Exhibit
99.1





Ivivi
Technologies, Inc.


Audited
Financial Statements











Report of
Independent Registered Public Accounting Firm





Balance
Sheet as of March 31, 2008





Statements
of Operations for the years ended March 31, 2008 and 2007





Statements
of Stockholders' Equity for the years ended March 31,
2008 and 2007





Statements
of Cash Flows for the years ended March 31, 2008 and 2007





Notes to
the Financial Statements









REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and


Stockholders
of Ivivi Technologies, Inc.




We have
audited the accompanying balance sheet of Ivivi Technologies, Inc. as of March
31, 2008, and the related statements of operations, stockholders' equity, and
cash flows for each of the two years then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Ivivi Technologies, Inc. as of
March 31, 2008, and the results of its operations, changes in stockholders’
equity and its cash flows for each of the two years then ended in conformity
with accounting principles generally accepted in the United States of
America.





/s/
      Raich Ende Malter & Co. LLPEast
      Meadow, New YorkJune
      30, 2008









IVIVI
TECHNOLOGIES, INC.


BALANCE
SHEET


AS
OF MARCH 31, 2008





ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              6,600,154Accounts
      receivable, net of allowance fordoubtful
      accounts of $34,750
              
              
              319,007Inventory
              
              
              111,951Deposits
      with affiliate - net
              
              
              241,828Prepaid
      expenses and other current assets
              
              
              141,1487,414,088Property
      and equipment, net
              
              
              405,793Inventory
      long-term
              
              
              115,885Equipment
      in use and under rental agreements, net
              
              
              155,834Intangible
      assets, net of accumulatedamortization
      of $44,674
              
              
              615,064Restricted
      cash
              
              
              48,167$
              8,754,831LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and accrued expenses
              
              $
              1,029,143Deferred
      revenue
              
              
              411,458Stockholders'
      equity:Preferred
      stock, no par value, 5,000,000 sharesauthorized,
      no shares issued and outstanding
              
              
              -Common
      stock, no par value; 70,000,000 sharesauthorized,
      10,715,130 shares issuedand
      outstanding
              
              
              26,183,516Additional
      paid-in capital
              
              
              12,346,187Accumulated
      deficit
              
              
              (31,215,473
              )7,314,230$
              8,754,831




The
accompanying notes are an integral part of these financial
statements.








IVIVI
TECHNOLOGIES, INC.


STATEMENTS
OF OPERATIONS


FOR
THE YEARS ENDED MARCH 31,




2008
              
              
              2007Revenue:Rentals
              
              $
              737,672
              
              
              $
              740,006Licensing
      sales and fees
              
              
              427,923
              
              
              
              26,042Direct
      sales
              
              
              440,846
              
              
              
              416,2921,606,441
              
              
              
              1,182,340Costs
      and expenses:Cost
      of rentals
              
              
              48,725
              
              
              
              94,043Cost
      of licensing sales
              
              
              495,008
              
              
              
              -Cost
      of direct sales
              
              
              108,841
              
              
              
              87,040Research
      and development
              
              
              2,115,049
              
              
              
              2,201,575Sales
      and marketing
              
              
              2,012,969
              
              
              
              1,307,069General
      and administrative
              
              
              4,628,182
              
              
              
              3,579,6369,408,774
              
              
              
              7,269,363(7,802,333
              )
              
              
              (6,087,023
              )Interest
      income (expense), net
              
              
              299,242
              
              
              
              (1,665,761
              )Change
      in fair value of warrants and registrationrights
      liabilities
              
              
              -
              
              
              
              (25,827
              )Loss
      before provisionfor
      income taxes
              
              
              (7,503,091
              )
              
              
              (7,778,611
              )Provision
      for income taxes
              
              
              -
              
              
              
              -Net
      loss
              
              $
              (7,503,091
              )
              
              $
              (7,778,611
              )Net
      loss per share, basic and diluted
              
              $
              (0.74
              )
              
              $
              (1.13
              )Weighted
      average shares outstanding
              
              
              10,073,373
              
              
              
              6,875,028






The
accompanying notes are an integral part of these financial
statements.








IVIVI
      TECHNOLOGIES, INC.STATEMENTS
      OF STOCKHOLDERS' EQUITYFOR
      THE YEARS ENDED MARCH 31, 2008 AND 2007Additional
              
              
              
              
              
              TotalCommon
      Stock
              
              
              Paid-In
              
              
              Accumulated
              
              
              Stockholders'Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              EquityBalance
      - April 1, 2006
              
              
              4,745,000
              
              
              $
              74,600
              
              
              $
              1,286,914
              
              
              $
              (15,933,771
              )
              
              $
              (14,572,257
              )Issuance
      of common stock in connection with initial public offering,
      net
              
              
              2,750,000
              
              
              
              13,640,241
              
              
              
              -
              
              
              
              -
              
              
              
              13,640,241Convertible
      debt converted
              
              
              1,584,009
              
              
              
              8,087,500
              
              
              
              -
              
              
              
              -
              
              
              
              8,087,500Unamortized
      value of convertible debt discount at time of conversion
              
              
              -
              
              
              
              (523,484
              )
              
              
              -
              
              
              
              -
              
              
              
              (523,484
              )Issuance
      cost related to convertible debt conversion
              
              
              -
              
              
              
              (568,864
              )
              
              
              -
              
              
              
              -
              
              
              
              (568,864
              )Value
      of share based registration rights liability at time of
      conversion
              
              
              438,380
              
              
              
              -
              
              
              
              3,450,050
              
              
              
              -
              
              
              
              3,450,050Value
      of warrants and beneficial conversion feature at time of
      conversion
              
              
              -
              
              
              
              -
              
              
              
              3,697,699
              
              
              
              -
              
              
              
              3,697,699Accrued
      interest paid in stock
              
              
              39,394
              
              
              
              212,161
              
              
              
              -
              
              
              
              -
              
              
              
              212,161Share
      based compensation
              
              
              -
              
              
              
              -
              
              
              
              2,142,448
              
              
              
              
              
              
              
              2,142,448Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (7,778,611
              )
              
