS OF CONVERSION. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower. (b) SURRENDER OF NOTE UPON CONVERSION. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof. (c) PAYMENT OF TAXES. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder's account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid. (d) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon receipt by the Borrower from the Holder of a facsimile transmission (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) (such third business day being hereinafter referred to as the "DEADLINE") in accordance with the terms hereof and the Purchase Agreement (including, without limitation, in accordance with the requirements of Section 2(g) of the Purchase Agreement that certificates for shares of Common Stock issued on or after the effective date of the Registration Statement upon conversion of this Note shall not bear any restrictive legend). 6 (e) OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date. (f) DELIVERY OF COMMON STOCK BY ELECTRONIC TRANSFER. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. (g) FAILURE TO DELIVER COMMON STOCK PRIOR TO DEADLINE. Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is more than three (3) business days after the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. 7 1.5 CONCERNING THE SHARES. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) ("RULE 144") or (iv) such shares are transferred to an "affiliate" (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act as contemplated by the Registration Rights Agreement or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT." The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefor free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act and the shares are so sold or transferred, (ii) such Holder provides the Borrower or its transfer agent with reasonable assurances that the Common Stock issuable upon conversion of this Note (to the extent such securities are deemed to have been acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. Nothing in this Note shall (i) limit the Borrower's obligation under the Registration Rights Agreement or (ii) affect in any way the Holder's obligations to comply with applicable prospectus delivery requirements upon the resale of the securities referred to herein. 8 1.6 EFFECT OF CERTAIN EVENTS. (a) EFFECT OF MERGER, CONSOLIDATION, ETC. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. "PERSON" shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization. (b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not effect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges. (c) ADJUSTMENT DUE TO DISTRIBUTION. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then the Holder of this Note shall be entitled, upon any conversion of this Note after 9 the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. (d) ADJUSTMENT DUE TO DILUTIVE ISSUANCE. If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Variable Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a "DILUTIVE ISSUANCE"), then immediately upon the Dilutive Issuance, the Variable Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance; PROVIDED that only one adjustment will be made for each Dilutive Issuance. The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "OPTIONS") and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Variable Conversion Price then in effect, then the Variable Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon the exercise of such Options" is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options. Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Variable Conversion Price then in effect, then the Variable Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon such conversion or exchange" is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of 10 additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Variable Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (e) PURCHASE RIGHTS. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the "PURCHASE Rights") pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (f) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder of a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note. 1.7 TRADING MARKET LIMITATIONS. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the "MAXIMUM SHARE AMOUNT"), which shall be 19.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued (the date of which is hereinafter referred to as the "MAXIMUM CONVERSION Date"), if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower's ability to issue shares of Common Stock in excess of the Maximum Share Amount (a "TRADING MARKET PREPAYMENT EVENT"), in lieu of any further right to convert this Note, and in full satisfaction of the Borrower's obligations under this Note, the Borrower shall pay to the Holder, within fifteen (15) business days of the Maximum Conversion Date (the "TRADING MARKET PREPAYMENT DATE"), an amount equal to 130% TIMES the SUM of (a) the then outstanding principal amount of this Note immediately following the Maximum Conversion Date, PLUS (b) accrued and unpaid interest on the unpaid principal 11 amount of this Note