Ivivi Technologies, Inc. - Quarterly Report of Financial Condition (10QSB)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 30, 2007

OR

[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File No. 001-33088

IVIVI TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)

New Jersey 22-2956711 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or organization) Identification Number)

224-S Pegasus Ave., Northvale, New Jersey 07647
(Address of Principal Executive Offices)

Issuer's Telephone Number, including area code: [phone]

Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months or for such shorter period that the Issuer was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days:

YES [X] NO [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

YES [ ] NO [X]

State the number of shares outstanding of each of the Issuer's classes of common equity, as of the latest practicable date:

10,597,908 shares of Common Stock, no par value, as of November 9, 2007

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IVIVI TECHNOLOGIES, INC.
INDEX

Part I. Financial Information Page Number

Item 1. Financial Statements: Balance Sheets - as of September 30, 2007 (Unaudited) and March 31, 2007 (Audited) 3 Statements of Operations - For the three and six months ended September 30, 2007 and September 30, 2006 (Unaudited) 4 Statements of Stockholders' Equity - For the six months ended September 30, 2007 (Unaudited) 5 Statements of Cash Flows - For the Six months ended September 30, 2007 and 2006 (Unaudited) 6 Notes to Financial Statements (Unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Controls and Procedures 28 Part II. Other Information 29 Item 1. Legal Proceedings 29 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30 Item 6. Exhibits 32 Signatures 33

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IVIVI TECHNOLOGIES, INC. BALANCE SHEETS ASSETS SEPTEMBER 30, MARCH 31, 2007 2007 UNAUDITED AUDITED ------------ ------------ Current assets: Cash and cash equivalents $ 5,270,483 $ 8,310,697 Accounts receivable, net of allowance for doubtful accounts of $34,650 and $37,405, respectively 202,145 224,349 Inventory finished goods 213,015 236,735 Prepaid expenses 164,910 154,730 Advances paid to affiliates 98,971 -- ------------ ------------ 5,949,524 8,926,511 Property and equipment, net 329,675 46,040 Equipment in use and under rental agreements, net 126,817 60,096 Intangible assets, net 473,895 270,826 Restricted cash 46,838 -- ------------ ------------ Total Assets $ 6,926,749 $ 9,303,473 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 1,089,165 $ 1,005,975 Advances payable - affiliate -- 36,657 ------------ ------------ 1,089,165 1,042,632 ------------ ------------ Deferred revenue 442,708 473,958 ------------ ------------ Stockholders' equity: Preferred Stock , no par value, 5,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, no par value; 70,000,000 shares authorized, 9,597,908 and 9,556,783 shares issued and outstanding, respectively 20,954,295 20,922,154 Additional paid-in capital 11,372,636 10,577,111 Accumulated deficit (26,932,055) (23,712,382) ------------ ------------ 5,394,876 7,786,883 ------------ ------------ Total Liabilities and Stockholders' Equity $ 6,926,749 $ 9,303,473 ============ ============ The accompanying notes are an integral part of these financial statements. 3

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IVIVI TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 2007 2006 2007 2006 ----------- ----------- ----------- ----------- Revenue: Sales $ 33,659 $ 107,942 $ 319,959 $ 124,057 Rentals 176,448 260,591 335,522 461,895 Licensing 15,625 -- 31,250 -- ----------- ----------- ----------- ----------- 225,732 368,533 686,731 585,952 ----------- ----------- ----------- ----------- Costs and expenses: Cost of sales 7,533 16,658 79,130 30,893 Cost of rentals 5,248 9,902 27,306 37,374 Depreciation and amortization 14,785 7,327 24,447 9,763 Research and development 383,373 305,631 741,544 575,361 Sales and marketing 477,358 267,561 877,632 488,055 General and administrative 748,636 347,881 1,510,333 814,522 Share based compensation 463,992 757,293 795,525 975,706 ----------- ----------- ----------- ----------- 2,100,925 1,712,253 4,055,917 2,931,674 ----------- ----------- ----------- ----------- Interest income 68,128 1,793 149,513 3,434 Financing costs -- (755,669) -- (1,633,266) ----------- ----------- ----------- ----------- Loss before provision from income taxes (1,807,065) (2,097,596) (3,219,673) (3,975,554) Provision for income taxes -- -- -- -- ----------- ----------- ----------- ----------- Net loss $(1,807,065) $(2,097,596) $(3,219,673) $(3,975,554) =========== =========== =========== =========== Net loss per share, basic and diluted $ (0.19) $ (0.44) $ (0.34) $ (0.84) =========== =========== =========== =========== Weighted average shares outstanding,basic and diluted 9,597,701 4,745,000 9,589,218 4,745,000 =========== =========== =========== =========== The accompanying notes are an integral part of these financial statements. 4

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IVIVI TECHNOLOGIES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED) Common Stock Additional Total ------------------------------- Paid-In Accumulated Stockholders' Shares Amount Capital Deficit Equity ---------------------------------------------------------------------------------------- Balance - March 31, 2007 (Audited) 9,556,783 $20,922,154 $10,577,111 $(23,712,382) $7,786,883 Exercise of stock options 41,125 32,141 31,831 Share based compensation 795,525 331,533 Net loss (3,219,673) (1,412,608) ---------------------------------------------------------------------------------------- Balance - September 30, 2007 (Unaudited) 9,597,908 $20,954,295 $11,372,636 $(26,932,055) $5,394,876 ======================================================================================== The accompanying notes are an integral part of these unaudited financial statements. 5

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IVIVI TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (UNAUDITED) 2007 2006 ----------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(3,219,673) $(3,975,554) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 41,380 9,764 Change in fair value of warrant and registration rights liabilities 25,827 Share based financing penalties -- 1,174,886 Amortization of loan costs and discount -- 162,014 Share based compensation 795,525 975,706 Provision for doubtful accounts 9,687 26,892 Amortization of deferred revenue (31,250) (4,833) Changes in operating assets and liabilities: (Increase) decrease in: Inventory 23,718 21,918 Accounts receivable 12,516 (26,434) Prepaid expenses (10,180) (116,029) Affiliate advances (135,628) 34,815 Increase in: Accounts payable and accrued expenses 83,190 1,130,965 Deferred revenue -- 290,000 ----------------------------- (2,430,715) (270,063) ----------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (302,560) -- Increase in equipment in use and under rental agreements (83,654) -- Increase in restricted cash (46,838) -- Intangible assets (208,588) -- ----------------------------- (641,640) -- ----------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options 32,141 -- Proceeds of notes -- 250,000 Deferred offering costs -- (501,541) ----------------------------- 32,141 (251,541) ----------------------------- Net decrease in cash and cash equivalents (3,040,214) (521,604) Cash and cash equivalents, beginning of period 8,310,697 742,348 ----------------------------- Cash and cash equivalents, end of period $ 5,270,483 $ 220,744 ============================= The accompanying notes are an integral part of these unaudited financial statements. 6

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IVIVI TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (UNAUDITED) 2007 2006 ----------------------------- Supplemental disclosures of cash flow information: Cash paid for: Interest $ - $ 110,226 Income taxes - - The accompanying notes are an integral part of these unaudited financial statements. 7

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IVIVI TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-QSB and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included. Operating results for the three and six months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2008. The accompanying financial statements and related notes and the information included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with our audited financial statements and related notes thereto included on our Annual Report on Form 10KSB for the fiscal year ended March 31, 2007.