              
              (7,778,611
              )Balance
      - March 31, 2007
              
              
              9,556,783
              
              
              $
              20,922,154
              
              
              $
              10,577,111
              
              
              $
              (23,712,382
              )
              
              $
              7,786,883Issuance
      of shares under private placement, net of issuance costs of
      $135,000
              
              
              1,000,000
              
              
              
              4,865,000
              
              
              
              -
              
              
              
              -
              
              
              
              4,865,000Exercise
      of stock options
              
              
              52,125
              
              
              
              35,549
              
              
              
              -
              
              
              
              -
              
              
              
              35,549Exercise
      of warrants
              
              
              106,222
              
              
              
              360,813
              
              
              
              -
              
              
              
              -
              
              
              
              360,813Share
      based compensation
              
              
              -
              
              
              
              -
              
              
              
              1,769,076
              
              
              
              -
              
              
              
              1,769,076Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (7,503,091
              )
              
              
              (7,503,091
              )Balance
      - March 31, 2008
              
              
              10,715,130
              
              
              $
              26,183,516
              
              
              $
              12,346,187
              
              
              $
              (31,215,473
              )
              
              $
              7,314,230The
      accompanying notes are an integral part of these financial
      statements.











IVIVI
      TECHNOLOGIES, INC.STATEMENTS
      OF CASH FLOWSFOR
      THE YEARS ENDED MARCH 31,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              
              $
              (7,503,091
              )
              
              $
              (7,778,611
              )Adjustments
      to reconcile net loss to net cashused
      by operating activities:Depreciation
      and amortization
              
              
              164,953
              
              
              
              25,099Change
      in fair value of warrant andregistration
      rights liabilities
              
              
              -
              
              
              
              25,827Share
      based financing penalties
              
              
              -
              
              
              
              1,350,278Amortization
      of loan costs and discount
              
              
              -
              
              
              
              173,008Share
      based compensation
              
              
              1,769,076
              
              
              
              2,142,448Provision
      for doubtful accounts
              
              
              25,495
              
              
              
              30,608Amortization
      of deferred revenue
              
              
              (62,500
              )
              
              
              (26,042
              )Gain
      on sale of equipment
              
              
              (531
              )
              
              
              -Changes
      in operating assets and liabilities:(Increase)
      decrease in:Accounts
      receivable
              
              
              (120,153
              )
              
              
              (32,826
              )Inventory
              
              
              (34,144
              )
              
              
              54,761Prepaid
      expenses and other current assets
              
              
              13,582
              
              
              
              (144,144
              )Deposits
      with affiliates
              
              
              (278,485
              )
              
              
              -Increase
      in:Accounts
      payable and accrued expenses
              
              
              23,168
              
              
              
              158,834Deferred
      revenue
              
              
              -
              
              
              
              500,000(6,002,630
              )
              
              
              (3,520,760
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
              
              
              (441,020
              )
              
              
              (34,344
              )Proceeds
      from sale of equipment
              
              
              17,554
              
              
              
              -Equipment
      in use and under rental agreements
              
              
              (112,300
              )
              
              
              -Restricted
      cash
              
              
              (48,167
              )
              
              
              -Deferred
      licensing costs
              
              
              (14,694
              )
              
              
              (75,534
              )Payments
      for patents and trademarks
              
              
              (370,648
              )
              
              
              (198,873
              )(969,275
              )
              
              
              (308,751
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of stock in connection withinitial
      public offering
              
              
              -
              
              
              
              13,963,898Proceeds
      from issuance of shares, net ofissuance
      costs of $135,000
              
              
              4,865,000
              
              
              
              -Exercise
      of stock options and warrants
              
              
              396,362
              
              
              
              -Affiliate
      advances
              
              
              -
              
              
              
              (2,566,038
              )Proceeds
      of notes
              
              
              -
              
              
              
              250,000Repayment
      of notes
              
              
              -
              
              
              
              (250,000
              )5,261,362
              
              
              
              11,397,860Net
      increase (decrease) in cash and cash equivalents
              
              
              (1,710,543
              )
              
              
              7,568,349Cash
      and cash equivalents, beginning of period
              
              
              8,310,697
              
              
              
              742,348Cash
      and cash equivalents, end of period
              
              $
              6,600,154
              
              
              $
              8,310,697










IVIVI
      TECHNOLOGIES, INC.STATEMENTS
      OF CASH FLOWSFOR
      THE YEARS ENDED MARCH 31,2008
              
              
              2007Supplemental
      disclosures of cash flow information:Cash
      paid for:Interest
              
              $
              -
              
              
              $
              417,662Income
      taxes
              
              $
              -
              
              
              $
              -Non
      Cash Financing and Investing Activities:Debt
      converted to equity
              
              $
              -
              
              
              $
              7,564,016Warrant
      and registration rights liabilitiesconverted
      to equity
              
              $
              -
              
              
              $
              7,147,749Shares
      issued for accrued interest
              
              $
              -
              
              
              $
              212,161The
      accompanying notes are an integral part of these financial
      statements.













IVIVI
TECHNOLOGIES, INC.




NOTES
TO FINANCIAL STATEMENTS


MARCH 31, 2008




1.
ORGANIZATIONAL MATTERS




ORGANIZATION




Ivivi
Technologies, Inc. ("we", "us", "the company" or "Ivivi"), formerly AA Northvale
Medical Associates, Inc., was incorporated under the laws of the state of New
Jersey on March 9, 1989. We are authorized under our Certificate of
Incorporation to issue 70,000,000 common shares, no par value and 5,000,000
preferred shares, no par value.




NATURE
OF BUSINESS




We sell
and rent non-invasive electro-therapeutic medical applicators. These products
are sold or rented to our licensees, distributors and customers principally
located in the United States with additional markets in Canada and
Ireland.




