-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, URkiUuJUReXF0IKuIdaM3pbUJdleFTDfKZz0tnwphokxWTh6QPOGybiPOcktYRjN 2jBqdr3vvqkWWiGm7tV6wg== 0000849401-05-000020.txt : 20051121 0000849401-05-000020.hdr.sgml : 20051121 20051121161028 ACCESSION NUMBER: 0000849401-05-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051121 DATE AS OF CHANGE: 20051121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADM TRONICS UNLIMITED INC/DE CENTRAL INDEX KEY: 0000849401 STANDARD INDUSTRIAL CLASSIFICATION: ADHESIVES & SEALANTS [2891] IRS NUMBER: 221896032 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17629 FILM NUMBER: 051218160 BUSINESS ADDRESS: STREET 1: 224 S PEGASUS AVE CITY: NORTHVALE STATE: NJ ZIP: 07647 BUSINESS PHONE: 2017676040 MAIL ADDRESS: STREET 1: 224 S PEGASUS AVE CITY: NORTHVALE STATE: NJ ZIP: 07647 10-Q 1 q93005.txt 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, 2005 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. 0-17629 ADM TRONICS UNLIMITED, INC. (Name of Small Business Issuer in its Charter) Delaware 22-1896032 (State or Other Jurisdiction (I.R.S. Employer Identifi- of Incorporation or organization) cation Number) 224 Pegasus Ave., Northvale, New Jersey 07647 (Address of Principal Executive Offices) Issuer's Telephone Number, including area code: (201) 767-6040 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: 53,882,037 shares of Common Stock, $.0005 par value, as of November 17, 2005 1 ADM TRONICS UNLIMITED, INC. INDEX Page Number Part I. Financial Information Item 1. Consolidated Financial Statements: Consolidated Balance Sheets - September 30, 2005 (unaudited) and March 31, 2005 (restated) 3 Consolidated Statements of Operations - For the three months and six months ended September 30, 2005 (unaudited) and 2004 (unaudited and restated) 4 Consolidated Statements of Cash Flows - For the six months ended September 30, 2005 (unaudited) and 2004 (unaudited and restated) 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Controls and Procedures 12 Part II. Other Information 13 Item 1. Legal Proceedings Item 6. Exhibits 13 2 ADM TRONICS UNLIMITED, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September March 30, 2005 31, 2005 (Unaudited) (Restated) ASSETS Current assets: Cash and equivalents $ 440,536 $3,011,631 Accounts receivable, net of allowance for doubtful accounts of $143,065 and $72,593, respectively 326,229 102,691 Inventories: Raw materials and supplies 178,748 124,393 Finished goods 229,839 248,324 Prepaid expenses and other current assets 130,861 319,296 Total current assets 1,306,213 3,806,335 Property and equipment, net of accumulated depreciation of $248,635 and $271,188, respectively 55,126 40,550 Equipment in use and under rental agreements, net of accumulated depreciation of $883,600 and $832,059, respectively 250 51,791 Inventory - long term portion 330,749 287,582 Loan receivable, officer 49,188 49,188 Other assets 101,309 104,928 Deferred loan costs, net 778,479 823,564 Deferred offering costs 213,891 133,125 Total assets $2,835,205 $5,297,063 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 513,244 $ 172,978 Accrued expenses and other current liabilities 197,196 225,252 Interest payable 175,215 74,538 Total current liabilities 885,655 472,768 Convertible debentures payable, net of unamortized debt discount of $2,348,161 and $2,628,219, respectively 3,739,339 3,459,281 Warrants issued with registration rights 722,892 1,449,326 Total liabilities 5,347,886 5,381,375 Stockholders' deficit: Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding - - Common stock, $.0005 par value; 150,000,000 shares authorized, 53,882,037 shares issued and outstanding 26,941 26,941 Additional paid-in capital 9,394,718 9,391,972 Deferred compensation (315,537) (327,615) Accumulated deficit (11,618,803) (9,175,610) Total stockholders' deficit (2,512,681) (84,312) Total liabilities and stockholders' deficit $2,835,205 $5,297,063 The accompanying notes are an integral part of these consolidated financial statements. 3 ADM TRONICS UNLIMITED, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2005 2004 2005 2004 (Restated) (Restated) Revenues $ 504,584 $ 267,686 $ 825,594 $ 652,983 Costs and expenses: Cost of revenue 136,014 196,191 269,276 365,770 Research and development 154,577 - 321,925 - Interest and finance costs, net 271,241 1,081 538,295 1,014 Change in fair value of warrant liability 298,034 (127,352) (726,434) (127,352) Selling, general and administrative 1,721,253 564,634 2,865,725 756,441 Total operating expenses 2,581,119 634,554 3,268,787 995,873 Net loss $(2,076,535) $ (366,868) $(2,443,193) $ (342,890) Net loss per share basic and diluted $(0.04) $(0.01) $(0.05) $(0.01) Weighted average shares outstanding 53,882,037 51,882,037 53,882,037 51,882,037 The accompanying notes are an integral part of these consolidated financial statements. 4 ADM TRONICS UNLIMITED, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED) 2005 2004 (Restated) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(2,443,193) $ (342,890) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 62,547 69,174 Stock based compensation 39,937 - Amortization of loan costs and discount 375,323 40,960 Bad debts 70,472 - Change in fair value of warrant liability (726,434) (127,352) Other adjustments (75,293) - Changes in operating assets and liabilities: (Increase) decrease in: Accounts receivable (294,010) (6,555) Inventory (79,037) 128,070 Prepaid expenses 188,435 (6,140) Deposits and other assets - 1,527 Increase (decrease) in: Accounts payable and accrued expenses 412,887 5,570 Net cash flows used by operating activities (2,468,366) (237,636) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (21,963) (8,215) Net cash used by investing activities (21,963) (8,215) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable, net of costs deducted - 2,337,160 Debt issue costs - (20,000) Deferred offering costs (80,766) - Net cash (used) provided by financing activities (80,766) 2,317,160 Net (decrease) increase in cash (2,571,095) 2,071,309 Cash and cash equivalents, beginning of period 3,011,631 90,081 Cash and cash equivalents, end of period $ 440,536 $2,161,390 Cash paid for: Interest $ 84,121 $ - Income taxes - - Non-cash financial information: During the six months ended September 30, 2004: Costs of $350,340 were deducted from the proceeds from the sale of convertible debentures. An aggregate of 1,482,536 common stock purchase warrants, valued at $75,416, were issued in connection with services provided for the sale of convertible debentures. A discount on debt of $815,922 was recognized, comprised of the fair value of warrants issued with the debt of $287,351, and a beneficial conversion feature of $528,571. The accompanying notes are an integral part of these consolidated financial statements. 5 ADM TRONICS UNLIMITED, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of ADM Tronics Unlimited, Inc. and its subsidiaries (collectively, the "Company"). These consolidated 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 six months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending March 31, 2006. The accompanying consolidated financial statements 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 the Company's audited consolidated financial statements and related notes included in the Company's Form 10-KSB for the fiscal year ended March 31, 2005. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 six and three month periods ended September 30, 2005 and 2004 since the effect would be anti-dilutive. There were 53,882,037 common stock equivalents at September 30, 2005 and 51,882,037 at September 30, 2004. Stock Options and Warrants The Company accounts for its stock-based employee compensation plans using the intrinsic value based method, under which compensation cost is measured as the excess of the stock's market price at the grant date over the amount an employee must pay to acquire the stock. Stock options and warrants issued to non-employees are accounted for using the fair value based method, under which the expense is measured as the fair value of the security at the date of grant based on the Black-Scholes pricing model. A subsidiary of the Company had 578,500 employee stock options outstanding at September 30, 2005 and 2004. Pro Forma Information Employee and Director Common Share Purchase Options - Pro forma information regarding the effects on operations of employee and director common share purchase options as required by SFAS No. 123 and SFAS No. 148 has been determined as if the Company's subsidiary had accounted for those options under the fair value method. Pro forma information is computed using the Black Scholes method at the date of grant of the options based on the following assumptions ranges: (1) risk free interest rate of 3.62%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 67%; and (4) an expected life of the options of 6 years. 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. Pro forma information relating to employee and director common share purchase options is as follows: For the For the Three Months Three Months Ended Ended September 30, September 30, September 30, September 30, 2005 2004 2005 2004 Net loss as reported $(2,076,535) $(366,868) $(2,443,193) $(342,890) Stock Compensation calculated under SFAS No. 123 (2,492) (2,492) (4,983) (4,983) Pro forma net loss $(2,079,027) $(369,360) $(2,448,176) $(348,873) Basic and diluted historical loss per share $ (0.04) $ (0.01) $ (0.05) $ (0.01) Pro forma basic and diluted loss per share $ (0.04) $ (0.01) $ (0.05) $ (0.01) Restatement: The September 30, 2004 financial statements have been restated to record a beneficial conversion feature related to convertible notes payable issued by the Company in the amount of $528,571. The Company has also recorded an amount of $287,351 related to the fair value of warrants issued with the debt, which was recorded as a liability due to a registration rights agreement. The result is to record an aggregate discount on debt of $815,922. Additionally, the Company issued compensation warrants related to the debt placement with a fair value of $75,416. The amortization of these items for the three and six months periods ended September 30, 2004 was $40,660. Also, the fair value of the warrants has been recorded at $159,999 at September 30, 2004, and a recovery of expense for the three and six months ended September 30, 2004 of $127,352 has been recorded. As a result of these corrections, net loss for the three and six months ended September 30, 2004 has decreased by $86,692 for each period, to $366,868 and $342,890, respectively, and loss per share was unchanged at $0.01 and $0.01, respectively. The March 31, 2005 financial statements have been restated to record the corrections described above, along with additional warrants issued as compensation, cumulative through March 31, 2005. Changes to the balance sheet at March 31, 2005 resulting from these corrections are as follows: As reported Restated Unamortized deferred loan costs $ 670,498 $ 823,564 Unamortized deferred compensation $ 106,880 $ 327,615 Unamortized debt discount $ 299,000 $ 2,628,219 Warrants issued with registration rights 325,000 1,449,326 Capital in excess of par value 7,003,968 9,391,972 Accumulated deficit (8,366,300) (9,175,610) Reclassifications: Certain items in the fiscal 2005 financial statements have been reclassified to conform to the current period presentation. Recent Accounting Pronouncements In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinions No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal 2007. The Company is currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated results of operations and financial condition. In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share- Based Payment". SFAS 123(R) will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS 123(R) replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation", and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value- based method been used. Public entities (other than those filing as small business issuers) would have been required to apply SFAS 123(R) as of the first interim or annual reporting period that begins after June 15, 2005. SFAS 123(R) would have been applicable for the Company effective the first interim period that starts after December 15, 2005. In April 2005, the Securities and Exchange Commission announced the adoption of a rule that defers the required effective date of SFAS 123(R) for registrants. SFAS 123(R) is now effective for all registrants as of the beginning of the first fiscal year beginning after June 15, 2005. SFAS 123(R), when effective, will supercede both SFAS 123 and SFAS 148. All public companies will transition to the new standard under the "modified prospective method", which means that the fair value of any stock options which vest after the effective date would be expensed and recorded in the statement of operations. Companies must use fair values reported on a pro forma basis in the notes to the financial statements previously filed. The Company has evaluated the impact of the adoption of SFAS 123(R), and believes that the impact may be significant to the Company's future overall results of operations and financial position. Note 2 GOING CONCERN The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, the Company has a net loss of $2,443,193 and a negative cash flow from operations of $2,468,366 for the six months ended September 30, 2005, and a stockholders' deficiency of $2,512,681 as of September 30, 2005. These factors raise substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional funds to finance its operations. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. NOTE 3 SEGMENT INFORMATION Information about segment information is as follows: Six Months Ended September 30, 2005: CHEMICAL MEDICAL TOTAL Revenues from external customers $ 464,429 $ 361,165 $ 825,594 Segment profit (loss) (73,256) (2,369,937) (2,443,193) Identifiable assets 1,037,855 1,797,350 2,835,205 Six Months Ended September 30, 2004: Revenues from external customers 436,486 216,497 652,983 Segment profit (loss) 26,196 (369,086) (342,890) Identifiable assets 2,888,071 591,393 3,479,464 Three Months Ended September 30, 2005: Revenues from external customers 183,987 320,597 504,584 Segment profit (loss) (103,793) (1,972,742) (2,076,535) Three Months Ended September 30, 2004: Revenues from external customers 196,529 71,157 267,686 Segment profit (loss) (7,917) (358,951) (366,868) NOTE 4 SUBSEQUENT EVENTS On November 10, 2005, a majority-owned subsidiary of the Company, Ivivi Technologies, Inc. ("Ivivi"), completed a private placement of securities to two institutional accredited investors (the "Private Placement"). In connection with the Private Placement, Ivivi realized aggregate gross proceeds of $1,250,000 from the sale of unsecured convertible promissory notes (the "Notes") and warrants (the "Warrants") to purchase shares of common stock of Ivivi. The Notes are due and payable in November, 2010, unless earlier converted. The Notes bear interest at a rate of 8% per annum, payable in cash, increasing by 1% every 365 days from the date of issuance to a maximum of 12% per annum. The principal and accrued and unpaid interest on the Notes will be automatically converted into shares of common stock of Ivivi upon consummation of an initial public offering of Ivivi (an "IPO") at 85% of the initial public offering price of the common stock (the "IPO Price"); provided, however, that each holder of a Note may elect to convert all or any portion of the outstanding principal amount of the Note into shares of common stock of Ivivi at $7.00 per share at any time from and after the earlier to occur of (i) the first anniversary of the date of the Note and (ii) a withdrawal of Ivivi's registration statement on Form SB-2, which was initially filed with the Securities and Exchange Commission on February 11, 2005. The holder of each Warrant is entitled to purchase shares of common stock of Ivivi at an initial exercise price per share equal to (i) if an IPO has occurred prior to the exercise of the Warrant 100% of the IPO Price or (ii) if an IPO has not occurred prior to the exercise of the Warrant, $7.00 per share, subject to adjustment. The aggregate number of shares of common stock of Ivivi issuable upon exercise of the Warrants shall equal either (i) if the Note has been converted as of the date of exercise of the Warrant, the number of shares of common stock into which the Note was converted or (ii) if the Note has not been converted as of the date of exercise of the Warrant, such number of shares of common stock into which the Note is then convertible. Ivivi entered into registration rights agreements with the investors that participated in the Private Placement, under which the investors received demand and piggy-back registration rights for the common stock underlying the securities sold in the Private Placement. Each investor in the Private Placement is affiliated with an individual who has agreed to serve as a director of Ivivi upon effectiveness of Ivivi's Registration Statement on Form SB-2 relating to Ivivi's proposed initial public offering of its common stock. These securities were issued in a private placement of securities exempt from registration under the Act, pursuant to Section 4(2) of the Act. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the Company's operations and financial condition should be read in conjunction 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 Act of 1995. The Company uses forward-looking statements in its description of its 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. The Company expressly disclaims 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 "Item. 1 Description of Business - Risk Factors" and elsewhere in, or incorporated by reference into the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 2005 and other filings with the Securities and Exchange Commission. Critical Accounting Policies Revenue Recognition: Sales revenues are recognized when products are shipped to end users and rental and lease revenues are recognized principally on either a monthly or a pay-per use basis in accordance with individual rental or lease agreements and are recognized on a monthly basis as earned. Shipments to distributors are recognized as sales where no right of return exists. This is generally the case with sales of chemicals. This is generally not the case with sales of the SofPulse units. The Company recognizes revenue from the sale of the SofPulse products when the products are shipped to end users. An increasing amount of rental revenue is recognized on a fixed monthly recurring basis as product is utilized by the end-user. Sales returns have been immaterial. Lease revenues through third party distributors have also been immaterial and there have been no sales through third party distributors. The Company's products are principally shipped on a "freight collect" basis. Shipping and handling charges and costs are immaterial. Use of Estimates: The Company's discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to reserves, deferred tax assets and valuation allowance, impairment of long-lived assets, fair value of equity instruments issued to consultants for services and fair value of equity instruments issued to others. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, the Company believes that its estimates, including those for the above- described items, are reasonable. Business Overview The Company is a technology-based developer and manufacturer of diversified lines of products in the following three areas: (1) environmentally safe chemical products for industrial use, (2) therapeutic non-invasive electronic medical devices and (3) cosmetic and topical dermatological products. The Company has historically derived most of its revenues from the development, manufacture and sale of chemical products, and, to a lesser extent, from its therapeutic non- invasive electronic medical devices and topical dermatological products. However, during the three months ended September 30, 2005, the Company derived an increased amount of its revenue from the sale and rental of its therapeutic non-invasive medical devices. The Company is a corporation that was organized under the laws of the State of Delaware on November 24, 1969. The Company's operations are conducted through the Company itself and its three subsidiaries, Ivivi Technologies, Inc., Pegasus Laboratories, Inc. and Sonotron Medical Systems, Inc. Results of Operations for the three months ended September 30, 2005 as compared to September 30, 2004 Revenues Revenues were $504,584 for the three months ended 2005 as compared to $267,686 for the three months ended September 30, 2004, an increase of $236,898 or 88.5%. Revenues from the Company's chemical activities decreased by $12,542, offset by an increase of $249,440 in the Company's medical technology activities in the 2005 period as compared to the 2004 period. The decrease in revenue from chemical activities primarily resulted from a significant customer of the Company's chemical products ceasing operations and curtailing purchases during the period. Such customer had no orders during the quarter ended September 30, 2005 and accounted for approximately $71,000 of the Company's revenues for the comparable period in 2004. The increase in revenues from the Company's medical technology activities was primarily due to increased sales and rentals of the Company's SofPulse units. Net (Loss) Net loss for the three months ended September 30, 2005 was $2,076,535, or $0.04 per share, compared to an operating loss for the three months ended September 30, 2004 of $366,868, or $0.01 per share. Selling, general and administrative expenses increased by $1,156,619 of which, approximately $1,088,000 or 94% was due to the significant increase in personnel, marketing, and overhead costs from the Company's Ivivi subsidiary to support Ivivi's expanded activities related to the distribution and marketing of its SofPulse units and the balance of approximately $69,000 was attributable to the Company's chemical activities primarily resulting from an increase in personnel costs from the addition of an employee and increased technical consulting expenses. Research and development expense was $154,577 during the three months ended September 30, 2005 for the Ivivi subsidiary for laboratory studies for its SofPulse technology, with no expense in the comparable 2004 period. Net interest and financing costs increased $222,324 due to interest expense and amortization of discount on the convertible notes issued in the Company's private placements partially offset by interest earned from amounts invested in money market funds. During the three months ended September 30, 2005, the Company recorded an expense of $298,034 due to the increase in the fair value of the liability for warrants issued with registration rights, compared to a recovery of expense of $127,352 in the comparable 2004 period due to the decrease in the fair value of the liability for the warrants. Results of Operations for the six months ended September 30, 2005 as compared to September 30, 2004 Revenues Revenues were $825,594 for the six months ended September 30, 2005 as compared to $652,983 for the six months ended September 30, 2004, an increase of $172,611 or 26.4%. Revenues from the Company's chemical activities increased by $27,943 and revenues from the Company's medical technology activities increased by $144,668 in the 2005 period, compared to the 2004 period. During the six month period, a significant customer of the Company's chemical products has ceased operations and curtailed purchases. Such customer had limited orders during the six months ended September 30, 2005 and accounted for approximately $39,000 of the Company's revenues for such period, and approximately $134,000 for the comparable period in 2004. The increase in revenues from the Company's medical technology activities was primarily due to increased sales and rentals of the Company's SofPulse units. Net (Loss) Net loss for the six months ended September 30, 2005 was $2,443,193, or $.05 per share, compared to an operating loss for the six months ended September 30, 2004 of $342,890, or $.01 per share. Selling, general and administrative expenses increased by $2,109,284 of which, approximately $1,988,000 or 94% was due to the significant increase in personnel, marketing, and overhead costs from the Company's Ivivi subsidiary to support Ivivi's expanded activities related to the distribution and marketing of its SofPulse units and the balance of approximately $121,000 was attributable to the Company's chemical activities primarily resulting from an increase in personnel costs from the addition of an employee and increased technical consulting expenses. Research and development expense was $321,925 during the six months ended September 30, 2005 for the Ivivi subsidiary for laboratory studies for its SofPulse technology, with no expense in the 2004 period. Net interest and financing costs increased $537,281 due to interest expense and amortization of discount on the convertible notes