INITIAL PUBLIC OFFERING

During October 2006, we completed our initial public offering ("IPO"), selling 2.5 million shares of our common stock at $6.00 per share raising gross proceeds of $15.0 million. The underwriters of the offering were granted an option for a period of 45 days to purchase up to an aggregate of 375,000 additional shares of common stock from us to cover over-allotments, if any. Net proceeds to us from the IPO were approximately $12.2 million after the payment of underwriting discounts and commissions and expenses related to the offering. On November 22, 2006, we received additional net proceeds of approximately $1.4 million, after the payment of underwriting commissions and expenses, from the underwriters who partially exercised their option by purchasing 250,000 of the available 375,000 shares of our common stock to cover over-allotments.

Upon the consummation of the IPO, unsecured convertible notes in the aggregate principal amount of $6,087,500, issued in our December 2004 and February 2005 joint private placements with ADM Tronics Unlimited, Inc., the owner of 34% of our outstanding common stock ("ADM"), automatically converted into an aggregate of 1,630,232 shares of our common stock. The notes bore interest at an annual rate of 6%, which interest was payable at the discretion of the holder in cash, shares of ADM common stock or shares of our common stock.

Also, upon consummation of the IPO, unsecured convertible notes in the aggregate principal amount of $2,000,000 issued in connection with our November 2005 and March 2006 private placements to four institutional investors automatically converted into an aggregate of 392,157 shares of our common stock. The notes bore interest at an annual rate of 8%, payable in cash. As a result of the foregoing, we do not have any loans outstanding as of September 30, 2007.

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IVIVI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2007
(UNAUDITED)

RECLASSIFICATIONS

Certain items in the prior period financial statements have been reclassified to conform to the current period presentation. Such reclassifications have had no impact on previously reported total assets, equity, revenues and net loss.

INTANGIBLE ASSETS

Intangible assets include patents and trademarks of $396,001 and deferred distribution agreement costs related to our Allergan distribution agreement, further discussed in Note 2, of $77,894, net of $9,091 of accumulated amortization as of September 30, 2007. Patent and trademarks are amortized on a straight-line basis over the estimated useful lives of the specific patent and trademarks once issued. Deferred distribution agreement costs are being amortized on a straight-line basis over the term of the aforementioned Allergan agreement. During the three and six month periods ended September 30, 2007, we amortized $1,960 and $4,720, respectively, of costs related to the Allergan distribution agreement.

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IVIVI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2007
(UNAUDITED)

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

At September 30, 2007, accounts payable and accrued expenses consisted of the following:

Research and development $ 444,078 Professional fees 306,162 Sales commissions 29,244 Other 309,681 ---------- $1,089,165 ==========

LOSS PER SHARE

Basic and diluted loss per common share for all periods presented is computed based on the weighted average number of common shares outstanding during the periods presented as defined by SFAS No. 128, "Earnings Per Share." The assumed exercise of common stock equivalents was not utilized for the three and six month periods ended September 30, 2007 and 2006 since the effect would be anti-dilutive. There were 5,255,666 common stock equivalents at September 30, 2007 and 5,962,140 at September 30, 2006.

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IVIVI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2007
(UNAUDITED)

COMMON SHARE OPTIONS AND WARRANTS ISSUED

SHARE BASED COMPENSATION

On April 1, 2006, we adopted the provisions of SFAS 123(R) "Share-Based Payment," using the modified prospective method. Under this method, we recognized compensation cost based on the grant date fair value, using the Black Scholes option value model, for all share-based payments granted on or after April 1, 2006 plus any awards granted to employees prior to April 1, 2006 that remained unvested at that time.

We use the fair value method for equity instruments granted to non-employees and use the Black Scholes option value model for measuring the fair value of warrants and options. The share-based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the periods in which the related services are rendered.

Share-based compensation is computed using the Black Scholes method at the date of grant of the options based on the following assumption ranges: (1) risk free interest rate of 3.62% to 4.75%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 44% to 67%;(4) an expected life of the options of 1.5 to 5 years; and (5) an estimated forfeiture rate of 5%. The foregoing option valuation model requires input of highly subjective assumptions. Because common share purchase options granted to employees and directors have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value of estimates, the existing model does not in the opinion of our management necessarily provide a reliable single measure of the fair value of common share purchase options we have granted to our employees and directors.

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IVIVI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2007
(UNAUDITED)

Share based compensation expense consists of the following components:

THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 2007 2006 2007 2006 -------- -------- -------- -------- Cost of rentals $ 11 $ 11 $ 22 $ 22 Research and development 168,826 145,442 264,777 289,671 Sales and marketing 68,290 35,326 80,090 70,043 General and administrative 226,865 576,514 450,637 615,970 -------- -------- -------- -------- $463,992 $757,293 $795,526 $975,706 ======== ======== ======== ========

NOTE 2 - DEFERRED REVENUE

On November 9, 2006, we entered into an exclusive worldwide distribution agreement (the "Agreement") with a wholly-owned subsidiary of Allergan, Inc. ("Allergan"), a global healthcare company that discovers, develops and commercializes pharmaceutical and medical device products in specialty markets. Pursuant to the Agreement, we granted Allergan's subsidiary, Inamed Medical Products Corporation and its affiliates ("Inamed") the exclusive worldwide right to market, sell and distribute certain of our products, including all improvements, line extensions and future generations thereof (collectively, the "Product") in conjunction with any aesthetic or bariatric medical procedures (the "Field") in the Marketing Territory (as defined therein).

Under the Agreement, we also granted Inamed the right to rebrand the Product, with Inamed owning all rights to such brands developed by Inamed for such purpose. Under the Agreement, we received an initial payment of $500,000 and will receive certain milestone payments of up to $1,000,000 in the aggregate upon the Product's First Commercial Sale (as defined in the Agreement) in the United States and Europe. In addition, Inamed will purchase the Product from us at a pre-determined price and must meet certain minimum order requirements. Finally, we will receive royalty payments based on Inamed's net sales and number of units sold of the Product, subject to certain annual minimum royalty payments to be determined by the parties.