Our
medical applicators are subject to extensive and rigorous regulation by the FDA,
as well as other federal and state regulatory bodies. We believe based upon
guidance published by the FDA, that all of our current products are covered by
the FDA clearance provided in 1991 for our SofPulse product. In February, 2007,
in response to inquiries from the FDA, we voluntarily submitted a 510(k) for our
current products. We have had discussions with the FDA regarding our application
and, in June 2007, we received a letter from the FDA requesting additional
information from us which was delivered to the FDA. On March 20, 2008, we
received a letter from the FDA regarding our voluntarily submitted 510(k) for
our SofPulse M-10, Roma and Torino PEMF products.  The letter stated
that the FDA determined that such products are not substantially equivalent to
applicators marketed in interstate commerce prior to May 28, 1976 or to any
device which has been classified into Class I (General Controls) or Class II
(Special Controls) or to another device found to be substantially equivalent
through the 510(k) process.  The letter further stated that the FDA
made this determination based on data we submitted in response to its request
for additional information in June 2007.  We believe the FDA made an
incorrect assessment of the data and we have undertaken efforts to have the FDA
reevaluate the information we have provided by informally appealing the FDA
determination pursuant to established FDA appeal guidelines.  We
discussed our position with the FDA in a meeting conducted on June 5, 2008 and
sent the FDA further information subsequent to the meeting as requested by the
FDA. We are awaiting their response to our submissions to them. We believe based
on guidance published by the FDA, that all of our current products are covered
by the FDA clearance provided in 1991. Specifically, because we do not believe
that any of the changes, or the sum of the incremental changes made, in our
current products could significantly affect their safety or effectiveness, we
believe that the marketing of our current products is sufficiently covered by
the FDA clearance provided in 1991 and does not require a submission of another
510(k) premarket notification.




Based
upon the safety and efficacy of our products, we believe it is highly unlikely
that the FDA will require us to cease marketing and/or recall products which
have been already sold or rented.  However, if we are unsuccessful in
our efforts to have the FDA reevaluate the data and it does not modify its
determination, the FDA may require us to do so until FDA clearance or approval
is obtained.  If the FDA does not grant the 510(k) clearance for our
current products, the FDA may require us to cease marketing and/or recall
current products already sold or rented until FDA clearance or approval is
obtained. In addition, the FDA could subject us to the other sanctions described
in our Form 10-KSB under "Pervasive and Continuing Regulation."




2.
SIGNIFICANT ACCOUNTING POLICIES




USE OF
ESTIMATES-- These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States which require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.




FAIR
VALUE OF FINANCIAL INSTRUMENTS-- For certain of our financial instruments,
including accounts receivable, accounts payable and accrued expenses and
advances payable-affiliates, the carrying amounts approximate fair value due to
their relatively short maturities.




CASH AND
CASH EQUIVALENTS-- We consider all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. Cash
equivalents consist primarily of money market funds that are carried at cost,
which approximate fair value.




REVENUE
RECOGNITION-- We recognize revenue from the sales and rental of our products. In
addition, we recognize revenue from companies that are licensed to distribute
our products in specific markets. Further, and to a lesser extent, we recognize
revenue from the amortization of licensing fees under our Revenue Sharing
Agreement (See Note 8).










Sales to
medical facilities and distributors are recognized when our products are
shipped. Licensing sales are recognized when our products are received and
accepted by the distributor.




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




We
estimate allowance for doubtful accounts determined primarily through specific
identification.




INVENTORY--
Inventory consists of our electroceutical units and is stated at the lower of
cost or market.




PROPERTY
& EQUIPMENT-- We record our equipment at historical cost. We expense
maintenance and repairs as incurred. Depreciation is provided for by the
straight-line method over three to seven years, the estimated useful lives of
the property and equipment.




EQUIPMENT
IN USE OR UNDER RENTAL AGREEMENTS-- Equipment in use or under rental agreements
consists of our electroceutical units and accessories rented to third parties,
used internally and loaned out for marketing and testing. Such equipment is
depreciated on a straight-line basis over three years, the estimated useful
lives of the units, commencing on the date placed in service.




INTANGIBLE
ASSETS-- Intangible assets consist of patents and trademarks of $539,726, net of
accumulated amortization of $29,784 and deferred licensing costs of $75,338, net
of accumulated amortization of $14,890. Amortization expense totaled $41,104 and
$3,570 for the fiscal years ended March 31, 2008 and 2007, respectively. Patents
and trademarks and deferred licensing costs are amortized over their legal life
or the life of the related Revenue Sharing agreement (See Note 8), whichever is
less.  Amortization expense for the next five years is estimated as
follows:




March
      31, 2009
              
              $
              93,6772010
              
              
              93,6772011
              
              
              93,6772012
              
              
              93,6772013
              
              
              93,6772014
      and after
              
              
              146,679$
              615,064




LONG-LIVED
ASSETS-- We follow Statement of Financial Accounting Standards (SFAS), No. 144,
"ACCOUNTING FOR IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS," which established
a "primary asset" approach to determine the cash flow estimation period for a
group of assets and liabilities that represents the unit of accounting for a
long lived asset to be held and used. Long-lived assets to be held and used are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The carrying amount
of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition
of the asset. Long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell. During the years ended March
31, 2008 and 2007, no impairment loss was recognized.




ADVERTISING
COSTS-- Advertising costs are expensed as incurred and amounted to $188,391 and
$81,832 for the fiscal years ended March 31, 2008 and 2007,
respectively.




RESEARCH
AND DEVELOPMENT COSTS-- Our research and development costs consist mainly of
payments for third party research and development arrangements, consulting
payments and employee salaries. Research and development totaled $1,701,254 and
$1,619,863, before related charges of $413,795 and $581,712 for share-based
compensation, for the fiscal years ended March 31, 2008 and 2007,
respectively.




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




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










Fair value is computed using the Black Scholes method at the date
of grant of the options based on the following assumption
ranges:




(1) risk
free interest rate of 3.01% to 5.03%; (2) dividend yield of 0%; (3) volatility
factor of the expected market price of our common stock of 44% to 67.5%; and (4)
an expected life of the options of 1 to 6.5 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.




INCOME
TAXES-- We reported the results of our operations for the period April 1, 2006
through October 18, 2006, the IPO date (see Note 3) as part of a consolidated
tax return with ADM Tronics Unlimited, Inc., formerly a majority shareholder. We
have entered into a tax sharing arrangement where members compensate each other
to the extent that their respective taxes are affected as a result of this
arrangement. We commenced filing separate corporate income tax returns for the
period October 19, 2006 through March 31, 2008 and will continue to do so.
Deferred income taxes result primarily from temporary differences between
financial and tax reporting. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates. A valuation allowance is recorded to
reduce a deferred tax asset to that portion that is expected to more likely than
not be realized.





