-----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, Q+T3Z+pI/WkOzfQTZBw1ThuC2LavqPkGWKIg/buxIDktQAkvBwTpCFpXDE6njcsn gQ9HS8eZT7p4cAjNChDLAw== 0001019687-08-004593.txt : 20081021 0001019687-08-004593.hdr.sgml : 20081021 20081021142119 ACCESSION NUMBER: 0001019687-08-004593 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080831 FILED AS OF DATE: 20081021 DATE AS OF CHANGE: 20081021 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28704 FILM NUMBER: 081133159 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 10-Q 1 ingen_10q-083108.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2008 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from: __________ to __________ Commission File Number: 0-28704 INGEN TECHNOLOGIES, INC. ------------------------ (Exact name of registrant as specified in its charter) Georgia 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) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. [x] Yes [_] No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [_] Smaller reporting company [x] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [_] Yes [x] No At October 8, 2008, 8,049,271 shares of the registrant's common stock (no par value) were outstanding. TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements for the quarter ended August 31, 2008 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ITEM 3. Quantitative and Qualitative Disclosures about Market Risk ITEM 4. Controls and Procedures ITEM 4T. Controls and Procedures PART II - OTHER INFORMATION ITEM 1. Legal Proceedings ITEM 1A. Risk Factors ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds ITEM 3. Defaults upon Senior Securities ITEM 4. Submission of Matters to a Vote of Security Holders ITEM 5. Other Information ITEM 6. Exhibits INGEN TECHNOLOGIES, INC. AND SUBSIDIARY PART I. - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS FOR QUARTER ENDED AUGUST 31, 2008 INGEN TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) AUGUST 31, 2008 AND MAY 31, 2008 AUGUST 31, 2008 MAY 31, 2008 ------------ ------------ ASSETS Current assets Cash $ -- $ -- Accounts receivable 66 63 Inventories 74,715 74,830 Receivable of convertible debenture 75,000 -- Prepaid expenses 12,800 50,933 ------------ ------------ Total current assets 162,581 125,826 Property and equipment, net of accumulated depreciation of $192,126 and $177,656 215,490 229,960 Other assets Debt issue costs, net of accumulated of $242,848 and $211,173 135,352 157,027 Patents, net of accumulated amortization of $5,612 and $4,490 61,733 62,855 Deposits 229,550 31,550 ------------ ------------ Total other assets 426,635 251,432 ------------ ------------ TOTAL ASSETS $ 804,706 $ 607,218 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Cash overdraft $ 131 $ 530 Accounts payable 235,819 212,242 Accrued expenses 356,661 201,927 Officer's loans 22,973 1,747 Short-term notes 82,500 82,500 Convertible notes payable, net of unamortized discount of $462,402 and $25,092 1,074,174 49,908 Current portion of long-term debt 14,539 14,539 ------------ ------------ Total current liabilities 1,786,797 563,393 Long-term liabilities Loan payable 95,660 96,872 Convertible notes payable, net of unamortized discount of $509,772 and $951,792 275,228 1,079,755 Derivative liability 5,116,416 3,605,748 ------------ ------------ Total long-term liabilities 5,487,304 4,782,375 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 August 31, 2008, total liquidation preference of $38,275,960 38,275,960 issued and outstanding as of May 31, 2008, total liquidation preference of $38,275,960 965,313 965,313 Common stock, no par value, authorized 750,000,000 shares, 3,900,271 issued and outstanding as of August 31, 2008, 502,073 issued and outstanding as of May 31, 2008 5,349,023 5,141,052 Series A preferred stock subscription 2,000 2,000 Series A preferred stock subscription receivable (220,000) (220,000) Accumulated deficit (12,565,731) (10,626,915) ------------ ------------ Total stockholders' deficit (6,469,395) (4,738,550) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 804,706 $ 607,218 ============ ============ See notes to interim unaudited consolidated financial statements 3 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) INGEN TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE QUARTERS ENDED AUGUST 31, 2008 2007 ----------- ----------- Sales $ 987 $ 117,471 Cost of sales 115 67,413 ----------- ----------- Gross Profit 872 50,058 Selling, general and administrative expenses 276,933 406,694 ----------- ----------- Operating loss (276,061) (356,636) Other (expenses) Interest expense (661,673) (446,911) Change in derivative liability (1,001,082) (573,779) ----------- ----------- Net loss before taxes (1,938,816) (1,377,326) Provision for income taxes -- 10 ----------- ----------- Net loss $(1,938,816) $(1,377,336) =========== =========== Basic and diluted net loss per share $ (2.60) $ (21.88) =========== =========== Weighted average number of shares outstanding 744,853 62,944 See notes to interim unaudited consolidated financial statements 4 INGEN TECHNOLOGIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE QUARTERS ENDED AUGUST 31, 2008 2007 ----------- ----------- Cash flow from operating activities Net loss $(1,938,816) $(1,377,336) Depreciation and amortization 15,592 14,470 Amortization of debt issue costs 31,675 25,930 Expenses paid with stock and options -- 80,000 Change in derivative liabilities 1,001,082 385,343 Non-cash interest expense and financing costs 514,296 573,779 (Increase) decrease in accounts receivable (3) (78,090) (Increase) decrease in prepaid expenses 38,133 15,526 (Decrease) increase in accounts payable 23,577 (3,863) (Decrease) increase in accrued expenses 154,734 81,472 (Increase) decrease in inventory 115 10,642 ----------- ----------- Net cash used in operating activities (159,615) (272,127) Cash flow from investing activities Purchase of property and equipment -- -- ----------- ----------- Net cash used in investing activities -- -- Cash flow from financing activities Sale of common stock -- 74,800 Payments on loans (1,212) (3,635) Proceeds from convertible notes payable 140,000 200,000 Proceeds from stockholder and officer loans 21,226 11,486 Repayments of stockholder and officer loans -- (3,000) ----------- ----------- Net cash provided by financing activities 160,014 279,651 Net cash increase (decrease) 399 7,524 Cash at beginning of period (530) 238 ----------- ----------- Cash at end of period $ (131) $ 7,762 =========== =========== Supplemental information Cash paid for taxes $ -- $ 800 =========== =========== Cash paid for interest expense $ -- $ 4,988 =========== =========== Non-Cash Activities: Issuance of common stock to unrelated third party for deposit on media time $ 198,000 $ -- Value of issuance of warrants in connection with convertible debt $ 17,937 $ -- Recorded a beneficial conversion feature $ 491,649 $ 428,343 Stock Subscription Receivable $ -- $ 45,000 See notes to interim unaudited consolidated financial statements 5
INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Ingen Technologies, Inc., a Georgia corporation (the "Company" or "Ingen Technologies"), is a public company trading under NASDAQ OTC: ITEC. Ingen Technologies, Inc. owns 100% of the capital stock of Ingen Technologies, Inc., a Nevada corporation that has been in business since 1999. 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. Presentation of Interim Information: The accompanying interim consolidated financial statements for the three months ended August 31, 2008 and 2007, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended May 31, 2008. In the opinion of Management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the three months ended August 31, 2008 and 2007, have been made. The results of operations for the three months ended August 31, 2008 are not necessarily indicative of the operating results for the full year. Principles 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. 