issued in the Company's private placements partially offset by interest earned from amounts invested in money market funds. During the six months ended September 30, 2005, the Company recorded a recovery of expense of $726,434 due to thedecrease in the fair value of the liability for warrants issued with registration rights, compared to a recovery of expense of $127,352 in the comparable 2004 period. Liquidity and Capital Resources At September 30, 2005, the Company had cash and equivalents of $440,536 as compared to $3,011,631 at March 31, 2005. The decrease was primarily the result of the increased operating expenses at the Company's subsidiary, Ivivi Technologies, Inc. Operating Activities Net cash flows used by operating activities were $2,468,366 for the six months ended September 30, 2005 as compared to net cash flows used by operating activities of $237,636 for the six months ended September 30, 2004. The use of cash in 2005 was primarily due to a net loss of $2,443,193 related mostly to the Company's medical technologies activities, and increases in accounts receivable of $294,010 and inventory of $79,037 offset by decreases in prepaid expenses of $188,435 and increases in accounts payable and accrued expenses of $412,887. The net loss was partially offset by non cash charges for bad debt expense and for the amortization of loan costs and amortization of discount on the convertible notes issued in the private placements. The Company has recorded a non-cash recovery of expense of $726,434 due to the decrease in the fair value of the liability for warrants issued with registration rights in the 2005 period. The use of cash in 2004 was primarily due to a net loss of $342,890 related mostly to the Company's medical technologies activities, offset by a decrease in accounts receivable of $128,070. The net loss was partially offset by non cash charges for bad debt expense and for the amortization of loan costs and amortization of discount on the convertible notes issued in the private placements. The Company recorded a non-cash recovery of expense of $127,352 due to the decrease in the fair value of the liability for warrants issued with registration rights in the 2004 period. Investing Activities For the six months ended September 30, 2005, cash used in investing activities of $21,963 related to the purchase of equipment. For the six months ended September 30, 2004, $8,215 was used for the purchase of equipment. Financing Activities During the six months ended September 30, 2005, the Company paid $80,766 for deferred costs related to the private placements as compared to net proceeds from the private placements of $2,337,160 during the six months ended September 30, 2004, offset by costs paid of $20,000. The Company does not have any material external sources of liquidity or unused sources of funds. The Company's revenues, operations and cash flows over the past few years have declined. Management has recognized the situation and has developed a business plan to enhance the activities of one of its subsidiaries which markets the SofPulse medical device. In December 2004 and February 2005, the Company, together with Ivivi, its majority-owned subsidiary, completed two private placements pursuant to which they issued, jointly and severally, unsecured convertible notes in an aggregate principal amount of $3,637,500 and $2,450,000, respectively. The liability for such borrowings has been recorded in the Company's financial statements. The notes are due and payable five years from the date of issuance, unless earlier converted. The notes bear interest at 6% per annum and under certain circumstances, the principal and accrued interest on the notes will either be: (i) convertible into the Company's common stock at $.29 per share or (ii) convertible into Ivivi's common stock at $8.30 per share. For each Note in the principal amount of $100,000 issued in the private placements, one warrant for the purchase of up to 344,828 shares of the Company's common stock at $.41 per share (the "Company Warrant") and one warrant for the purchase of up to 12,048 shares of Ivivi's common stock at $5.70 per share (the "Ivivi Warrant") were issued. Each of the Company Warrants and the Ivivi Warrants provides that in addition to paying the exercise price, the holder must surrender the non-exercised warrant (i.e., either the Company Warrant or the Ivivi Warrant). Pursuant to the terms of the private placements completed in each of December 2004 and February 2005, the number of shares of the Company's common stock issuable upon conversion of the notes and exercise of the warrants will increase by 1% for each 30 day period, or portion thereof, following the 90th day of a demand for registration of the shares of the Company's common stock underlying the notes and warrants and such registration statement is not declared effective. In addition the number of shares of Ivivi's common stock issuable upon conversion of the notes and exercise of the warrants issued in December 2004 and February 2005 will increase by 2% for each 30-day period, or portion thereof, after March 1, 2005 and June 30, 2005 that a registration statement covering the shares of the Company's common stock and the shares of Ivivi's common stock, respectively, underlying securities issued in the private placement is not declared effective. In November 2005, Ivivi completed a private placement of convertible notes and warrants for aggregate gross proceeds of $1,250,000. The notes are due and payable in November 2010, unless earlier converted. The notes bear interest at a rate of 8% per annum, payable in cash, increasing by 1% every 365 days from the date of issuance to a maximum of 12% per annum. The principal and accrued and unpaid interest on the notes will be automatically converted into shares of common stock of Ivivi upon consummation of an initial public offering of Ivivi (an "IPO") at 85% of the initial public offering price of the common stock of Ivivi (the "IPO Price"); provided, however, that each holder of a note may elect to convert all or any portion of the outstanding principal amount of the note into shares of common stock of Ivivi at $7.00 per share at any time from and after the earlier to occur of (i) the first anniversary of the date of the note and (ii) a withdrawal of Ivivi's registration statement on Form SB-2, which was initially filed with the Securities and Exchange Commission on February 11, 2005. The holder of each warrant is entitled to purchase shares of common stock of Ivivi at an initial exercise price per share equal to (i) if an IPO has occurred prior to the exercise of the warrant 100% of the IPO Price or (ii) if an IPO has not occurred prior to the exercise of the warrant, $7.00 per share, subject to adjustment. The aggregate number of shares of common stock of Ivivi issuable upon exercise of the warrants shall equal either (i) if the note has been converted as of the date of exercise of the warrant, the number of shares of common stock into which the note was converted or (ii) if the note has not been converted as of the date of exercise of the warrant, such number of shares of common stock of Ivivi into which the note is then convertible. The proceeds of the private placements are being used primarily by the Company for the research and development and sales and marketing of its SofPulse line of products and for the research and development of other potential products being developed by Ivivi. The notes issued in the private placements contain covenants that limit each of the Company's and Ivivi's ability to take certain actions without the consent of the holders of the notes, including: o incurring additional indebtedness for borrowed money, except in the ordinary course of business; o merging, selling substantially all of its assets or acquiring another entity; o making loans or investments; o paying dividends or making distributions; o incurring liens on its assets; o making capital expenditures; o entering into certain transactions with affiliates; and o materially changing its business. As of November 15, 2005, the Company was in material compliance with the covenants contained in the notes. The Company will need to obtain additional capital to continue to operate and grow its business, including the business of its subsidiaries, and its ability to obtain additional financing in the future will depend in part upon the prevailing capital market conditions, as well as its and its subsidiaries' business performance. In February 2005, the Company's subsidiary, Ivivi, filed a registration statement with the Securities and Exchange Commission related to the proposed initial public offering of Ivivi's common stock. There can be no assurance that the Company or Ivivi will be successful in their efforts to arrange additional financing, including through the proposed initial public offering of Ivivi's common stock, on terms satisfactory to the Company and/or Ivivi or at all. Item 3. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Company maintains 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 its Exchange Act reports is 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 the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applies its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management's control objectives. As of the end of the period covered by this Quarterly Report on Form 10- QSB, the Company carried out an evaluation, with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation as of September 30, 2005, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act is accumulated and communicated to the Company's management including its Chief Executive Officer and Chief Financial Officer, to ensure that such information is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Changes In Internal Controls Over Financial Reporting. As previously announced by the Company in its Current Report on Form 8-K filed with the Securities and Exchange Commission on September 2, 2005, the financial statements contained in the Company's Quarterly Report on Form 10-QSB for the Company's fiscal quarters ended September 30, 2004, December 31, 2004 and June 30, 2005 (the "Form 10-QSBs") and the financial statements previously audited by the Company's prior auditors and contained in the Company's Annual Report on Form 10-KSB for the Company's fiscal year ended March 31, 2005 (the "Form 10-K"), require restatement related to the accounting for the fair value of warrants issued with convertible debt, and a beneficial conversion feature related to the convertible debt issued with respect to the private placements completed in December 2004 and February 2005 as previously accounted for by the Company. As a result, the Company has taken the following steps in connection with its internal controls: (i) during the quarter ended June 30, 2005, the Company retained a certified public accountant as a consultant to assist with the Company's financial reporting obligations and to improve its internal controls over financial reporting and (ii) during the quarter ended September 30, 2005, the Company hired a certified public accountant as a part-time employee responsible for assisting management with internal controls, financial reporting and closing the Company's books and records. Except as set forth above, there have been no changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter to which this Quarterly Report on Form 10- QSB relates that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. PART II. OTHER INFORMATION Item 1. Legal Proceedings. On June 29, 2005, Ivivi filed a complaint against Regenesis Biomedical, Inc. ("Regenesis") in the United States District Court for the District of New Jersey, Docket No. 05-CV-3300 (JAP), alleging that Regenesis is infringing on one of Ivivi's United States patents through its sales of a product that competes with Ivivi's SofPulse(R) product. Ivivi is seeking money damages and an injunction against future sales of the competing product. Regenesis filed an answer to the complaint on September 23, 2005. The parties have not yet commenced discovery. In June 2005, Ivivi also filed a complaint against Regenesis, Virginia Rybski, Vice President of Sales and Marketing of Regenesis, Terrence Kennedy, Regional Sales Manager for the South Eastern Territories of Regenesis, Mary Ritz, President of Regenesis, and Frank George, Chief Science and Technology Officer of Regenesis, in the Superior Court of New Jersey - Law Division - Bergen County, Docket 3724-05 alleging breach of contract, tortious interference and conversion. Ivivi is seeking money damages and an injunction against future sales of the competing product. On July 5, 2005 the defendants filed a motion to dismiss for lack of personal jurisdiction or for failure to state a claim upon which relief can be granted. In September 2005, the motion to dismiss for lack of personal jurisdiction was denied and a period of discovery to determine the jurisdiction as to the defendants was permitted. On August 17, 2005, Ivivi filed a complaint against Cova-Aids, Inc. t/a New York Home Health Care Equipment ("NYHHC"), 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 between Ivivi and NYHHC entered into on or about August 1, 2004 pursuant to which (i) Ivivi appointed NYHHC as exclusive distributor of the SofPulse device in a defined market place for so long as NYHHC secured a minimum number of placements of the SofPulse device and (ii) NYHHC agreed to pay Ivivi $2,500 per month for each SofPulse device shipped to NYHHC. By letter, dated August 9, 2005, Ivivi 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. Ivivi is 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 Ivivi's SofPulse devices. The defendants filed a motion to dismiss alleging lack of jurisdiction and failure to state a claim with regard to Harry Ruddy. The Company 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 and gave the Company a discovery period until January 20, 2006 to investigate a basis for jurisdiction. The Court also dismissed without prejudice the claim against Harry Ruddy, individually. Item 6. Exhibits. (a) Exhibit No. 4.1 Form of Note issued to certain investors 4.2 Form of Warrant issued to certain investors 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 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. 