to the Trading Market Prepayment Date, PLUS (c) Default Interest, if any, on the amounts referred to in clause (a) and/or (b) above, PLUS (d) any optional amounts that may be added thereto at the Maximum Conversion Date by the Holder in accordance with the terms hereof (the then outstanding principal amount of this Note immediately following the Maximum Conversion Date, PLUS the amounts referred to in clauses (b), (c) and (d) above shall collectively be referred to as the "REMAINING CONVERTIBLE AMOUNT"). With respect to each Holder of Notes, the Maximum Share Amount shall refer to such Holder's PRO RATA share thereof determined in accordance with Section 4.8 below. In the event that the sum of (x) the aggregate number of shares of Common Stock issued upon conversion of this Note and the other Notes issued pursuant to the Purchase Agreement PLUS (y) the aggregate number of shares of Common Stock that remain issuable upon conversion of this Note and the other Notes issued pursuant to the Purchase Agreement, represents at least one hundred percent (100%) of the Maximum Share Amount (the "TRIGGERING EVENT"), the Borrower will use its best efforts to seek and obtain Shareholder Approval (or obtain such other relief as will allow conversions hereunder in excess of the Maximum Share Amount) as soon as practicable following the Triggering Event and before the Maximum Conversion Date. As used herein, "SHAREHOLDER APPROVAL" means approval by the shareholders of the Borrower to authorize the issuance of the full number of shares of Common Stock which would be issuable upon full conversion of the then outstanding Notes but for the Maximum Share Amount. 1.8 STATUS AS SHAREHOLDER. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder's allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder's rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower's failure to convert this Note. 12 ARTICLE II. CERTAIN COVENANTS 2.1 DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders' rights plan which is approved by a majority of the Borrower's disinterested directors. 2.2 RESTRICTION ON STOCK REPURCHASES. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares. 2.3 BORROWINGS. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, create, incur, assume or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business or (c) borrowings, the proceeds of which shall be used to repay this Note. 2.4 SALE OF ASSETS. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition. The Holder will have ten (10) days to respond to said sale and Holder's consent can not be unreasonably withheld. 2.5 ADVANCES AND LOANS. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $50,000. 2.6 CONTINGENT LIABILITIES. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, which shall not be unreasonably withheld, assume, guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection and except assumptions, guarantees, endorsements and contingencies (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, and (b) similar transactions in the ordinary course of business. 13 ARTICLE III. EVENTS OF DEFAULT If any of the following events of default (each, an "EVENT OF DEFAULT") shall occur: 3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon a Trading Market Prepayment Event pursuant to Section 1.7, upon acceleration or otherwise; 3.2 CONVERSION AND THE SHARES. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note or the Registration Rights Agreement, or fails to remove any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note or the Registration Rights Agreement (or makes any announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Borrower shall have been notified thereof in writing by the Holder; 3.3 FAILURE TO TIMELY FILE REGISTRATION OR EFFECT REGISTRATION. The Borrower fails to file the Registration Statement within thirty (30) days following the receipt of written demand of the Investors or obtain effectiveness with the Securities and Exchange Commission of the Registration Statement within one hundred twenty (120) days following the receipt of written demand of the Investors or such Registration Statement lapses in effect (or sales cannot otherwise be made thereunder effective, whether by reason of the Borrower's failure to amend or supplement the prospectus included therein in accordance with the Registration Rights Agreement or otherwise) for more than ten (10) consecutive days or twenty (20) days in any twelve month period after the Registration Statement becomes effective; 3.4 BREACH OF COVENANTS. The Borrower breaches any material covenant or other material term or condition contained in Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder; 3.5 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement and the Registration Rights Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note, the Purchase Agreement or the Registration Rights Agreement; 14 3.6 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed; 3.7 JUDGMENTS. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld; 3.8 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower, unless such proceeding shall be stayed within thirty (30) days; 3.9 DELISTING OF COMMON STOCK. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange; or 3.10 DEFAULT UNDER OTHER NOTES. An Event of Default has occurred and is continuing under any of the other Notes issued pursuant to the Purchase Agreement, then, upon the occurrence and during the continuation of any Event of Default specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the aggregate principal amount of the outstanding Notes issued pursuant to the Purchase Agreement exercisable through the delivery of written notice to the Borrower by such Holders (the "DEFAULT NOTICE"), and upon the occurrence of an Event of Default specified in Section 3.6 or 3.8 (unless, under Section 3.8, such proceeding shall be stayed within 30 days), the Notes shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 140% TIMES the SUM of (w) the then outstanding principal amount of this Note PLUS (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the "MANDATORY PREPAYMENT DATE") PLUS (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) PLUS (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights Agreement (the then outstanding principal amount of this Note to the date of payment PLUS the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "DEFAULT SUM") or (ii) the "parity value" of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for purposes of 15 determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), MULTIPLIED BY (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "DEFAULT AMOUNT") and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect. ARTICLE IV. MISCELLANEOUS 4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. 4.2 NOTICES. Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by courier or sent by United States mail and shall be deemed to have been given upon receipt if personally served (which shall include telephone line facsimile transmission) or sent by courier or three (3) days after being deposited in the United States mail, certified, with postage pre-paid and properly addressed, if sent by mail. For the purposes hereof, the address of the Holder shall be as shown on the records of the Borrower; and the address of the Borrower shall be 35193 Avenue "A", Suite-C, Yucaipa, CA 92399, facsimile NUMBER: (909) 790-7185. Both the Holder and the Borrower may change the address for service by service of written notice to the other as herein provided. 4.3 AMENDMENTS. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented. 4.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an "accredited investor" (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a BONA FIDE margin account or other lending arrangement. 16 4.5 COST OF COLLECTION. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys' fees. 4.6 GOVERNING LAW. THIS NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE. 4.7 CERTAIN AMOUNTS. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock. 4.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT. The Maximum Share Amount and Reserved Amount shall be allocated pro rata among the Holders of Notes based on the principal amount of such Notes issued to each Holder. Each increase to the Maximum Share Amount and Reserved Amount shall be allocated pro rata among the Holders of Notes based on the principal amount of such Notes held by each Holder at the time of the increase in the Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or otherwise transfer any of such Holder's Notes, each transferee shall be allocated a pro rata portion of such transferor's Maximum Share Amount and Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount which remains allocated 17 to any person or entity which does not hold any Notes shall be allocated to the remaining Holders of Notes, pro rata based on the principal amount of such Notes then held by such Holders. 4.9 DAMAGES SHARES. The shares of Common Stock that may be issuable to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights Agreement ("DAMAGES SHARES") shall be treated as Common Stock issuable upon conversion of this Note for all purposes hereof and shall be subject to all of the limitations and afforded all of the rights of the other shares of Common Stock issuable hereunder, including without limitation, the right to be included in the Registration Statement filed pursuant to the Registration Rights Agreement. For purposes of calculating interest payable on the outstanding principal amount hereof, except as otherwise provided herein, amounts convertible into Damages Shares ("DAMAGES AMOUNTS") shall not bear interest but must be converted prior to the conversion of any outstanding principal amount hereof, until the outstanding Damages Amounts is zero. 4.10 DENOMINATIONS. At the request of the Holder, upon surrender of this Note, the Borrower shall promptly issue new Notes in the aggregate outstanding principal amount hereof, in the form hereof, in such denominations of at least $50,000 as the Holder shall request. 4.11 PURCHASE AGREEMENT. By its acceptance of this Note, each Holder agrees to be bound by the applicable terms of the Purchase Agreement. 4.12 NOTICE OF CORPORATE EVENTS. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower's shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.12. 18 4.13 REMEDIES. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required. ARTICLE V. CALL OPTION 5.1 CALL OPTION. Notwithstanding anything to the contrary contained in this Article V, so long as no Event of Default or Trading Market Prepayment Event shall have occurred and be continuing, the Borrower has a sufficient number of authorized shares of Common Stock reserved for issuance upon full conversion of the Notes, then at any time after the Issue Date, and the Common Stock is trading at or below $41.09 per share, the Borrower shall have the right, exercisable on not less than ten (10) Trading Days prior written notice to the Holders of the Notes (which notice may not be sent to the Holders of the Notes until the Borrower is permitted to prepay the Notes pursuant to this Section 5.1), to prepay all of the outstanding Notes in accordance with this Section 5.1. Any notice of prepayment hereunder (an "OPTIONAL PREPAYMENT") shall be delivered to the Holders of the Notes at their registered addresses appearing on the books and records of the Borrower and shall state (1) that the Borrower is exercising its right to prepay all of the Notes issued on the Issue Date and (2) the date of prepayment (the "OPTIONAL PREPAYMENT NOTICE"). On the date fixed for prepayment (the "OPTIONAL PREPAYMENT Date"), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holders as specified by the Holders in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Notes, the Borrower shall make payment to the holders of an amount in cash (the "OPTIONAL PREPAYMENT AMOUNT") equal to either (i) 120% (for prepayments occurring within thirty (30) days of the Issue Date), (ii) 130% for prepayments occurring between thirty-one (31) and sixty (60) days of the Issue Date, or (iii) 140% (for prepayments occurring after the sixtieth (60th) day following the Issue Date), multiplied by the sum of (w) the then outstanding principal amount of this Note PLUS (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date PLUS (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) PLUS (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the Registration Rights Agreement (the then outstanding principal amount of this Note to the date of payment PLUS the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "OPTIONAL PREPAYMENT SUM"). Notwithstanding notice of an Optional Prepayment, the Holders shall at all times prior to the Optional Prepayment Date maintain the right to convert all or any portion of the Notes in accordance with Article I and any portion of Notes so converted after receipt of an Optional Prepayment Notice and prior to the Optional Prepayment Date set forth in such notice and payment of the aggregate Optional Prepayment Amount shall be deducted from the principal amount of Notes which are otherwise subject to prepayment pursuant to such notice. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holders of the Notes within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to redeem the Notes pursuant to this Section 5.1. 19 5.2 PARTIAL CALL OPTION. Notwithstanding anything to the contrary contained in this Article V, in the event that the Trading Price of the Common Stock, as reported by the Reporting Service, for each day of the month ending on any Determination Date is below the Initial Market Price, the Borrower may, at its option, prepay a portion of the outstanding principal amount of the Notes equal to 101% of the principal amount hereof divided by thirty-six (36) plus one month's interest and this will stay all conversions for the month. The term "INITIAL MARKET PRICE" shall mean the volume weighted average price of the Common Stock for the five (5) Trading Days immediately preceding the Closing which is $0.0943. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 20 IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this 29th day of August, 2008. INGEN TECHNOLOGIES, INC. By: /s/ Scott Sand ---------------------------- Scott R. Sand Chief Executive Officer 21 EXHIBIT A NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Notes) The undersigned hereby irrevocably elects to convert $__________ principal amount of the Note (defined below) into shares of common stock, no par value per share ("COMMON STOCK"), of Ingen Technologies, Inc., a Georgia corporation (the "BORROWER") according to the conditions of the convertible Notes of the Borrower dated as of August 29, 2008 (the "NOTES"), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. A copy of each Note is attached hereto (or evidence of loss, theft or destruction thereof). The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC TRANSFER"). Name of DTC Prime Broker: _____________________________________________ Account Number:________________________________________________________ In lieu of receiving shares of Common Stock issuable pursuant to this Notice of Conversion by way of a DWAC Transfer, the undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder's calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: Name:__________________________________________________________________ Address:_______________________________________________________________ The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Notes shall be made pursuant to registration of the securities under the Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from registration under the Act. Date of Conversion:___________________________ Applicable Conversion Price:____________________ Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Notes:______________ Signature:___________________________________ Name:______________________________________ Address:____________________________________ The Borrower shall issue and deliver shares of Common Stock to an overnight courier not later than three business days following receipt of the original Note(s) to be converted, and shall make payments pursuant to the Notes for the number of business days such issuance and delivery is late. EX-10.50 9 itec_10kex10-50.txt AMENDMENT OF NOTES EXHIBIT 10.50 INGEN TECHNOLOGIES, INC. 35193 AVENUE "A", SUITE-C YUCAIPA, CA 92399 August 29, 2008 AJW Partners, LLC New Millennium Capital Partners II, LLC AJW Master Fund, Ltd. AJW Offshore, Ltd. AJW Qualified Partners, LLC 1044 Northern Boulevard Suite 302 Roslyn, New York 11576 Re: INGEN TECHNOLOGIES, INC., (the "Company") - AMENDMENT OF NOTES Ladies and Gentlemen: This letter sets for the agreement of the parties hereto to amend the Applicable Percentage and the Interest Rate (as defined in the Notes) of all the Notes, which are convertible into shares of the Company's common stock, no par value per share (the "COMMON STOCK"), ever issued by the Company to the investors listed in the signature pages hereto (collectively, the "INVESTORS")(the "Notes"). By execution hereof, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree that: 1. The applicable Percentage (as defined in each of the Notes) shall be 40%. 2. The Interest Rate (as defined in each of the Notes), effective as of January 1, 2008, shall be 12%. 3. The notes are hereby amended in accordance with the foregoing provision. All other provisions of the Notes, as amended from time to time, shall remain in full force and effect. The parties shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other parties hereto may reasonably request in order to carry out the intent an accomplish the purposes of this letter agreement, including without limitation the issuance of amended Notes. Please signify your agreement with the foregoing by signing a copy of this letter where indicated and returning it to the undersigned. Sincerely, INGEN TECHNOLOGIES, INC. /S/ SCOTT R. SAND ---------------------------------- Scott R. Sand Chief Executive Officer ACCEPTED AND AGREED: AJW PARTNERS, LLC By: SMS GROUP, LLC /S/ COREY S. RIBOTSKY - ------------------------------------ Corey S. Ribotsky, Manager NEW MILLENNIUM CAPITAL PARTNERS II, LLC By: FIRST STREET MANAGER II, LLC /S/ COREY S. RIBOTSKY - ------------------------------------ Corey S. Ribotsky, Manager AJW MASTER FUND, LTD. By: FIRST STREET MANAGER II, LLC /S/ COREY S. RIBOTSKY - ------------------------------------ Corey S. Ribotsky, Manager AJW OFFSHORE, LTD. By: FIRST STREET MANAGER II, LLC /S/ COREY S. RIBOTSKY - ------------------------------------ Corey S. Ribotsky, Manager AJW QUALIFIED PARTNERS, LLC By: AJW MANAGER, LLC /S/ COREY S. RIBOTSKY - ------------------------------------ Corey S. Ribotsky, Manager EX-31.1 10 itec_10kex3101.txt CERTIFICATION EXHIBIT 31.1 Section 302 of the Sarbanes-Oxley Act of 2002 Certification (filing copy) - annual - Sand CERTIFICATION I, Scott R. Sand, certify that: 1. I have reviewed this annual report on Form 10-KSB of Ingen Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: September 29, 2008 /s/ Scott R. Sand - ------------------------------------ Scott R. Sand Chief Executive Officer and Chairman EX-31.2 11 itec_10kex3102.txt CERTIFICATION EXHIBIT 31.2 Section 302 of the Sarbanes-Oxley Act of 2002 Certification (filing copy) - annual - Neavitt CERTIFICATION I, Thomas J. Neavitt, certify that: 1. I have reviewed this annual report on Form 10-KSB of Ingen Technologies, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: September 29, 2008 /s/ Thomas J. Neavitt - ------------------------------------- Thomas J. Neavitt Secretary and Chief Financial Officer EX-32.1 12 itec_10kex3201.txt CERTIFICATION EXHIBIT 32.1 Section 906 of the Sarbanes-Oxley Act of 2002 Certification (filing copy) To Whom It May Concern, In connection with the Annual Report of Ingen Technologies Inc. ("Ingen") on Form 10-KSB for the fiscal year ended May 31, 2008 as filed with the Securities and Exchange Commission on the date hereof ("the Report"), we, Scott R. Sand, Chief Executive Officer and Chairman of Ingen, and Thomas J. Neavitt, Secretary and Chief Financial Officer of Ingen, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ingen. /s/ Scott R. Sand ------------------------------------ Scott R. Sand Chief Executive Officer and Chairman /s/ Thomas J. Neavitt ------------------------------------- Thomas J. Neavitt Secretary and Chief Financial Officer September 29, 2008 -----END PRIVACY-ENHANCED MESSAGE-----