6 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value of Financial Instruments: The Company's financial instruments consist principally of cash, accounts receivable, inventories, accounts payable and borrowings. The Company believes the financial instruments' recorded values approximate current values because of their nature and respective durations. The fair value of embedded conversion options and stock warrants are based on a Black-Scholes fair value calculation. The fair value of convertible notes payable has been discounted to the extent that the fair value of the embedded conversion option feature exceeds the face value of the note. This discount is being amortized over the term of the convertible note. Cash Equivalents: For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Revenue Recognition: The Company generally recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. No provisions were established for estimated product returns and allowances based on the Company's historical experience. All orders are customized with substantial down payments. Products are released upon receipt of the remaining funds. Use of estimates: The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates. Property and Equipment: Property and Equipment are valued at cost. Maintenance and repair costs are charged to expenses as incurred. Depreciation is computed on the straight-line method based on the following estimated useful lives of the assets: 3 to 5 years for computer, software and office equipment, and 5 to 7 years for furniture and fixtures. Convertible Notes Payable and Derivative Liabilities: The Company accounts for convertible notes payable and warrants in accordance with Statement of Financial Accounting Standards (SFAS) No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." This standard requires the conversion feature of convertible debt be separated from the host contract and presented as a derivative instrument if certain conditions are met. Emerging Issues 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. 7 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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, July 31, 2007, June 23, 2008 and August 12, 2008 were evaluated and determined not conventional convertible and, therefore, because of certain terms and provisions including liquidating damages under the associated registration rights agreement the embedded conversion option was bifurcated and has been accounted for as a derivative liability instrument. The stock warrants issued in conjunction with the convertible notes payable were also evaluated and determined to be a derivative instrument and, therefore, classified as a liability on the balance sheet. The accounting guidance also requires that the conversion feature and warrants be recorded at fair value for each reporting period with changes in fair value recorded in the consolidated statements of operations. A Black-Scholes valuation calculation was applied to both the conversion features and warrants at issuance dates and August 31, 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 August 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. 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 342,946,942 to 572,259 as of August 27, 2008, the effective date of the reverse stock split. 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. 8 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Events of default under Note Agreements: Ingen has committed various acts which constitute events of default under its Securities Purchase Agreements dated July 25, 2006, March 15, 2007, July 15, 2007 and June 16, 2008 (and the notes thereunder). 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 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. Should formal notice of default be given under these notes, the potential default penalty could exceed $6 million as of August 31, 2008. Research and Development: Ingen incurred expenditures of $6,082 and $1,500 for research and development in the quarters ended August 31, 2007 and August 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 February, 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 155, ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS. SFAS No. 155 eliminates the temporary exemption of bifurcation requirements to securitized financial assets, contained in SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. As a result, similar financial instruments are accounted for similarly regardless of the form of the instruments. In addition, in instances where a derivative would otherwise have to be bifurcated, SFAS No. 155 allows a preparer on an instrument-by-instrument basis to elect fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to remeasurement. SFAS No. 155 is effective for our fiscal year beginning June 1, 2007. 9 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In March, 2006, the FASB issued SFAS No. 156, ACCOUNTING FOR SERVICING OF FINANCIAL ASSETS, an amendment of FASB Statement No. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. The pronouncement establishes standards whereby servicing assets and servicing liabilities are initially measured at fair value, where applicable. In addition, SFAS No. 156 allows subsequent measurement of servicing assets and liabilities at fair value, and where applicable, derivative instruments used to mitigate risks inherent with servicing assets and liabilities are likewise measured at fair value. SFAS No. 156 is effective for our fiscal year beginning June 1, 2007. In September, 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS. The statement defines fair value, determines appropriate measurement methods, and expands disclosure requirements about those measurements. SFAS No. 157 is effective for our fiscal year beginning June 1, 2008. In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES, including an amendment of FASB Statement No. 115. This pronouncement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective as of the beginning of our fiscal year which begins June 1, 2008. 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. 10 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In 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. 11 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ NOTE 2 - GOING CONCERN The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities and commitments in the normal course of business. In the near term, the Company expects operating costs to continue to exceed funds generated from operations. As a result, the Company expects to continue to incur operating losses and may not have sufficient funds to grow its business in the future. The Company can give no assurance that it will achieve profitability or be capable of sustaining profitable operations. As a result, operations in the near future are expected to continue to use working capital. To successfully grow the individual segments of the business, the Company must decrease its cash burn rate, improve its cash position and revenue base, and succeed in its ability to raise additional capital through a combination of primarily public or private equity offerings 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. 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. Should formal notice of default be given under these notes, the potential default penalty would exceed $6 million as of August 31, 2008. In the quarter ended August 31, 2008, the Company received net proceeds from the sale of callable secured convertible notes of $140,000 (the principal balance of the notes was $225,000, with debt issuance costs totaling $10,000, and $75,000 of this amount was received after the end of the quarter ended August 31, 2008). Management of the Company is actively increasing marketing efforts to increase revenues. The ability of the Company to continue as a going concern is dependent on its ability to meet its financing arrangement and the success of its future operations. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company incurred a loss of $1,938,816 for the three months ended August 31, 2008, and as of that date, had an accumulated deficit of $12,565,731. 