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IVIVI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2007
(UNAUDITED)

The Agreement has an eight year initial term beginning at the Product's First Commercial Sale. The initial term may be extended for two additional years without further payment at Inamed's option. Inamed may also pay us a $2,000,000 extension fee and extend the term of the Agreement for up to eight additional years, for a total term of up to 18 years.

Inamed may only market, sell and distribute the Product under the Agreement in the "Marketing Territory," which is generally defined in the Agreement as the United States and such other jurisdictions for which all requisite regulatory approval has been obtained. If the marketing, sale or distribution of the Product in a jurisdiction would infringe third-party intellectual property rights and likely result in a lawsuit against us or Inamed, Inamed could require us to use reasonable commercial efforts to obtain a license for, or redesign, the Product to be sold in that jurisdiction.

In the event we fail to supply Allergan or its subsidiaries certain minimum amounts of the Product and fail to procure alternate suppliers for such Products within certain timeframes, Inamed will have the right to use certain of our intellectual property and/or other proprietary information to manufacture the Product until such time as we demonstrate to Inamed's reasonable satisfaction that we are fully able to resume our supply obligations. During such time as Inamed controls Product manufacturing, our royalty rate would be significantly reduced.

In the event Inamed is required to discontinue the marketing, sale or distribution of the Product in the United States and/or any country in the European Union because of problems with regulatory approvals and/or other reasons related to the Product, we will be required to repay Inamed portions of the milestone payments up to $1,000,000.

Inamed may terminate the Agreement by giving 90 to 180 days' prior written notice to us. We may terminate the Agreement by giving 12 months' prior written notice if Inamed fails to timely pay us minimum royalty amounts for any applicable year or fails to meet the minimum sales requirements set forth in the Agreement. A non-breaching party may terminate the Agreement following a material breach of the Agreement and the breaching party's failure to cure such breach during the applicable cure period by giving the breaching party proper prior written notice. If we are in material breach, and fail to cure, Inamed may have the right to use certain of our intellectual property and/or other proprietary information to manufacture the Product. Our royalty rate would subsequently be significantly reduced.

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IVIVI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2007
(UNAUDITED)

Neither party may assign or otherwise transfer its right and obligations under the Agreement, including upon a change of control of such party (as defined in the agreement), without the prior written consent of the other party, which consent shall not be unreasonably withheld, except that Inamed may assign its rights and obligations without the prior written consent of the Company to Inamed's affiliates and upon a sale of all or substantially all of the assets or equity of the business entity, division or unit, as applicable, that markets, distributes or sells the Product.

The Agreement includes other terms and conditions, including provisions regarding regulatory responsibilities, audit rights, insurance, indemnification and confidentiality.

In November 2006, we received $500,000 under the terms of this Agreement which was recorded as deferred revenue and is being amortized over the initial term of the agreement. During the three month and six month periods ended September 30, 2007, we have recognized $15,625 and $31,250 in revenue from this agreement.

NOTE 3 -- RELATED PARTY TRANSACTIONS

Pursuant to a management services agreement, dated as of August 15, 2001, as amended ADM provides us with administrative, technical, engineering and regulatory services and allocates portions of its real property facilities for use by us. In addition, ADM serves as our manufacturer of medical and other devices or products to be distributed by us. We purchased $151,796 and $213,395 finished goods inventory from ADM for the three and six months ended September 30, 2007.

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IVIVI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 2007
(UNAUDITED)

The amount included in cost of rental revenue on our Statements of Operations relating to these services provided by ADM was $1,470 and $21,428 for the three months ended September 30, 2007 and 2006, and $3,807 and $47,503 for the six months ended September 30, 2007 and 2006, respectively.

The amount included in general and administrative expenses on our Statements of Operations relating to these services provided by ADM was $56,125 and $62,705 for the three months ended September 30, 2007 and 2006, and $115,865 and $130,216 for the six months ended September 30, 2007 and 2006, respectively.

NOTE 4 - CONCENTRATIONS

During the six month period ended September 30, 2007, three customers accounting for 62% of our revenues from Sales and Rentals. As of September 30, 2007, three customers represented 70% of our accounts receivable.

NOTE 5 - SUBSEQUENT EVENT

On October 18, 2007, we issued one million shares of our common stock at a price per share of $5 in a private placement transaction with an institutional investor raising approximately $4.9 million, net of expenses. We shall file a registration statement covering the resale of shares of common stock issued in the private placement within 60 days of October 18, 2007 and use commercially reasonable efforts to cause the registration to be declared effective within 120 days of closing (or 150 days upon other events taking place). In the event we fail to meet the filing effectiveness deadlines, we will be subject to customary penalties.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our operations and financial condition should be read in conjunction with the Financial Statements and notes thereto included elsewhere in this Quarterly Report on Form 10-QSB.

Forward-Looking Statements

This Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of the "safe harbor" provisions under section 21E of the Securities and Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended. We use forward-looking statements in our description of our plans and objectives for future operations and assumptions underlying these plans and objectives. Forward-looking terminology includes the words "may", "expects", "believes", "anticipates", "intends", "forecasts", "projects", or similar terms, variations of such terms or the negative of such terms. These forward- looking statements are based on management's current expectations and are subject to factors and uncertainties which could cause actual results to differ materially from those described in such forward-looking statements. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this report to reflect any change in our expectations or any changes in events, conditions or circumstances on which any forward-looking statement is based. Factors which could cause such results to differ materially from those described in the forward- looking statements include those set forth under "Risk Factors" in our Annual Report on Form 10-KSB and our other filings with the Securities and Exchange Commission.

Supervision and Regulation -- Securities and Exchange Commission

We maintain a website at www.ivivitechnologies.com. We make available free of charge on our website all electronic filings with the Securities and Exchange Commission (including proxy statements and reports on Forms 8-K, 10-KSB and 10-QSB and any amendments to these reports) as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The Securities and Exchange Commission maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Securities and Exchange Commission.

We have also posted policies, codes and procedures that outline our corporate governance principles, including the charters of the board's audit and nominating and corporate governance committees, and our Code of Ethics covering directors and all employees and the Code of Ethics for senior financial officers on our website. These materials also are available free of charge in print to stockholders who request them in writing. The information contained on our website does not constitute a part of this report.

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OVERVIEW

We are an early-stage medical technology company focusing on designing, developing and commercializing proprietary electrotherapeutic technologies. Electrotherapeutic technologies use electric or electromagnetic signals to help relieve pain, swelling and inflammation and promote healing processes and tissue regeneration. We have focused our research and development activities on pulsed electromagnetic field, or PEMF technology. This technology utilizes a magnetic field that is turned on and off rapidly to create a therapeutic electrical current in injured tissue, which then stimulates biochemical and physiological processes to help repair injured soft tissue and reduce related pain. We are currently marketing products utilizing our PEMF technology to the chronic wound and plastic and reconstructive surgery markets. We are developing proprietary technology for other therapeutic medical markets.