On April
1, 2007, the Company adopted FASB issued Interpretation No. 48, ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES--AN INTERPRETATION OF FASB STATEMENT NO. 109 (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise's financial statements in accordance with FASB Statement No.
109, ACCOUNTING FOR INCOME TAXES (FASB No. 109). The interpretation prescribes a
recognition threshold and also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. Previously, the Company had accounted for tax
contingencies in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 5, “Accounting for Contingencies.” Under FIN 48, the Company
recognizes the financial statement  benefit of a tax position only
after determining that the relevant tax authority would more likely than not
sustain the position following an audit. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax
authority. As of the adoption date, the Company applied FIN 48 to all tax
positions for which the statute of limitations remained open, and determined
there was no material impact on the financial statements on the date of adoption
and on March 31, 2008.




NET LOSS
PER SHARE-- We use SFAS No. 128, "Earnings Per Share" for calculating the basic
and diluted loss per share. We compute basic loss per share by dividing net loss
and net loss attributable to common shareholders by the weighted average number
of common shares outstanding. Diluted loss per share is computed similar to
basic loss per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential shares had been issued and if the additional shares were dilutive.
Common equivalent shares are excluded from the computation of net loss per share
since their effect is antidilutive.




Per share
basic and diluted net loss amounted to $0.74 for the fiscal year ended March 31,
2008 and $1.13 for the fiscal year ended March 31, 2007. There were 5,329,216
potential shares and 5,270,291 potential shares that were excluded from the
shares used to calculate diluted earnings per share, as their inclusion would
reduce net loss per share, for the years ended March 31, 2008 and 2007,
respectively.




RECLASSIFICATIONS--Certain
reclassifications have been made to the financial statements for the prior
period in order to have them conform to the current period's classifications.
These reclassifications have no effect on previously reported net
loss.




NEW
ACCOUNTING PRONOUNCEMENTS





In
September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS (SFAS No.
157), which establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. Where applicable, this accounting
standard, which simplifies and codifies related guidance within GAAP, is
effective for us beginning April 1, 2008. We have not yet determined the effect,
if any the adoption of SFAS No. 157 may have on our financial
statements.





In
February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION FOR FINANCIAL
ASSETS AND FINANCIAL LIABILITIES (SFAS No. 159). This statement permits entities
to choose to measure financial assets and liabilities, with certain exceptions,
at fair value at specified election dates. A business entity shall report
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. This statement is
effective for us beginning April 1, 2008. We have not determined the effect, if
any, the adoption of SFAS No. 159 may have on our financial
statements.





We
believe the effects of any other recently issued, but not yet effective,
accounting pronouncements would not have a material effect on our financial
statements.











3.
INITIAL PUBLIC OFFERING




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




Upon the
consummation of the IPO, unsecured convertible notes in the aggregate principal
amount of $6,087,500, issued in our December 2004 and February 2005 joint
private placements with ADM Unlimited, Inc., or ADM, the owner of 30.3% of our
outstanding common stock, automatically converted into an aggregate of 1,630,232
shares of our common stock. The notes bore interest at an annual rate of 6%,
which interest was payable at the discretion of the holder in cash, shares of
ADM common stock or shares of our common stock.




Also,
upon consummation of the IPO, unsecured convertible notes in the aggregate
principal amount of $2,000,000 issued in connection with our November 2005 and
March 2006 private placements to four institutional investors automatically
converted into an aggregate of 392,157 shares of our common stock. The notes
bore interest at an annual rate of 8%, payable in cash. Two of the institutional
investors who purchased notes, Ajax Capital LLC (“AJAX”) and Kenneth S.
Abramowitz & Co., Inc., are investment funds wholly-owned by Steven
Gluckstern and Kenneth Abramowitz, respectively, each of whom began to serve as
a director of our company upon the effective date of the Registration Statement
and waived their right to receive interest payments on a quarterly basis through
the consummation of the IPO (approximately $25,000 per quarter). We used
approximately $77,000 and $19,000 of the net proceeds to pay Ajax and Kenneth S.
Abramowitz Co., Inc., respectively, and an additional $149,000 of the proceeds
from the IPO to pay the other holders, any and all interest with respect to such
notes then due and payable.




As a
result of the foregoing, we do not have any loans outstanding as of the date of
this filing.




4.
PRIVATE PLACEMENT TRANSACTION




On
October 18, 2007, we issued one million shares of our common stock at a price of
$5.00 per share in a private transaction with an institutional investor raising
approximately $4.9 million, net of expenses.  We filed a registration
statement covering the resale of the shares of common stock issued in the
private placement, which went effective in December 2007.




5.
PROPERTY AND EQUIPMENT, NET




Our
property and equipment as of March 31, 2008 is as follows:




Machinery
      and equipment
              
              $
              451,665Computer
      equipment
              
              
              149,845Furniture
      and fixtures
              
              
              74,263Leasehold
      improvements
              
              
              3,401679,174Accumulated
      depreciation and amortization
              
              
              (273,381
              )$
              405,793




Depreciation
and amortization expense related to property and equipment amounted to $64,244
and $16,066 during the years ended March 31, 2008 and 2007, respectively.