12 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment as of August 31, 2008 and 2007 is summarized as follow: As of August 31, As of August 31, 2008 2007 --------- --------- Vehicles $ 145,596 $ 145,596 Furniture & Fixtures 31,705 31,705 Machinery & Equipment 188,709 188,709 Leaseholde Improvements 41,606 41,606 --------- --------- 407,616 407,616 Less accumulated depreciation (192,126) (134,245) --------- --------- Property and Equipment, net $ 215,490 $ 273,371 ========= ========= NOTE 4 - ACCRUED EXPENSES Accrued expenses at August 31, 2008 and 2007 consist of: As of August 31, As of August 31, 2008 2007 --------- --------- Accrued officer's compensation 39,000 163,356 Accrued interest expense 308,973 104,572 Accrued taxes 8,350 -- Accrued royalties payable 338 1,814 --------- --------- Total 356,661 269,742 ========= ========= 13 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ NOTE 5 - CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES 6% $1.5 MILLION CONVERTIBLE DEBT On July 25, 2006, the Company entered into a Securities 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 33,334 shares of the Company's common stock (originally issued as 20 million shares prior to our reverse stock split at a rate of 600 for 1 which was effective on August 27, 2008). The notes initially bore interest at 6% per annum (with a default interest rate at 15% per annum), and mature three years from the date of issuance. This interest rate was adjusted under an amendment on September 5, 2008. The interest rate was adjusted from 6% to 12%. The interest rate adjustment was effective as of January 1, 2008. 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 was 50%; however, this percentage was adjusted to 40% under the amendment entered into on September 5, 2008. 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. 14 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ 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 15,000 shares of our common stock (originally issued as 9 million shares prior to our reverse stock split at a rate of 600 for 1 which was effective on August 27, 2008). The notes initially bore interest at 6% per annum (with a default interest rate at 15% per annum), and mature three years from the date of issuance. This interest rate was adjusted under an amendment on September 5, 2008. The interest rate was adjusted from 6% to 12%. The interest rate adjustment was effective as of January 1, 2008. The callable secured convertible notes are convertible into shares of our common stock at a variable conversion price based upon the applicable percentage of the average of the lowest three trading prices for the common stock during the twenty-day trading period prior to conversion. The "Applicable Percentage" has been adjusted to 40% under the amendment entered into on September 5, 2008. 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). The interest rate and applicable percentage for conversion of this note were also adjusted to 12% and 40%, respectively, under the amendment entered into on September 5, 2008. 12% $225,000 CONVERTIBLE DEBT On June 16, 2008, we entered into a Securities Purchase Agreement with New Millennium Capital Partners II, LLC, AJW Master Fund, Ltd, and AJW Partners, LLC (the "Investors") and agreed to issue and sell (i) callable secured convertible notes up to $500,000, and (ii) warrants to acquire an aggregate of 33,334 shares of our common stock (originally issued as 20 million shares prior to our reverse stock split at a rate of 600 for 1 which was effective on August 27, 2008). The notes initially bore interest at 6% per annum (with a default interest rate at 15% per annum), and mature three years from the date of issuance. This interest rate was adjusted under an amendment on September 5, 2008. The interest rate was adjusted from 6% to 12%. The interest rate adjustment was effective as of January 1, 2008. The callable secured convertible notes are convertible into shares of our common stock at a variable conversion price based upon the applicable percentage of the average of the lowest three trading prices for the common stock during the twenty-day trading period prior to conversion. The "Applicable Percentage" has been adjusted to 40% under the amendment entered into on September 5, 2008. 15 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ The Company has paid a total of $10,000 in debt issuance costs on the $225,000 that has been received from the sale of the convertible notes. The debt issuance costs are being amortized over the term of the note. As of August 31, 2008, the Company had only received $150,000 (net $140,000) of these notes. The remaining $75,000 was received in September 2008 and has been recorded as a receivable as of August 31, 2008. From March 2008 through August 2008, the Investors converted $38,424 of these notes into 145,564 shares of common stock (adjusted for the reverse stock split on August 27, 2008). As of August 31, 2008, the total convertible notes payable due to the Investors was equal to $2,246,576. 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; iv) $225,000 in new notes issued under the Securities Purchase Agreement dated June 16, 2008 and v) a reduction in the principal amount of the July 25, 2006 note in the amount of $38,424 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 $2,321,576. 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 August 31, 2008, the cumulative amount of amortization of the discount of the notes was equal to $1,362,826. The unamortized discount as of August 31, 2008 was $972,174. As of August 31, 2008, the total derivative liability associated with the $1.5 million convertible notes was equal to $3,280,183. The derivative liability associated with the $450,000 convertible notes was equal to $1,070,494. The derivative liability associated with the $110,000 convertible note was equal to $265,351. The $75,000 convertible note had a derivative liability of $57. The derivative liability associated with the $225,000 convertible notes entered into in June and August 2008 was equal to $493,947. The derivative liability associated with the 33,334 warrants that were issued as part of the $1.5 million convertible notes was $2,566 on August 31, 2008. The derivative liability associated with the 15,000 warrants that were issued as part of the $450,000 convertible notes was $1,155. The derivative liability associated with the 33,334 warrants that were issued as part of the June 16, 2008 Securities Purchase Agreement was $2,664. The total of these amounts is $5,116,417. 16 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ 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 August 31, 2008 $1,466,940 $1,344,914 $ 468,329 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 quarter ended August 31, 2008 was $142,551. Remaining unamortized discount as of that date was $443,652. For the quarter ended August 31, 2008, the Company has reported $735,650 in other expense related to changes in its derivative liability associated with these notes. The Company also granted warrants to purchase 33,334 shares of common stock in connection with the financing. The warrants are exercisable at $6.00 per share for a period of seven years, and were fully vested (these were originally issued as 20,000,000 warrants to purchase stock at a price of $0.10 per share. The price and number of warrants has been adjusted for the reverse stock split on August 27, 2008). 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 33,334 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 $2,556 using the Black- Scholes Option Pricing Model. For the quarter ended August 31, 2008, the Company has reported $8,623 in other income related to changes in its derivative liability associated with these warrants. 17 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------ 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 $1.20 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 August 31, 2008 $ 57 The Company recorded the fair value of the conversion feature of $437,565, as a discount to the convertible debt in the accompanying balance sheet up to the proceeds received with the excess of $362,565 charged to expense. Amortization expense related to the conversion feature discount for the quarter ended August 31, 2008 was $6,342. Remaining unamortized discount as of that date was $18,750. For the quarter ended August 31, 2008, the Company has reported $736 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 August 31, 2008 $282,184 $261,582 $262,797 $263,930 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 18 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS charged to expense. Amortization expense related to the conversion feature discount for the quarter ended August 31, 2008 was $37,808. Remaining unamortized discount as of that date was $248,521. For the quarter ended August 31, 2008, the Company has reported $233,406 in other expense related to changes in its derivative liability associated with these notes. The Company also granted warrants to purchase 15,000 shares of common stock in connection with the financing. The warrants are exercisable at $36.00 per share for a period of seven years, and were fully vested (these were originally issued as 9,000,000 warrants to purchase stock at a price of $0.60 per share. The price and number of warrants has been adjusted for the reverse stock split on August 27, 2008). 