While we have conducted research and development and performed sales and marketing activities, we have generated limited revenues to date and have incurred significant losses since our inception. At September 30, 2007, we had an accumulated deficit of approximately $26.9 million. We expect to incur additional operating losses, as well as negative cash flow from operations for the foreseeable future as we continue to expand our marketing efforts with respect to our products and to continue our research and development of additional applications for our products, as well as new products utilizing our PEMF technology. We are focusing our research and development activities on optimizing the signal parameters of our PEMF technology, enabling us to produce improved clinical outcomes and produce a smaller more efficient product utilizing less power.

Our revenues to date have been primarily generated through monthly or daily rental programs and by selling our products through our distributors and by direct sale utilizing our sales force. We expect future revenues to be generated through monthly and daily rental programs as well as the sale of our products through our distributors and sales people to long-term care nursing facilities, long-term acute care hospitals, rehabilitation hospitals, acute care facilities, home health users and individual patients. In addition, we expect revenues also to be generated through the sale of certain of our products to plastic surgery patients and physicians.

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On November 9, 2006, we entered into an exclusive worldwide distribution agreement with a wholly-owned subsidiary of Allergan, Inc., a global healthcare company that discovers, develops and commercializes pharmaceutical and medical device products in specialty markets. Pursuant to the Agreement, we granted Allergan's subsidiary, Inamed Medical Products Corporation and its affiliates the exclusive worldwide right to market, sell and distribute certain of our products, including all improvements, line extensions and future generations thereof in conjunction with any aesthetic or bariatric medical procedures in the Marketing Territory. In November 2006, we received $500,000 under the terms of this Agreement which has been recorded as deferred revenue in our balance sheet and is being amortized over 8 years. We anticipate receiving additional revenues under this agreement including up to $1 million when commercialization of our product begins with Allergan into certain geographic markets. During September, 2007 we received an initial order from Allergan for 20,000 Torino units.

Our ability to increase our revenues from rental and sales of our current products and other products developed by us will depend on a number of factors, including our ability to increase market penetration of our current products, our ability to enter into marketing and distribution agreements in our target markets with companies such as Allergan as well as our ability to develop and commercialize new products and technologies. Physicians and other healthcare professionals may not use our products or other potential products and technologies developed by us unless they determine that the clinical benefits to the patient are greater than those available from competing products or therapies or represent equal efficacy with lower cost. We have achieved full enrollment of our cardiac study at The Cleveland Clinic Florida where we are utilizing PEMF to treat patients with ischemic cardiomyopathy. We believe that PEMF's effects of improving blood flow and regeneration of new blood vessels could prove useful for these patients for which there are no alternatives. Given the length of the trial, as well as the post-trial review period, the earliest data could be analyzed and available is four months after the final patient is enrolled. As a result, we would anticipate results likely being available in our fourth fiscal quarter of our fiscal year ending March 31, 2008, however, we cannot assure when results of the study will be available.

Even if the advantage of our products and technologies is established as clinically and fiscally significant, physicians and other healthcare professionals may not elect to use our products and technologies developed by us for any number of reasons. The rate of adoption and acceptance of our products and technologies may be affected adversely by perceived issues relating to quality and safety, consumers' reluctance to invest in new products and technologies, the level of third-party reimbursement and widespread acceptance of other products and technologies. Broad market acceptance of our current products and other products and technologies developed by us in the future may require the education and training of numerous physicians and other healthcare professionals, as well as conducting or sponsoring clinical and cost-benefit studies to demonstrate the effectiveness and efficiency of such products and technologies. The amount of time required to complete such training and studies could be costly and result in a delay or dampening of such market acceptance. Moreover, healthcare payers" approval of use for our products and technologies in development may be an important factor in establishing market acceptance.

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While commercial insurance companies make their own decisions regarding which medical procedures, technologies and services to cover, commercial payers' often apply standards similar to those adopted by the Centers for Medicare and Medicaid Services, or CMS in determining Medicare coverage. The Medicare statute prohibits payment for any medical procedures, technologies or services that are not reasonable and necessary for the diagnosis or treatment of illness or injury. In 1997, CMS, which is responsible for administering the Medicare program, had interpreted this provision to deny Medicare coverage of procedures that, among other things, are not deemed safe and effective treatments for the conditions for which they are being used, or which are still investigational. However, in July 2004, CMS reinstated Medicare reimbursement for the use of the technology used in our products in the treatment of non-healing wounds under certain conditions.

CMS has established a variety of conditions for Medicare coverage of the technology used in our products. These conditions depend, in part, on the setting in which the service is provided. For example, in 2004, CMS added electromagnetic therapy as a type of service payable in the home health setting, but subject to Medicare's consolidated home health billing provisions. Thus, Medicare will not pay separately for electromagnetic therapy services if the service is billed under a home health plan of care provided by a home health agency. Rather, the home health agency must pay for the electromagnetic therapy as part of the consolidated payment made to the home health agency for the entire range of home health services under the patient's care plan.

We retained consulting companies specializing in CMS reimbursement and coverage matters to assist us in arranging and preparing for meetings with CMS to request that CMS cover electromagnetic therapy for wound treatment separately in the home health setting. In May 2006, and again in November 2007, with the assistance of our consultants, we held a meeting with CMS and made a presentation in support of reimbursement for the home health use of the technology used in our products. As of the date of this filing, we have not received any feedback from CMS as to whether CMS intends to reimburse for the use of the technology used in our products separately in the home health setting. Even if CMS were to approve separate reimbursement of electromagnetic therapy in the home health setting, the regulatory environment could change and CMS might deny all coverage for electromagnetic therapy as treatment of chronic wounds, whether for home health use or otherwise, which could limit the amount of coverage patients or providers are entitled to receive. Either of these events would materially and adversely affect our revenues and operating results.

We cannot predict when, if ever, CMS will allow for reimbursement for the use of the technology in our products in the home, or what additional legislation or regulations, if any, may be enacted or adopted in the future relating to our business or the healthcare industry, including third-party coverage and reimbursement, or what effect any such legislation or regulations may have on us. Furthermore, significant uncertainty exists as to the coverage status of newly approved healthcare products, and there can be no assurance that

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adequate third-party coverage will be available with respect to any of our future products or new applications for our present products. In currently non-capitated markets, failure by physicians, hospitals, nursing homes and other users of our products to obtain sufficient reimbursement for treatments using our technologies would materially and adversely affect our revenues and operating results. Alternatively, as the U.S. medical system moves to more fixed-cost models, such as payment based on diagnosis related groups, prospective payment systems or expanded forms of capitation, the market landscape may be altered, and the amount we can charge for our products may be limited and cause our revenues and operating results to be materially and adversely affected.

We may be required to undertake time-consuming and costly development activities and seek regulatory clearance or approval for new products or technologies. Although the FDA has cleared the use of our SofPulse technology for the treatment of edema and pain in soft tissue, we may not be able to obtain regulatory clearance or approval of new products or technologies or new treatments through existing products. The completion of the development of any new products or technologies or new uses of existing products will remain subject to all the risks associated with the commercialization of new products based on innovative technologies, including:

o our ability to fund, complete and establish research that supports the efficacy of new technologies and products;

o our ability to obtain regulatory approval or clearance of such technologies and products, if needed;

o our ability to obtain market acceptance of such new technologies and products;

o our ability to effectively and efficiently market and distribute such new products;

o the ability of ADM Tronics Unlimited, Inc. ("ADM") or other manufacturers utilized by us to effectively and efficiently manufacture such new products; and

o our ability to sell such new products at competitive prices that exceed our per-unit costs for such products.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, inventories, income taxes and loss contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.

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We believe the following critical accounting policies, among others, may be impacted significantly by judgment, assumptions and estimates used in the preparation of our financial statements:

o We recognize revenue primarily from the rental and sales of our products. Rental revenue is recognized as earned on either a monthly or pay-per-use basis in accordance with individual customer agreements. In most cases, we allow the rental end-user to evaluate our equipment on a trial basis, during which time we provide any demonstration or education necessary for the use of our equipment. Rental revenue recognition commences after the end of the trial period. All of our rentals are terminable by either party at any time. When we use a third party to bill insurance companies, we still recognize revenue as our products are used. When certain of our distributors bill end users, we recognize rental revenue when we are paid by the distributor. When the amount we earn is fixed, we recognize revenue net of commissions paid to distributors.

Sales are recognized when our products are shipped to end-users including medical facilities and distributors. Shipping and handling charges and costs are immaterial. We have no post shipment obligations and sales returns have been immaterial.

We provide an allowance for doubtful accounts determined primarily through specific identification and evaluation of significant past due accounts, supplemented by an estimate applied to the remaining balance of past due accounts.

o Our products held for sale are included in the balance sheet under "Inventory". At September 30, 2007, we also had fully depreciated equipment held for rental, which are our products that are rented to third parties, used internally and loaned out for marketing and testing.

o We apply Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding plus common stock equivalents representing shares issuable upon the assumed exercise of stock options and warrants. Common stock equivalents were not included for the reporting periods, as their effect would be anti-dilutive.

o In April 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), Accounting for Stock-based Compensation, to account for compensation costs under our stock option plans. We previously utilized the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (as amended).

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o We use the fair value method for equity instruments granted to non-employees and use the Black Scholes option value model for measuring the fair value of warrants and options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the periods in which the related services are rendered.

o For share based instruments carried at fair value in the financial statements, we used the Black Scholes option pricing model to value our stock purchase warrants. As of September 30, 2007, we have used the following assumptions in the Black Scholes option pricing model: (i) dividend yield of 0%;
(ii) expected volatility of 44%-67%; (iii) average risk free interest rate of 3.62%-4.75%; (iv) expected life of 1.5 to 5 years; and (v) estimated forfeiture rate of 5%.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2006

Net loss decreased $290,531, or 14%, to $1,807,065 or $0.19 per share, for the three months ended September 30, 2007 compared to a net loss of $2,097,596, or $0.44 per share, for the three months ended September, 30 2006. The decrease in net loss primarily resulted from (i)decreases in financing costs of $755,669, and (ii)decreases in share based compensation of $293,301, or 39%, (iii) decreases in cost of sales of $9,125, or 55%, (iv) decreases in cost of rentals of $4,654, or 47%, (v) increases in interest income of $66,335, or 3,700%, partially offset by (vi)increases in research and development expenses of $77,742 or 25%, (vii)increases in selling and marketing expenses of $209,797, or 78%, (viii)increases in depreciation and amortization $7,458, or 102%,(ix)increases in general and administrative expenses of $400,755 or 115% and (x) decreases in revenues of $142,801, or 39% for the three months ended September 30, 2007 as compared to the three months ended September 30, 2006.

Total revenue decreased $142,801, or 39%, to $225,732 for the three months ended September 30, 2007 as compared to $368,533 for the three months ended September 30, 2006. The decrease in revenue was due to a decrease in unit sales of our products as well as a reduction in revenue from rental customers, partially offset by sales of our Torino disposable product and the recognition of licensing revenue from the initial milestone payment under our Allergan agreement, both of which had no impact the previous quarter ended September 30, 2006.

Cost of sales decreased $9,125, or 55%, to $7,533 for the three months ended September 30, 2007 from $16,758 for the three months ended September 30, 2006 due to a decrease in unit sales. Purchases of finished goods from ADM for the three months ended September 30, 2007 were $151,796.

Cost of rentals decreased $4,654, or 47%, to $5,428 for the three months ended September 30, 2007 from $9,902 for the three months ended September 30, 2006 due to a decrease in the number of units out on rental for the three months ended September 30, 2007 compared to the number of units out on rental for the three months ended September 30, 2006. Cost of rental revenue consists primarily of the cost of electronics and other components and wages relating to the manufacture of our products by third parties, including ADM. Cost of rental revenue for the three months ended September 30, 2007 and 2006 included charges from ADM under our management services agreement.

Depreciation and amortization increased $7,458, or 102%, to $14,785 for the three months ended September 30, 2007 from $7,327 for the three months ended September 30, 2006. The increase was attributable to purchases of fixed assets as well as amortizing deferred costs relating to our distribution agreement with Allergan.

Research and development costs increased $77,742, or 25%, to $383,373 for the three months ended September 30, 2007 from $305,631 for the three months ended September 30, 2006. The increase included increased salaries of approximately $66,000 resulting from the cessation of salary cost reduction initiatives in the prior quarter and five additional employees in the current quarter; increased consulting costs of approximately $54,000, partially offset by a reduction of approximately $123,000 in research and development costs primarily due to a $200,000 accrual in the prior quarter for our trial at the Cleveland Clinic offset by current charges of approximately $44,000 for consultants assisting in our meeting with CMS for Medicaid/Medicare reimbursement, approximately $13,000 to design our consumer product, and $17,000 for animal research conducted at Indiana University.

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Financing costs decreased $755,669 for the three months ended September 30, 2007 to $0 from costs of $755,669 during the three months ended September 30, 2006. Interest and financing costs of $755,669 for the three months ended September 30, 2007 were eliminated due to (i) elimination of interest expense on the convertible notes issued by us and converted upon the effectiveness of our IPO, (ii) the elimination of borrowing under promissory notes issued by us, and
(iii) a decrease of additional shares issuable under the convertible notes for failure to register the underlying securities, which were issued during the quarter ended December 31, 2006.