6.
EQUIPMENT IN USE OR UNDER RENTAL AGREEMENTS




Equipment
in use or under rental agreements (includes all our applicators currently
marketed except our Torino units which are single patient units are included in
our Inventory and are not depreciated), consists of the following at March 31,
2008:




Electroceutical
      units
              
              $
              220,903Accumulated
      depreciation
              
              
              (65,069
              )$
              155,834




The following table summarizes where our
depreciation expense related to equipment in use or under rental agreements,
which  has been recorded during the fiscal years ended March 31, 2008
and 2007:




2008
              
              
              2007Cost
      of rentals
              
              $
              21,477
              
              
              $
              5,463Research
      and development
              
              
              14,348
              
              
              
              -Sales
      and marketing
              
              
              23,781
              
              
              
              -$
              59,606
              
              
              $
              5,463




7.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES




At March
31, 2008, accounts payable and accrued expenses consisted of the
following:




Research
      and development
              
              $
              424,305Professional
      fees
              
              
              262,762Compensation
      and employee benefits
              
              
              126,849Intellectual
      property
              
              
              61,006Other
              
              
              154,221$
              1,029,143




8.
DEFERRED REVENUE




In
August, 2006, we sold to Ajax 15 units of the Roma3 and 5 units of the SofPulse
M-10 at a purchase price of $14,500 per unit, the then published wholesale unit
price for the Roma3 and the SofPulse M-10, for an aggregate purchase price of
$290,000. In connection therewith, we entered into a Revenue Sharing Agreement
(the "Revenue Sharing Agreement") with Ajax, pursuant to which we agreed to use
our commercially reasonable efforts to rent to third parties all of the units of
the Roma3 and the SofPulse M-10 purchased by Ajax.




On
December 22, 2006, our Audit Committee approved the termination of the Revenue
Sharing Agreement with Ajax. In connection with the termination, Ajax
transferred to us all of its rights, title and interest in and to the units of
the Roma3 and the SofPulse M-10 purchased by Ajax on the date of the Revenue
Sharing Agreement, and we paid Ajax $296,136. As a result of the termination, we
are entitled to all revenues generated by the rental and sales of such units and
the related applicators from and after the termination date.




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









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




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




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




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




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




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





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





On March 28, 2008, we were notified that Allergan Sales intends
to assign its rights and obligations to Allergan USA, Inc., an affiliated
entitiy of Allergan Sales, effective on May 8, 2008.





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




In
November 2006, we received $500,000 under the terms of this Agreement which was
recorded as deferred revenue and is being amortized over eight years, the
initial term of the agreement. During the fiscal years ended March 31, 2008 and
2007, we have recognized $62,500 and $26,042, respectively, as amortized revenue
from this agreement included in Licensing Sales and Fees on our Statement of
Operations.









9. INCOME
TAXES




Net
operating losses for tax purposes of approximately $19,289,000 at March 31, 2008
are available for carryover. The net operating losses will expire from 2010
through 2028. We have provided a 100% valuation allowance for the deferred tax
benefit resulting from the net operating loss carryover due to our limited
operating history. In addressing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences are deductible. A
reconciliation of the statutory Federal income tax rate and the effective income
tax rate for the years ended March 31, 2008 and 2007 follows:




March
      31,
              
              
              March
      31,2008
              
              
              2007Statutory
      federal income tax rate
              
              
              (34
              )%
              
              
              (34
              )%State
      income taxes, net of federal taxes
              
              (6
              )%
              
              
              (6
              )%Non-deductible
      itemsShare
      based compensation
              
              
              9
              %
              
              
              11
              %Share
      based financing penalties
              
              
              -
              
              
              
              7
              %Valuation
      allowance
              
              
              31
              %
              
              
              22
              %Effective
      income tax rate
              
              
              0
              %
              
              
              0
              %




Significant
components of deferred tax assets and liabilities are as follows:




March
      31,
              
              
              March
      31,2008
              
              
              2007Deferred
      tax assets (liabilities):Bad
      debts
              
              $
              14,000
              
              
              $
              15,000Net
      operating loss carryforwards
              
              
              7,715,000
              
              
              
              5,427,000Deferred
      tax assets, net
              
              
              7,729,000
              
              
              
              5,442,000Valuation
      allowance
              
              
              (7,729,000
              )
              
              
              (5,442,000
              )Net
      deferred tax assets
              
              $
              -
              
              
              $
              -




10.
OPTIONS AND WARRANTS OUTSTANDING




We have
instituted a stock option plan for the issuance of 3,750,000 shares. As of March
31, 2008 and 2007, 1,934,975 and 1,885,600 options, respectively, were awarded,
with 1,815,025 reserved for future issuance as of March 31, 2008. The weighted
average fair value of options issued to employees and directors during the years
ended March 31, 2008 and 2007 is $2.78 and $2.63 per share,
respectively.




Included
in the table below are 775,000 of non-plan options to Steven Gluckstern, our
Chairman of the Board, that were granted during the fiscal year ended March 31,
2007 at an exercise price of $5.11.




In
connection with the private placements with ADM in December 2004 and February
2005, we issued 1,191,827 Common Stock Purchase Warrants ("CSPW") and an
additional 438,380 CSPWs as a penalty due to our delayed IPO. As of March 31,
2008, 106,196 of these CSPWs have been exercised.  In addition, we
issued 392,157 CSPWs in connection with our private placements completed in
November 2005 and March 2006. Further, we issued 260,000 CSPWs to our
consultants as well as 327,327 CSPWs issued to the Maxim Group, who acted as our
placement agent in connection with our private placement as well as acting as an
advisor to the company.  Also, during October 2007, we issued 100,000
CSPWs to RFJM Consulting for consulting services rendered.




In
connection with the Private Placement Transaction which closed on October 18,
2007 (see Note 4), we issued an additional 15,746 CSPWs as a result of the
dilution caused by the one million shares issued.









COMMON
SHARE OPTIONS AND WARRANTS ISSUED




The
following table summarizes information on all common share purchase options and
warrants issued by us for the periods ended March 31, 2008 and 2007, including
common share equivalents relating to the convertible debenture share purchase
warrants.