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. ADM Tronics Unlimited, Inc. ADM Tronics Unlimited, Inc. (Registrant) By:\s\ Andre' DiMino Andre' DiMino, Chief Executive Officer and Chief Financial Officer Dated: Northvale, New Jersey November 21, 2005 EX-31 2 exh311q93005.txt Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 I, Andre' DiMino, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of ADM Tronics Unlimited, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. I am the registrant's only certifying officer and am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal controlover financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of anannual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 21, 2005 /s/ Andre' DiMino Chief Executive Officer A signed original of this written statement required by Section 302 has been provided to ADM Tronics Unlimited, Inc. and will be retained by ADM Tronics Unlimited, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-31 3 exh312q93005.txt Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 I, Andre' DiMino, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of ADM Tronics Unlimited, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. I am the registrant's only certifying officer and am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design oroperation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 21, 2005 /s/ Andre' DiMino Chief Financial Officer A signed original of this written statement required by Section 302 has been provided to ADM Tronics Unlimited, Inc. and will be retained by ADM Tronics Unlimited, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 4 exh321q93005.txt Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of ADM Tronics Unlimited, Inc. (the "Company") on Form 10-QSB for the period ended September 30, 2005 (the "Report"), filed with the Securities and Exchange Commission, Andre' DiMino, Chief Executive Officer and Chief Financial Officer, of the Company hereby certifies pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and (2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented. Date: November 21, 2005 /s/ Andre' DiMino Chief Executive Officer and Chief Financial Officer The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-QSB or as a separate disclosure document. A signed original of this written statement required by Section 906, or otherdocument authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to ADM Tronics Unlimited, Inc. and will be retained by ADM Tronics Unlimited, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-4 5 exh41q93005.txt Exhibit 4.1 Form of Note issued to certain investors THE SECURITY REPRESENTED HEREBY, AND THE SECURITIES ISSUABLE UPON CONVERSION OR REDEMPTION HEREOF, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS COMPANY, IS AVAILABLE. IVIVI TECHNOLOGIES, INC. UNSECURED CONVERTIBLE PROMISSORY NOTE US$_________ November __, 2005 FOR VALUE RECEIVED, Ivivi Technologies, Inc., a corporation duly organized and validly existing under the laws of the State of New Jersey (the "Company"), promises to pay to _____________ the registered holder of this unsecured convertible promissory note ("Note") and its successors and assigns (the "Holder"), the principal sum of ___________ Dollars ($_______) in accordance with the terms hereof, and interest on the principal sum outstanding in accordance with the terms hereof. Accrual of interest on the outstanding principal amount shall commence on the date hereof and shall continue until payment in full of the outstanding principal amount has been made or duly provided for, or until the entire outstanding principal amount of the Note has been converted. This Note is one of a series of unsecured convertible promissory notes (collectively, the "Company Notes") of like tenor in an aggregate principal amount of up to $2,000,000 that may be issued by the Company pursuant to the terms of the Subscription Agreements (collectively, the "Subscription Agreements"), dated of even date herewith, between the Company and each investor party thereto. The Subscription Agreement between the Company and the Holder is hereinafter referred to as the "Holder Subscription Agreement." The following is a statement of the rights of the Holder of this Note and the terms and conditions to which this Note is subject, and to which the Holder, by acceptance of this Note, agrees: 1. Principal Repayment; Prepayment. The outstanding principal amount of this Note and any and all accrued but unpaid interest thereon shall be payable on or before November __, 2010 (the "Maturity Date"), unless this Note has been converted or redeemed as described below. Notwithstanding the foregoing, prior to the Maturity Date, the Company may prepay, without penalty or premium, the outstanding principal amount of this Note and any and all interest thereon accrued but unpaid through the prepayment date, in whole or in part, at any time and in its discretion. 2. Interest. The Holder is entitled to receive interest on the outstanding principal amount of this Note at the annual cumulative rate for each period set forth in the chart below, payable quarterly (on January 1, April 1, July 1 and October 1, with the first interest payment due on October 1, 2005) in cash, out of funds legally available therefore: Rate Period 8% November ___, 2005 to November ___, 2006 9% November ___, 2006 to November ___, 2007 10% November ___, 2007 to November ___, 2008 11% November ___, 2008 to November ___, 2009 12% November ___, 2009 to Noevmber ___, 2010 Interest payments for the period between the date hereof and the next interest payment date shall be pro rated based upon the actual number of days elapsed, assuming a 365 day year. The first interest payment to be made on this Note will be due on January 1, 2005. Interest payments to be made on this Note in accordance with the terms hereof shall be made in cash. 3. Ranking. The obligations of the Company under this Note shall rank (i) pari passu with all Indebtedness (as defined below) existing as of the date hereof, including, without limitation, all of the other Company Notes and all of the other outstanding unsecured convertible promissory notes issued by the Company in connection with the Prior Private Offerings (as defined below) and (ii) senior to all Indebtedness incurred by the Company after the date hereof, except for Indebtedness incurred by the Company within the limitations of Section 7(a) hereof. For purposes of this Note, the following terms shall have the following meanings: (i)"ADM Tronics" shall mean ADM Tronics Unlimited, Inc., a Delaware corporation. (ii)"Prior Private Offerings" shall mean (A) the Company's joint offeringwith ADM Tronics, pursuant to which the Company, together with ADM Tronics,issued joint unsecured convertible notes in the aggregate principal amount of $3,637,500, which was completed in December 2004 and (B) the Company's joint offering with ADM Tronics, pursuant to which the Company, together with ADM Tronics, issued joint unsecured convertible notes in the aggregate principal amount of $2,450,000, which was completed in February 2005. 4. Conversion. (a)Automatic Conversion. The outstanding principal amount of this Note will automatically convert into shares of common stock, no par value, of the Company ("Common Stock") at the Conversion Price (as defined below), upon consummation of an initial public offering of shares of Common Stock (an "IPO"). (b)Optional Conversion. From and after the earlier to occur of (i) the first anniversary of the date of this Note and (ii) a withdrawal of the Company's Registration Statement on Form SB-2, which was initially filed with the Securities and Exchange Commission on February 11, 2005, the Holder may elect, at its option, to convert all or any portion of the outstanding principal amount of this Note into shares of Common Stock, at the Conversion Price. (c)Conversion Price. For purposes of this Note, the "Conversion Price" shall mean, with respect to a conversion of the outstanding principal amount of this Note into shares of Common Stock, the price per share of Common Stock equal to: (i) if such conversion occurs at any time other than upon consummation of an IPO in accordance with Section 4(a), $7.00 and (ii) if such conversion occurs upon consummation of an IPO, 85% of the initial public offering price per share of Common Stock offered and sold to the public pursuant to the IPO. The Conversion Price and the number of shares of Common Stock into which the outstanding principal amount of this Note may convert shall be subject to adjustment from time to time in accordance with Section 4 hereof. (d)Mechanics of Conversion. Upon any conversion of the outstanding principal amount of this Note, (i) such principal amount converted shall be converted and such converted portion of this Note shall become fully paid and satisfied, (ii) the Holder shall surrender and deliver this Note, duly endorsed, to the Company's office or such other address which the Company shall designate against delivery of the certificates representing the new securities of the Company; (iii) the Company shall promptly deliver a duly executed Note to the Holder in the principal amount, if any, that remains outstanding after any such conversion; and (iv) in exchange for all or any portion of the surrendered Note described in clause (ii) of this Section 4(d), the Company shall provide the Holder with irrevocable instructions addressed to the Company's transfer and exchange agent, as applicable, to issue such number of unrestricted, freely tradable shares of Common Stock, as the case may be. (e)Issue Taxes. The Holder shall pay any and all issue and other taxes that may be payable with respect to any issue or delivery of shares of Common Stock on conversion of this Note pursuant hereto; provided, however, that the Holder shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (f)Elimination of Fractional Interests. No fractional shares of Common Stock shall be issued upon conversion of this Note, nor shall the Company be required to pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated and that all issuances of the Common Stock shall be rounded up to the nearest whole share. 5. Rights upon Liquidation, Dissolution or Winding Up. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Notes shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company or to the holders of any equity security of the Company, an amount equal to the unpaid and unconverted principal face amount of their Notes and any accrued and unpaid interest thereon. The Holders shall share ratably with the other unsecured creditors of the Company if the available assets are not sufficient to repay the Notes. 