Igia, Inc - Comparison of the Three and Six Months Ended August...

Igia, Inc - Recent Material Event

Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this document are statements which are not historical or current fact and constitute “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual financial or operating results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. Such forward looking statements are based on our best estimates of future results, performance or achievements, based on current conditions and the most recent results of the Company. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms “August”, “will”, “potential”, “opportunity”, “believes”, “belief”, “expects”, “intends”, “estimates”, “anticipates” or “plans” to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the Company’s reports and registration statements filed with the Securities and Exchange Commission.

Comparison of the Three and Six Months Ended August 31, 2007 to the Three and Six Months Ended August 31, 2006

Results of Operations

Revenue

In the three month period ended August 31, 2007, we did not sell any of our consumer products and home care products. Our net sales for the three months ended August 31, 2007 were $0; a decrease of $2,261,081 compared to net sales of $2,261,081 for the three month period ended August 31, 2006. In the six month period ended August 31, 2007, we sold a limited amount of consumer products and home care products directly to individual customers and to retailers. Our net sales for the six months ended August 31, 2007 were $6,513, a decrease of $5,713,453 compared to net sales of $5,719,966 for the three month period ended August 31, 2006.

Historically, we have used direct response television advertising to promote sales, but we have ceased direct response television advertising due to a lack of capital. The decrease in net sales for the three and six month periods ended August 31, 2007 as compared to the three and six month periods ended August 31, 2006 results from our inability to run direct response television advertising. In addition, our lack of cash has resulted in our inability to purchase and ship product to customers in a timely and consistent manner. During our fiscal year ended February 27, 2007 (“Fiscal 2007”), we also suffered disruptions to operations caused by changes in providers of services for customer order fulfillment and credit card processing. We began Fiscal 2007 with negative working capital of $21.9 million and $7,887 in cash. We engaged Parcel Corporation of America (“PCA”) for customer order fulfillment and a media placement agent in connection with a houseware products sales campaign we initiated. Shortly after integrating our operating activities with PCA and launching the campaign, PCA advised us that the logistics company they used to ship our products went bankrupt and that PCA also was ceasing operations within two weeks. While getting established with a new service provider, we noted an unusually high level number of calls from customers concerned about their order status and PCA’s inability to effectively handle matters. In addition, our credit card merchant banks also noted an elevated level of customer inquires and chargeback requests. As a result, the credit card merchant banks increased the amount of cash they withheld from customer orders and placed in rolling reserves and they delayed releases of funds to us. As a result, we did not have sufficient cash to obtain all of the product needed to fulfill customer orders on hand which led to order cancellations. To address similar issues we experienced after replacing PCA, we terminated the fulfillment services that two other vendors provided us, one of which filed for bankruptcy, and we consolidated our fulfillment activities with one service provider.

The direct response sales campaigns that used the credit terms provided by a media placement agent contributed the majority of our revenues for the three and six month periods ending August 31, 2006. The media placement agent has demanded that we repay all amounts outstanding, which are approximately $2.0 million, and has acted to exercise contractual rights to assume control over the sales campaigns. As a result, we have discontinued participation in the two sales campaigns and did not generate revenues from them since the second quarter of Fiscal 2007.

We currently have limited working capital and access to credit that we need to purchase television air time and products. Our direct response sales operation requires that we use cash to purchase, up to two weeks in advance, television advertising time to run our infomercials and to purchase, up to eight weeks in advance, products that we sell. Until such time as we obtain additional working capital and credit availability, we expect our purchases and direct response revenues to be substantially lower. We are also seeking to license our products for sale by other direct marketers in order to generate licensing revenue and continued brand exposure.

Gross Profit

Our gross loss was $0 for the three months ended August 31, 2007 versus our gross profit of $1,533,372 for the three months ended August 31, 2006, a decrease of $1,533,372. Our gross loss was $0 for the six months ended August 31, 2007 versus our gross profit of $4,222,749 for the six months ended August 31, 2006, a decrease of $4,222,749. The decrease in gross profit for the periods ended August 31, 2007 is the result of our substantially decreased revenue.

Our gross profit percentage for the three months ended August 31, 2007 was 0.0%, as compared to a gross profit percentage of 67.8% for the first three months ended August 31, 2006. Our gross loss percentage for the six months ended August 31, 2007 was 16.1%, as compared to a gross profit percentage of 73.8% for the first six months ended August 31, 2006. The gross loss percentage for the six month period ended August 31, 2007 resulted from our substantially decreased revenue.

Operating expenses

Operating expenses for the three months ended August 31, 2007 were $317,146, a decrease of $2,688,310 from $3,005,456, or 89.5% as compared to the three months ended August 31, 2006. Operating expenses for the six months ended August 31, 2007 were $902,335, a decrease of $8,103,313 from $9,005,648, or 90.0% as compared to the three months ended August 31, 2006. For the six months ended August 31, 2007, operating expense was 13,854% of net sales as compared to 157% for the comparable period in 2006. The decrease in the dollar amounts of operating expenses for the three and six month periods ended 2007 is primarily the result of eliminated personnel, media advertising and decreased customer order fulfillment services as a result of lower sales volume. As a result of lower revenues for the three and six month periods ended August 31, 2007, our fixed operating and overhead expenses were a greater percentage of revenue in the three and six month periods ended August 31, 2007 compared to the prior period in 2006.