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 15,000 Estimated fair value of total warrants granted $443,468 The warrants were revalued as of the date of this report at a value of $1,155 using the Black-Scholes Option Pricing Model. For the year ended August 31, 2008, the Company has reported $3,858 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 August 31, 2008 $265,351 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 quarter ended August 19 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 31, 2008 was $9,242. Remaining unamortized discount as of that date was $70,018. For the quarter ended August 31, 2008, the Company has reported $58,218 in other expense 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 $500,000 Securities Purchase Agreement dated June 16, 2008, using the Black Scholes pricing model on the date of each note: 6/16/2008 8/12/2008 Tranche Tranche --------- --------- Approximate risk free rate 3.73% 3.73% Average expected life 3 years 3 years Dividend yield 0% 0% Volatility 238.93% 274.26% Estimated fair value of conversion feature on date of notes $244,372 $247,277 Estimated fair value of conversion feature as of August 31, 2008 $246,714 $247,233 The Company recorded the fair value of the conversion feature, aggregate of $491,649, as a discount to the convertible debt in the accompanying balance sheet up to the proceeds received from each traunch, with the excess of $291,649 charged to expense. Amortization expense related to the conversion feature discount for the quarter ended August 31, 2008 was $8,767. Remaining unamortized discount as of that date was $191,233. For the quarter ended August 31, 2008, the Company has reported $2,298 in other expense related to changes in its derivative liability associated with these notes. The Company also granted warrants to purchase 33,334 shares of common stock in connection with the financing. The warrants are exercisable at $0.60 per share for a period of seven years, and were fully vested. (These were originally issued as 20,000,000 warrants to purchase stock at a price of $0.001 per share. The price and number of warrants has been adjusted for the reverse stock split on August 27, 2008). The warrants were originally valued at $17,937 using the Black-Scholes Option Pricing Model with the following weighted-average assumptions used. 3/15/2007 ---------- Approximate risk free rate 3.94% Average expected life 7 years Dividend yield 0% Volatility 238.93% Number of warrants granted 33,334 Estimated fair value of total warrants granted $17,937 20 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The warrants were revalued as of the date of this report at a value of $2,664 using the Black-Scholes Option Pricing Model. For the quarter ended August 31, 2008, the Company has reported $15,273 in other income related to changes in its derivative liability associated with these warrants. Maturities of Notes Payable: Future maturities of our convertible notes payable due during the years ended August 31 are as follows: 2009 $1,536,576 2010 560,000 2011 225,000 ---------- TOTAL $2,321,576 ========== Summary of Convertible Notes Payable and Derivative Liabilities The following is a summary of the convertible notes payable and derivative liability: Change in Unamortized Current Derivative Debt Discount Conversion Liability in as of Value Current Period August 31, 2008 ----------- ----------- ----------- $1.5m Convertible Notes $ 3,280,183 $ 735,650 $ 443,652 $450,000 Convertible Notes 1,070,494 233,406 248,521 $110,000 Convertible Note 265,351 58,218 70,018 $75,000 Convertible Note 57 (736) 18,750 $225,000 Convertible Notes 493,947 2,298 191,233 July 2006 Warrants 2,566 (8,623) -- March 2007 Warrants 1,155 (3,858) -- June 2008 Warrants 2,664 (15,273) -- ----------- ----------- ----------- $ 5,116,417 $ 1,001,082 $ 972,174 =========== =========== =========== 21 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS EVENTS OF DEFAULT UNDER NOTE AGREEMENTS The Company has committed various acts which constitute events of default under its Securities Agreements dated July 25, 2006, March 15, 2007, July 30, 2007 and June 16, 2008 (and the notes thereunder with total principal balances of $2,285,000). The Company has received assurance from counsel for the investors that the investors have not placed the Company in default under the notes and therefore the Company does not consider itself in default. There can be no assurance that the investors will not declare a default in the future. Should such notice of default be received by the Company, its liabilities would increase dramatically due to the penalties, reset provisions, and other damages specified in the transaction documents. The increase in liabilities attributed to a notice of default under the transaction documents could exceed the Company's current market capitalization and affect negatively on its financial condition by in excess of $6 million dollars. The debentures are collateralized by the Company's assets and, in the event if the Company is unable to repay or restructure these debentures, there is no assurance that the holders of the debentures will not institute legal proceedings to recover the amounts owed including foreclosure on the Company's assets. DERIVATIVE LIABILITIES In accordance with EITF 00-19, the conversion feature of each convertible debenture and the stock warrants issued in conjunction with convertible debentures have been included as long-term liabilities and were originally valued at fair value at the date of issuance. As a liability, the convertible features and the stock warrants are revalued each period until and unless the debt is converted. As of August 31, 2008, the fair values of the conversion feature and the stock warrants aggregated to $5,116,417. The Company recorded expense of $1,001,082 related to the change in fair value from the last date of valuation of the convertible debt to August 31, 2008. This amount is recorded as "Change in Derivative Liabilities" a component of other income in the accompanying consolidated statement of operations. If the debt is converted prior to maturity, the carrying value will be transferred to equity. NONEMPLOYEE OPTIONS The Company has accounted for options granted to nonemployees in accordance with FAS 123. Under FAS 123, the option award is based on the fair market value of the underlying security based on the Black-Scholes Pricing Model, less the option price. NOTE 6 - PREFERRED STOCKS The Company is authorized to issue 40,000,000 shares of no par value Series A preferred stock. As of August 31, 2008, the Company had 38,275,960 shares of preferred stock Series A issued and outstanding. No dividends shall accrue or be payable on the Series A preferred stocks. The Company has the right to redeem each share of Series A preferred stock for $1; however, there is no obligation for this redemption. Each share of Series A preferred stock is entitled to vote on all matters with holders of the common stock; however, each Series A preferred stock is entitled to 1 vote. Each share of Series A preferred stock is convertible, at the option of the holder and subject to a 65 day written notice to the Company, at any time after the date of the issuance into 1 share 22 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS of fully paid and non-assessable share of common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series A preferred stock shall be entitled to be paid $1 per share before any payments or distribution of assets of the Company to the holders of the common stock or any other equity securities of the Company. On May 21, 2006, the Company and a subscriber entered