Interest income increased $66,635, or 3,700%, to $68,128 for the three months ended September 30, 2007 from $1,793 for the three months ended September 30, 2006 due to our investments in money market accounts with proceeds from our IPO.

Selling and marketing expenses increased $209,797, or 78%, to $477,358 the three months ended September 30, 2007 as compared to $267,561 for the three months ended September 30, 2006. The increase resulted from increased salaries of approximately $115,000 with a headcount increase of nine sales and sales related administrative personnel, advertising and promotional expenses of approximately $12,000, samples of product of approximately $63,000, the majority of which was SofPulse units delivered to Allergan under our licensing agreement, and recruiting costs of approximately $49,000 partially offset by decreases in royalties and commissions of approximately $36,000.

General and administrative expenses increased $400,755 or 115% to $748,636 for the three months ended September 30, 2007 as compared to $347,881 for the three months ended September 30, 2006. The increase resulted primarily from increases in salaries of approximately $117,000 with the addition of a CFO and Controller, as well as salary increases for other executives that were part of the salary reduction program in the prior year. Other increases included investor and public relations expense of approximately $90,000, general liability insurance of approximately $34,000, travel and entertainment of approximately $36,000, employee benefits and payroll taxes of approximately $27,000, professional fees of approximately $101,000. General and administrative expenses for the three months ended September 30, 2007 and 2006 reflect charges of $17,782 and $24,239, and salary allocations of $38,343 and $41,277, respectively from ADM under our management services agreement.

Share based compensation decreased $293,301, or 39%, to $463,992 for the three months ended September 30, 2007 from $757,293 during the three months ended September 30, 2006, due the value of options granted in the prior year period which vested immediately.

SIX MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER
30, 2006

Net loss decreased $755,882, or 19%, to $3,219,672 or $0.34 per share, for the six months ended September 30, 2007 compared to a net loss of $3,975,554, or $0.84 per share, for the six months ended September, 30 2006. The decrease in net loss primarily resulted from (i)increases in revenues of $100,779, or 17%,
(ii) decreases in financing costs of $1,633,266, (iii)decreases in share based compensation of $180,181, or 18%, (iv) decreases in cost of rentals of $10,068, or 27%, and (v) increases in interest income of $146,079, or 4,254%, partially offset by (vi)increases in research and development expenses of $166,183 or 29%,
(vii) increases in selling and marketing expenses of $389,577, or 80%, (viii) increases in depreciation and amortization of $14,684, or 150%,(ix)increases in general and administrative expenses of $695,811, or 85% and (x) increases in cost of sales of $48,237, or 150%, for the six months ended September 30, 2007 as compared to the six months ended September 30, 2006.

Total revenue increased $100,779, or 17%, to $686,731 for the six months ended September 30, 2007 as compared to $585,952 for the six months ended September 30, 2006. The increase in revenue was due to an increase in sales of our products along with sales of our Torino disposable units and the recognition of licensing revenue from the initial milestone payment under our Allergan Agreement which did not impact the six month period ended September 30, 2006 partially offset by a reduction in revenue from rental customers.

Cost of sales increased $48,237, or 156%, to $79,130 for the six months ended September 30, 2007 from $30,893 for the six months ended September 30, 2006 due to an increase in unit sales. Purchases of finished goods from ADM for the six months ended September 30, 2007 were $213,395.

Cost of rentals decreased $10,068, or 27%, to $27,306 for the six months ended September 30, 2007 from $37,374 for the six months ended September 30, 2006 due to a decrease in the number of units rented for the six months ended September 30, 2007 compared to the number of units rented for the six months ended September 30, 2006. Cost of rental revenue consists primarily of the cost of electronics and other components and wages relating to the manufacture of our products by third parties, including ADM. Cost of rental revenue for the six months ended September 30, 2007 and 2006 included charges of $3,807 and $47,503, respectively from ADM under our management services agreement.

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Depreciation and amortization increased $14,684, or 150%, to $24,447 for the six months ended September 30, 2007 from $9,763 for the six months ended September 30, 2006. The increase was attributable to purchases of fixed assets as well as amortizing deferred costs relating to our distribution agreement with Allergan.

Research and development costs increased $166,183, or 29%, to $741,544 for the six months ended September 30, 2007 from $575,361 for the six months ended September 30, 2006. The increase included increased salaries of approximately $159,000 resulting
from the cessation of salary cost reduction initiatives in the prior six month period and additional five employees in the current six month period; increased consulting costs of approximately $202,000; partially offset by a reduction of approximately $174,000 in research and development costs primarily due to a $300,000 accrual in the prior six month period for our trial at the Cleveland Clinic.

Financing costs decreased $1,633,266 for the six months ended September 30, 2007 to $0 from costs of $1,633,266 during the six months ended September 30, 2006. Finance costs for the six months ended September 30, 2006 were eliminated due to (1) the elimination of interest expense on the convertible notes issued by us and converted upon the effectiveness of our IPO, (ii) the elimination of borrowing under promissory notes issued by us, and (iii) a decrease of additional shares issuable under the convertible notes for failure to register the underlying securities, which were issued during the quarter ended December 31, 2006.

Interest income increased $146,079, or 4,254%, to $149,513 for the six months ended September 30, 2007 from $3,434 for the six months ended September 30, 2006 due to our investments in money market accounts with proceeds from our IPO.

Selling and marketing expenses increased $389,577, or 80%, to $877,632 for the six months ended September 30, 2007 as compared to $488,055 for the six months ended September 30, 2006. The increase resulted from increased salaries of approximately $225,000 with a headcount increase of nine sales and sales related administrative personnel, increases in recruiting fees of $79,000, advertising and promotional expenses of approximately $69,000, samples of product of approximately $75,000, the majority of which were Torino units delivered to Allergan under our licensing agreement, partially offset by decreases in royalties and commissions of $85,000.

General and administrative expenses increased $695,811, or 85%, to $1,510,333 for the six months ended September 30, 2007 as compared to $814,522 for the six months ended September 30, 2006. The increase resulted primarily from increases in salaries of approximately $274,000 with the addition of a CFO and Controller, as well as salary increases for other executives that were part of the salary reduction program in prior year, travel and entertainment of approximately $55,000 and other employee health and welfare benefits and payroll taxes of approximately $49,000. Other increases included investor and public relations expense of approximately $160,000, general liability insurance of approximately $76,000, 401K employer match accrual of approximately $31,000, and professional consulting fees of approximately $61,000. General and administrative expenses for the six months ended September 30, 2007 and 2006 reflect inter-company allocations of $39,446 and $42,184 and salary allocations of $76,419 and $82,713, respectively. Inter-company allocation for the six months ended September 30, 2007 and 2006 consisted of amounts payable to ADM under our management services agreement.

Share based compensation decreased $180,181, or 18%, to $795,525 for the six months ended September 30, 2007 from $975,706 for the six months ended September 30, 2006 due to expenses under FAS 123(R) for common stock options issued by us.

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LIQUIDITY AND CAPITAL RESOURCES

We have had significant operating losses for the fiscal years ended March 31, 2007 and 2006, as well as for the six months ended September 30, 2007 and 2006. As of September 30, 2007, we had an accumulated deficit of approximately $26.9 million. Our continuing operating losses have been funded principally through the proceeds of our private placement financings, our IPO and other arrangements. We have only generated limited revenues of $1,182,340 and $786,512 for the years ended March 31, 2007 and 2006 and $686,731 and $585,952 for for the six months ended September 30, 2007 and 2006, respectively, primarily from the rental and sale of our products, and we expect to incur additional operating losses, as well as negative cash flow from operations, for the foreseeable future, as we continue to expand our marketing efforts with respect to our products and continue our research and development of additional applications for our technology and other technologies that we may develop in the future. We do not expect to be able to generate sufficient cash flow from our operations during the next twelve-month period; however, we believe that the proceeds from our IPO and private placements, combined with our expected revenues, will be sufficient to fund our operations for at least the next 12 months.

As of September 30, 2007, we had cash and cash equivalents of $5.3 million as compared to cash and cash equivalents of $8.3 million at March 31, 2007. The decrease of $3.0 million in cash and cash equivalents during the six month period ended September 30, 2007 was due to approximately $2.4 million in cash used by operating activities, and $0.6 million in cash used by investing activities for fixed assets purchases and intellectual property.

Net cash used by operating activities was approximately $2.4 million during the six months ended September 30, 2007 compared to the net cash used by operating activities of approximately $0.3 million during the six months ended September 30, 2006. This increase was due to increases in research and development, sales and marketing and general and administrative expenses as previously noted, partially offset by non-cash charges from changes in fair value of warrant and registration rights liabilities, share based financing penalties and amortization of loan costs and discounts in the prior year.

Net cash used by investing activities was $641,640 during the six months ended September 30, 2007 compared to no investing activities during the six months ended September 30, 2006, the increase of which was due to purchases of production equipment and computer equipment of $302,560, purchases for equipment in use and under rental agreements of $83,654 and payments related to our patents and trademarks and other intangible assets of $208,588 and $46,838 for restricted cash securing a letter of credit required under our lease for our corporate headquarters.

Net cash provided by financing activities was $32,141 during the six months ended September 30, 2007 primarily from stock option exercises compared to net cash used in financing activities of $251,541 for the six months ended September 30, 2006, from the deferred offering costs offset by proceeds from notes and affiliate advances.

Our business is capital intensive and we will likely require additional financing in order to:

o fund research and development;

o expand sales and marketing activities;

o develop new or enhanced technologies or products;

o maintain and establish regulatory compliance;

o respond to competitive pressures; and

o acquire complementary technologies or take advantage of unanticipated opportunities.

Our need for additional capital will depend on:

o the costs and progress of our research and development efforts;

o the preparation of pre-market application submissions to the FDA for our new products and technologies;

o the number and types of product development programs undertaken;

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o the number of products to be manufactured for sale or rental;

o the costs and timing of expansion of sales and marketing activities;

o the amount of revenues from sales of our existing and potentially new products;

o the cost of obtaining, maintaining, enforcing and defending patents and other intellectual property rights;

o competing technological and market developments; and

o developments related to regulatory and third-party coverage matters.

In order to keep our operating expenses manageable, we entered into a management services agreement, dated as of August 15, 2001, as amended, with ADM under which ADM provided us and its other subsidiaries, with management services and allocated portions of its real property facilities for use by us and the other subsidiaries for the conduct of our respective businesses.

The management services provided by ADM under the management services agreement include administrative, technical, engineering and regulatory services with respect to our products. We pay ADM for such services on a monthly basis pursuant to an allocation determined by ADM and us, based on a portion of its applicable costs plus any invoices it receives from third parties specific to us. As we intend to add employees to our administrative staff, we expect our reliance on the use of the management services of ADM to be reduced significantly.

We also use office, manufacturing and storage space in a building located in Northvale, New Jersey, currently leased by ADM, pursuant to the terms of the management services agreement. ADM determines the portion of space allocated to us and each other subsidiary on a monthly basis, and we and the other subsidiaries are required to reimburse ADM for our respective portions of the lease costs, real property taxes and related costs.

We incurred $56,125 and $115,865 for management services and the use of real property provided to us by ADM pursuant to the management services agreement during the three and six months ended September 30, 2007.

In addition, we are a party to a manufacturing agreement with ADM, dated as of August 15, 2001, and as amended and restated in May 2006, under which we utilize ADM as our manufacturer of all of our current and future medical and non-medical electronic and other devices or products. For each product that ADM manufactures for us, we pay ADM an amount equal to 120% of the sum of (i) the actual, invoiced cost for raw materials, parts, components or other physical items that are used in the manufacture of the product and actually purchased for us by, if any, plus (ii) a labor charge based on ADM's standard hourly manufacturing labor rate, which we believe is more favorable than could be attained from unaffiliated third-parties.

Purchases of Finished Goods from ADM for the three and six months ended September 30, 2007 were $151,796 and $213,395, respectively.

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On October 18, 2007, we issued one million shares of our common stock at a price per share of $5 in a private placement transaction with an institutional investor raising approximately $4.9 million, net of expenses. We have agreed to file a registration statement covering the resale of shares of common stock issued in the private placement within 60 days of October 18, 2007 and use commercially reasonable efforts to cause the registration to be declared effective within 120 days of closing (or 150 days upon other events taking place). In the event we fail to meet the filing effectiveness deadlines, we will be subject to customary penalties.

Although we expect that the net proceeds of the IPO and private placements, together with our available funds and funds generated from our operations, will be sufficient to meet our anticipated needs for at least the next 12 months, we may need to obtain additional capital to continue to operate and grow our business. Our cash requirements may vary materially from those currently anticipated due to changes in our operations, including our marketing and distribution activities, product development, expansion of our personnel and the timing of our receipt of revenues. Our ability to obtain additional financing in the future will depend in part upon the prevailing capital market conditions, as well as our business performance. There can be no assurance that we will be successful in our efforts to arrange additional financing on terms satisfactory to us or at all.