We eliminated media advertising spending in the three and six month periods ended August 31, 2007, as compared to spending $352,313 and $4,055,334 in the three and six month periods ended August 31, 2006, respectively. We purchased no television air time as a result of constraints from a lack of cash needed to purchase and ship product to customers in a timely and consistent manner and due to disruptions to operations caused by changes in providers of services for customer order fulfillment and credit card processing.

We spent $317,146, or 88.1% less, on other selling, general and administrative expenses in the three months ended August 31, 2007 as compared to the prior period in 2006. We spent $902,335, or 81.8% less, on other selling, general and administrative expenses in the six months ended August 31, 2007 as compared to the prior period in 2006. Selling expenses associated with the volume of sales have decreased and we have also reduced the number of personnel on staff in response to the reduced level of activity.

Interest expense and other income / expense

We incurred net interest expense of $419,177 and $704,151 in the three months ended August 31, 2007 and 2006, respectively, a decrease of $284,974. Interest expense for the three months ended August 31, 2007 consisted primarily of $174,417 in coupon interest on the Notes, a $180,000 charge for accelerating the accretion on the Notes we issued on June 7, 2007 and $38,573 in interest on notes payable to related parties. Interest expense for the three months ended August 31, 2006 consisted primarily of amortization of the discount related to the beneficial conversion feature and amortization of the related issue costs and interest on notes payable to related parties. We incurred net interest expense of $636,191 and $1,009,995 in the six months ended August 31, 2007 and 2006, respectively, a decrease of $463,804. Interest expense for the six months ended August 31, 2007 consisted primarily of $336,850 in coupon interest on the Notes a $180,000 charge for accelerating the accretion on the Notes we issued on June 7, 2007, and $76,968 in interest on notes payable to related parties. Interest expense for the six months ended August 31, 2006 consisted primarily of coupon interest on the Notes of $229,702, $759,074 in amortization of the discount related to the beneficial conversion feature and amortization of the related issue costs and $77,280 in interest on notes payable to related parties.

Reorganization items

Pursuant to the March 28, 2006 Notice of Effective Date of the Plan that was filed with the Bankruptcy Court Tactica eliminated $14,872,653 of pre-petition liabilities and paid a total of $775,000 in cash to the creditors and 5,555,033 shares of IGIA common stock that were valued at $88,881 as of the Effective Date, thereby realizing a net gain of $19,748 and 14,008,772 in the three and six month periods ended August 31, 2006. The Company incurred no gain or loss in the three and six month periods ended August 31, 2007 in connection with the bankruptcy.

Net Income and Loss

Our net loss for the three months ended August 31, 2007 was $4,951,384 in contrast to a net loss of $6,600,098 for the three months ended August 31, 2006. The net loss for the three months ended August 31, 2007 includes $4,215,061 unrealized loss on adjustment of derivative and warrant liability to the fair value of the IGIA securities underlying the Callable Secured Convertible Notes discussed above, as opposed to an unrealized loss of $4,552,659 on adjustment of derivative and warrant liability to the fair value of the IGIA securities underlying the Callable Secured Convertible Notes discussed above for the three months ended August 31, 2006. Our net loss for the six months ended August 31, 2007 was $9,140,279 in contrast to net income of $9,777,076 for the six months ended August 31, 2006. The net loss for the six months ended August 31, 2007 includes $7,695,065 unrealized loss on adjustment of derivative and warrant liability to the fair value of the IGIA securities underlying the Callable Secured Convertible Notes discussed above, as opposed to an unrealized gain of $1,538,650 on adjustment of derivative and warrant liability to the fair value of the IGIA securities underlying the Callable Secured Convertible Notes discussed above for the six months ended August 31, 2006. In addition, our net income for the six months ended August 31, 2006 resulted from the $14,008,772 in income from extinguishments of pre-petition liabilities in connection with Tactica’s business restructuring and reorganization under chapter 11.

Our basic net loss per common share was $0.01218 for the three months ended August 31, 2007 as compared to a basic net loss per share of $0.06 for the three months ended August 31, 2007. On a fully diluted basis, our net loss per share was $0.00018 for the three months ended August 31, 2007 as compared to a fully diluted net income per share of $0.06 for the three months ended August 31, 2006.

The basic weighted average number of outstanding shares was 406,480,519 for the three months ended August 31, 2007 as compared to 103,616,036 for the three months ended August 31, 2006. The fully diluted weighted average number of outstanding shares was 27,642,861,199 for the three months ended August 31, 2007 as compared to 103,616,036 for the three months ended August 31, 2006. The basic weighted average number of outstanding shares was 390,764,867 for the six months ended August 31, 2007 as compared to 27,627,145,547 for the six months ended August 31, 2006. The fully diluted weighted average number of outstanding shares was 27,627,145,547 for the six months ended August 31, 2007. The increases in the weighted average number of basic and diluted shares for the three month period ended August 31, 2007 is attributed to an increase in shares issued and issuable upon conversions of the Callable Secured Convertible Notes and in increase in the principal balance outstanding for Callable Secured Convertible Notes as a result of our issuing of additional convertible notes.