6. Adjustments. (a)In the event that the Company should at any time or from time to time, after the date of this Note, fix a record date for the effectuation of a split or subdivision of the outstanding shares of either the Common Stock or the determination of holders of the Common Stock entitled to receive a dividend or other distribution payable in additional shares of either the Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly additional shares of the Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of the Common Stock or the Common Stock Equivalents (including the additional shares of the Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), unless the Conversion Price is otherwise automatically adjusted in accordance with the terms of this Note, the Conversion Price shall be appropriately decreased so that the number of shares of the Common Stock issuable on conversion of this Note shall be increased in proportion to such increase in the aggregate number of shares of the Common Stock outstanding and those issuable with respect to such Common Stock Equivalents. (b)If the number of shares of the Common Stock outstanding at any time after the date of this Note is decreased by a combination of the outstanding shares of the Common Stock, then, following the record date of such combination, the Conversion Price shall be appropriately increased so that the number of shares of the Common Stock issuable upon conversion of this Note shall be decreased in proportion to such decrease in outstanding shares. (c)A Sale of the Company (as defined herein) shall be treated as a liquidation for purposes of the liquidation preference. The Holder shall receive prior notice of a Sale of the Company and shall have an opportunity to convert, at its sole election, this Note prior to the consummation of any such transaction; provided, however, that notwithstanding anything to the contrary contained herein, the Holder shall not be entitled to any prepayment penalty or premium in the event the Holder exercises its right to convert this Note pursuant to this Section 6(c). For purposes of this Note, a "Sale of the Company" means (i) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 80% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after that merger, consolidation, or other reorganization is owned by one or more Persons who were not stockholders of the Company immediately prior to that merger, consolidation, or other reorganization; (ii) the acquisition of more than 80% of Common Stock by any Person, other than a Person who is a stockholder of the Company as of the date of this Note, or by any group (within the meaning of Rule 13d-5 of the under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), excluding the interests of any Person who is a stockholder on date of this Note; or (iii) the sale, transfer or other disposition of all or substantially all of the Company's assets to one or more Persons who were not stockholders of the Company immediately prior to the sale, transfer or other disposition. 7. Affirmative Covenants of the Company. The Company hereby agrees that, so long as the Note remains outstanding and unpaid, or any other amount is owing to the Holder hereunder, the Company will: (a)Corporate Existence and Qualification. Take the necessary steps to preserve its corporate existence and its right to conduct business in all states in which the nature of its business requires qualification to do business. (b)Books of Account. Keep its books of account in accordance with good accounting practices. (c)Insurance. Maintain insurance with responsible and reputable insurance companies or associations, as determined by the Company in its sole but reasonable discretion, in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Company operates. (d)Preservation of Properties; Compliance with Law. Maintain and preserve all of its properties that are used or that are useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted and comply with the charter and bylaws or other organizational or governing documents of the Company, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon the Company or any of its property or to which each the Company or any of its property is subject. (e)Taxes. Duly pay and discharge all taxes or other claims, which might become a lien upon any of its property except to the extent that any thereof are being in good faith appropriately contested with adequate reserves provided therefor. (f)Reservation of Shares. The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock and issuable upon conversion of this Note and exercise of the Warrants to provide for the issuance of all of such shares. Prior to complete conversion of this Notes and exercise of the Warrants, the Company shall not reduce the number of shares of Common Stock reserved for issuance hereunder without the written consent of the Holder except for a reduction proportionate to a reverse stock split effected for a business purpose other than affecting the requirements of this Section, which reverse stock split affects all shares of Common Stock equally. (g)Use of Proceeds. The proceeds of the Notes will be used for working capital purposes. (h)Financial Information. For so long as the Company is not filing periodic reports with the Securities and Exchange Commission pursuant to Section 13 or Section 15 of the Exchange Act, the Company shall deliver to the Holder, as soon as available after the end of each fiscal year of the Company, the audited financial statements of the Company for such fiscal year then ended, together with the written opinion of the auditor rendered in connection therewith. With respect to such financial statements, if for any fiscal year, the Company shall have any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period, the financial statements delivered pursuant to the foregoing section shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries. 8. Negative Covenants of the Company. The Company hereby agrees that, so long as (i) all or any portion of this Note remains or remain outstanding and unpaid and (ii) at least a majority of the face amount of the Company Notes issued and outstanding as of the date hereof remain outstanding and unpaid, it will not, nor will it permit any of its subsidiaries, if any, without the consent of the Required Holders (as defined in Section 16 hereof), to: (a)Indebtedness for Borrowed Money. Incur, or permit to exist, any Indebtedness (as defined below) for borrowed money in excess of $250,000 during each fiscal year of the Company, with rights superior to Holder, except in the ordinary course of the Company's business. For purposes of this Note, "Indebtedness" shall mean (a) all obligations of the Company for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of the Company evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of the Company for the deferred purchase price of property or services, except current accounts payable arising in the ordinary course of business and not overdue beyond such period as is commercially reasonable for the Company's business, (d) all obligations of the Company under conditional sale or other title retention agreements relating to property purchased by the Company, (e) all payment obligations of the Company with respect to interest rate or currency protection agreements, (f) all obligations of the Company as an account party under any letter of credit or in respect of bankers' acceptances, (g) all obligations of any third party secured by property or assets of such Person (regardless of whether or not the Company is liable for repayment of such obligations), except for obligations to secure Indebtedness incurred within the limitations of this Section 8(a); (h) all guarantees of the Company and (i) the redemption price of all redeemable preferred stock of the Company, but only to the extent that such stock is redeemable at the option of the holder or requires sinking fund or similar payments at any time prior to the Maturity Date. (b)Mergers, Acquisitions and Sales of Assets. Enter into any merger or consolidation or liquidate, windup or dissolve itself or sell, transfer or lease or otherwise dispose of all or any substantial part of its assets or technologies (other than sales of inventory and obsolescent equipment in the ordinary course of business) or acquire by purchase or otherwise the business or assets of, or stock of, another business entity in excess of $500,000; except that any subsidiary of the Company may merge into or consolidate with any other subsidiary which is wholly-owned by the Company and any subsidiary which is wholly-owned by the Company may merge with or consolidate into the Company provided that the Company is the surviving corporation. (c)Loans; Investments. Lend or advance money, credit or property to or invest in (by capital contribution, loan, purchase or otherwise) any firm, corporation, or other Person except (i) investments in United States Government obligations, certificates of deposit of any banking institution with combined capital and surplus of at least $200,000,000; (iii) accounts receivable arising out of sales of inventory and/or the rental of equipment in the ordinary course of business; and (iv) loans to subsidiaries, if any. (d)Dividends and Distributions. Pay dividends or make any other distribution on shares of the capital stock of the Company. (e)Liens. Create, assume or permit to exist, any lien on any of its property or assets now owned or hereafter acquired except (i) liens in favor of the Holder; (ii) liens granted to secure Indebtedness incurred within the limitations of Section 8(a) hereof; (iii) liens incidental to the conduct of its business or the ownership of its property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit and which do not materially impair the use thereof in the operation of its business; (iv) liens for taxes or other governmental charges which are not delinquent or which are being contested in good faith and for which a reserve shall have been established in accordance with generally accepted accounting principles; and (v) purchase money liens granted to secure the unpaid purchase price of any fixed assets purchased within the limitations of Section 8(h) hereof. (f)Contingent Liabilities. Assume, endorse, be or become liable for or guarantee the obligations of any Person, contingently or otherwise, excluding however, the endorsement of negotiable instruments for deposit or collection in the ordinary course of business or guarantees of the Company made within the limitations of Section 8(a) hereof. (g)Sales of Receivables; Sale - Leasebacks. Sell, discount or otherwise dispose of notes, accounts receivable or other obligations owing to the Company, with or without recourse, except for the purpose of collection in the ordinary course of business; or sell any asset pursuant to an arrangement to thereafter lease such asset from the purchaser thereof. (h)Capital Expenditures; Capitalized Leases. Expend in the aggregate for the Company and all its subsidiaries in excess of $150,000 in any fiscal year for Capital Expenditures (as defined below), including payments made on account of Capitalized Leases (as defined below). For purposes of the foregoing, Capital Expenditures shall include payments made on account of any deferred purchase price or on account of any indebtedness incurred to finance any such purchase price. "Capital Expenditures" shall mean for any period, the aggregate amount of all payments made by any Person directly or indirectly for the purpose of acquiring, constructing or maintaining fixed assets, real property or equipment which, in accordance with generally accepted accounting principles, would be added as a debit to the fixed asset account of such Person, including, without limitation, all amounts paid or payable with respect to Capitalized Lease Obligations and interest which are required to be capitalized in accordance with generally accepted accounting principles. "Capitalized Lease" shall mean any lease the obligations to pay rent or other amounts under which constitute Capitalized Lease Obligations. "Capitalized Lease Obligations" shall mean as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under generally accepted accounting principles and, for purposes of this Note, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with generally accepted accounting principles. (i)Lease Payments. Expend in the aggregate for the Company and all its subsidiaries, if any, in excess of $500,000 in any fiscal year for the lease, rental or hire of real or personal property pursuant to any rental agreement therefor, whether an operating lease, capitalized lease or otherwise. (j)Nature of Business. Materially alter the nature of the Company's business