March
      31, 2008
              
              
              March
      31, 2007Number
              
              
              Weighted
                Average
                Exercise
      Price
              
              
              Number
              
              
              Weighted
                Average
                Exercise
      PriceOutstanding,
      beginning of the year
              
              
              5,270,291
              
              
              $
              3.81
              
              
              
              3,740,108
              
              
              $
              3.50Granted
              
              
              272,271
              
              
              
              4.29
              
              
              
              1,571,433
              
              
              
              4.95Exercised
              
              
              (158,346
              )
              
              
              2.58
              
              
              
              -
              
              
              
              -Terminated
              
              
              (55,000
              )
              
              
              5.41
              
              
              
              (41,250
              )
              
              
              5.73Outstanding,
      end of the year
              
              
              5,329,216
              
              
              $
              3.79
              
              
              
              5,270,291
              
              
              $
              3.81Exercisable,
      end of year
              
              
              4,244,425
              
              
              $
              3.71
              
              
              
              3,600,092
              
              
              $
              3.68




The
number and weighted average exercise prices of all common shares and common
share equivalents issuable and stock purchase options and warrants outstanding
as of March 31, 2008 is as follows:




RANGE
      OF
                EXERCISE
                PRICES
              
              
              REMAINING
                NUMBER
                OUTSTANDING
              
              
              WEIGHTED
                AVERAGE
      CONTRACTUAL
                LIFE
      (YEARS)
              
              
              WEIGHTED
                AVERAGE
                EXERCISE
                PRICE$0.00
      to $1.00
              
              
              
              1,084,563
              
              
              
              6.4
              
              
              $
              0.16$1.01
      to $3.00
              
              
              
              46,638
              
              
              
              6.3
              
              
              
              1.74$3.01
      to $4.00
              
              
              
              1,716,471
              
              
              
              5.6
              
              
              
              3.51$4.01
      to $6.00
              
              
              
              2,267,568
              
              
              
              7.9
              
              
              
              5.55$6.01
      to $9.00
              
              
              
              213,976
              
              
              
              6.6
              
              
              
              6.295,329,216
              
              
              
              6.8
              
              
              $
              3.79
  During
May and June 2008, we awarded a total of 711,000 options to employees and
consultants.  The weighted average fair value of these options ranges
from $1.26 to $1.75 per share for a total fair value of approximately
$1,112,000, which will be expensed over the expected service
period.


SHARE BASED COMPENSATION




Share
based compensation expense consists of the following components:




2008
              
              
              2007Cost
      of rentals
              
              $
              42
              
              
              $
              45Research
      and development
              
              
              413,795
              
              
              
              581,712Sales
      and marketing
              
              
              152,626
              
              
              
              176,691General
      and administrative
              
              
              1,202,613
              
              
              
              1,384,000$
              1,769,076
              
              
              $
              2,142,448




11.
COMMITMENTS AND CONTINGENCIES




Our
medical applicators are sold under agreements providing for the repair or
replacement of any applicators in need of repair, at our cost, for up to one
year from the date of delivery, unless such need was caused by misuse or abuse
of the device. Based on prior experience, no amounts have been accrued for
potential warranty costs and such costs are expected to be nominal for the
fiscal year ended March 31, 2009.










We
received our first order from Allergan during September, 2007 for 20,000 units.
We have provided multiple shipments of these units to Allergan through April,
2008. We have also received orders from Allergan for sample units as required
under our agreement. Allergan can receive samples free of charge in accordance
with the agreement each year up to an approved allotment and any samples in
addition to the approved allotment as defined by the parties are sold to
Allergan at prices negotiated between the parties.  Our licensing
sales and fees from Allergan for the fiscal year ended March 31, 2008 were as
follows:  sales of our units to Allergan of $364,383, amortization of
our upfront $500,000 licensing fee received from Allergan upon signing our
agreement of $62,500 and royalties received from Allergan on sales of our units
by Allergan of $1,040. Royalties received from Allergan sales are from a limited
launch of our product to select doctors in select geographic markets. Our cost
of licensing sales of $495,008 on licensing sales of our units to Allergan of
$364,383 is a loss on gross margin of $130,625 or 36%.  The negative
gross margin is the result of limited production runs of our product upon
receiving an initial order for 20,000 units from Allergan. The units were all
shipped by April 2008.  As production volume increases, we expect more
economies of scale, although we can not predict when we will be at break even
levels predicted under the Allergan agreement. Royalties from Allergan are
received by us from Allergan in the quarter following Allergan’s sale of product
to their customers. We expect, once Allergan completes its product launch, our
royalties received from Allergan on these sales will far exceed our production
losses..




We are a
party to a sponsored research agreement with Montefiore Medical Center pursuant
to which we funded research in the fields of pulsed electro-magnetic frequencies
under the supervision of Montefiore Medical Center's Department of Plastic
Surgery, that commenced on October 17, 2004 and expires on December 31, 2009. We
were notified prior to our fiscal year ended March 31, 2007, that the research
being conducted by Dr. Strauch has concluded and this agreement will not be
renewed. We expect to receive the data from this study during the summer of 2008
after a payment is made by us of up to $90,000, which was accrued by us and
recorded in the March 31, 2008 financial statements.




We fund
research in the field of neurosurgery under the supervision of Dr. Casper, of
Montefiore Medical Center's Department of Neurosurgery. Dr. Casper is to
examining the effects of pulsed magnetic fields on neurons and vessels in cell
culture and intact brain and neural transplants, as well as to explore the
potential of this modality to lessen neurodegeneration (progressive damage or
death of neurons leading to a gradual deterioration of the bodily functions
controlled by the affected part of the nervous system) and increase vascular
plasticity (the lifelong ability of the brain to reorganize neural pathways
based on new experiences). We believe this modality could have applications in
the treatment of chronic and acute vascular and neurodegenerative diseases,
including Parkinson's disease. We provided funding for Dr. Casper's research in
this field using our products. We expensed $225,000 during our fiscal 2006 -2007
and $222,850 during our fiscal 2007-2008 to continue Dr. Casper’s
research.   We expect to fund additional research for Dr. Casper
during our fiscal 2008-2009 of approximately $455,000. We accrued $130,125 at
March 31, 2008 for our research and development efforts performed by Montefiore
Medical Center through March 31, 2008.




In
January 2006, we entered into a Master Clinical Trial Agreement with Cleveland
Clinic Florida, a not-for-profit multispecialty medical group practice, to set
forth the basic terms and conditions with respect to studies to be conducted by
Cleveland Clinic Florida thereunder from time to time during the term of the
agreement, which is from January 9, 2006 to January 9, 2009. The estimated cost
of the trial is $290,000, of which approximately $129,000 was paid by us through
March 31, 2008.  At March 31, 2008, we accrued $161,000 for work
performed through March 31, 2008 by the Cleveland Clinic Florida under its
agreement with us as well as additional fees, costs and expenses to third
parties for work to be handled by such third parties during the term of the
agreement. The IRB-approved, double-blind randomized placebo-controlled clinical
trial in patients who are not candidates for angioplasty or cardiac bypass
surgery has concluded at The Cleveland Clinic Florida.