Liquidity and Capital Resources

Overview

As of August 31, 2007, we had a $38.9 million working capital deficit and negative net worth of $38.9 million. As of February 28, 2007, we had a $29.8 million working capital deficit and negative net worth of $29.8 million. Our cash position at August 31, 2007 was $2,623 as compared to $26,780 as of February 28, 2007.

For the six months ended August 31, 2007, we generated a net cash flow deficit from operating activities of $194,157 consisting primarily of a net loss of $9,140,279, adjusted primarily for total non-cash additions to net loss of $27,069 of depreciation and amortization, $7,695,065 of unrealized gain related to adjustment of derivative and warrant liability to fair value of underlying securities, $50,000 of common stock issued for services rendered, $636,191 of interest expense credited to notes payable, $26,879 of decreases in accounts receivable, $102,330 of decrease in other prepayments, $24,320 of decreases in current assets, $25,000 of decreases in other assets, $519,851 increase in accrued expense, and $176,385 of increases in accounts payable. Our accounts receivable is comprised primarily of funds held aside by the credit card processor we use for processing customer payments of direct response sales. A substantial amount of cash from orders placed by customers and sales has been held back by the credit card merchant banks to establish rolling reserves for the customer payment processing they do for us. As a result, we did not have sufficient cash to obtain all of the products needed to fulfill customer orders on hand and pay for order fulfillment costs.

There were no investing activities during the six months ended August 31, 2007, as compared to $29,391 of investing activities during the six months ended August 31, 2006, which consisted primarily of office equipment purchases. We expect capital expenditures to continue to be nominal for fiscal 2008. These anticipated expenditures are for continued investments in property and equipment used in our business.

There was $170,000 in cash provided by financing activities during the three months ended August 31, 2007, as compared to cash of $1,059,665 provided by financing activities during the six months ended August 31, 2006. For the six months ended August 31, 2007, financing activities consisted of proceeds from sale of our Callable Secured Convertible Notes on June 7, 2007. For the six months ended August 31, 2007, financing activities consisted mainly of proceeds from related party loans, the sales of our Callable Secured Convertible Notes and a $250,000 loan from a third party that was used to purchase product for sale.

Acquisition of Tactica

The June 11, 2004 reverse merger between us and Tactica gave us access to public markets for financing and enabled Tactica to convert approximately $3.6 million of accounts payable into Series E Convertible Preferred Stock. Despite the transaction with Helen of Troy Limited that eliminated approximately $17 million in secured debt owed by Tactica and our reverse merger, we were not able to raise sufficient additional working capital. As a result of the foregoing factors, Tactica did not have an available source of working capital to satisfy a demand by Innotrac Corporation (“Innotrac”), Tactica’s former provider of inventory warehousing and customer order fulfillment services, that Tactica immediately pay all amounts allegedly due to Innotrac and continue its normal operation of business.

Tactica’s Chapter 11 Reorganization

On January 13, 2006, the Bankruptcy Court issued a confirmation order approving the Revised First Amended Plan of Reorganization Proposed by Tactica and IGIA (the “Plan”) that provides for Tactica’s exit from bankruptcy. On March 28, 2006, a Notice of Effective Date of the Plan was filed with the Bankruptcy Court. Upon being declared effective, the Plan eliminated $14,873,169 of Tactica’s pre-petition liabilities. The plan calls for Tactica’s pre-petition creditors to receive distributions of the following assets: (i) $2,175,000 cash paid by Tactica’s former shareholders; (ii) $700,000 cash paid by Tactica; (iii) $75,000 cash paid by IGIA, Tactica, and the Board Members; (iv) up to $275,000 cash paid by Innotrac; (v) the rights and proceeds in connection with avoidance and other actions including uncollected pre-petition invoices payable by a Tactica customer; and (vi) 5,555,033 newly issued shares of IGIA common stock that was in number equal to 10% of the outstanding shares of common stock as of the Plan’s effective date and is exempted from the registration requirements of Section 5 of the Securities Act of 1933, as amended and State registration requirements by virtue of Section 1145 of the Bankruptcy Code and applicable non-bankruptcy law. Certain Tactica post-petition creditors have submitted claims to the Bankruptcy Court for post-petition administrative expenses. Tactica is reviewing the administrative expense claims to determine whether to seek possible settlements and payment schedules or a resolution by the Bankruptcy Court.

Financings

To provide funds for Tactica’s continued ordinary course operations and working capital needs, Tactica entered into a Credit Agreement with Tactica Funding 1, LLC (“Tactica Funding” and a related party) on December 8, 2004, under which Tactica Funding agreed to a debtor in possession loan up to an aggregate principal amount of $300,000 (the “Loan”). The Loan bears interest at a rate of 9% per annum. The entire principal was due and payable on May 31, 2007. As security for the Loan, Tactica granted to Tactica Funding a first priority security interest in substantially all of the assets of Tactica, except as to permitted liens for which the Tactica Funding security interest is junior and subordinate, including certain carve out expenses that Tactica incurred for professional fees and other bankruptcy case matters. Mr. Sivan is a member and Mr. Ramchandani is a manager and a member of Tactica Funding 1, LLC. As of May 31, 2007, the Company owed $300,000 of note principal, which is included in Notes Payable - related parties, and unpaid interest of $43,667.