or otherwise engage in any business other than the business engaged in or proposed to be engaged in on the date of this Note. (k)Stock of Subsidiaries. Sell or otherwise dispose of any subsidiary, if any, or permit a subsidiary, if any, to issue any additional shares of its capital stock except pro rata to its stockholders. (l)ERISA. (i) Terminate any plan ("Plan") of a type described in Section 402l(a) of the Employee Retirement Income Security Act of l974, as amended from time to time ("ERISA") in respect of which the Company is an "employer" as defined in Section 3(5) of ERISA so as to result in any material liability to the Pension Benefit Guaranty Corporation (the "PBGC") established pursuant to Subtitle A of Title IV of ERISA, (ii) engage in or permit any person to engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended) involving any Plan which would subject the Company to any material tax, penalty or other liability, (iii) incur or suffer to exist any material "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, involving any Plan, or (iv) allow or suffer to exist any event or condition, which presents a material risk of incurring a material liability to the PBGC by reason of termination of any Plan. (m)Accounting Changes. Make, or permit any subsidiary to make any change in their accounting treatment or financial reporting practices except as required or permitted by generally accepted accounting principles in effect from time to time. (n)Transactions with Affiliates. Except in connection with the Management Services Agreement, dated August 15, 2001, among the Company, ADM Tronics and certain subsidiaries of ADM Tronics, as amended, or the Amended and Restated Manufacturing Agreement, dated February 10, 2005, among the Company, ADM Tronics and certain subsidiaries of ADM Tronics, as each may be amended, modified or otherwise supplemented from time to time, or as otherwise specifically set forth in this Note, directly or indirectly, purchase, acquire or lease any property from, or sell, transfer or lease any property to, or enter into any other transaction, with any Affiliate (as defined below) except in the ordinary course of business and at prices and on terms not less favorable to it than those which would have been obtained in an arm's-length transaction with a non-affiliated third party. "Affiliate" as applied to any Person, shall mean any other Person directly or indirectly through one or more intermediaries controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. 9. Events of Default. The Note shall become immediately due and payable at the option of the Holder, without notice or demand, upon any one or more of the following events or occurrences ("Events of Default"): (a)if any portion of the Note is not paid when due; (b)if any representation or warranty of the Company made in this Note, the Transaction Documents (as defined in the Holder Subscription Agreement), or in any certificate, report or other financial statement or other instrument or document delivered pursuant hereto, or any notice, certificate, demand or request delivered to the Holder pursuant to this Note, the Transaction Documents (as defined in the Holder Subscription Agreement), or any other document proves to be false or misleading in any material respect as of the time when the same is made; (c)if the Company consummates a transaction which would cause this Note or any exercise of any Holder's rights under this Notes and the Warrants (i) to constitute a non-exempt prohibited transaction under ERISA, (ii) to violate a state statute regulating governmental plans or (iii) otherwise to subject the Company to liability for violation of ERISA or such state statute; (d)if any final judgment for the payment of money is rendered against the Company and the Company does not discharge the same or cause it to be discharged or vacated within one hundred twenty (120) days from the entry thereof, or does not appeal therefrom or from the order, decree or process upon which or pursuant to which said judgment was granted, based or entered, and does not secure a stay of execution pending such appeal within one hundred twenty (120) days after the entry thereof; (e)subject to the provisions of Section 7(f) hereof, if any taxes are not paid before delinquency; (f)if the Company makes an assignment for the benefit of creditors or if the Company generally does not pay its debts as they become due; (g)if a receiver, liquidator or trustee of the Company is appointed or if the Company is adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, is filed by or against, consented to, or acquiesced in, by the Company or if any proceeding for the dissolution or liquidation of the Company is instituted; however, if such appointment, adjudication, petition or proceeding is involuntary and is not consented to by the Company, upon the same not being discharged, stayed or dismissed within 60 days; (h)if the Company defaults under any other mortgage or security agreement covering any part of its property; (i)except for specific defaults set forth in this Section 9, if the Company defaults in the observance or performance of any other term, agreement or condition of this Note, the Transaction Documents (as defined in the Holder Subscription Agreement), and the Company fail to remedy such default within thirty (30) days after notice by the Holder to the Company of such default, or, if such default is of such a nature that it cannot with due diligence be cured within said thirty (30) day period, if the Company fails, within said thirty (30) days, to commence all steps necessary to cure such default, and fails to complete such cure within ninety (90) days after the end of such thirty (30) day period; and (j)if any of the following exist uncured for forty-five (45) days following written notice to the Company in any the Transaction Documents (as defined in the Holder Subscription Agreement): (i) the failure of any representation or warranty made by the Company to be true and correct in all respects or (ii) the Company fails to provide the Holder with the written certifications and evidence referred to in this Note. 10. Holder Not Deemed a Stockholder. No Holder, as such, of this Note shall be entitled (prior to conversion or redemption of this Note into Common Stock, and only then to the extent of such conversion) to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Note be construed to confer upon the Holder hereof, as such, any of the rights at law of a stockholder of the Company prior to the issuance to the holder of this Note of the shares of Common Stock which the Holder is then entitled to receive upon the due conversion of all or a portion of this Note. Notwithstanding the foregoing, the Company will provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders. 11. Confidential Information. The Holder agrees that it will keep confidential and will not disclose, divulge or use for any purpose, other than to monitor its investment in the Company, any confidential information obtained from the Company pursuant to the terms of this Agreement, including without limitation information provided pursuant to Section 7(h), unless such confidential information (i) is known or becomes known to the public in general (other than as a result of a breach of this Section 11 by the Holder), (ii) is or has been independently developed or conceived by the Holder without use of the Company's confidential information or (iii) is or has been made known or disclosed to the Holder by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that the Holder may disclose confidential information to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company or as may be required by law, provided that the Holder takes reasonable steps to minimize the extent of any such required disclosure. 12. Mutilated, Destroyed, Lost or Stolen Notes. In case this Note shall become mutilated or defaced, or be destroyed, lost or stolen, the Company shall execute and deliver a new note of like principal amount in exchange and substitution for the mutilated or defaced Note, or in lieu of and in substitution for the destroyed, lost or stolen Note. In the case of a mutilated or defaced Note, the Holder shall surrender such Note to the Company. In the case of any destroyed, lost or stolen Note, the Holder shall furnish to the Company (a) evidence to its satisfaction of the destruction, loss or theft of such Note and (b) such security or indemnity as may be reasonably required by the Company to hold the Company harmless. 13. Waiver of Demand, Presentment, Etc. The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, default and nonpayment, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder, and all rights of set-off, defenses, deduction or counterclaim with respect to any amount owing hereunder, and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder. 14. Payment. Except as otherwise provided for herein, all payments with respect to this Note shall be made in lawful currency of the United States of America, at the option of the Holder, (i) at the principal office of the Holder, located at _______________________________, or such other place or places as may be reasonably specified by the Holder of this Note in a written notice to the Company at least ten (10) business days before a given payment date, or (ii) by mailing a good check in the proper amount to the Holder at least two days prior to the due date of each payment or otherwise transferring funds so as to be received by the Holder on the due date of each such payment; provided, however, that the Company shall make payment by wire transfer to an account such Holder may specify in writing to the Company at least two days prior to the due date of each payment. Payment shall be credited first to the accrued interest then due and payable and the remainder applied to principal. The Holder shall keep a record of each payment of principal and interest with respect thereto. This Note is not secured. 15. Assignment. The rights and obligations of the Company and the Holder of this Note shall be binding upon, and inure to the benefit of, the permitted successors, assigns, heirs, administrators and transferees of the parties hereto. Notwithstanding the foregoing, the Holder may not assign, pledge or otherwise transfer this Note without the prior written consent of the Company. Interest and principal are payable only to the registered Holder of this Note in the Note Register. 16. Waiver and Amendment. Any provision of this Note, including, without limitation, the due date hereof, and the observance of any term hereof, may be amended, waived or modified (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Requisite Holders. For purposes of this Note, the term "Required Holders" shall mean, as of any given time, the holders of the Company Notes representing at least a majority of the face amount of the Company Notes then outstanding. 17. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or mailed by registered or certified mail, postage prepaid, or delivered by facsimile transmission, to the Company at the address or facsimile number set forth herein or to the Holder at its address or facsimile number set forth in the records of the Company. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given when personally delivered or when deposited in the mail in the manner set forth above and shall be deemed to have been received when delivered or, if notice is given by facsimile transmission, when delivered with confirmation of receipt. 18. Governing Law; Jurisdiction. This Note, and all matters arising directly or indirectly here from, shall be governed by and construed in accordance with the laws of the State of New Jersey, notwithstanding the choice of law or conflicts of law principles thereof. Each of the parties hereto hereby (i) irrevocably consents and submits to the sole exclusive jurisdiction of the United States District Court for the District of New Jersey or the Superior Court of New Jersey (and of the appropriate appellate courts therefrom) in connection with any suit, action or other proceeding arising out of or relating to this Note, (ii) irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum, and (iii) agrees that service of any summons, complaint, notice or other process relating to such suit, action or other proceeding may be effected in the manner provided by Section 17. 19. Severability. If one or more provisions of this Note are held to be unenforceable under applicable law, such provisions shall be excluded from this Note, and the balance of this Note shall be interpreted as if such provisions were so excluded and shall be enforceable in accordance with its terms. 20. Headings. Section headings in this Note are for convenience only, and shall not be used in the construction of this Note. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first above written. IVIVI TECHNOLOGIES, INC. By: _________________________ Name: Title: EX-4 6 exh42q93005.txt Exhibit 4.2 Form of Warrant issued to certain investors IVIVI TECHNOLOGIES, INC. REDEEMABLE COMMON STOCK PURCHASE WARRANT NEITHER THIS SECURITY NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED ("TRANSFERRED") IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. IN THE ABSENCE OF SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE TRANSFERRED UNLESS THE COMPANY HAS RECEIVED A WRITTEN OPINION FROM COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY STATING THAT SUCH TRANSFER IS BEING MADE IN COMPLIANCE WITH ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS. Void after 5:00 P.M., New York City time, on the last day of the Exercise Period (as defined below) REDEEMABLE COMMON STOCK PURCHASE WARRANT OF IVIVI TECHNOLOGIES, INC. This is to certify that, FOR VALUE RECEIVED, _____________ ("Holder"), is entitled to purchase, subject to the provisions of this Redeemable Common Stock Purchase Warrant (this "Warrant"), from Ivivi Technologies, Inc., a New Jersey corporation (the "Company"), at an initial exercise price per share equal to (i) if an IPO (as defined herein) has occurred prior to the exercise of this Warrant, 100% of the IPO Price (as defined herein) or (ii) if an IPO has not occurred prior to the exercise of this Warrant, $7.00 per share (the "Initial Exercise Price"), subject to adjustment as provided in this Warrant, such number of shares of common stock, no par value per share, of the Company (the "Common Stock") equal to either (i) if the Note (as defined in the Subscription Agreement) has been converted as of the date of the exercise of this Warrant, the number of shares of Common Stock into which the Note was converted or (ii) if the Note (as defined in the Subscription Agreement) has not been converted as of the date of the exercise of this Warrant, such number of shares of Common Stock into which the Note is then convertible. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Stock," and the exercise price for the purchase of a share of Common Stock pursuant to this Warrant in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." 1. ISSUANCE OF WARRANT. This Warrant is being issued pursuant to that certain Subscription Agreement, dated as of the date hereof, between the Company and the Holder (the "Subscription Agreement"). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Subscription Agreement. In addition the following terms have the meanings set forth below: "Act" shall mean the Securities Act of 1933, as amended. "ADM Tronics" shall mean ADM Tronics Unlimited, Inc., a Delaware corporation. "Approved Market" shall mean any public market in the United States on which the Common Stock is trading (it being understood that the Pink Sheets Quotation Service shall not qualify as an Approved Market for these purposes). "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which commercial banks in the City of New York are required or permitted by law to be closed. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities, which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "December 2004 Private Offering" shall mean the Company's joint offering with ADM Tronics, pursuant to which the Company, together with ADM Tronics, raised gross proceeds of $3,637,500 through the sale of joint unsecured convertible notes and warrants, which was completed in December 2004. "Exercise Commencement Date" shall mean August __, 2006. "Exercise Period" shall mean the period commencing on Exercise Commencement Date and ending at 5 p.m. (Eastern Time) on the fifth anniversary of the Exercise Commencement Date. "February 2005 Private Offering" shall mean the Company's joint offering with ADM Tronics, pursuant to which the Company, together with ADM Tronics, raised gross proceeds of $2,450,000 through the sale of joint unsecured convertible notes and warrants, which was completed in February 2005. "IPO" shall mean the consummation of an initial public offering of shares of Common Stock. "IPO Price" shall mean the initial public offering price at which shares of Common Stock is offered and sold to the public pursuant to an IPO. "Market Price" shall mean, with respect to the Common Stock, on any date of determination, the average for the twenty (20) consecutive Trading Days (as defined below) preceding and including such date of determination of the reported last sale prices per share on the principal national securities exchange or inter-dealer quotation system on which the Common Stock is listed or admitted to trading. "November 2005 Private Offering" shall mean the Company's offering pursuant to which the Company raised gross proceeds of up to $2,000,000 through the sale to the Holder and other Purchasers of notes and warrants, as of the date hereof. "Permitted Issuances" shall mean (i) Common Stock issued pursuant to a stock split or subdivision; (ii) Common Stock issuable or issued to employees, consultants or directors of the Company directly or pursuant to a stock plan or other compensation arrangement approved by the Board of Directors of the Company; (iii) Common Stock issued or issuable upon exercise or conversion of the Warrants or Notes or any other securities exercisable or exchangeable for, or convertible into, shares of Common Stock outstanding as of the date of this Warrant, including, without limitation, Common Stock issuable upon the exercise or conversion of securities issued to purchasers of notes and warrants in the December 2004 Private Offering, the February 2005 Private Offering and the November 2005 Private Offering, or Common Stock issued or issuable upon payment of interest or penalties in respect of any such securities; and (vi) Common Stock issued or issuable in a transaction approved in advance by the holders of more than 50% of the then outstanding warrants issued in connection with the November 2005 Private Offering. "SEC" shall mean the Securities and Exchange Commission. "Trading Day" means (i) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; or (ii) if the Common Stock is quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, a day on which trades may be effected through such system. 2. EXERCISE OF WARRANT/REGISTRATION RIGHTS. (a) This Warrant may be exercised in whole or in part at any time or from time to time during the Exercise Period by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its stock transfer agent, if any, with the purchase form annexed to this Warrant (the "Purchase Form") duly executed and accompanied by payment of the Exercise Price for the number of shares of Common Stock specified in the Purchase Form in cash. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder hereof to purchase the balance of the shares of Common Stock purchasable hereunder. Upon receipt by the Company of this Warrant at its office, or by the stock transfer agent of the Company, if any, at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. As soon as practicable after each exercise of this Warrant, in whole or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder hereof or, subject to Section 6 hereof, as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct a certificate or certificates for the number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock to which the Holder shall be entitled upon exercise plus, in lieu of any fractional share to which the Holder would otherwise be entitled, all issuances of Common Stock shall be rounded up to the nearest whole share. (b) The Company's obligations under Section 9 of the Subscription Agreement with respect to the registration under the Act of the shares issuable upon the exercise of this Warrant are incorporated herein by reference. The Company has also granted "piggyback" registration rights to the Holder, as more fully described under Section 9 of the Subscription Agreement. 3. RESERVATION OF SHARES; FRACTIONAL SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of Common Stock as shall be required for issuance and delivery upon exercise of this Warrant. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. Instead, the Company will round up to the nearest whole share. 4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the assignment form annexed hereto (the "Assignment Form") duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. 5. RIGHTS AND OBLIGATIONS OF THE HOLDER. The Holder shall not, by virtue of this Warrant, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. In addition, no provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of Company, whether such liability is asserted by Company or by creditors of Company. 6. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon exercise of each Warrant shall be subject to adjustment as follows and the Company shall give each Holder notice of any event described below which requires an adjustment pursuant to this Section 6 at the time of such event: (a) Stock Dividends, Subdivisions and Combinations. If at any time Company shall: (i) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares of Common Stock or otherwise effect a reverse stock split, then (i) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event, or the record date therefor, whichever is earlier, would own or be entitled to receive after the happening of such event, and (ii) the Exercise Price(s) shall be adjusted to equal (A) the Exercise Price immediately prior to such event multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares for which this Warrant is exercisable immediately after such adjustment. (b) Certain Other Distributions and Adjustments. (i) If at any time Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of: (A) cash, (B) any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or shares of Common Stock), or (C) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock or any other securities or property of any nature whatsoever (other than Convertible Securities or shares of Common Stock), then Holder, upon exercise of this Warrant, shall be entitled to receive such dividend or distribution as if Holder had exercised this Warrant. (ii) A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by Company to the holders of its Common Stock of such shares of such other class of stock and in such event Holder shall be entitled to receive such distribution as if Holder had exercised this Warrant and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 6(a). (c) Adjustment for Issuance of Additional Shares of Common Stock. (i) If, at any time after the consummation of an IPO when the Common Stock is listed or admitted for trading on a principal national securities exchange or inter-dealer quotation system and the Market Price is less than the Exercise Price, the Company shall issue or sell any shares of Common Stock in exchange for consideration in an amount per share of Common Stock less than the Exercise Price, determined as of the date of such issuance or sale, other than Permitted Issuances, then (A) the Exercise Price shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior to such event by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance plus the number of additional shares of Common Stock which the aggregate offering price would purchase based upon the Exercise Price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance plus the number of additional shares of Common Stock issued or issuable in such offering, and (B) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product obtained by multiplying the Exercise Price in effect immediately prior to such issue or sale by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issue or sale and dividing the product thereof by the Exercise Price resulting from the adjustment made pursuant to clause (A) above. (ii) The provisions of paragraph (i) of this Section 6(c) shall not apply to any issuance of shares of Common Stock for which an adjustment is provided under Section 6(a) or 6(b). No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (i) of this Section 6(c) upon the issuance of any shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Convertible Securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Convertible Securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 6(d) or Section 6(e). (d) Issuance of Warrants or Other Rights. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or if, at any time after the consummation of an IPO when the Common Stock is listed or admitted for trading on a principal national securities exchange or inter-dealer quotation system and the Market Price is less than the Exercise Price, the Company shall in any manner (whether directly or by assumption in a merger in which Company is the surviving corporation) issue or sell, any warrants or other rights to subscribe for or purchase any shares of Common Stock or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Exercise Price, then the number of shares for which this Warrant is exercisable and the Exercise Price shall be adjusted as provided in Section 6(c) on the basis that the maximum number of shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and the Company shall be deemed to have received all the consideration payable therefor, if any, as of the date of issuance of such warrants or other rights. No further adjustment of the Exercise Price(s) shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon exercise of such warrants or other rights or upon the actual issuance of such Common Stock upon such conversion or exchange of such Convertible Securities. (e) Issuance of Convertible Securities. If at any time the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or if, at any time after the consummation of an IPO when the Common Stock is listed or admitted for trading on a principal national securities exchange or inter-dealer quotation system and the Market Price is less than the Exercise Price, the Company shall in any manner (whether directly or by assumption in a merger in which Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be less than the then current Exercise Price, then the number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be adjusted as provided in Section 6(c) on the basis that the maximum number of shares of Common Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and Company shall have received all of the consideration payable therefor, if any, as of the date of issuance of such Convertible Securities. If any issue or sale of Convertible Securities is made upon exercise of any warrant or other right to subscribe for or to purchase any such Convertible Securities for which adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price have been or are to be made pursuant to Section 6(d), no further adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be made by reason of such record, issue or sale. (f) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least one cent ($0.01) in such price; provided, however, that any adjustments which by reason of this Section 6(f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 6(f) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (g) The Company may retain a firm of independent public accountants of recognized standing selected by the Board (who may be the regular accountants employed by the Company) to make any computation required by this Section 6. (h) In the event that at any time, as a result of an adjustment made pursuant to Section 6(a), (b) or (c) of this Warrant, the Holder of any Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Sections 6(a) through (g), inclusive, of this Warrant. (i) Permitted Issuances. Notwithstanding the foregoing, no adjustment shall be effected due to, or as a result of, any Permitted Issuances. (j) Other Action Affecting Common Stock. In case at any time or from time to time Company shall take any action in respect of its Common Stock, other than any action described in this Section 6, then, unless such action will not have a materially adverse effect upon the rights of the Holders, the number of shares of Common Stock or other stock for which this Warrant is exercisable and/or the purchase price thereof shall be adjusted in such manner as may be equitable in the circumstances. 7. REDEMPTION. Provided the shares of Common Stock issuable upon exercise of this Warrant are registered with the SEC for resale to the public, or an exemption to the registration requirements is available to the Holder of this Warrant under Rule 144, the Company may, at its option, call for the redemption of the then outstanding Warrants in the event that: (i) the Market Price of the Common Stock is at or above $31.26 per share for twenty (20) consecutive Trading Days ending on the day prior to the date on which the Company gives notice that it is requiring exercise of the Warrants; and (ii) the shares of Common Stock issuable upon exercise of the Warrants are registered with the SEC for resale to the public, or an exemption to the registration requirements is available to the holder of the Warrants under Rule 144, provided, however, that the aggregate number of Warrants to be redeemed shall not exceed the cumulative trading volume for the ten (10) consecutive Trading Days prior to such redemption within any thirty (30) day period. The number of Warrants to be redeemed shall be pro rata among each holder of the then outstanding Warrants. The redemption price to be paid by the Company shall be equal to $1.00 per Warrant. The Company shall deliver to the Holder written notice of the Company's intent to exercise its redemption option pursuant to this Section 7 no later than the thirtieth (30th) day before the date fixed for redemption. On and after the date fixed for redemption, the Holder shall have no rights with respect to this Warrant except to receive the redemption price of $1.00 per Warrant upon surrender. 8. OFFICER'S CERTIFICATE. Whenever the Exercise Price(s) shall be adjusted as required by the provisions of Section 6 of this Warrant, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price(s) and the adjusted number of shares of Common Stock issuable upon exercise of each Warrant, determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. A copy of each such officer's certificate shall be forwarded to the Holder. 9. NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon Common Stock, or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other rights, or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another entity, tender offer transaction for the Company's Common Stock, sale, lease or transfer of all or substantially all of the property and assets of the Company, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, or (iv) if the Company shall file a registration statement under the Securities Act, on any form other than on Form S-4 or S-8 or any successor form, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at least ten (10) days prior to the date specified in clauses (i), (ii), (iii) or (iv), as the case may be, of this Section 9 a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, tender offer transaction, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up, or (z) such registration statement is to be filed with the SEC. 10. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing or surviving corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance of all or substantially all of the assets of the Company, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that (i) the Holder shall have the right thereafter by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which could have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance, and (ii) the successor or acquiring entity shall expressly assume the due and punctual observance and performance of each covenant and condition of this Warrant to be performed and observed by Company and all obligations and liabilities hereunder (including but not limited to the provisions of Section 3 regarding the increase in the number of shares of Warrant Stock potentially issuable hereunder). Any such provision shall include provision for adjustments which shall be as nearly equivalent as possible to the adjustments provided for in this Warrant. The foregoing provisions of this Section 10 shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issuance of Common Stock covered by the provisions of Section 6 of this Warrant. 11. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant or the Warrant Stock or any other security issued or issuable upon exercise of this Warrant may not be sold or otherwise disposed of except as follows: (i) to a person who, in the opinion of counsel for the Company, is a person to whom this Warrant or Warrant Stock may legally be transferred without registration and without the delivery of a current prospectus under the Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 11 with respect to any resale or other disposition of such securities which agreement shall be satisfactory in form and substance to the Company and its counsel; or (ii) to any person upon delivery of a prospectus then meeting the requirements of the Act relating to such securities and the offering thereof for such sale or disposition. 12. GOVERNING LAW; JURISDICTION. This Warrant, and all matters arising directly or indirectly here from, shall be governed by and construed in accordance with the laws of the State of New Jersey, notwithstanding the choice of law or conflicts of law principles thereof. Each of the parties hereto hereby (i) irrevocably consents and submits to the sole exclusive jurisdiction of the United States District Court for the District of New Jersey or the Superior Court of New Jersey (and of the appropriate appellate courts therefrom) in connection with any suit, action or other proceeding arising out of or relating to this Warrant, (ii) irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient forum, and (iii) agrees that service of any summons, complaint, notice or other process relating to such suit, action or other proceeding may be effected in the manner provided by Section 13. 13. NOTICES. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York City time) on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Agreement later than 6:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows: Ivivi Technologies, Inc. 224-S Pegasus Avenue Northvale, New Jersey 07647 Attn: President Tel: (201) 784-8168 Fax: (201) 784-0620 or such other address as it shall have specified to the Holder in writing, with a copy (which shall not constitute notice) to: Lowenstein Sandler PC 65 Livingston Avenue Roseland, New Jersey 07068 Attn: Steven M. Skolnick, Esq. Tel: 973.597.2500 Fax: 973. 597-2477 If to the Holder: ________________________ ________________________ ________________________ ________________________ 14. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes attributable to the issuance of shares of Common Stock underlying this Warrant upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificate for shares of Common Stock underlying this Warrant in a name other that of the Holder. The Holder is responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving shares of Common Stock underlying this Warrant upon exercise hereof. IN WITNESS WHEREOF, this Warrant has been duly executed as of November __, 2005. IVIVI TECHNOLOGIES, INC. By: ________________________________ Name: Title: PURCHASE FORM Dated: _______________, 20_____ The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing _____ shares of Common Stock and hereby makes payment of $___________ in payment of the actual exercise price thereof. The undersigned confirms the continuing validity of, and reaffirms as of the date hereof, the representations and warranties set forth in Section 6 of the Subscription Agreement, dated as of November ____, 2005, by and among the Company and the undersigned under which the Warrant was issued to the undersigned. ______________________________________ INSTRUCTIONS FOR REGISTRATION OF STOCK Name:___________________________________________ (Please typewrite or print in block letters) Signature:________________________________________ Social Security or Employer Identification No.:_________________________ ASSIGNMENT FORM FOR VALUE RECEIVED, _______________________________________ hereby sells, assigns and transfer unto: Name:_______________________________________________ (Please typewrite or print in block letters) Address:_____________________________________________ Social Security or Employer Identification No.:__________________________ The right to purchase Common Stock represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint attorney to transfer the same on the books of the Company with full power of substitution. Dated: _________________, 200_. Signature:________________________________ Signature Guaranteed: ___________________________________ (a) (b) (c) (d) -----END PRIVACY-ENHANCED MESSAGE-----