into an Investment Contract (the "Contract") in which the subscriber agreed to purchase 3 million shares of the Company's restricted series A preferred shares at a price of $0.0733 per share or $220,000. Under the Contract, these shares are to be registered by the Company on Form S-1. Such registration has not occurred. As of August 31, 2008, all 3 million shares of restricted series A preferred shares were issued and a subscription receivable of $220,000 was recorded against the Company's equity. NOTE 7 - COMMON STOCK On 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 342,946,942 to 572,259 as of August 27, 2008, the effective date of the reverse stock split. NOTE 8 - NET LOSS PER SHARE The following table sets forth the computation of basic and diluted net loss per share: FOR THE QUARTERS ENDED AUGUST 31, 2008 2007 ------------ ------------ Numerator: Net loss $(1,938,816) $(1,377,336) ------------ ------------ Denominator: Weighted Average Number of Shares 744,853 62,944 Net loss per share - Basic and diluted $ (2.60) $ (21.88) As the Company incurred a net loss for the three months ended August 31, 2008 and 2007, it has excluded from the calculation of diluted net loss per share approximately 106,850,566 and 201,937 shares, respectively. These shares represent the Series A preferred stock, outstanding warrants and assume that all convertible notes could be converted at the market price as of August 31, 2008 23 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - SEGMENT INFORMATION and 2007, respectively. SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" requires that a publicly traded company must disclose information about its operating segments when it presents a complete set of financial statements. Since the Company has only one segment detailed information of the reportable segment is not presented. NOTE 10 - RELATED PARTY TRANSACTIONS The Company had notes payable to its CEO, Scott Sand, in the amounts of $22,973 and $92,829 as of August 31, 2008 and 2007, respectively. The bulk of the balance due as of August 31, 2007 was a result of business expenses paid by Mr. Sand on his personal credit cards. The Company recorded interest in the amount of finance charges on the credit cards. The related accrued interest of $4,988 is included in the note balance as of August 31, 2007. No interest was charged on the amount due as of August 31, 2008. In addition to the note amounts, the Company also has accrued salary expense payable to Mr. Sand in the amounts of $39,000 and $163,356 as of August 31, 2008 and 2007, respectively. The total amount due to Mr. Sand as of August 31, 2008 was $61,973. NOTE 11 - 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 August 31, 2008, the remaining lease obligation is as follows: Year Ending Lease August 31, Obligation --------------------------------------- 2009 $ 20,400 2010 20,400 2011 20,400 2012 11,900 ----------- $ 73,100 =========== The total rent expense for the quarter ended August 31, 2008 was $6,680. NOTE 12 - INTANGIBLE ASSETS The Company has recorded patents at a cost of $67,345. This represents legal costs of filing for patents and the purchase of the exclusive rights for a patent 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 $1,122 in the quarter ended August 31, 2008 on the cost of its patents. 24 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - GUARANTEES The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. These contracts primarily relate to: (i) divestiture agreements, under which the Company may provide customary indemnifications to purchasers of the Company's businesses or assets; and (ii) certain agreements with the Company's officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligation cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these obligations on its balance sheet as of August 31, 2008. NOTE 14 - 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 15 - SUBSEQUENT EVENTS 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. 25 INGEN TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS On September 17, 2008, Jeffrey Gleckman converted 4,000,000 of Series A preferred shares into common stock. Upon this conversion, Mr. Gleckman owned 49.7% of our total outstanding common shares. 26 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect management's current views with respect to future events and financial performance. In this report, the words "anticipates," "believes," "expects," "intends," "future," "may" and similar expressions identify forward-looking statements. These and other forward-looking statements are subject to certain risks and uncertainties, including those discussed in the Risk Factors section of this Item 2 and elsewhere in this Form 10-Q, that could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances occurring subsequent to the filing of the Form 10-QSB with the Securities and Exchange Commission. OVERVIEW 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 27 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. 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. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 2008 COMPARED TO THE THREE MONTHS ENDED AUGUST 31, 2007 We reported gross sales of $987 in the quarter ended August 31, 2008. Our total sales fell 99% from sales of $117,471 in the quarter ended August 31, 2007. Our sales decrease was attributable to management's decision to move away from sales and marketing of our Secure Balance product. Our Secure Balance sales were $75,695 in the quarter ended August 31, 2007 and we did not sell any units of Secure Balance in the quarter ended August 31, 2008. We expect our total sales of Secure Balance to continue to be low 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. Since we are not a manufacturer of any Secure Balance products, we have no control over competitive pricing or manufacturing costs. We determined that this could negatively affect margins and gross profits of our Secure Balance sales. We are focusing on Oxyview because we are the manufacturer and we can control manufacturing costs and competitive pricing for its distribution, hospital group purchasing organizations and partnerships with its respiratory equipment manufacturers. We anticipate that our sales of Oxyview will increase from the current quarter's sales as we expand sales channels. 28 Our total sales of Oxyvew in the quarter ended August 31, 2008 were $788. This is a 98% decrease from our sales of Oxyview in the quarter ended August 31, 2007. Our sales of Oxyview in that quarter were $40,544. We had a one-time sale of $40,000 in the quarter ended August 31, 2007 which accounts for the difference between the two quarters. We have not had adequate resources to adequately market and advertise Oxyview and have thus had very low sales. Should we secure additional financing, we anticipate that we can increase sales of Oxyview. Our sales of supplies were $60 in the quarter ended August 31, 2008, which was a decrease of 54.6% from the $132 sales of supplies in August 31, 2007. We also recorded revenues from freight collected in the amount of $139 in the quarter ended August 31, 2008, which was a decrease of 87.4% from the $1,100 in freight collected in the quarter ended August 31, 2007. This decrease is a direct function of the sales decreases of Secure Balance. Our total cost of sales was $115 in the quarter ended August 31, 2008 and our gross profit was $872 (a gross margin of 88.3%). We reported cost of sales of $67,413 in the quarter ended August 31, 2007 with a gross profit of $50,058 (a gross margin of 42.6%). We anticipate that our gross margin will continue to stay in the range of the current quarter as we continue to generate the bulk of our sales from our Oxyview units, which generates a higher gross margin than our Secure Balance sales. In the quarter ended August 31, 2008, the cost of sales for our Oxyview sales was $115 which generated a gross profit of $673 (a gross margin of 85.4%), this is compared to cost of sales of $10,642 in the quarter ended August 31, 2007 which generated a gross profit of $29,902 (a gross margin of 73.8%). Secure Balance sales in the quarter ended August 31, 2007 generated a gross margin of 25% (cost of sales of $56,771 generating a gross profit of $18,924). Our selling, general and administrative expenses were $276,933 in the quarter ended August 31, 2008. This was a decrease of approximately 31.9% from the selling, general and administrative expenses of $406,694 reported in the quarter ended August 31, 2007. The decrease in SG&A is primarily attributable to lack of available capital to market our products. The largest components of our SG&A are legal and professional services, travel associated with both sales and business development, outside services and salaries. Our advertising expense dropped from $19,969 in the quarter ended August 31, 2007 to zero in the quarter ended August 31, 2008. 