To obtain additional funding for the purpose of providing a loan to Tactica, in the form of debtor in possession financing and exit financing in the context of Tactica’s chapter 11 case and for general corporate and operating expenses, we entered into a Securities Purchase Agreements with New Millennium Capital Partners II, LLC, AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC on March 23, 2005, June 7, 2006, July 27, 2006 and November 6, 2006 for the sale of (i) $4,760,000 in callable secured convertible notes and (ii) warrants to buy 181,000,000 shares of our common stock. Our registration statement for 50,000,000 shares of common stock issuable pursuant to $500,000 in Callable Secured Convertible Notes was declared effective by the SEC on January 12, 2007. Our registration statement for the common stock issuable pursuant to $3,000,000 in Callable Secured Convertible Notes was declared effective by the SEC on December 22, 2005. We have received a total of approximately $4,377,000 in net proceeds after deducting approximately $383,000 of expenses and prepaid interest pursuant to the Securities Purchase Agreements. The funds from the sale of the Callable Secured Convertible Notes were used for business development purposes, working capital needs, pre-payment of interest, payment of consulting, accounting and legal fees, and borrowing repayment.

The $3,000,000 in Callable Secured Convertible Notes bear interest at 8%, mature three years from the date of issuance, and are convertible into our common stock, at the investors’ option, at the lower of (i) $0.04 or (ii) 50% of the average of the three lowest intraday trading prices for the common stock on a principal market for the 20 trading days before but not including the conversion date. The $1,760,000 in Callable Secured Convertible Notes bear interest at 6%, mature three years from the date of issuance, and are convertible into our common stock, at the Investors’ option, at a conversion price equal to the lower of (i) $0.04 or (ii) 25% of the average of the three lowest intraday trading prices for our common stock during the 20 trading days before, but not including, the conversion date. The full principal amount of the Callable Secured Convertible Notes is due upon default under the terms of secured convertible notes. The 6,000,000 in warrants are exercisable until five years from the date of issuance at a purchase price of $0.03 per share and the 175,000,000 in warrants are exercisable until seven years from the date of issuance at a purchase price of $0.009. In addition, the conversion price of the secured convertible notes and the exercise price of the warrants will be adjusted in the event that we issue common stock at a price below the fixed conversion price, below market price, with the exception of any securities issued in connection with the Securities Purchase Agreement. The conversion price of the callable secured convertible notes and the exercise price of the warrants may be adjusted in certain circumstances such as if we pay a stock dividend, subdivide, or combine outstanding shares of common stock into a greater or lesser number of shares, or take such other actions as would otherwise result in dilution of the selling stockholder’s position. The selling stockholders have contractually agreed to restrict their ability to convert or exercise their warrants and receive shares of our common stock such that the number of shares of common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. In addition, we have granted the investors a security interest in substantially all of our assets and intellectual property and registration rights.

From time to time, Mr. Sivan and Mr. Ramchandani have paid certain advertising expenses on our behalf and have advanced us funds for working capital purposes in the form of unsecured promissory notes, accruing interest at 8% per annum. As of August 31, 2007, the balance on promissory notes due to Mr. Sivan and Mr. Ramchandani collectively was $1,326,878, including accrued interest. On October 4, 2006, IGIA converted $52,000 of interest due (based on a closing price of $0.0052) on promissory notes issued to Avi Sivan, our Chief Executive Officer, and Prem Ramchandani, our President, into an aggregate of 10,000,000 shares of common stock. Our registration statement for the 10,000,000 shares of common stock issued to Mr. Sivan and Mr. Ramchandani was declared effective by the SEC on January 12, 2007. On March 13, 2006, APA International LLC advanced $250,000 to the Company for working capital purposes in the form of an unsecured promissory note, accruing interest at 8% per annum. As of August 31, 2007, the balance due to APA International LLC was $318,544, including accrued interest. Mr. Sivan, Mr. Ramchandani, and a shareholder own APA International LLC.

In February 2006, Shopflash, Inc., a wholly owned subsidiary of the Company, began working with a media placement agent for direct response sales campaigns regarding two household products that Shopflash, Inc. has sold. The media placement agent placed the Shopflash, Inc. advertisements on television and the Internet and provided additional campaign support that allowed Shopflash, Inc. to further develop the campaigns. According to the agreement between the parties, the media placement agent receives fees and has a security interest in goods and proceeds related to the campaigns. The media placement agent has acted to exercise contractual rights to assume control over the sales campaigns. As a result, Shopflash, Inc. has discontinued its participation in the two sales campaigns. Shopflash, Inc. filed suit against DC Media Capital seeking damages resulting from the manner that they managed the sales campaigns and have withheld customer information needed by Shopflash to service customers. DC Media Capital has filed a lawsuit against Shopflash, Inc., Avi Sivan, Prem Ramchandani and Kurt Streams seeking $3,000,000 plus punitive damages and recovery costs, an amount that substantially exceeds the $1.6 million amount DC Media Capital previously sought. Motions to dismiss both of the actions are filed and opposed and the matters may be consolidated.