During
our fiscal 2008-2009, we will fund additional studies up to $385,000 with
established research facilities, to establish clear dose and response curves as
well as dosing regimens for the use of our PEMF device in cardiovascular
ischemia, in standard cardiovascular models.




In
June, 2007, we entered into a Research Agreement with Indiana University to
conduct randomized, double-blind animal wound studies to assist us in
determining optimal signal configuations and dosing regimens. Indiana University
reported at the Bioelectromagnetics Society (BEMS) 30th annual
meeting in June 2008 results of the first phase of this study in which a
carrageenan injection model in rats treated with our targeted PEMF signals had
significantly less pain and edema than rats treated with inactive units. We
expensed approximately $90,000 during our fiscal 2007-2008 for this research and
expect to expense approximately $70,000 during our fiscal 2008-2009 for this
research.




On May 1,
2008 we signed a research agreement with the Henry Ford Health System. The
principal investigator, Dr. Fred Nelson in the Department of Orthopedics will
study our prototype device using targeted PEMF signal configurations on human
patients with established osteoarthritis of the knee that are active at least
part of the day. The trial is expected to recruit up to 100 patients receiving
active or sham treatment for six weeks and then cross over for an additional six
weeks. We are awaiting approval of the IRB at The Henry Ford Health System to
begin the double blind randomized controlled study. We expect enrollment to
begin by July 2008 and enrollment to continue for up to 12 months. We expect to
expense approximately $110,000 during our fiscal 2008-2009 for this study of
which approximately $27,000 was paid during May 2008. There can be no assurance
that this trial will be completed within this time frame or within this
cost.









CONSULTING
AGREEMENTS




We have
entered into various consulting agreements with individuals and companies to
assist in operating our business. Consulting expense totaled $1,686,807 and
$1,509,493 for the years ended March 31, 2008 and 2007, respectively. Certain of
the agreements contain automatic renewal provisions. We intend to spend
approximately 1,200,000 (excluding share based compensation) during the fiscal
year ending March 31, 2009 on these consulting agreements.  The dollar
amount of the consulting agreements extending beyond our fiscal year ending
March 31, 2009 is approximately $730,000.  However, such amounts may
be increased if we expand our current studies or if we pursue additional
studies.




LEASES




During
October 2007 we moved our headquarters to Montvale, New Jersey.  The
Montvale office lease was executed during June 2007 and covers 7,494 square feet
of office space.  The term of the lease began on October 1, 2007 and
expires on November 1, 2014, subject to our option to renew the lease for an
additional five year period on terms and conditions set forth
therein.  Pursuant to the lease, we are required to pay rent in the
amount of $14,051 per month during the first two years of the lease term, with
the exception of month 13 at no cost, and $15,613 per month
thereafter.




We
retained certain office and laboratory space through an agreement with ADM, (see
footnote 15).




During
March 2008, we entered into lease agreements to rent two apartments located in
Park Ridge, NJ, for use by employees who are not based in the area and therefore
cannot commute to their homes.  Monthly rent is $2,000 and $1,500,
respectively, and security deposits are $3,000 and $2,250,
respectively.  Both leases expire on March 31, 2009.




The
company’s future minimum lease payments required under operating leases are as
follows:




March
      31, 2009
              
              $
              196,5612010
              
              
              177,9812011
              
              
              187,3502012
              
              
              187,3502013
              
              
              187,3502014
              
              
              124,900




12.
RETIREMENT PLAN




During
fiscal 2007, the Company implemented a 401(k) plan that covers substantially all
employees.  Under the terms of the plan, the Company matches up to 3%
of each employee-participant's salary, beginning with fiscal 2008. During 2008,
the Company has expensed $56,349 as employer 401(k) plan
contributions.  Since the plan was adopted in March 2007, we had no
expense for the fiscal year ended March 31, 2007.




13. LEGAL
PROCEEDINGS




On August
17, 2005, we filed a complaint against Conva-Aids, Inc. t/a New York Home Health
Care Equipment, or NYHHC, and Harry Ruddy in the Superior Court of New Jersey,
Law Division, Docket No. BER-L-5792-05, alleging breach of contract with respect
to a distributor agreement that we and NYHHC entered into on or about August 1,
2004, pursuant to which: (i) we appointed NYHHC as exclusive distributor of our
products in a defined market place for so long as NYHHC secured a minimum number
of placements of our products and (ii) NYHHC agreed to pay us $2,500 per month
for each product shipped to NYHHC. By letter, dated August 9, 2005, we
terminated the agreement due to NYHHC's failure to make the payments required
under the agreement and failure to achieve the minimum number of placements
required under the agreement. We are seeking various forms of relief, including:
(i) relief from money damages, including amounts due under unpaid invoices in an
aggregate amount of $236,560, (ii) an accounting and (iii) the return of our products. The defendants filed a motion to dismiss,
alleging lack of jurisdiction and failure to state a claim with regard to Harry
Ruddy. We opposed the defendant's motion to dismiss. On November 18, 2005, the
Court denied, without prejudice, the defendant's motion to dismiss, based upon
lack of jurisdiction. The complaint was dismissed against Harry Ruddy,
individually.  The Court permitted a period of discovery to determine
the jurisdiction issue, which discovery is substantially complete. The
defendants filed another motion to dismiss based upon a claim of lack of
jurisdiction, which was heard and denied by the Court on June 9, 2006. On or
about July 10, 2006, the defendants filed an answer, and NYHHC filed
counterclaims against us for breach of contract, breach of the implied covenant
of good faith and fair dealing, restitution, unjust enrichment and fraudulent
inducement. An answer to the counterclaim was filed on August 9, 2006. Discovery
is now continuing on the merits of the claims in the complaint and
counterclaim. On April 30, 2008 during a conference before the Hon. Brian R.
Martinotti J.S.C., all claims were settled and the terms of the settlement
were placed on the record. The settlement calls for the defendants to dismiss
with prejudice all counterclaims filed against us and to pay us the sum of
$120,000.00 in installments. The terms provide for an initial payment of
$15,000.00 and the balance to be paid in equal monthly installments of
$5,000.00. The amount of the settlement will be reduced to $100,000.00 if that
sum is paid on or before June 30, 2008. In the event of default, defendants
shall be liable for an additional payment of $30,000.00, interest at the rate of
8% per annum as well as costs and attorney's fees. The settlement was documented
in a written agreement executed by the parties and the initial payment of
$15,000 was paid on June 18, 2008.