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 be low until we secure additional capital to allocate to advertising and promoting of Oxyview. We spent $68,193 on legal and professional fees in the quarter ended August 31, 2008. This was an increase of 170% over the legal and professional fees of $25,207 in the quarter ended August 31, 2007. A large portion of our legal and professional fees related to the task of making various filings required by the SEC and responding to comments of the SEC relating to those filings. We anticipate continued legal and professional fees at approximately our current level of expense as we attempt our move to be listed on the OTC Bulletin Board. Our travel expense decreased from $63,430 in the quarter ended August 31, 2007 to $40,172 in the quarter ended August 31, 2008 (a decrease of 36.7%). This drop in travel expense is due to less available capital for travel related to the 29 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 decreased from $118,863 in the quarter ended August 31, 2007 to $61,276 in the quarter ended August 31, 2008 (a decrease of 48.5%). The bulk of our outside service expense in the quarter ended August 31, 2007 was due to issuing stock to individuals for services. We had no such issuances in the current quarter. The amounts we paid for salaries decreased from $70,933 in the quarter ended August 31, 2007 to $61,743 in the quarter ended August 31, 2008 (a decrease of 13.0%). This decrease is due to our decreasing staff and paying part-time help on a contractor basis in the quarter ended August 31, 2008. Our interest expense for the quarter ended August 31, 2007 was $661,673. This is an increase of 48.1% from the interest expense of $446,911 in the quarter ended August 31, 2007. The vast majority of our interest expense related to the accounting treatment of the convertible feature of the notes payable. The interest expense relating to financing costs in the quarters ended August 31, 2008 and 2007 was $545,971 and $411,273, respectively. The interest expense relating to financing costs increased due to the new notes entered into in the current quarter. The interest expense accrued on the notes payable and other interest paid in the quarters ended August 31, 2008 and 2007 was $115,702 and $35,638, respectively. The interest accrued in the quarter ended August 31, 2008 increased dramatically compared to the quarter ended August 31, 2007 due to the interest expense adjustment associated with the September 5, 2008 amendment to the convertible notes. This amendment changed the interest expense on notes with a principal balance of $2,246,576 from 6% to 12%. This adjustment, because it was effective as of January 1, 2008, caused an interest adjustment of $82,683 due to this higher interest rate. We recorded expense due to the change in our derivative liability in the amount of $1,001,082 in the quarter ended August 31, 2008. This is compared to an expense in the amount of $573,779 in the quarter ended August 31, 2007. This expense was a result of the Company's treatment of certain convertible notes payable and warrants. The Company is required to value the convertible feature of each convertible note and also value the warrants when they are issued. The valuation was done again as of August 31, 2008 and 2007. Any increases in these values, which are based on a Black Scholes valuation, have been recorded as expense and decreases are recorded as income. We have not generated net profit to date and therefore have not paid any federal income taxes since inception. We paid $0 and $10 in state taxes in the quarters ended August 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, the end of our last fiscal year. 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 August 31, 2008, our current assets totaled $162,581 (including, accounts receivable of $66, inventory of $74,715, receivable from our convertible debentures of $75,000 and prepaid expenses of $12,800). Total current liabilities were $1,786,797, consisting of $131 in a cash overdraft, $235,819 in accounts payable, $356,661 in accrued expense, $22,973 in an officer's loan, $1,074,174 of short-term convertible notes payable, $82,500 of short-term notes 30 and $14,539 representing the current portion of long-term debt. We had $987 sales in the quarter ended August 31, 2008 and sales of convertible debentures on which we netted $140,000. Our finances were assisted by deferments from our CEO and Chairman Scott R. Sand. Mr. Sand accrued $39,000 in salary in the quarter. As of August 31, 2008, we owed Mr. Sand $39,000 in accrued salary and an additional $22,973 for expenses that he has paid on behalf of the Company. At August 31, 2007, our current assets totaled $178,912 (including cash of $7,762, accounts receivable of $78,090, inventory of $74,953 and prepaid expenses of $18,107). Total current liabilities were $466,114, consisting of $80,654 in accounts payable, $269,742 in accrued expense, $8,350 in taxes payable, $92,829 in an officer's loan and $14,539 representing the current portion of long-term debt. We had $117,471 of sales in the quarter ended August 31, 2007, sales of convertible debentures on which we netted $200,000 and sales of common stock on which we netted $74,800. Our finances were assisted by deferments from our CEO and Chairman Scott R. Sand. Mr. Sand accrued $50,000 in salary in the quarter. As of August 31, 2007, we owed Mr. Sand $163,356 in accrued salary and an additional $92,829 for expenses that he paid on behalf of the Company. Our future cash requirements will depend on many factors, including finishing the development of our OxyAlert, the costs involved in filing, prosecuting and enforcing patents, competing technological and market developments and the cost of product commercialization for OxyAlert in particular, as well as our ongoing Secure Balance and Oxyview sales efforts. We intend to seek additional funding through public or private financing transactions. Successful future operations are subject to a number of technical and business risks, including our continued ability to obtain future funding, satisfactory product development and market acceptance for our products. 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 $2,360,000 from June 2006 through August 2008. As of August 31, 2008, these notes were convertible into approximately 106 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 81,668 shares of the Company's common stock (these warrants were initially issued to purchase 49,000,000 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 note holders could own more than ninety-five percent of the Company's outstanding common stock, however under the terms of the agreements the note holders can not convert their notes into holdings that would exceed 4.99% of the Company's outstanding common stock. The notes were entered into under the terms of three different agreements. On July 25, 2006, the Company entered into a Securities 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 31 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 August 31, 2008, only $1.5 million of the convertible notes were funded. 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%. This interest rate adjustment was retroactive to January 1, 2008. The Company 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. 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 Securities 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 32 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% 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. 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%. This interest rate adjustment was retroactive to January 1, 2008. The Company 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. 