On April 4, 2006, we entered into a loan agreement and borrowed $250,000 for purchases of product for sale in our direct response operations. The $250,000 in loan principal plus accruing interest is outstanding and on November 10, 2006, we issued 10,000,000 shares of common stock as a partial payment of accrued interest.

We used proceeds from the above financings to fund Tactica’s Plan, including fees paid to professionals involved with the bankruptcy proceedings, and to expand our business of selling products to consumers through direct response advertising. Despite our financing and operating activities and Tactica’s emergence from bankruptcy on March 28, 2006, we continue to have a significant working capital deficit. Our current liabilities include significant obligations to providers of shipping and customer order fulfillment services, a media placement agent, state sales tax agencies and customers for payments made to us.

We are reducing cash required for operations by reducing operating costs by ceasing purchases of media and products, reducing staff levels, and deferring management’s salaries, all until we receive additional working capital. Mr. Sivan and Mr. Ramchandani have not been paid any their salary that has been accruing during the six months ended August 31, 2007 and two other managers deferred portions of their salaries prior to their departures in the period. We are continuing to manage our current liabilities while we continue to make changes in operations to improve our cash flow and liquidity position.

Our ability to achieve and sustain profitability is dependent on several factors, including but not limited to, our ability to generate liquidity from operations, satisfy our ongoing operating costs on a timely basis, and to resolve all of our post-petition administrative costs. We still need additional investments in order to continue operations to cash flow break even. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations again, attempt to further restructure financial obligations and/or seek a strategic merger, acquisition or a sale of assets.

The independent auditor’s report on the Company’s February 28, 2007 financial statements included in its Annual Report states that the Company’s recurring losses raise substantial doubts about the Company’s ability to continue as a going concern.

The effect of inflation on our revenue and operating results was not significant. Our operations are located in North America and there are no seasonal aspects that would have a material effect on our financial condition or results of operations.

Trends, Risks, and Uncertainties

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.

Risks Relating to Our Business:

You should carefully consider the following risk factors and all other information contained herein as well as the information included in our Annual Report in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, other than those we describe below, that are not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks occur, our business and financial results could be harmed. You should refer to the other information contained in our Annual Report, including our consolidated financial statements and the related notes.

Risks Relating to Our Business:

We Have Ceased Our Primary Operations and May Never Be Able To Resume Them.

Due to our lack of working capital, we have ceased our direct response television advertising, which has essentially resulted in our ceasing our primary operations. Historically, we have used direct response television advertising to promote sales. In addition, our lack of cash has resulted in our inability to purchase and ship product to customers in a timely and consistent manner. During our fiscal year ended February 28, 2007, we also suffered disruptions to operations caused by changes in providers of services for customer order fulfillment and credit card processing. Unless we obtain additional financing, we will probably not be able to resume substantial revenue generating operations in our current line of business. It is possible that we may never procure the necessary additional financing to resume operations. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations again, attempt to further restructure financial obligations and/or seek a strategic merger, acquisition or a sale of assets.

The Chapter 11 Has A Material Negative Effect On Our Business, Financial Condition, And Results of Operations.

Tactica, our operating subsidiary, filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code in October 2004, and its plan of reorganization was declared effective in March 2006. The bankruptcy has had a material negative effect on our business, financial condition, and results of operations. Certain post-petition creditors, including firms that provided professional services to Tactica have submitted a total of approximately $583,000 in claims to the Bankruptcy Court for post-petition administrative expenses. In addition, as described under “Liquidity and Capital Resources” we have a significant working capital deficit and we are seeking additional working capital for operations and to satisfy our obligations.

If we are unable to resolve post-petition administrative expense claims and service other financial obligations as they become due, we will be required to adopt alternative strategies, which may include, but are not limited to, actions such as further reducing management and employee headcount and compensation, attempting to further restructure financial obligations and/or seeking a strategic merger, acquisition or a sale of assets. There can be no assurance that any of these strategies could be affected on satisfactory terms. However, if during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity, and financial condition. In such event, we may be forced to discontinue our operations.

Our Auditors Have Expressed Substantial Doubt About Our Ability To Continue As A Going Concern.

In their report dated July 3, 2007, Russell Bedford Stefanou Mirchandani LLP stated that the financial statements of IGIA for the year ended February 28, 2007 were prepared assuming that IGIA would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of Tactica having filed for bankruptcy protection on October 21, 2004, its recurring losses from operations, and our net capital deficiency. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate a profit. Our continued net operating losses and stockholders’ deficit increases the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

Pending And Threatened Litigation could result in us losing our primary operating assets.