We are planning to move our headquarters to Montvale, New Jersey on or about November 15, 2007. In June 2007, we entered into a lease pursuant to which, we will rent 7,494 square feet of office space. The term of the lease began on October 5, 2007 and expires on or about November 1, 2014, subject to our option to renew the lease for an additional five year period on terms and conditions set forth therein. Pursuant to the lease, we are required to pay rent in the amount of $14,051 per month during the first two years of the term, with the exception of month 13 at no cost, and $15,613 per month thereafter. The cost of moving is not material to our results of operations. Following our move, we intend to retain certain office and laboratory space at our existing facility in Northvale, New Jersey.

We have a letter of credit as required by the lease and which is secured by $46,838 shown as restricted cash on our balance sheet.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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Item 3. Controls and Procedures

EVALUATION OF DISCLOSURE CONTROL AND PROCEDURES

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d - 15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our Exchange Act reports are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons; by collusion of two or more people, or by management override of the control. Our controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.

As of the end of the period covered by this Quarterly Report on Form 10-QSB, we carried out an evaluation, with the participation of our management, including our Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation as of September 30, 2007, our Co-Chief Executive Officers and Chief Financial Officer concluded that our disclosure controls and procedures are effective to reasonably ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management including our Co-Chief Executive Officers and Chief Financial Officer, to ensure that such information is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

There have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarter to which this Quarterly Report on Form 10-QSB relates that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

On August 17, 2005, we filed a complaint against Conva-Aids, Inc. t/a New York Home Health Care Equipment, or NYHHC, and Harry Ruddy in the Superior Court of New Jersey, Law Division, Docket No. BER-L-5792-05, alleging breach of contract with respect to a distributor agreement that we and NYHHC entered into on or about August 1, 2004, pursuant to which: (i) we appointed NYHHC as exclusive distributor of our products in a defined market place for so long as NYHHC secured a minimum number of placements of our products and (ii) NYHHC agreed to pay us $2,500 per month for each product shipped to NYHHC. By letter, dated August 9, 2005, we terminated the agreement due to NYHHC's failure to make the payments required under the agreement and failure to achieve the minimum number of placements required under the agreement. We are seeking various forms of relief, including: (i) money damages, including amounts due under unpaid invoices in an aggregate amount of $236,560, (ii) an accounting and (iii) the return of our products. The defendants filed a motion to dismiss alleging lack of jurisdiction and failure to state a claim with regard to Harry Ruddy. We opposed the defendant's motion to dismiss. On November 18, 2005, the Court denied the defendant's motion to dismiss, without prejudice, based upon lack of jurisdiction, which has not been completely decided. The Court permitted a period of discovery to determine the jurisdiction issue, which discovery is substantially complete. The defendants filed another motion to dismiss based upon a claim of lack of jurisdiction, which was heard and denied by the Court on June 9, 2006. On or about July 10, 2006, the defendants filed an answer and NYHHC filed counterclaims against us for breach of contract, breach of the implied covenant of good faith and fair dealing, restitution, unjust enrichment and fraudulent inducement. An answer to the counterclaim was filed on August 9, 2006. Discovery is now continuing on the merits of the claims in the complaint and counterclaim.

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On October 10, 2006, we received a demand for arbitration by Stonefield Josephson, Inc. with respect to a claim for fees for accounting services in the amount of approximately $106,000, plus interest and attorney's fees. Stonefield Josephson had previously invoiced Ivivi for fees for accounting services in an amount which Ivivi has refuted. We responded to Stonefield Josephson's demand for arbitration, which we believe was procedurally defective and premature due to Stonefield Josephson's failure to participate in required mediation, and we continue to defend against the claim vigorously, although provision has been made for the amount of the claim in the financial statements. Moreover, we are pursuing claims against Stonefield Josephson. On October 26, 2006, we sent a letter requesting the required mediation before arbitration. On December 4, 2006, we received notification from the arbitration forum that the arbitration was placed on hold until the mediation phase is completed.

Other than the foregoing, we are not a party to, and none of our property is the subject of, any pending legal proceedings other than routine litigation that is incidental to our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The 2,500,000 shares of common stock issued in our IPO which was consummated on October 24, 2006 were registered under a Registration Statement on Form SB-2 (File No. 333-122768) which was declared effective by the Securities and Exchange Commission on October 18, 2006. Maxim Group LLC acted as representative of the underwriters of the offering and Brean Murray, Carret & Co., LLC acted as co-manager of the offering. The shares of common stock sold in the IPO were sold at $6.00 per share raising gross proceeds of $15.0 million. On November 22, 2006, the underwriters partially exercised their over-allotment option for 250,000 shares of our common stock for additional gross proceeds of $1.5 million. The offering of the securities did not terminate prior to the sale of all of the registered securities, other than that portion of the over-allotment option that was not exercised.

The aggregate gross proceeds from the IPO, including the over-allotment, were $16.5 million. We paid the underwriters of the IPO $1,485,000 in underwriting discounts and commissions and $360,000 for non-accountable expenses. We incurred additional expenses related to the IPO, including the over-allotment, of approximately $1,015,000 and the net proceeds to us from the IPO were approximately $13,640,000.

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Use of the net proceeds from the IPO through September 30, 2007 was as follows:

Repayment of indebtedness due to ADM (1) $ 2,607,266 Repayment of loan plus interest due to AJAX Capital LLC (2) 257,123 Repayment of interest on convertible loan due to AJAX Capital LLC 76,712 Repayment of interest on convertible loan due to Kenneth S. Abramowitz & Co., Inc. (3) 18,740 Repayment of interest on all remaining convertible loans issued in our private placement 148,913 Research and development 765,742 Sales and marketing 620,583 Patent filings and other regulatory 325,795 Insurance 171,434 Professional fees 706,647 General corporate purposes, including working capital 4,503,270 Termination of revenue sharing agreement with AJAX Capital, LLC 296,136 ----------- Total $10,498,361 ===========

(1) As of the date of this filing, ADM is the beneficial owner of approximately 34% of our outstanding common stock.
(2) Ajax Capital LLC is an investment fund wholly-owned by Steven Gluckstern, our Chairman of the Board.
(3) Kenneth S. Abramowitz & Co, Inc. is an investment fund wholly-owned by Kenneth Abramowitz, one of our directors.

The remaining portion of the net proceeds from the IPO in the amount of approximately $3.1 million has been invested in short-term, interest-bearing money market accounts.

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Item 6. Exhibits.

(a) Exhibit No.

31.1 Certification of Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Ivivi Technologies Inc.
(Registrant)

Dated: November 14, 2007 By: /s/ Andre' DiMino --------------------------------- Andre' DiMino, Co-Chief Executive Officer (Principal Executive Officer) Dated: November 14, 2007 By: /s/ David Saloff --------------------------------- David Saloff, Co-Chief Executive Officer (Principal Executive Officer) Dated: November 14, 2007 By: /s/ Alan Gallantar --------------------------------- Alan Gallantar, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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