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 sames 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. On June 16, 2008, the Company entered into a Securities Purchase Agreement (the "Agreement") and agreed to issue and sell (i) callable secured convertible notes up to $500,000, 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 $0.60 per share). The callable secured convertible notes are convertible into shares of our common stock at a variable conversion price based upon the applicable percentage of the average of the lowest three (3) Trading Prices for the Common Stock during the twenty (20) Trading Day period prior to conversion. The "Applicable Percentage" (as defined in each of 33 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 was retroactive to January 1, 2008. The Company 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. 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 $100,000 on June 16, 2008, less issuance costs of $10,000, the second tranche of $100,000 was agreed to on August 12, 2008 and a third tranche agreement was signed on August 29, 2008 in the amount of $25,000. $75,000 of these note proceeds was not received until September 2008. The Company issued seven year warrants to purchase 33,334 shares of its common stock at an exercise price of $0.60. (These warrants were originally issued to purchase 20 million shares at $0.001 but they have been adjusted to reflect the reverse split on August 27, 2008). 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. 34 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 35 may result in agency enforcement actions, including voluntary or mandatory recall, license suspension or revocation, 510(k) withdrawal, seizure of products, fines, injunctions and/or civil or criminal penalties. Any agency enforcement action could have a material adverse effect on us. The advertising of our products will also be subject to regulation by the Federal Trade Commission, under the FTC Act. The FTC Act prohibits unfair methods of competition and unfair or deceptive acts in or affecting commerce. Violations of the FTC Act, such as failure to have substantiation for product claims, would subject us to a variety of enforcement actions, including compulsory process, cease and desist orders, and injunctions. FTC enforcement can result in orders requiring, among other things, limits on advertising, corrective advertising, consumer redress, and restitution. Violations of FTC enforcement orders can result in substantial fines or other penalties. FOREIGN REGULATION. Outside the United States, our ability to market our products will also depend on receiving marketing authorizations from the appropriate regulatory authorities. The foreign regulatory approval process includes all of the risks associated with FDA procedures described above. The requirements governing the conduct of clinical trials and marketing authorization vary widely from country to country. 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. ITEM 4. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures designed to ensure that material information related to our company is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. (a) As of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934). Based upon that evaluation, our CEO and CFO concluded, as of the date of such evaluation, that our disclosure controls and procedures were effective. (b) No changes were made in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. (c) Limitations. Our management, including our CEO and CFO, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals 36 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. ITEM 4T. 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. PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On September 15, 2008, the Company and its CEO Scott Sand were named in a civil case in the Superior Court of the County of San Bernardino. The filing was made by Citibank and sought damages of $13,589 stemming from past due credit card charges. Although this credit card was a personal credit card of Mr. Sand, the Company was named in the filing. On October 14, 2008, Mr. Sand entered into a settlement agreement to pay a sum of $11,121 in three installments from October 24, 2008 through November 28, 2008. Upon the timely payment of the three installments, the plaintiff will file a Dismissal With Prejudice of the entire action. Should payments not be made in a timely fashion, the settlement offer will be null and void and the plaintiff will continue with all applicable legal remedies. ITEM 1A. RISK FACTORS 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. 37 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 and more difficult to use 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. The size of competition is expected to enhance our planned marketing campaign. 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. 38 WE HAVE A HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT, AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE. We have experienced significant operating losses in each period since our inception. As of August 31, 2008, we have incurred total accumulated losses of $12,565,731. 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. 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 August 31, 2008, the Company owes Mr. Sand $22,973 for expenses 39 paid on behalf of the Company and Mr. Sand has deferred $39,000 in compensation as of August 31, 2008. 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 quarter ended August 31, 2008 were $788. 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; 40 o collaborators could independently develop, or develop with third parties, products that could compete with our future products; o the terms of our agreements with our current or future collaborators may not be favorable to us; o a collaborator with marketing and distribution rights to one or more products may not commit enough resources to the marketing and distribution of our products, limiting our potential revenues from the commercialization of a product; o disputes may arise delaying or terminating the research, development or commercialization of our products, or result in significant litigation or arbitration; and o collaborations may be terminated and, if terminated, we would experience increased capital requirements if we elected to pursue further development of the product. 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. 41 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. 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 42 against third parties, such as infringement suits. These lawsuits could be expensive, take significant time and divert management's attention from other business concerns. The patent position of medical firms generally is highly uncertain, involves complex legal and factual questions, and has recently been the subject of much litigation. No consistent policy has emerged from the U.S. Patent and Trademark Office or the courts regarding the breadth of claims allowed or the degree of protection afforded under biotechnology patents. In addition, there is a substantial backlog of applications at the U.S. Patent and Trademark Office, and the approval or rejection of patent applications may take several years. We cannot guarantee that our management and others associated with us will not improperly use our patents, trademarks and trade secrets. Further, others may gain access to our trade secrets or independently develop substantially equivalent proprietary information and techniques. OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS. We may be sued for infringing on the patent rights or misappropriating the proprietary rights of others. Intellectual property litigation is costly, and, even if we prevail, the cost of such litigation could adversely affect our business, financial condition and results of operations. In addition, litigation is time consuming and could divert management attention and resources away from our business. If we do not prevail in any litigation, we could be required to stop the infringing activity and/or pay substantial damages. Under some circumstances in the United States, these damages could be triple the actual damages the patent holder incurs. If we have supplied infringing products to third parties for marketing or licensed third parties to manufacture, use or market infringing products, we may be obligated to indemnify these third parties for any damages they may be required to pay to the patent holder and for any losses the third parties may sustain themselves as the result of lost sales or damages paid to the patent holder. If a third party holding rights under a patent successfully asserts an infringement claim with respect to any of our products, we may be prevented from manufacturing or marketing our infringing product in the country or countries covered by the patent we infringe, unless we can obtain a license from the patent holder. Any required license may not be available to us on acceptable terms, or at all. Some licenses may be non-exclusive, and therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around a patent, we may be unable to market some of our anticipated products, which could have a material adverse effect on our business, financial condition and results of operations. 