Currently, we are a party to various pending lawsuits and judgments. Any of our judgment creditors, as well as our secured lenders, may seek to foreclose on our assets in the future or may seek to force us into an involuntary liquidation under the United States Bankruptcy Code. It is possible that, in connection with such a foreclosure action or involuntary bankruptcy proceeding, our assets could be sold to such third party creditor, another creditor, or a third party. In the event that the assets are put up for sale, we intend to bid on them, but it is possible that we may not be able to purchase the assets, either because we do not have the assets with which to make a competitive bid or because we are simply outbid by one of our creditors or a third party. In the event that our assets are sold in a foreclosure action or in a bankruptcy proceeding, we would no longer have any operating business.

Our Common Stock Trades In A Limited Public Market, The NASD OTC Electronic Bulletin Board; Accordingly, Investors Face Possible Volatility Of Share Price.

Our common stock is currently quoted on the NASD OTC Bulletin Board under the ticker symbol IGAI.OB. As of October 19, 2007, there were approximately 403,634,177 shares of common stock outstanding, of which approximately 393,634,177 shares are tradable without restriction under the Securities Act.

There can be no assurance that a trading market will be sustained in the future. Factors such as, but not limited to, technological innovations, new products, acquisitions or strategic alliances entered into by us or our competitors, government regulatory actions, patent or proprietary rights developments, and market conditions for penny stocks in general could have a material effect on the liquidity of our common stock and volatility of our stock price.

Our Future Operations Are Contingent On Our Ability To Recruit Employees.

In the event we are able to expand our business, we expect to experience growth in the number of employees and the scope of our operations. In particular, we may hire additional sales, marketing, and administrative personnel. Additionally, acquisitions could result in an increase in employee headcount and business activity. Such activities could result in increased responsibilities for management. We believe that our ability to increase our customer support capability and to attract, train, and retain qualified technical, sales, marketing, and management personnel, will be a critical factor to our future success.

We May Not Be Able To Manage Any Future Growth Effectively.

Our future success will be highly dependent upon our ability to successfully manage the expansion of our operations. Our ability to manage and support our growth effectively will be substantially dependent on our ability to (1) implement adequate improvements to financial and management controls, reporting and order entry systems, and other procedures, and (2) hire sufficient numbers of financial, accounting, administrative, and management personnel. Our expansion and the resulting growth in the number of our employees would result in increased responsibility for both existing and new management personnel. We are in the process of establishing and upgrading our financial accounting and procedures. We may not be able to identify, attract, and retain experienced accounting and financial personnel. Our future operating results will depend on the ability of our management and other key employees to implement and improve our systems for operations, financial control, and information management, and to recruit, train, and manage its employee base. We may not be able to achieve or manage any such growth successfully or to implement and maintain adequate financial and management controls and procedures, and any inability to do so would have a material adverse effect on our business, results of operations, and financial condition.

Our Success Is Dependent On Our Ability To Address Market Opportunities.

Our future success depends upon our ability to address potential market opportunities while managing our expenses to match our ability to finance our operations. This need to manage our expenses places a significant strain on our management and operational resources. If we are unable to manage our expenses effectively, we may be unable to finance our operations. If we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition and would prevent us from being able to utilize potential market opportunities.

We Are Seeking Additional Financing.

We are seeking additional capital to continue our operations and will endeavor to raise funds through the sale of equity shares and revenues from operations. We have been financing our operations since the June 2004 merger with Tactica through funds loaned to us directly and indirectly by certain officers and directors, the sale of callable secured convertible notes, and through operations. We have used the financing to increase our direct response sales business and fund Tactica’s emergence from bankruptcy. We need additional capital to continue our operations and will endeavor to raise funds through the sale of equity shares and revenues from operations.

It is possible that we will generate adequate revenues from our operations. Failure to generate such adequate operating revenues would have an adverse impact on our financial position and results of operations and ability to continue as a going concern. Our operating and capital requirements during the next fiscal year and thereafter will vary based on a number of factors, including the level of sales and marketing activities for our products. We will be required to obtain additional private or public financing including debt or equity financing and it is possible that that such financing will not be available as needed or, if available, on terms favorable to us. Any additional equity financing may be dilutive to stockholders and such additional equity securities may have rights, preferences or privileges that are senior to those of our existing common stock.

We are currently in default of interest payment obligations and we are accruing interest at the annual default rate of interest of 15%. The note holders have the right to deliver to us a written notice of default. In the event that the default is not cured within ten days of notice, the callable secured convertible notes shall become immediately due and payable at an amount equal to 130% of the outstanding principal plus amounts due for accrued interest and penalty provisions. This default could prevent or hinder are ability to raise any additional capital. As of February 28, 2007, we recorded a default payment of 130% of the outstanding principal.

Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. Our failure to successfully obtain additional future funding may jeopardize our ability to continue our business and operations.

If we raise additional funds by issuing equity securities, existing stockholders may experience a dilution in their ownership. In addition, as a condition to giving additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders.

The Sales Of Our Products Have Been Very Volatile And Our Results Of Operations Could Fluctuate Materially.