On
October 10, 2006, we received a demand for arbitration by Stonefield Josephson,
Inc. with respect to a claim for fees for accounting services in the amount of
approximately $106,000, plus interest and attorney's fees. Stonefield Josephson
had previously invoiced Ivivi for fees for accounting services in an amount that
Ivivi has refuted. We responded to Stonefield Josephson's demand for
arbitration, which we believe was procedurally defective and premature due to
Stonefield Josephson's failure to participate in required mediation, and we
continue to defend against the claim vigorously, although provision has been
made for the amount of the claim in the financial statements. Moreover, we are
pursuing claims against Stonefield Josephson. On October 26, 2006, we sent a
letter requesting the required mediation before arbitration. On December 4,
2006, we received notification from the arbitration forum that the arbitration
was placed on hold until the mediation phase is completed. By letter dated
November 8, 2007 legal counsel for Stonefield Josephson withdrew from
participation in mediation and requested arbitration. We filed a complaint
against Stonefield Josephson in the Superior Court of New Jersey Law Division
Docket No. BER-l-872-08 on January 31, 2008.  A commencement of arbitration
notice initiated by Stonefield Josephson was received by us on March 11,
2008. In March and April motions were filed by us and Stonefield
Josephson which sought various forms of relief including the forum for
resolution of the claims. On June 3, 2008 the Hon. Menelaos W. Toskos
J.S.C.determined that the language in the engagement agreement constituted
a forum selection clause and the claims should be decided in
California. On June 19, 2008 we filed a complaint against Stonefield
Josephson in the Superior Court of California, Los Angeles County.




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




14.
CONCENTRATIONS




During
the fiscal year ended March 31, 2008, two customers accounted for 67% of our
direct sales revenue, one customer accounted for 38% of our rental revenue and
one customer accounted for 100% of our licensing sales and fees revenue. During
the fiscal year ended March 31, 2007, three customers accounted for 80% of our
direct sales revenue, two customers accounted for 44% of our rental revenue and
one customer accounted for 100% of our licensing sales and fees revenue. At
March 31, 2008, two customers accounted for 60% of our accounts receivable. At
March 31, 2007, two customers accounted for 57% of our accounts receivable. The
loss of these major customers could have a material adverse impact on our
operations and cash flow.




15.
RELATED PARTY TRANSACTIONS




As
discussed in Note 3, we used approximately $77,000 and $19,000 of the net
proceeds from our IPO to pay Ajax and Kenneth S. Abramowitz Co., Inc.,
respectively, any and all interest with respect to the November 2005 and March
2006 private placement notes.




In
connection with the IPO, we repaid approximately $2.6 million to ADM,
representing the balance in our inter-company accounts at October 24, 2006 due
to ADM from us for product manufacturing and allocations of support services
provided by ADM to us for the period from March 1989 to October
2006.




In
addition, we repaid our note payable to Ajax with a payment of $257,123, which
represented the outstanding principal and interest under the unsecured
subordinated loan. The note bore interest at an annual rate of 8%.




As
discussed in Note 8, on December 22, 2006, our Audit Committee approved the
termination of the Revenue Sharing Agreement with Ajax dated, August 28, 2006.
In connection with the termination, Ajax transferred to us all of its rights,
title and interest in and to the units of the Roma3 and the SofPulse M-10
purchased by Ajax on the date of the Revenue Sharing Agreement, and we paid Ajax
$296,136.




Pursuant
to a management services agreement, dated as of August 15, 2001, ADM provides us
with administrative, technical, engineering and regulatory services and
allocates portions of its real property facilities for use by us. Effective,
January 2008, ADM allocates a portion of its real property facilities costs for
our research and development employees who maintain offices in ADM’s facilities.
Effective, January 2008 ADM provides us with very limited services outside of
providing our research and development employees with offices as a result of our
move to our own facilities which concluded as of the end of December, 2007. In
addition, effective April 1, 2007, we only purchase finished goods from ADM
which in some cases requires us to pay deposits towards these finished
goods.  Pursuant to an IT Services agreement, we share certain costs
related to hardware, software and employees. We have not billed ADM nor has ADM
billed us for any charges under this agreement for the year end March 31, 2008.
In addition, ADM serves as the exclusive manufacturer of medical and other
applicators or products to be distributed by us.










The
amounts included in cost of rental revenue on our Statements of Operations
relating to these services provided by ADM were $4,982 and $75,584 for the
fiscal years ended March 31, 2008 and 2007.




The
amounts included in general and administrative expense representing ADM's
allocations for the fiscal year ended March 31, 2008 and 2007 were $198,247 and
$242,595, respectively, consisting of amounts payable under our management
services agreement with ADM.




We
purchased $906,827 and $59,789 of finished goods from ADM at contracted rates
during the fiscal years ended March 31, 2008 and 2007,
respectively.




Our
activity with ADM is summarized as follows:




Fiscal
      years ended March 31,
              
              2008
              
              
              2007Balance,
      beginning of year
              
              $
              (36,657
              )
              
              $
              (2,602,695
              )Advances
              
              
              -
              
              
              
              (12,218
              )Purchases
              
              
              (901,845
              )
              
              
              (59,789
              )Charges
              
              
              (203,229
              )
              
              
              (318,179
              )Payments
              
              
              1,383,559
              
              
              
              2,956,224Balance,
      end of year
              
              $
              241,828
              
              
              $
              (36,657
              )