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. 43 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. 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. 44 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. 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. 45 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 46 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. 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 October 7, 2008, 336,611 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 August 31, 2008, we had $2,321,576 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; 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 and $225,000 convertible debt entered into on June 16, 2008. 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. We estimate that our default penalties could exceed $6 million in a "parity value" default provision under these note agreements. 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 ($2,246,576 aggregate principal)(without taking into account the 47 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 $.01 on October 8, 2008.
Price Decreases by: 10/8/2008 25% 50% 75% Common Stock Price (1) 0.01 0.0075 0.005 0.0025 Conversion Price (2) $0.004 $0.003 $0.002 $0.001 100% Conversion Shares 561,644,000 748,858,667 1,123,288,000 2,246,576,000
(1) Represents the average of the lowest three (3) trading prices for the common stock during the twenty (20) trading day period prior to October 8, 2008, 2008 as calculated pursuant to the agreements. (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. 48 We have issued convertible debentures that total $2,360,000. As of August 31, 2008, $38,424 of these notes were converted into common stock. 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the quarter ended August 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 Regulation D promulgated thereunder: Common Stock - ------------ a) 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. The total value of the issuance was booked at $198,000 and has been treated as a deposit under this contract. b) During the quarter ended August 31, 2008, the Company issued 98,186 shares of common stock to convertible note holders who converted $9,971 of their debt into common stock. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None. 49 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5 - OTHER INFORMATION None. ITEM 6. EXHIBITS (All exhibits with original signatures are contained in the corporate office files of Ingen Technologies, Inc. ("Ingen")) Exhibit No. Document Description ----------- -------------------- 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) 3.6 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF INGEN TECHNOLOGIES, INC. as filed with the Georgia Secretary of State (incorporated by referenceto 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). 50 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). 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). 51 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). 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 (included as an exhibit to our Form 10-KSB dated September 29, 2008 and incorporated herein by this reference) 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) 52 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) 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 (included as an exhibit to our Form 10-KSB dated September 29, 2008 and incorporated herein by this reference) 10.45 Agreement with Brad Klearman dated January 1, 2008 (included as an exhibit to our Form 10-KSB dated September 29, 2008 and incorporated herein by this reference) 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. (included as an exhibit to our Form 10-KSB dated September 29, 2008 and incorporated herein by this reference) 10.47 Callable Secured Convertible Note to AJW Partners, LLC dated August 29, 2008 (included as an exhibit to our Form 10-KSB dated September 29, 2008 and incorporated herein by this reference) 10.48 Callable Secured Convertible Note to AJW Master Fund, Ltd. dated August 29, 2008(included as an exhibit to our Form 10-KSB dated September 29, 2008 and incorporated herein by this reference) 10.49 Callable Secured Convertible Note to New Millennium Capital Partners II, LLC dated August 29, 2008 (included as an exhibit to our Form 10-KSB dated September 29, 2008 and incorporated herein by this reference) 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 (included as an exhibit to our Form 10-KSB dated September 29, 2008 and incorporated herein by this reference) 31.1 Certification of Chief Executive Officer as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Chief Financial Officer as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 53 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INGEN TECHNOLOGIES, INC. October 20, 2008 /s/ Scott R. Sand ------------------------------------- Scott R. Sand Chief Executive Officer and Chairman October 20, 2008 /s/ Thomas J. Neavitt ------------------------------------- Thomas J. Neavitt Secretary and Chief Financial Officer 54 EX-31.1 2 ingen_10q-3101.txt CERTIFICATION Exhibit 31.1 CEO Certification I, Scott R. Sand, certify that: 1. I have reviewed this Form 10-Q 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 registrant as of, and for, the periods presented in this report; 4. The registrant'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)) 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 registrant, 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) Evaluated the effectiveness of the registrant'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 (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial reporting. Date: October 20, 2008 /s/ Scott R. Sand - ---------------------------- Scott R. Sand Chief Executive Officer EX-31.2 3 ingen_10q-3102.txt CERTIFICATION Exhibit 31.2 CFO Certification I, Thomas J. Neavitt, certify that: 1. I have reviewed this Form 10-Q 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 sregistrant as of, and for, the periods presented in this report; 4. The registrant'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)) for the registrant 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 registrant, 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) Evaluated the effectiveness of the registrant'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 (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial reporting. Date: October 20, 2008 /s/ Thomas J. Neavitt - ----------------------------- Thomas J. Neavitt Chief Financial Officer EX-32.1 4 ingen_10q-3201.txt CERTIFICATION Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Ingen Technologies, Inc. (the "Company") for the quarter ended August 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned Scott R. Sand, Chief Executive Officer and Thomas J. Neavitt, Chief Financial Officer of Ingen Technologies, Inc., 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 the Company. Dated: October 20, 2008 /s/ Scott R. Sand ----------------------------- Scott R. Sand Chief Executive Officer /s/ Thomas J. Neavitt ----------------------------- Thomas J. Neavitt Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----