The sales of our products rely on television advertising and direct response marketing campaigns, and we have ceased running such campaigns until such time as we may receive additional financing. In addition, within direct response marketing, products often have short life cycles. This leads to volatility in our revenues and results of operations. For example, our net sales for the fiscal year ended February 28, 2007 decreased 76.4% as compared with our fiscal year ended February 28, 2006, and our net sales for the fiscal year ended February 28, 2006 increased 125.5% as compared with the fiscal year ended February 28, 2005. This was primarily caused by substantially reduced working capital availability.

Changes In Foreign Policy, International Law, Or The Internal Laws Of The Countries Where Our Manufacturers Are Located Could Have A Material Negative Effect On Our Business, Financial Condition And Results Of Operations.

All of our products are manufactured by unaffiliated companies, some of which are in the Far East. Risks associated with such foreign manufacturing include the following: changing international political relations; changes in laws, including tax laws, regulations and treaties; changes in labor laws, regulations, and policies; changes in customs duties and other trade barriers; changes in shipping costs; interruptions and delays at port facilities; currency exchange fluctuations; local political unrest; and the availability and cost of raw materials and merchandise. To date, these factors have not significantly affected our production capability. However, any change that impairs our ability to obtain products from such manufacturers, or to obtain products at marketable rates, would have a material negative effect on our business, financial condition, and results of operations.

Our Business Will Suffer If We Do Not Develop And Competitively Market Products That Appeal To Consumers.

We have historically sold products in the “As Seen on TV” market. These markets are very competitive. Maintaining and gaining market share depends heavily upon price, quality, brand name recognition, patents, innovative designs of new products and replacement models, and marketing and distribution approaches. We compete with domestic and international companies, some of which have substantially greater financial and other resources than we have. We believe that our ability to produce reliable products that incorporate developments in technology and to satisfy consumer tastes with respect to style and design, as well as our ability to market a broad offering of products in each applicable category at competitive prices, are keys to our future success.

Our Business, Financial Condition And Results Of Operations Could Be Materially Adversely Affected If We Are Unable To Sell Products Under Our Licensed Trademarks.

A significant portion of our sales revenue is derived from sales of products under our own brands and licensed trademarks. If the percentage of our sales of such products increases, we will become increasingly dependent upon the continued use of such brands and trademarks. Actions we take and those taken by licensors and other third parties, with respect to products we license from them, could greatly diminish the value of any of our brands and licensed trademarks. If we are unable to develop and sell products under existing or newly acquired brands and licensed trademarks or the value of the trademarks were diminished by the licensor or third parties, our business, financial condition, and results of operations could be materially adversely affected.

Many Of Our Competitors Are Larger And Have Greater Financial And Other Resources Than We Do And Those Advantages Could Make It Difficult For Us To Compete With Them.

Many of our current and potential competitors may have substantial competitive advantages relative to us, including the following: longer operating histories; significantly greater financial, technical and marketing resources; greater brand name recognition; larger existing customer bases; and more popular products. These competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements and devote greater resources to develop, promote, and sell their products or services than we can.

We Are Dependent On Our Management Team And The Loss Of Any Key Member Of This Team May Prevent Us From Implementing Our Business Plan In A Timely Manner.

Our success depends largely upon the continued services of our executive officers and other key personnel, particularly Avi Sivan, our Chief Executive Officer, and Prem Ramchandani, our President. We have entered into employment agreements with Mr. Sivan and Mr. Ramchandani. Nevertheless, we have not paid Mr. Sivan and Mr. Ramchandani any of their salaries that have been accruing during the six months ended August 31, 2007 and the fiscal year ended February 28, 2007, and we may not be able to make substantial payments for the foreseeable future. The loss of Mr. Sivan or Mr. Ramchandani would be expected to have a material adverse effect on our operations.

Our Business, Financial Condition, And Results Of Operations Will Suffer If We Do Not Accurately Forecast Customers’ Demands.

Because of our reliance on manufacturers in the Far East, our production lead times are relatively long. Therefore, we must commit to production well in advance of customer orders. If we fail to forecast consumer demand accurately, we may encounter difficulties in filling customer orders or in liquidating excess inventories, or may find that customers are canceling orders or returning products. Our relatively long production lead time may increase the amount of inventory and the cost of storing inventory. Additionally, changes in retailer inventory management strategies could make inventory management more difficult. Any of these results could have a material adverse effect on our business, financial condition and results of operations.

Our Products And Business Practices May Be Subject To Review By Third Party Regulators And Consumer Affairs Monitors And Actions Resulting From Such Reviews, Including But Not Limited To Cease And Desist Orders, Fines And Recalls.

Although our products are generally not regulated by the U.S. Food and Drug Administration (FDA), we have in the past and on occasion may in the future sell products that are subject to FDA regulations. Our advertising is subject to review by the National Advertising Council (NAC) and our advertisements could be and have been subject to NAC recommendations for modification. The U.S. Federal Trade Commission (FTC) and state and local consumer affairs bodies oversee various aspects of our sales and marketing activities and customer handling processes.

In 2004, we entered into a consent degree with the FTC, in connection with a claim filed against Tactica International, Inc, our wholly owned subsidiary, pursuant to which we agreed to cease soliciting the sale of goods which we did not have a reasonable expectation of shipping within the advertised time, provide buyers with a revised shipping date, and offer buyers the opportunity to agree to a delay or cancel an order and receive a prompt refund, cancel orders as requested, and receive a prompt refund and maintain and preserve records for a specified period.

If the FTC, or any other agency that has a right to regulate our products, engage in reviews of our products or marketing procedures we may be subject to additional enforcement actions from such agencies. If such reviews take place, as they have in the past, our executives may be forced to spend time on the regulatory proceedings as opposed to running our business. In addition to fines, adverse actions from an agency could result in our being unable to market certain products the way we would like or at all, or prevent us from selling certain products entirely.

We Purchase Essential Services And Products From Third Parties, Which If Interrupted, Could Have A Material Impact On Our Ability To Operate.

We currently outsource significant portions of our business functions, including, but not limited to, warehousing, customer service, inbound call center functions and payment processing for all direct response sales, customer order fulfillment, and product returns processing and shipping. From time to time we have experienced interruptions in these essential services for varying periods of time and future interruptions can and will occur. If such interruptions occur for extended periods of time, our operations may be materially adversely affected. Many of our products are produced in South China. Should we experience any interruption or interference with the operations of the third party suppliers of goods and services, we might experience a shortage of inventory. This type of shortage could have a material adverse effect on our financial position, results of operations, and cash flow.

Our Direct Response Sales Operation Is Dependent On Having Adequate Credit Card Activity Processing Capacity With The Major Credit Card Companies And A Credit Card Processor.

A third party credit card processor regulates our daily credit card sales order volume and sets limits as to the maximum sales volume it will process. In addition, credit card companies, such as Visa and MasterCard, and credit card processors typically maintain a record of the level of customer requests to have charges for our products reversed (chargebacks). The credit card companies and processors may fine us for “high chargeback levels,” modify our sales volume limit, make a demand for additional reserves, or even discontinue doing business with us. The direct response business is known for relatively high chargeback levels and we have experienced periods of higher than accepted levels of chargeback activity that has led to fines and disruptions in credit card processing of customer orders. We endeavor to maintain reasonable business practices and customer satisfaction, which in part, contribute to lower levels of chargeback activity. Nevertheless, excess chargeback activity could result in our being unable to have customers pay us using credit cards.

Our Future Acquisitions, If Any, And New Products May Not Be Successful, Which Could Have A Material Adverse Effect On Our Financial Condition And Results Of Operations.

We have in the past, and may in the future, decide to acquire new product lines and businesses. The acquisition of a business or of the rights to market specific products or use specific product names involves a significant financial commitment. In the case of an acquisition, such commitments are usually in the form of either cash or stock consideration. In the case of a new license, such commitments could take the form of license fees, prepaid royalties, and future minimum royalty and advertising payments. While our strategy is to acquire businesses and to develop products that will contribute positively to earnings, there is no guarantee that all or any of our acquisitions will be successful. Anticipated synergies may not materialize, cost savings may be less than expected, sales of products may not meet expectations and acquired businesses may carry unexpected liabilities. Each of these factors could result in a newly acquired business or product line having a material negative impact on our financial condition and results of operations.

Risks Relating to Our Current Financing Arrangement:

There Are A Large Number Of Shares Underlying Our Callable Secured Convertible Notes And Warrants That May Be Available For Future Sale And The Sale Of These Shares May Depress The Market Price Of Our Common Stock.

As of October 19, 2007, we had 403,634,177 shares of common stock issued and outstanding and callable secured convertible notes outstanding or an obligation to issue callable secured convertible notes that may be converted into an estimated 27,642,861,199 shares of common stock at current market prices, and outstanding warrants or an obligation to issue warrants to purchase 221,000,000 shares of common stock. In addition, the number of shares of common stock issuable upon conversion of the outstanding callable secured convertible notes may increase if the market price of our stock declines. All of the shares, including all of the shares issuable upon conversion of the notes and upon exercise of our warrants, may be sold without restriction. The sale of these shares may adversely affect the market price of our common stock.

The Continuously Adjustable Conversion Price Feature Of Our Callable Secured Convertible Notes Could Require Us To Issue A Substantially Greater Number Of Shares, Which Will Cause Dilution To Our Existing Stockholders.

Our obligation to issue shares upon conversion of our callable secured convertible notes is essentially limitless. The following is an example of the amount of shares of our common stock that are issuable, upon conversion of the callable secured convertible notes (excluding accrued interest), based on market prices 25%, 50% and 75% below the current average market price, as of October 15, 2007 of $0.0005.

The following relates to outstanding callable secured convertible notes in the aggregate principal amount of $2,496,284, which are convertible at a 50% discount:

			With		Number		% of
% Below	Price Per		Discount		of Shares		Outstanding
Market	Share		at 50%		Issuable		Stock

25%	$	.00038	$	.00019		13,313,512,908		97.05	%
50%	$	.00025	$	.00013		19,970,269,360		98.01	%
75%	$	.00013	$	.00006		39,940,538,720		99.00	%

The following relates to outstanding callable secured convertible notes in the aggregate principal amount of $2,128,672, which are convertible at a 75% discount: