10QSB

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)
x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarter ended March 31, 2007
o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
	For the transition period from ______________ to ____________
	Commission file number 0-27368

ORTEC INTERNATIONAL, INC.

(Exact name of small business issuer as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

11-3068704

(I.R.S. Employer Identification No.)

3960 Broadway

New York, New York 10032

(Address of principal executive offices)

(212) 740-6999

(Issuer’s telephone number)

Check whether the issuer (1) 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o   No x

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o   No x

The number of shares outstanding of the issuer’s common stock is 9,073,890 (as of June 25, 2007)

ORTEC INTERNATIONAL, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB/A
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED MARCH 31, 2007

ITEMS IN FORM 10-QSB

		Page
Part I	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Plan of Operation	22
Item 3.	Controls and Procedures	28
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 2.	Unregistered sales of Equity Securities and Use of Proceeds	30
Item 3.	Default Upon Senior Securities	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 5.	Other Information	30
Item 6.	Exhibits	30

2

Part I, Item 1. FINANCIAL STATEMENTS

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEET

	March 31, 2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	415,307
Prepaid and other current assets		635,429
Total current assets		1,050,736
Property and equipment, net		178,674
Patent application costs, net		449,838
Deposits and other assets		254,783
Total assets	$	1,934,031
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	5,037,018
Insurance premium financing payable		107,981
Current maturities of loan payable		39,411
Capital lease obligation - current		5,109
Convertible bridge notes		2,484,000
Obligation under revenue interest assignment (NOTE 8)		41,006,000
Total current liabilities		48,679,519
Capital lease obligation - noncurrent		984
Total liabilities		48,680,503
COMMITMENTS AND CONTINGENCIES
Shareholders’ deficit:
Preferred stock, $.001 par value; authorized, 1,000,000 shares:
Series D-1 Convertible, stated value $10 per share; authorized 20,000 shares; 5,948.6148 shares issued and outstanding; liquidation preference $59,486		15,090,903
Common stock, $.001 par value; authorized 200,000,000 shares; 9,073,890 issued and outstanding		9,074
Additional paid-in capital		121,717,616
Deficit accumulated during the development stage		(183,381,160	)
Deferred compensation		(186,989	)
Accumulated other comprehensive income		4,084
Total shareholders’ deficit		(46,746,472	)
Total liabilities and shareholders’ deficit	$	1,934,031

See accompanying notes to condensed unaudited financial statements.

3

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

							Cumulative From March 12, 1991 (inception) to March 31, 2007
	Three Months Ended March 31,
	2007			2006
Product revenue	$	—		$	—		$	265,665
Expenses
Product and laboratory costs		213,217			1,325,509			35,342,297
Personnel		949,460			1,021,714			46,426,456
General and administrative		267,817			295,084			22,236,549
Rent		182,580			182,580			5,359,207
Consulting		—			—			5,702,651
Interest and other expense		2,786,325			1,981,870			41,125,119
Interest and other income		(24,032	)		(12,863	)		(2,680,054	)
Purchased in-process research and development costs		—			—			11,073,743
Change in value of warrants		—			—			(12,042,565	)
Loss on settlement of promissory notes		—			—			13,081,453
Lease termination costs		—			—			1,119,166
Loss on extinguishments of debt and Series A preferred shares		—			—			1,004,027
		4,375,367			4,793,894			167,748,049
Loss before income tax benefit		(4,375,367	)		(4,793,894	)		(167,482,384	)
Income tax benefit		(62,500	)		—			(551,500	)
Net loss		(4,312,867	)		(4,793,894	)		(166,930,884	)
Preferred stock dividend		—			—			3,162,609
Preferred stock and warrants deemed dividends and discounts		—			—			13,287,667
Net loss applicable to common shareholders	$	(4,312,867	)	$	(4,793,894	)	$	(183,381,160	)
Net loss per share
Basic and diluted	$	(0.44	)	$	(1.09	)
Weighted average shares outstanding
Basic and diluted		9,824,094			4,407,046

See accompanying notes to condensed unaudited financial statements.

4

ORTEC INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Unaudited)

									Additional paid-in capital			Deficit accumulated during the development stage		Accumulated Other Comprehensive Income (loss)	Treasury stock	Deferred compensation	Total shareholders’ equity (deficit)
	Common Stock			Preferred Stock Series
	Shares	Amount		B	C	D	D-1	E
March 12, 1991 (inception) to December 31, 1991
Founders	10,358	$	10	—	—	—	—	—	$	860		—		—	—	—	$	870
First private placement ($45.00 per share)	1,450		2	—	—	—	—	—		64,998		—		—	—	—		65,000
The Director ($172.50 and $795.00 per share)	994		1	—	—	—	—	—		249,999		—		—	—	—		250,000
Second private placement ($1413.75 per share)	354		—	—	—	—	—	—		500,000		—		—	—	—		500,000
Share issuance expense	—		—	—	—	—	—	—		(21,118	)	—		—	—	—		(21,118	)
Net loss	—		—	—	—	—	—	—		—		(281,644	)	—	—	—		(281,644	)
Balance at December 31, 1991	13,156		13	—	—	—	—	—		794,739		(281,644	)	—	—	—		513,108
Second private placement ($1,413.75 per share)	176		—	—	—	—	—	—		250,006		—		—	—	—		250,006
Second private placement ($1,413.75 per share)	152		—	—	—	—	—	—		215,467		—		—	—	—		215,467
Stock purchase agreement with the Director ($1,413.75 per share)	212		—	—	—	—	—	—		299,998		—		—	—	—		299,998
Share issuance expense	—		—	—	—	—	—	—		(35,477	)	—		—	—	—		(35,477	)
Net loss	—		—	—	—	—	—	—		—		(785,941	)	—	—	—		(785,941	)
Balance at December 31, 1992	13,696		13	—	—	—	—	—		1,524,733		(1,067,585	)	—	—	—		457,161
Third private placement ($1,500.00 per share)	731		1	—	—	—	—	—		1,096,499		—		—	—	—		1,096,500
Third private placement ($1,500.00 per share)	150		—	—	—	—	—	—		225,000		—		—	—	—		225,000
Stock purchase agreement with Home Insurance ($1,350.00 per share)	741		1	—	—	—	—	—		999,998		—		—	—	—		999,999
Stock purchase agreement with the Director ($1,413.75 per share)	142		—	—	—	—	—	—		200,000		—		—	—	—		200,000
Shares issued in exchange for commission	4		—	—	—	—	—	—		6,000		—		—	—	—		6,000
Share issuance expenses	—		—	—	—	—	—	—		(230,207	)	—		—	—	—		(230,207	)
Net loss	—		—	—	—	—	—	—		—		(1,445,624	)	—	—	—		(1,445,624	)
Balance at December 31, 1993	15,464		15	—	—	—	—	—		3,822,023		(2,513,209	)	—	—	—		1,308,829
Fourth private placement ($1,500.00 per share)	263		—	—	—	—	—	—		397,712		—		—	—	—		397,712
Stock purchase agreement with Home Insurance ($1,500.00 per share)	333		1	—	—	—	—	—		499,999		—		—	—	—		500,000
Share issuance expense	—		—	—	—	—	—	—		(8,697	)	—		—	—	—		(8,697	)
Net loss	—		—	—	—	—	—	—		—		(1,675,087	)	—	—	—		(1,675,087	)
Balance at December 31, 1994	16,060		16							4,711,037		(4,188,296	)	—	—	—		522,757
Rent forgiveness by Director	—		—	—	—	—	—	—		40,740		—		—	—	—		40,740
Net loss	—		—	—	—	—	—	—		—		(1,022,723	)	—	—	—		(1,022,723	)
Balance at December 31, 1995	16,060		16	—	—	—	—	—		4,751,777		(5,211,019	)	—	—	—		(459,226	)
Initial public offering	8,000		8	—	—	—	—	—		5,999,992		—		—	—	—		6,000,000
Exercise of warrants	226		—	—	—	—	—	—		33,885		—		—	—	—		33,885
Fifth private placement ($973.50 per share)	6,394		6	—	—	—	—	—		6,220,791		—		—	—	—		6,220,797
Share issuance expenses	—		—	—	—	—	—	—		(1,580,690	)	—		—	—	—		(1,580,690	)
Stock options issued for services	—		—	—	—	—	—	—		152,000		—		—	—	—		152,000
Net loss	—		—	—	—	—	—	—		—		(2,649,768	)	—	—	—		(2,649,768	)
Balance at December 31, 1996	30,680		30	—	—	—	—	—		15,577,755		(7,860,787	)	—	—	—		7,716,998
Exercise of warrants	7,726		8	—	—	—	—	—		10,822,783		—		—	—	—		10,822,791
Share issuance expenses	—		—	—	—	—	—	—		(657,508	)	—		—	—	—		(657,508	)
Stock options and warrants issued for services	—		—	—	—	—	—	—		660,000		—		—	—	—		660,000
Net loss	—		—	—	—	—	—	—		—		(4,825,663	)	—	—	—		(4,825,663	)
Balance at December 31, 1997 (carried forward)	38,406		38	—	—	—	—	—		26,403,030		(12,686,450	)	—	—	—		13,716,618

5

ORTEC INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Unaudited)

										Additional paid-in capital		Deficit accumulated during the development stage		Accumulated Other Comprehensive Income (loss)	Treasury stock		Deferred compensation	Total shareholders’ equity (deficit)
	Common Stock			Preferred Stock Series
	Shares	Amount		B		C	D	D-1	E
Balance at December 31, 1997 (brought forward)	38,406		38	—		—	—	—	—	26,403,030		(12,686,450	)	—	—		—	13,716,618
Exercise of warrants	1,477		2	—		—	—	—	—	1,281,955		—		—	—		—	1,281,957
Stock options and warrants issued for services	—		—	—		—	—	—	—	1,920,111		—		—	—		—	1,920,111
Sixth private placement
Common shares issued ($1500.38 per share)	1,333		1	—		—	—	—	—	1,788,697		—		—	—		—	1,788,698
Warrants to purchase 334 shares at $1,800 per share	—		—	—		—	—	—	—	211,302		—		—	—		—	211,302
Share issuance expenses	—		—	—		—	—	—	—	(48,000	)	—		—	—		—	(48,000	)
Purchase of 44 shares of treasury stock (at cost)	—		—	—		—	—	—	—	—		—			(67,272	)	—	(67,272	)
Net loss	—		—	—		—	—	—	—	—		(8,412,655	)	—	—		—	(8,412,655	)
Balance at December 31, 1998	41,216		41	—		—	—	—	—	31,557,095		(21,099,105	)	—	(67,272	)	—	10,390,759
Exercise of warrants	94		—	—		—	—	—	—	14,103		—		—	—		—	14,103
Stock options and warrants issued for services	—		—	—		—	—	—	—	64,715		—		—	—		—	64,715
Seventh private placement														—
Common shares issued ($1,312.50 per share)	2,594		3	—		—	—	—	—	3,168,782		—		—	—		—	3,168,785
Warrants to purchase 519 shares – 210 at $1,875 per share and 209 at $2,175 per share	—		—	—		—	—	—	—	236,291		—		—	—		—	236,291
Placement agent warrants to purchase 260 shares at $1,575 per share	—		—	—		—	—	—	—	232,000		—		—	—		—	232,000
Eighth private placement ($825 per share)	10,909		11	—		—	—	—	—	8,999,991		—		—	—		—	9,000,002
Share issuance expenses	—		—	—		—	—	—	—	(619,908	)	—		—	—		—	(619,908	)
Purchase of 61 shares of treasury stock (at cost)	—		—	—		—	—	—	—	—		—		—	(75,518	)	—	(75,518	)
Net loss	—		—	—		—	—	—	—	—		(10,040,509	)	—	—		—	(10,040,509	)
Balance at December 31, 1999	54,813		55	—		—	—	—	—	43,653,069		(31,139,614	)	—	(142,790	)	—	12,370,720
Exercise of options and warrants	1,170		1	—		—	—	—	—	327,281		—			—		—	327,282
Stock options and warrants issued for services	—		—	—		—	—	—	—	56,265		—		—	—		—	56,265
Ninth private placement														—
Common stock issued ($2,250 per share)	444		—	—		—	—	—	—	1,000,005		—		—	—		—	1,000,005
Placement agent warrants (18 at $2,250 per share)	—		—	—		—	—	—	—	23,000		—		—	—		—	23,000
Tenth private placement ($1,012.50 per share)	8,318		8	—		—	—	—	—	8,421,063		—		—	—		—	8,421,071
Share issuance expenses	—		—	—		—	—	—	—	(641,500	)	—		—	—		—	(641,500	)
Purchase of 29 shares of treasury stock (at cost)	—		—	—		—	—	—	—	—		—		—	(34,855	)	—	(34,855	)
Net loss	—		—	—		—	—	—	—	—		(12,129,663	)	—	—		—	(12,129,663	)
Balance at December 31, 2000	64,745		64	—		—	—	—	—	52,839,183		(43,269,277	)	—	(177,645	)	—	9,392,325
Stock options to purchase 400 shares for services	—		—	—		—	—	—	—	188,080		—		—	—		—	188,080
Net loss	—		—	—		—	—	—	—	—		(15,885,377	)	—	—		—	(15,885,377	)
Balance at December 31, 2001	64,745		64	—		—	—	—	—	53,027,263		(59,154,654	)	—	(177,645	)	—	(6,304,972	)
Exercise of options and warrants	2,381		2	—		—	—	—	—	355		—		—	—		—	357
Stock options and warrants issued for services	—		—	—		—	—	—	—	113,060		—		—	—		—	113,060
Warrants issued with convertible debentures	—		—	—		—	—	—	—	440,523		—		—	—		—	440,523
Warrants issued with redeemable preferred stock	—		—	—		—	—	—	—	559,289		—		—	—		—	559,289
Convertible debenture conversion benefit	—		—	—		—	—	—	—	1,042,663		—		—	—		—	1,042,663
Redeemable convertible preferred conversion benefit	—		—	—		—	—	—	—	1,097,886		—		—	—		—	1,097,886
Issuance of series B preferred stock (938 shares) ($10,000 per share)	—		—	9,382,742		—	—	—	—	—		—		—	—		—	9,382,742
Warrants issued and exercised with preferred stock	62,552		63	(3,479,043	)	—	—	—	—	3,486,318		—		—	—		—	7,338
Shares issuance costs – preferred stock	—		—	(866,612	)	—	—	—	—	304,615		—		—	—		—	(561,997	)
Preferred stock dividends	25,021		25	—		—	—	—	—	1,125,909		(1,125,934	)	—	—		—	—
Net loss	—		—	—		—	—	—	—	—		(21,578,021	)	—	—		—	(21,578,021	)
Balance at December 31, 2002 (carried forward)	154,699		154	5,037,087		—	—	—	—	61,197,881		(81,858,609	)	—	(177,645	)	—	(15,801,132	)

6

ORTEC INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Unaudited)

										Additional paid-in capital		Deficit accumulated during the development stage		Accumulated Other Comprehensive Income (loss)	Treasury stock		Deferred Com- pensation	Total shareholders’ equity (deficit)
	Common Stock		Preferred Stock Series
	Shares	Amount	B		C		D	D-1	E
Balance at December 31, 2002 (brought forward)	154,699	154	5,037,087		—		—	—	—	61,197,881		(81,858,609	)	—	(177,645	)	—	(15,801,132	)
Exercise of options and warrants	26,583	27	—		—		—	—	—	12,939		—		—	—		—	12,966
Issuance of preferred stock: series B (200 shares), series C (948 shares)	—	—	2,000,000		5,690,000		—	—	—	—		—		—	—		—	7,690,000
Warrants issued with preferred stock	—	—	(490,567	)	(1,225,632	)	—	—	—	1,716,199		—		—	—		—	—
Warrant to purchase 5,000 shares at $30 per share issued for services	—	—	—		—		—	—	—	87,000		—		—	—		—	87,000
Share issuance costs – preferred stock	—	—	(393,488	)	(797,327	)	—	—	—	359,078		—		—	—		—	(831,737	)
Conversion of series B preferred stock (605 shares) into common stock	161,437	162	(3,253,571	)	—		—	—	—	3,253,409		—		—	—		—	—
Conversion of series B preferred stock into series D preferred stock (483 shares)	—	—	(2,628,602	)	—		2,628,602	—	—	—		—		—	—		—	—
Preferred stock deemed dividends and discounts	—	—	—		—		—	—	—	4,269,000		(4,269,000	)	—	—		—	—
Preferred stock dividends	6,154	6	—		—		—	—	—	923,071		(923,077	)	—	—		—	—
Common stock dividend to be distributed on series C preferred stock	—	—	—		—		—	—	—	336,550		(336,550	)	—	—		—	—
Common stock to be issued in connection with promissory notes (10,467 shares)	—	—	—		—		—	—	—	287,000		—		—	—		—	287,000
Adjustment for one for ten reverse stock split	5	—	—		—		—	—	—	—		—		—	—		—	—
Net loss	—	—	—		—		—	—	—	—		(15,920,504	)	—	—		—	(15,920,504	)
Balance at December 31, 2003	348,878	349	270,859		3,667,041		2,628,602	—	—	72,442,127		(103,307,740	)	—	(177,645	)	—	(24,476,407	)
Issued in connection with promissory notes Previously issued notes (FY 2002 above)	10,467	11	—		—		—	—	—	(11	)	—		—	—		—	—
Issued in current fiscal year	22,122	22	—		—		—	—	—	746,180		—		—	—		—	746,202
Common stock (18,468) and 34.31 shares of series D preferred to be issued in connection with agreements which extended due date of promissory notes	—	—	—		—		—	—	—	828,540		—		—	—		—	828,540
Issued in connection with exercise of warrants	2,164	2	—		—		—	—	—	323		—		—	—		—	325
Conversion of 35.62 shares of series C preferred stock into common stock	7,125	7	—		(137,752	)	—	—	—	137,745		—		—	—		—	—
Payment of dividends on 35.62 shares of series C preferred stock in common stock	916	1	—		—		—	—	—	30,098		(30,099	)	—	—		—	—
Common stock and series D preferred (233.83 shares) issued in connection with special warrant offer ($15.06 per share)	33,132	33	—		—		939,050	—	—	498,936		—		—	—		—	1,438,019
Common stock dividend to be distributed on series B and series C preferred stock	—	—	—		—		—	—	—	613,805		(613,805	)	—	—		—	—
Option to purchase 6,667 shares at $30 per share issued to director for services	—	—	—		—		—	—	—	398,574		—		—	—		—	398,574
Warrant to purchase 5,000 shares at $30 issued for services	—	—	—		—		—	—	—	94,393		—		—	—		—	94,393
Warrant to purchase 937 shares at $48.75 issued in connection with lease	—	—	—		—		—	—	—	18,500		—		—	—		—	18,500
Share issuance expenses	—	—	—		—		—	—	—	(26,600	)	—		—	—		—	(26,600	)
Special warrant offer deemed dividends	—	—	—		—		—	—	—	1,123,000		(1,123,000	)	—	—		—	—
Net loss	—	—	—		—		—	—	—	—		(15,377,900	)	—	—		—	(15,377,900	)
Balance at December 31, 2004 (carried forward)	424,804	425	270,859		3,529,289		3,567,652	—	—	76,905,610		(120,452,544	)	—	(177,645	)	—	(36,356,354	)

7

ORTEC INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Unaudited)

												Deficit accumulated during the development stage
										Additional paid-in capital				Accumulated Other Comprehensive Income (loss)	Treasury stock		Deferred compensation		Total shareholders’ equity (deficit)
	Common Stock		Preferred Stock Series
	Shares	Amount	B		C		D	D-1	E
Balance at December 31, 2004 (brought forward)	424,804	425	270,859		3,529,289		3,567,652	—	—	76,905,610		(120,452,544	)	—	(177,645	)	—		(36,356,354	)
Common stock and series D preferred (34.31 shares) issued in connection with agreements which extended due date of promissory notes	18,468	18	—		—		274,500	—	—	(274,518	)	—		—	—		—		—
January 2005 Private Placement: Common stock issued in connection with private placement	432,264	432	—		—		—	—	—	4,775,668		—		—	—		—		4,776,100
Common stock and series D preferred (1,720.16 shares) issued for promissory note conversion	530,208	530	—		—		5,733,853	—	—	14,895,029		—		—	—		—		20,629,412
Common stock and series D preferred (1,086.21 shares) issued in connection with Series C preferred exchange – as restated	218,912	219	—		(3,529,289	)	3,620,702	—	—	6,261,816		(6,353,448	)	—	—		—		—
Common stock issued for exercise of additional investment right from private placement	10,217	10	—		—		—	—	—	114,937		—		—	—		—		114,947
Common stock issued in connection with February 2005 private placement	8,000	8	—		—		—	—	—	86,265		—		—	—		—		86,273
Common stock issued in connection with exchange for series B preferred stock	14,710	15	(270,859	)	—		—	—	—	270,844		—		—	—		—		—
Common stock issued to officers	109,667	110	—		—		—	—	—	751,474		—		—	—		(462,445	)	289,139
Common stock issued upon exercise of warrants	243,901	244	—		—		—	—	—	3,415		—		—	—		—		3,659
October 2005 Private Placement:
Common stock issued	972,718	973	—		—		—	—	—	3,172,643		—		—	—		—		3,173,616
Common stock and Series D preferred (2,714.62 shares) and warrants issued for promissory notes	423,128	423	—		—		2,714,624	—	—	3,622,670		—		—	—		—		6,337,717
Return of excess preferred stock dividend	—	—	—		—		—	—	—	(17,891	)	17,891		—	—		—		—
Modifications of Series E warrant prices	—	—	—		—		—	—	—	3,490,140		(1,264,247	)	—	—		—		2,225,893
Warrants to purchase 5,000 shares issued for services	—	—	—		—		—	—	—	7,189		—		—	—		—		7,189
Share issuance expenses	—	—	—		—		—	—	—	(14,234	)	—		—	—		—		(14,234	)
Net loss – as restated	—	—	—		—		—	—	—	—		(32,586,847	)	—	—		—		(32,586,847	)
Balance at December 31, 2005 (carried forward)	3,406,997	3,407	—		—		15,911,331	—	—	114,051,057		(160,639,195	)	—	(177,645	)	(462,445	)	(31,313,490	)

8

ORTEC INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Unaudited)

											Additional paid-in Capital		Deficit accumulated during the development stage		Accu- mulated Other Compre- hensive Income (loss)	Treasury stock		Deferred compensation
																				Total shareholders’ equity (deficit)
	Common Stock			Preferred Stock
	Shares		Amount	B	C	D		D-1	E
Balance at December 31, 2005 (brought forward)	3,406,997		3,407	—	—	15,911,331		—	—		114,051,057		(160,639,195	)	—	(177,645	)	(462,445	)	(31,313,490	)
Exercise of Series E warrants	139,207		139	—	—	—		—	—		58		—		—	—		—		197
Warrant issued for vendor settlement	—		—	—	—	—		—	—		54,982		—		—	—		—		54,982
Warrant issued with promissory notes	—		—	—	—	—		—	—		7,262		—		—	—		—		7,262
Common stock and warrants issued for Production suite charges (includes warrants to purchase 73,674 shares at $11.25 per share)	363,360		364	—	—	—		—	—		1,422,475		—		—	—		—		1,422,839
Placement agent fees	113,147		113	—	—	—		—	—		424,187		—		—	—		—		424,300
Hapto acquisition (includes warrants to purchase 200,000 shares at $4.50 per share)	2,031,119		2,031	—	—	—		—	—		10,692,540		—		—	—		—		10,694,571
Common stock issued upon conversion of 323.4008 shares of Series D preferred stock	86,240		86	—	—	(820,428	)	—	—		820,342		—		—	—		—		—
April 2006 private placement
Issuance of 6,176 shares of Series E preferred stock	—		—	—	—	—		—	6		—		—		—	—		—		6
Bridge loan converted into 301.333 shares of Series E preferred stock	—		—	—	—	—		—	—		—		—		—	—		—		—
Dividends on Series E preferred stock	—		—	—	—	—		—	151,035		—		(151,035	)	—	—		—		—
Conversion of 6,176 Series E preferred	2,822,078		2,822	—	—	—		—	(151,041	)	148,219		—		—	—		—		—
Fair value of warrants reclassified as liabilities	—		—	—	—	—		—	—		(11,951,000	)	—		—	—		—		(11,951,000	)
Reduction of warrant liability	—		—	—	—	—		—	—		5,736,591		—		—	—		—		5,736,591
Modifications of Series E and F warrant prices	—		—	—	—	—		—	—		277,972		(277,972	)	—	—		—		—
Transfer of Preferred stock series: D to D-1	—		—	—	—	(15,090,903	)	15,090,903	—		—		—		—	—		—		—
Retirement of treasury shares	(134	)	—	—	—	—		—	—		(177,645	)	—		—	177,645
Share-based compensation	—		—	—	—	—		—	—		41,200		—		—	—		—		41,200
Share issuance expenses	—		—	—	—	—		—	—		(57,118	)	—		—	—		—		(57,118	)
Shares issued pursuant to deferred compensation plan	1,333		1	—	—	—		—	—		415		—		—	—		(416	)	—
Restricted share awards	—		—	—	—	—		—	—		165,000		—		—	—		(165,000	)	—
Amortization of deferred compensation	—		—	—	—	—		—	—		—		—		—	—		334,678		334,678
Adjustment for one for fifteen reverse stock split	523		1	—	—	—		—	—		(1	)	—		—	—		—		—
Net loss	—		—	—	—	—		—	—		—		(18,000,091	)	—	—		—		(18,000,091	)
Balance at December 31, 2006	8,963,870		8,964	—	—	—		15,090,903	—		121,656,536		(179,068,293	)	—	—		(293,183	)	(42,605,073	)
Comprehensive loss:
Net loss	—		—	—	—	—		—	—		—		(4,312,867	)	—	—		—		(4,312,867	)
Currency translation	—		—	—	—	—		—	—		—		—		4,084	—		—		4,084
Total comprehensive loss																				(4,308,783	)
Share-based compensation	—		—	—	—	—		—	—		2,890		—		—	—		—		2,890
Common stock paid to Directors	110,000		110	—	—	—		—	—		58,190		—		—	—		—		58,300
Adjustment for one for fifteen reverse stock split	20		—	—	—	—		—	—		—		—		—	—		—		—
Amortization of deferred compensation	—		—	—	—	—		—	—		—		—		—	—		106,194		106,194
Balance at March 31, 2007	9,073,890		$ 9,074	—	—	—		$ 15,090,903	—		$ 121,717,616		$ (183,381,160	)	$ 4,084	—		$ (186,989	)	$(46,746,472	)

See accompanying notes to condensed unaudited financial statements.

9

ORTEC INTERNATIONAL INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

							Cumulative from March 12, 1991 (inception) to March 31, 2007
	Three months ended March 31,
	2007			2006
Cash flows from operating activities
Net loss	$	(4,312,867	)	$	(4,793,894	)	$	(166,930,884	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		45,193			51,742			5,814,640
Loss on settlement of promissory note		—			—			13,081,453
Cost to terminate lease on New Jersey facility		—			—			836,032
Amortization of deferred compensation		106,194			96,895			730,011
Non-cash stock compensation		—			—			3,335,231
Non-cash interest		1,488			3,030			2,055,422
Non-cash imputed interest		2,556,000			1,975,000			36,571,586
Non-cash production suite charges		—			590,585			1,422,839
Share-based compensation		61,190			13,024			102,390
Gain on loan adjustment		—			—			(236,000	)
Loss on extinguishment of debt and series A preferred stock		—			—			1,004,027
Purchased in-process research and development		—			—			11,073,742
Change in warrant value		—			—			(12,042,565	)
Other		—			(11,710	)		33,122
Changes in operating assets and liabilities
Prepaid and other current assets		1,927			(212,243	)		(539,711	)
Accounts payable and accrued liabilities		439,514			1,037,036			7,232,409
Net cash used in operating activities		(1,101,361	)		(1,250,535	)		(96,456,256	)
Cash flows from investing activities
Purchases of property and equipment		(16,311	)		(1,799	)		(4,686,657	)
Proceeds from sale of property and equipment		—			—			145,926
Payments for patent applications		—			(13,591	)		(1,092,489	)
Organization costs		(2,377	)		—			(10,238	)
Deposits		—			—			(888,835	)
Cash paid for Hapto, net of cash received		—			—			(204,402	)
Purchases of marketable securities		—			—			(594,986	)
Sale of marketable securities		—			—			522,532
Net cash used in investing activities		(18,688	)		(15,390	)		(6,809,149	)
Cash flows from financing activities
Proceeds from issuance of notes payable		1,424,000			445,000			16,822,126
Proceeds from issuance of common stock		—			—			61,701,458
Proceeds from exercise of warrants		—			159			1,362,860
Proceeds from insurance premium financing		138,000			220,500			814,400
Share issuance expenses and other financing costs		—			—			(5,441,365	)
Purchase of treasury stock		—			—			(177,645	)
Proceeds from issuance of loan payable		—			—			1,446,229
Proceeds from obligations under revenue interest assignment		—			—			10,000,000
Proceeds from issuance of convertible debentures		—			—			5,908,000
Proceeds from issuance of preferred stock-
Series A		—			—			1,200,000
Series B		—			—			3,070,000
Series C		—			—			5,690,000
Series E		—			—			5,526,829
Advances received		—			—			130,000
Repayment of capital lease obligations		(3,040	)		(4,397	)		(608,221	)
Repayment of loan payable		—			—			(1,291,467	)
Repayment of obligations under revenue interest assignment		(10,671	)		—			(11,414	)
Repayment of insurance premium financing payable		(30,019	)		(63,247	)		(706,419	)
Repayment of promissory notes		—			—			(1,235,751	)
Repayment of notes payable		—			—			(515,500	)
Net cash provided by financing activities		1,518,270			598,015			103,684,120
Effect of exchange rate changes on cash and cash equivalents		4,047			—			(3,408	)
Net Increase (Decrease) In Cash And Cash Equivalents		402,268			(667,910	)		415,307
CASH AND CASH EQUIVALENTS
Beginning of period		13,039			675,389			—
End of period	$	415,307		$	7,479		$	415,307

10

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)

					Cumulative from March 12, 1991 (inception) to March 31, 2007
	Three months ended March 31,
	2007		2006
Supplemental disclosures of cash flow information:
Non cash investing and financing activities
Assets acquired under capital leases	$	—	$	—	$	628,523
Deferred offering costs included in accrued professional fees		—		—		314,697
Financing costs – other long-term obligations		—		—		59,500
Forgiveness of rent payable		—		—		40,740
Share issuance expenses – warrants		—		—		255,000
Deferred compensation		—		—		917,000
Dividends on preferred stock paid in common shares
Series B		—		—		2,099,011
Series C		—		—		576,013
Series E						151,035
Accretion of discount on preferred stock and warrants		—		—		13,287,667
Series B preferred stock converted to common stock		—		—		270,859
Series C preferred stock exchanged for common stock		—		—		3,529,289
Series D preferred stock-
Issuance in lieu of common stock		—		—		12,343,678
Converted to common stock		—		—		820,428
Exchanged for Series D-1 preferred stock		—		—		15,090,903
Series E preferred stock converted to common stock		—		—		151,041
Share issuance expenses for preferred stock incurred through issuance of warrants
Series B		—		—		391,307
Series C		—		—		272,386
Share issuance of series D preferred stock in exchange for series B preferred stock		—		—		2,628,602
Promissory notes-
Repaid with common stock		—		—		13,112,626
Interest thereon paid with common stock		—		—		658,776
Forgiven for warrant participation		—		—		100,000
Repaid with Series E preferred stock		—		—		250,000
Warrant issued in connection with lease		—		—		18,500
Warrant issued in connection with liability settlement		—		—		54,982
Common stock and warrants issued to settle liability		—		—		659,800
Treasury shares retired		—		—		177,645
Conversion of series C preferred stock into common stock		—		—		137,645
Contribution of capital of amount due to founder		—		—		398,967
Equipment transferred in satisfaction of deposit		—		—		100,000
Discount on promissory notes		—		—		1,033,202
Accounts payable converted to promissory notes		—		—		837,468
Advances converted to promissory notes		—		—		130,000
Cash paid for interest	$	3,425	$	2,072	$	936,033
Cash paid for income taxes	$	—	$	—	$	203,411

See accompanying notes to condensed unaudited financial statements

11

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 - FINANCIAL STATEMENTS

The condensed consolidated balance sheet as of March 31, 2007, and the condensed consolidated statements of operations and cash flows for the three-month periods ended March 31, 2007 and 2006, and for the period from March 12, 1991 (inception) to March 31, 2007, and condensed consolidated statements of shareholders’ equity (deficit) for the period from March 12, 1991 (inception) to March 31, 2007, have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of March 31, 2007, results of operations and cash flows for the three-month periods ended March 31, 2007 and 2006, and from March 12, 1991 (inception) through March 31, 2007, and statements of shareholders’ equity (deficit) for the period from March 12, 1991 (inception) to March 31, 2007, have been made. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto in the Company’s December 31, 2006 annual report on Form 10-KSB filed with the Securities and Exchange Commission. The results of operations for the three-month period ended March 31, 2007, are not necessarily indicative of the operating results for the full year or any other interim period.

NOTE 2 - FORMATION OF THE COMPANY AND BASIS OF PRESENTATION

Formation of the Company

Ortec International, Inc. (“Ortec” or the “Company”) was incorporated in March 1991 as a Delaware corporation to secure and provide funds for the further development of the technology developed by Dr. Mark Eisenberg of Sydney, Australia, to replicate in the laboratory, a tissue engineered skin substitute for use in skin regeneration procedures (the “Technology”). Pursuant to a license agreement dated September 7, 1991, Dr. Eisenberg had granted Ortec a license for a term of ten years, with automatic renewals by Ortec for two additional ten-year periods, to commercially use and exploit the Technology for the development of products. In April 1998, Dr. Eisenberg assigned his patent for the Technology to Ortec.

Basis of Presentation

We are a development stage enterprise which had no operating revenue prior to December 2001. During 2001, we received Food and Drug Administration (FDA) approval for the use of the fresh form of our ORCEL product for the treatment of patients with recessive dystrophic epidermolysis bullosa and for donor sites in burn patients. We began marketing and selling our product for use on patients with one of these indications using a contract sales organization. Our sales and marketing efforts were active only for a brief period and accordingly our revenues were not significant. We terminated our sales efforts and elected to focus our attention on completing development of a cryopreserved form of our product for treatment of chronic wounds affecting larger patient populations. As a result, we completed a clinical trial during 2003 for the use of the cryopreserved form of ORCEL to treat venous stasis ulcers and filed an application for Pre-Market Approval (PMA) with the FDA in February 2004. In a letter dated April 25, 2005, although the FDA concluded that cryopreserved ORCEL showed promise for the effective treatment of venous stasis ulcers, the FDA determined that additional data would be necessary to confirm cryopreserved ORCEL’s effectiveness and safety treating venous stasis ulcers. The clinical data from the pivotal trial of 136 patients submitted to the FDA showed that in 60 patients who had typical venous ulcers (defined as those ulcers with partial or full-thickness ulcers in which the wound base is visible and the ulcer extends through the dermis but not into the subcutaneous tissue to fascia, muscle or bone), 59% of the ORCEL treated patients achieved wound closure versus 36% of the patients who received the standard of care treatment. The FDA agreed that data of these 60 patients would be combined with that of the 60 patients to be enrolled in a confirmatory clinical trial and the combined results will be analyzed using Bayesian statistics. We obtained FDA approval for our confirmatory trial protocol in mid July 2005 and began the confirmatory trial in mid August 2005. In August 2006, we completed the confirmatory trial designed to confirm the superiority of cryopreserved ORCEL in the treatment of difficult-to-heal venous leg ulcers in comparison to the standard of care therapy. On February 26, 2007, we announced that we had initiated the filing of the supplement to our PMA application with the FDA requesting clearance to market our tissue engineered product, ORCEL, for the treatment of venous stasis ulcers, by submitting to the FDA the Manufacturing and Controls (CMC) section of the application. We hope to file the other section of the application, which will report the results of our confirmatory clinical trial, in the third quarter of 2007. Such other section will report the results showing the effectiveness of our ORCEL product – treating venous stasis ulcers as compared with the effectiveness of the current standard of care, the safety of using our product and the labeling we propose to use for our ORCEL product. These filings will be amendments to our PMA application filed in February 2004.

12

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

We are working with Lonza Walkersville, Inc., a subsidiary of Lonza Corporation (Lonza) to limit expenditures under our manufacturing agreement primarily to those which are essential for obtaining regulatory approval. Together, we are working on process improvements that we expect will drive down the cost of producing ORCEL as we plan for the potential commercial sales of our product. In January 2007, Lonza agreed to temporarily suspend their monthly $136,591 monthly production suite billing under our Cell Therapy Manufacturing Agreement until such time as the suite is necessary for our ORCEL production purposes which is expected around mid July 2007. We have begun preliminary discussions with Lonza with respect to a potential reduction of our monthly production suite costs and other modifications of our Cell Therapy Manufacturing Agreement as well as changes to our Sales Agency Agreement.

The accompanying financial statements have been prepared assuming that we will continue as a going concern. We incurred a net loss applicable to common shareholders of $4.3 million during the three months ended March 31, 2007, and, as of that date, our current liabilities exceeded our current assets by $47.6 million, our total liabilities exceeded our total assets by $46.7 million and we have a deficit accumulated in the development stage of $183.4 million. These factors, among others, raise substantial doubt about our ability to continue as a going concern.

On June 18, 2007, we completed our Series A Convertible Preferred Stock private placement for gross cash proceeds of $5.8 million and simultaneously exchanged our liability under our revenue interest assignment to Paul Royalty Fund, L.P., recorded as $41,006,000 in the accompanying balance sheet, for $10,000,000 stated value/liquidation preference of Series A-1 and Series A-2 Convertible Preferred Stock. Additionally we converted bridge loans totaling $2.7 million into the Series A Convertible Preferred Stock. These transactions and others are described in Note 8.

We expect to incur obligations of approximately $500,000 per month primarily for personnel and rent, insurance, fees to Lonza technology transfer or contract manufacturing activities, various research and development activities, and payment of past due obligations. We will require substantial funding to enable us to continue our research and development activities, pay a portion of our past due obligations, complete the data accumulation phase of the clinical trial necessary to obtain FDA clearance for our ORCEL to treat venous stasis ulcers, and provide for our general and corporate working capital requirements for 2007.

While we have arranged for payment of some of our obligations over a period of time, and have to make other payments of past due obligations to our current and ongoing suppliers, our ability to make payments we have agreed to pay and to insure continued receipt of needed supplies, and to continue reducing our past due obligations, will depend on our ability to secure needed financing or our ability to issue our equity securities in satisfaction of certain obligations.

We hope to obtain additional funds through the sale of our securities to the public and through private placements, debt financing or other short-term loans. We may not be able to secure any future financing nor may we be able to reach the larger patient population markets of persons with venous stasis ulcers and diabetic foot ulcers, with funds that we may be able to raise. We are also likely to continue to encounter difficulties which are common to development stage companies, including unanticipated costs relating to development, delays in the testing of products, regulatory approval and compliance and competition.

Our capital funding requirements depend on numerous factors, including:

• the progress and magnitude of our research and development programs;

• the time involved in obtaining regulatory approvals for the commercial sale of our ORCEL product in its cryopreserved form to treat venous stasis ulcers and, later, diabetic foot ulcers;

• the costs involved in filing and maintaining patent claims;

• technological advances;

• competitive and market conditions;

• the successful implementation of the agreements we have entered into with Lonza for manufacturing and sales of our ORCEL product;

• our ability to establish and maintain other collaborative arrangements and

• the cost and effectiveness of commercialization activities and arrangements.

We believe that our cash and cash equivalents on hand at March 31, 2007, $415,307, as well as funds received in the June 2007 private placement of our equity securities (see Note 8), and the additional funds we will need to raise in 2007, may enable us to continue our operations for the next twelve months. There can be no assurances that we can raise additional funds.

13

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

These financial statements have been prepared assuming that we will continue as a going concern. Successful future operations depend upon the successful development and marketing of our ORCEL product. Historically we have funded our operating losses by periodically raising additional sources of capital. If additional funding is not available to us when needed, we may not be able to continue operations. No adjustments have been made to the accompanying financials as a result of this uncertainty.

Common Stock Reserve Split

On July 24, 2006, we effected another reverse stock split of our outstanding common stock, whereby every stockholder received one new share of common stock for every fifteen shares previously owned. All share and per share data in these financial statements have been adjusted to give effect to the reverse stock split. The par value of the common stock remained unchanged at $.001 per share. The exercise prices of all our warrants and options outstanding were adjusted as a result of this reverse split. The conversion rates of the preferred stock outstanding were also adjusted because of this reverse split.

Reclassifications

Certain reclassifications have been made to the 2006 amounts to conform to the 2007 presentation.

NOTE 3 – SHARE BASED COMPENSATION

Stock Options

In April 1996, the Board of Directors and stockholders approved the adoption of the 1996 Stock Option Plan (the “ 1996 Plan”). The Plan provided for the grant of options to purchase up to 2,333 shares of our common stock. In August 1998, the stockholders and Board of Directors ratified and approved an amended and restated 1996 Plan increasing the maximum number of shares of our common stock for which stock options may be granted from 2,333 to 10,333 shares. In August 2000, the stockholders and Board of Directors ratified and approved the second amendment to our Amended and Restated 1996 Plan increasing the number of shares of our common stock for which options have been or could be granted under the Plan from 10,333 to 20,000 shares. In February 2003, the stockholders and Board of Directors ratified and approved an amended and restated 1996 Plan, increasing the maximum number of shares of our common stock for which stock options may be granted from 20,000 to 30,000 shares. The 1996 Plan provides for granting of options to purchase our common stock at not less than the fair value of such shares on the date of the grant. Some of the options generally vest ratably over a four-year period, while others vest immediately. The options generally expire after seven years. As of March 31, 2007 no options were available for grant under the 1996 Plan.

In July 2005, the Board of Directors and stockholders approved the adoption of the 2005 Stock Option Plan (the “2005 Plan”). The 2005 Plan provides for the grant of options to purchase up to 66,667 shares of our common stock. These options may be granted to employees, our officers, our non-employee directors, consultants, and advisors. The 2005 Plan provides for granting of options to purchase our common stock at not less than the fair value of such shares on the date of the grant. As of March 31, 2007, 18,700 options were available for grant under the 2005 Plan.

Our Board of Directors or its Stock Option Committee has determined the exercise price for all stock options awarded. The exercise price for all stock options awarded is the market price of our common stock on the date the option is granted.

There were no stock options granted during the quarter ended March 31, 2007. The average fair value of stock options granted during the quarter ended March 31, 2006 was estimated at $1.80, using the Black-Scholes option-pricing model. The following assumptions were used:

	2006
Dividend yield		0.00	%
Volatility		86.00	%
Risk-free rate of return		4.41- 4.63	%
Expected life		5 years

14

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Expected volatility is based on the historical volatility of our stock. The risk-free rate of interest for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. We use historical data to estimate forfeitures within our valuation model. The expected life of our stock option awards is derived from historical experience and represents the period of time that awards are expected to be outstanding.

Changes in options outstanding under the plans for the quarter ended March 31, 2007 were as follows:

	Sharessubject to option		Weighted-average exercise price		Aggregateintrinsic value		Weighted-average remaining life
December 31, 2006	598,307		$	21.15
Cancelled	(4,767	)		25.65
Outstanding March 31, 2007	593,541		$	20.85	$	8,550		6.0
Exercisable March 31, 2007	539,911		$	20.55	$	—		5.8

515,576 of the above outstanding stock options were granted outside of our employee stock option plan.

The following table summarizes information concerning currently outstanding and exercisable options:

					Options outstanding						Options exercisable
Range ofexercise price					Numberoutstandingat 03/31/07		Weighted-averageremaining life		Weighted-averageexercise price		Numberexercisableat 03/31/07		Weighted-averageexercise price
$	0.00	-	$	0.55		57,000		6.7	$	.55		0	$	.55
	2.85	-		14.85		434,284		5.5		3.80		429,549		3.80
	27.00	-		33.75		52,233		2.9		28.32		50,383		28.28
	45.00	-		131.25		48,840		2.8		53.59		48,840		53.59
	523.50	-		907.50		830		1.6		820.24		830		820.24
	930.00	-		1,500.00		354		.5		1,118.95		354		1,118.95
$	3.00	-	$	1,500.00		593,541		6.0	$	20.85		539,911	$	20.55

Share-based compensation expense is included in personnel expense. Personnel expense was recognized during the quarter ended March 31, 2007 of $2,890 and March 31, 2006 of $13,204, for all share-based option awards granted after January 1, 2006, based on the grant date fair value in accordance with the provisions of SFAS 123(R).

Performance Shares

During 2003, an allocation of 120,000 restricted shares of common stock were granted to officers and certain employees. The issuance of these shares was contingent on our achieving certain milestones. On January 5, 2005, we issued 66,667 and 22,667 of these shares to our chief executive officer and chairman, respectively, for having achieved a milestone of raising in excess of $15,000,000 over a specified period. On June 27, 2005, we allocated the remaining 30,666 shares of our common stock to certain executive officers and other employees. Out of this 30,666 allocation, we issued an aggregate of 19,666 shares to our chief operating and chief financial officers. Grants of the remaining 11,000 shares allocated to three employees were conditioned on meeting certain performance criteria. One of those employees met such performance criteria at December 31, 2005 and December 31, 2006 and 667 and 1,333, or an aggregate 2,000 shares were issued, respectively. The remaining 9,000 shares were forfeited as it was determined the performance criteria was not reached. The related charges were reflected as additional paid in capital and deferred compensation in the statement of shareholders’ deficit. The 111,000 shares all vested on May 31, 2007. We recorded a charge to deferred compensation of $752,000 based on the fair value of these restricted shares. The deferred compensation for the 111,000 issued shares was amortized over the 29-month vesting period. Included in personnel expense are charges of $77,076 and $96,895 for the quarters ended March 31, 2007 and 2006, respectively, reflecting the amortization of this deferred compensation amount. These shares have certain registration rights. In lieu of a direct cash payment, these individuals may transfer a portion of their shares back to us to satisfy their minimum future personal tax withholding liability arising from the receipt of these shares for which we will pay their tax obligation.

15

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Other Plans

On August 24, 2006 the Board of Directors adopted the Ortec International, Inc. 2006 Stock Award and Incentive Plan (the “2006 Plan”). The Plan provides for grants of up to 2,500,000 shares of our common stock that may be awarded to our employees, directors, consultant and advisors. The awards maybe in the form of restricted stock or incentive stock options. The grants will be made by the compensation committee of the Board of Directors or, in some cases, by a sub-committee of the compensation committee, and may require a performance component. The members of that sub-committee are both non-employee directors.

On December 11, 2006 the Board of Directors awarded 500,000 shares of restricted stock from the 2006 Plan to members of management. These shares are to be issued on January 1, 2008 and vest over a five month period ending May 31, 2008. These shares, or pro-rata portion thereof, will be forfeited if during any time over this seventeen-month period, these management members’ employment with us is terminated. Due to the high probability that these members of management employment will be retained through May 31, 2008, we recorded a charge of $165,000 related to these awards in deferred compensation and have amortized such charge over the period of service. No other specific performance criteria were established related to these awards as the awards were primarily retention based. Included in our March 31, 2007 quarters personnel expense is a charge of $29,118 related to these shares.

The Plan will be presented to Stockholders for approval at our next annual meeting. At March 31, 2007, 2,000,000 shares were available to grant.

NOTE 4 - NET LOSS PER SHARE

As of March 31, 2007, an aggregate of 5,512,037 outstanding warrants and options and an aggregate of 1,586,297 shares of common stock issuable upon the conversion of our Series D-1 preferred stock outstanding were excluded from the weighted average share calculations, as the effect was antidilutive. Basic and diluted loss per share for the quarter ended March 31, 2007 includes warrants to purchase 811,333 shares of common stock, exercisable at $.015 per share reflected as outstanding from the date of grant.

As of March 31, 2006, an aggregate of 2,491,344 outstanding warrants and options and an aggregate of 1,672,538 shares of common stock issuable upon the conversion of our Series D preferred stock outstanding were excluded from the weighted average share calculations, as the effect was antidilutive. Basic and diluted loss per share for the quarter ended March 31, 2006 includes warrants to purchase 940,491 shares of common stock, exercisable at $.015 per share reflected as outstanding from the date of grant. The weighted average share calculations included those common shares subject to registration rights and potential liquidated damages classified on the balance sheet as temporary equity.

NOTE 5 - WARRANTS

The following represents warrant activity during the three months ended March 31, 2007:

Balance at December 31, 2006	5,729,829
Granted	—
Exercised	—
Expired or cancelled	—
Balance at March 31, 2007	5,729,829

16

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following at March 31, 2007:

Accounts payable	$	3,402,549
Due to officers		597,022
Interest payable		254,140
Bank overdraft		220,970
Accrued expenses		270,190
Accrued professional fees		156,265
Accrued compensation		85,882
Deferred income		50,000
	$	5,037,018

NOTE 7 - FINANCING

Exchange Agreement: In the fourth quarter of 2006, we agreed on terms which were later incorporated into a January 29, 2007 agreement (the Exchange Agreement) we entered into with Paul Royalty Fund L.P. (PRF) for the restructuring of our $41,006,000 obligation under our revenue interest assignment agreement. Initially we and PRF agreed that the first $2,000,000 (later amended to $2,800,000) of any amount we had to pay PRF pursuant to our agreements with PRF would be paid to lenders of bridge loans made to us after September 2006. Those bridge loans enabled us to continue our operations while final terms could be determined relating to the restructuring of our obligation to PRF. Such restructuring enabled us to complete a private placement of our equity securities. On June 18, 2007, PRF and we amended the Exchange Agreement to provide for the $41,006,000 liability we owe to PRF to be exchanged for newly created classes of our preferred stock with a stated value of $10,000,000, upon the completion of $8,000,000 of equity financing. Upon securing such financing (which provided for the exchange of bridge loans we received for the equity securities we sold in the private placement as described in Note 8) the Exchange Agreement required cancellation of termination of employment agreements we had with Messrs. Katz and Lipstein and to the resignation of Messrs. Katz and Lipstein as our officers and directors, as well as other conditions described hereafter in Note 8.

Secured Bridge Financing: During the period January through March 2007, we had received bridge loans aggregating $1,424,000. These loans matured on various dates between February 28 and April 30, 2007, respectively, and had been due on demand anytime after such dates. These loans accrued interest at 15% after their due dates. The loans were repayable in cash at 110% of their $1,424,000 face value, or $1,566,400. The lenders had the option to convert their loan at 125% of the loaned amount plus any accrued interest into our June 18, 2007 private placement described in Note 8. The intrinsic value of this conversion option will be measured using the commitment date fair value of the stock. This will result in our recording a loss on settlement of the notes in our 2007 second quarter when the private placement was completed. Additionally, on June 18, 2007 we issued a warrant to the noteholders exercisable for one share of our common stock for each dollar of the face value of the Note (the “Bridge Warrant”). The Bridge Warrant has terms identical to the warrants we issued in the Private Placement. The Bridge Warrants have piggyback registration rights for the shares of our common stock issuable upon the exercise of the warrants. $139,500 of these notes came either from a member of our board of directors or entities which they control.

Directors and Officer Premium Financing Agreement: On February 2, 2007, we entered into a commercial premium finance agreement with First Insurance Funding Corp. of New York in the amount of $138,000. The financing agreement bore interest at 7.3 % and required nine monthly payments of $15,803 beginning March 2007. The financing was utilized to fund the premium payments for our directors and officers insurance policy.

Restricted Stock Award to Directors: On February 19, 2007, the Board of Directors awarded 60,000 shares and 50,000 shares, respectively to Dr. Lilien and Dr. Schiff, for their service as members on our Audit Committee. Both awards were made as a result of our long outstanding fees due these directors for their services and to ensure their continuing contribution. The awards were made pursuant to the 2006 Stock Award and Incentive Plan.

17

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 8 - SUBSEQUENT EVENTS

Restatements: On April 17, 2007, we filed quarterly restatements of our March, June and September 2006 quarterly filings in response to certain comments raised in a letter from the Securities and Exchange Commission as well as internal findings.

Delisting: On April 22, 2007, we were delisted from the Over the Counter Bulletin Board and moved to the Pink Sheets. Such delisting was a result of our failure to timely file our Form 10-KSB as a result of all our resources being focused on capital funding issues.

Rent Stipulation: By letter agreement of June 5, 2007, we entered into an Affidavit of Confession of Judgment for the amount of $321,139 rent due to Columbia University under our lease that had been in arrears. We also entered into a Surrender and Acceptance Agreement on the same date. Such amount was payable or, in accordance with these agreements, our lease would be terminated and the judgment entered against us. We would have to therefore vacate the premises. We paid such amounts on June 19, 2007 and the lease was not terminated.

Series H Warrant Offer: Beginning February 13, 2007 through June 8, 2007 we made an offer to the holders of our Series H Warrants, contingent on 100% acceptance by all holders, for them to exchange their Series H Warrants for such number of shares of our common stock that they could purchase upon exercise of their Series H Warrants, plus a new five year warrant to purchase, at an exercise price of $1.00 per share, 25% of the shares of our common stock they receive in such exchange. Holders of Series H Warrants to purchase an aggregate of 1,969,111 out of an aggregate of 2,169,111 (almost 91%) shares of our common stock that could be purchased upon exercise of all our Series H Warrants, accepted our exchange offer. Although we did not receive 100% acceptance of our offer, we nevertheless agreed to conclude the exchange with those holders of our Series H Warrants who had theretofore accepted our offer contingent upon the following:

• the surrender by the holder of his Series H Warrant(s) to us no later than July 20, 2007 by delivering them to us at our offices, and

• agreement to waive any claims they may have against us pursuant to all the agreements entered into with us in connection with their purchases of shares of our Series E Convertible Preferred Stock, all dated as of March 16, 2006.

We agreed to honor our exchange offer with any holder of our Series H Warrants who had agreed to the exchange prior to June 8, 2007 at 5 p.m. and who now agreed to the above conditions.

On June 10, 2007, our Board of Directors voted to reduce the exercise price of the Series H Warrants from $7.50 per share to $0.50 per share of our common stock pursuant to the provisions of Section 3 (g) of the Series H Warrants. On June 27, 2007, our Board of Directors reduced the $0.50 per share exercise price to $0.01 pursuant to the same provision.

Exchange Agreement: On June 18, 2007 we entered into the Amended and Restated Exchange Agreement (Exchange Agreement) with Paul Royalty Fund, L.P., and PRF exchanged its interest in our future revenues, recorded as a $41,006,000 liability in these financial statements, for 500 shares of our new Series A-1 Convertible Preferred Stock (A-1 Preferred) and 500 shares of our new Series A-2 Convertible Preferred Stock (A-2 Preferred), each share having a stated value/liquidation preference of $10,000. The stated values of the A-1 and A-2 Preferred can be converted to our common stock at conversion rates of $0.50 and $5.00 per share, respectively, or an aggregate of 11,000,000 common shares on an as converted basis for both the A-1 and A-2 Preferred. Our earlier agreements with PRF were cancelled and PRF’s liens were therefore removed from our intellectual property.

Our Exchange Agreement with PRF also provided for the following:

• Reimbursement of PRF for its legal expenses which we paid from the proceeds of the simultaneous June 18, 2007 closing of the sale of Series A Convertible Preferred Stock (A Preferred) with warrants attached.

• Resignation of five of our seven directors.

• Resignations of our chairman and chief executive officer (CEO), and the execution by us and our chairman and CEO of agreements canceling the termination of employment agreements we entered into with our chairman and CEO in 2002. Such termination of employment agreements required us to make payments to our chairman and CEO based upon a multiple of their five year average annual salaries, as they are defined in those 2002 agreements, if we terminate their employment with us.

18

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

• A change in our Board of Directors with one new director designated by PRF and at least one more director. The Exchange Agreement contemplated the election of our president, Dr. Constantin Papastephanou, as our new CEO.

Cancellation Agreements: We entered into Cancellation Agreements with our CEO and chairman canceling termination of employment agreements we entered into with them in 2002. Such termination of employment agreements required substantial payments we would have to make to them in the event of the involuntary termination of their employments with us. Under such Cancellation Agreements we made initial payments of $235,000 and $65,000, respectively, to them (including $25,000 to each as part of the consideration for cancellation of the deferred compensation we owed them). Thirty days after we receive the first response from the FDA to our pre-market application for clearance to make commercial sales of ORCEL to treat venous stasis ulcers (FDA’s 100 Day Letter), we will pay them an additional $90,000 and $45,000, respectively. Seven months after we receive the FDA’s 100 Day Letter we will pay them an additional $190,000 and $75,000, respectively. The post 100 Day Letter payments of $90,000 and $45,000 will be accelerated in certain events. Our CEO and chairman received five-year warrants to purchase 2,105,819 and 2,051,798 shares, respectively, of our common stock at $0.55 per share. These share amounts will increase by 3½% of any shares in excess of 27,858,540 shares of common stock which we are required to issue upon conversion of A Preferred shares and upon exercise of Series A warrants which we have sold or may hereafter sell. We will also issue additional five year warrants to each of them entitling them to purchase so many shares of our common stock equal to 3½ % of the number of shares of our common stock we issue, or are required to issue upon conversion or exercise of securities we issue, in the period ending 30 days after (and if) we publicly announce that we have received FDA clearance for commercial sales of our ORCEL product for the treatment of venous leg ulcers: (i) in financings in which we receive up to $6,300,000 and (ii) to our creditors in satisfaction of our obligations to them in excess of the number of shares we issue in such period in satisfaction of $3,000,000 of debt we owe. The additional warrants we may issue to our CEO and chairman will also be exercisable at $0.55 per common share. Our CEO and chairman agreed to the cancellation of all their presently held options and warrants to purchase our common stock.

We owed deferred compensation to our CEO and our chairman of $233,300 and $366,221, respectively. Our chairman and CEO agreed to cancel these obligations we owed them in exchange for payments of $25,000 each and an option to purchase 12 shares of our A Preferred for our CEO and 8 shares of our A Preferred for our chairman (stated value/ liquidation preference of $10,000 per share), plus the number of Series A, M, and M-1 warrants they would have received if they had purchased such A Preferred shares for the $10,000 per share price paid by the investors in the private placement. Such options are exercisable at $100 per A Preferred share (plus the percentage of Series A, M and M-1 warrants comparable to the percentage that the purchased A Preferred share(s) has to the total of A Preferred shares that could be purchased upon the full exercise of the option.) The options expire thirty days after (and if) we publicly announce FDA clearance for sale of our ORCEL product to treat venous stasis ulcers.

On June 21, 2007, Costa Papastephanou was named our CEO and also elected to our Board of Directors. Dr. Papastephanou has been employed by us since February 2001 as our president and chief operating officer.

Pursuant to the terms of our Exchange Agreement with PRF, Mark Eisenberg, Steven Lilien, and Allen Schiff resigned as directors on June21, 26, and 27, 2007, respectively. Drs. Lilien and Schiff were members of our audit and compensation committees. Also pursuant to such agreement, on June 22, 2007, the resignations of Ron Lipstein, our former CEO, and Steven Katz, our chairman, as directors became effective. Dr. Katz was a member of our compensation committee.

Series A Financing: We completed a private placement of our A Preferred stock with warrants attached to a group of accredited investors. We sold 579.148 shares of A Preferred for $10,000 per share (its stated value) and received gross cash proceeds from such sales of $ 5,791,475. At the same time holders of bridge notes who had loaned us an aggregate of $2,701,500, with $94,264 of accrued interest, or $2,795,764, exchanged their bridge notes for an aggregate of 349.470 shares of our A Preferred with warrants attached at 125% of the face value, or $3,494,705, of their bridge notes. We repaid $197,500 of bridge notes, or $226,936 including a $19,750 premium and $9,686 of accrued interest. All noteholders also received our five year Series A warrants to purchase an aggregate of 2,899,000 shares of common stock at $1.00 per share. Each $10,000 A Preferred share converts into 20,000 shares of our common stock at a conversion rate of $0.50 per common share. Our outstanding 928.618 shares of A Preferred can be converted into an aggregate of 18,572,360 shares of

19

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

our common stock. Each holder of A Preferred shares received a five year warrant to purchase 50% of the number of such holder’s A Preferred as converted shares, or to all such holders warrants to purchase an aggregate 9,286,180 shares of our common stock exercisable at $1.00 per share. Additionally each purchaser and bridge loan investor who acquired A Preferred shares also received Series M warrants which are exercisable at $0.50 per share at any time hereafter until thirty days after (and if) we have announced receipt of written notice from the FDA clearing our right to sell ORCEL for the treatment of venous stasis ulcers. The number of Series M warrants issued was correlated to the type of investor. Purchasers and bridge note investors who participated in the private placement received our Series M warrants to purchase 50% of the A Preferred as converted shares that they received in the private placement, and 100% if they invested $3,500,000 or more (Lead Investor(s)) in the purchase of A Preferred shares. We issued Series M warrants to purchase an aggregate 12,386,180 shares of common stock to investors in the private placement and to our bridge loan investors. Those purchasers and bridge loan investors who received Series M warrants also received five year Series M-1 warrants, exercisable at $1.00 per share, entitling them to purchase 50% of the number of our common shares they purchase upon exercise of their Series M warrants.

The placement agent who arranged the private placement financing received 10% of the cash proceeds we received from the bridge note loans and in the private placement, and five year warrants to purchase 1,857,236 shares of our common stock exercisable at $0.55 per share (10% of the as converted amount of Series A Preferred shares we issued), and warrants to purchase 641,809 more shares of our common stock exercisable at $0.55 per share (5% of the amount of our as exercised Series M warrants we issued). Under an advisory agreement with such placement agent, primarily as compensation for negotiating our recent restructuring transactions (the exchange transaction with PRF and the cancellation of termination of employment agreements with our CEO and chairman, both described in this report, and in connection with the exchange of our outstanding Series H warrants for shares of our common stock and our new Series A warrants, reported in our report on Form 8-K filed on June 12, 2007) we agreed to issue warrants to our placement agent, identical to those issued in the Series A financing, to purchase 2,000,000 shares of our common stock exercisable at $0.55 per share. In addition we agreed to exchange our common stock for our outstanding Series E PA, Series F and Series F PA warrants held by our placement agent, its affiliates or designees, or sub-agents who participated in the Series A Financing. We also agreed in such advisory agreement that the placement agent will be paid a transaction fee based on the closing of a strategic transaction in the future of 3% of the first $50 million, 2% of the next $50 million up to $100 million, and 1% of aggregate consideration we receive un excess of $100 million. Such advisory agreement will be in effect until June 15, 2008.

Other significant aspects of the private placement and financing transactions were:

i.	We are required to file a registration statement by September 17, 2007 for the shares of our common stock (a) into which the A Preferred and the A-1 Preferred can be converted and (b) issuable upon exercise of our Series M warrants. We are required to have such registration statement declared effective within 150 days of filing (Effectiveness Date). If we fail to file on time we will pay liquidated damages in cash of 2% of the Holders initial investment in the A Preferred and the stated value of the A-1 Preferred. If the filing is not declared effective by the 30th day following the Effectiveness Date we will pay 1% of that amount. If we are limited by the SEC as to the number of shares we can register pursuant to SEC Rule 415, the 1% fee will be applied only to those shares that could have been registered as required by our agreement. In either case our liquidated damages are capped at 24% of such amounts.
ii.	The exercise prices of the warrants and the conversion price of the Series A and A-1 Preferred will be adjusted downward (full-ratchet anti-dilution protection) for any equity issuances (other than permitted issuances) hereafter made by us at a price lower than the conversion price of the preferred stock or the exercise price of the warrants. Such full ratchet protection will cease and become standard weighted average anti-dilution protection 30 days after and if we publicly announce that we were successful in obtaining FDA approval for commercial sale of ORCEL for the treatment of venous stasis ulcers.
iii.	Subject to a registration statement being in effect or Rule 144 (k) being available for public sale of the shares of our common stock issuable upon conversion of the A Preferred (a) if the closing bid price of the our common stock is equal to or greater than $1.50 for ten (10) consecutive trading days, 1/3 of the A Preferred stated value shall automatically convert into shares of our common stock; (b) if the closing bid price is equal to or greater than $2.00 for ten (10) consecutive trading days then such portion of the A Preferred stated value shall automatically convert into shares of our common stock so that, together with the earlier automatic conversion, 2/3 of the original stated value shall have converted, and (c) if the closing bid price of our common stock is equal to or greater than $3.00 for ten (10) consecutive trading

20

ORTEC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

	days then all of the A Preferred holders stated value not theretofore converted shall automatically convert into shares of our common stock.
iv.	Beginning June 18, 2008, the Series A Warrants may be exercised pursuant to a cashless exercise if the common shares underlying the warrants are not included for public sale in an effective registration statement. Subject to ownership blockers, which may be waived by the holder on 61 days notice, the Series A Warrants shall be redeemable for $0.01 per warrant if (i) the common shares underlying the warrants are subject to an effective registration statement, and (ii) the closing bid price for our common stock is equal to or greater than $3.00 for ten (10) consecutive trading days.
v.	With the exception of $3,000,000 of securities issued prior to December 31, 2007, ranking pari passu with the A, A-1, and A-2 Preferred allowable only if FDA clearance for commercial sales of ORCEL to treat venous stasis ulcers has not yet been obtained, as long as $2 million of stated valued of the Series A and A-1 remain outstanding we are prohibited from issuing any securities that rank senior to or pari passu with the A, A-1, and A-2 Preferred without the approval of at least 50% of the A Preferred and 50% of the A-1 Preferred outstanding.
vi.	As long as the A Preferred is outstanding, the Lead Investor will receive the right for the next two years to purchase up to 40% of the securities being offered in subsequent financing (as defined) on the terms being offered in such future financing.
vii.	As long as the A and A-1 Preferred are outstanding, and as long as we have not received FDA clearance for commercial sales of ORCEL to treat venous stasis ulcers, these holders may exchange their preferred shares at their stated values for equity securities which have more favorable terms in a future financing.

We are in the process of evaluating the accounting ramifications of the June 18, 2007 transactions and based on our preliminary analysis we expect the transactions will have a material effect on our balance sheet and statement of operations.

Board of Directors: On June 29, 2007 the Board of Directors resolved that the Board should consist of six directors and elected Shepard M. Goldberg, Mark N.K. Bagnall and John R. Leone to fill the vacancies created by the recent resignations of five of our directors. Mr. Leone was designated as a director by PRF and elected pursuant to the provisions of Section 7 (u) of the Exchange Agreement between us and PRF.

21

Item 2. MANAGEMENT’S PLAN OF OPERATION

The following discussion should be read in conjunction with our financial statements and notes thereto. This discussion may be deemed to include forward-looking statements.

Forward Looking Information May Prove Inaccurate

This Quarterly Report on Form 10-QSB contains certain forward looking statements and information relating to Ortec that are based on the beliefs of management, as well as assumptions made by and information currently available to us. When used in this document, the words “anticipate,” “believe,” “estimate,” and “expect” and similar expressions, as they relate to Ortec, are intended to identify forward looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions, including those described in this discussion and elsewhere in this Quarterly Report on Form 10-QSB. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. We do not intend to update these forward-looking statements.

Plan of Operation

On June 21, 2007, Costa Papastephanou was named our CEO and also elected to our Board of Directors. Dr. Papastephanou has been employed by us since February 2001 as our president and chief operating officer.

Pursuant to the terms of our Exchange Agreement with PRF (see Liquidity section which follows), Mark Eisenberg, Steven Lilien, and Allen Schiff resigned as directors on June 21, 26, and 27, 2007, respectively. Drs. Lilien and Schiff were members of our audit and compensation committees. Also pursuant to such agreement, on June 22, 2007, the resignations of Ron Lipstein, our former CEO, and Steven Katz, our chairman, as directors became effective. Dr. Katz was a member of our compensation committee.

On June 29, 2007 the Board of Directors resolved that the Board should consist of six directors and elected Shepard M. Goldberg, Mark N.K. Bagnall and John R. Leone to fill the vacancies created by the recent resignations of five of our directors. Mr. Leone was designated as a director by PRF and elected pursuant to the provisions of Section 7 (u) of the Exchange Agreement between us and PRF.

We are a development stage enterprise which had no operating revenue prior to December 2001. During 2001, we received Food and Drug Administration (FDA) approval for the use of the fresh form of our ORCEL product for the treatment of patients with recessive dystrophic epidermolysis bullosa and for donor sites in burn patients. We began marketing and selling our product for use on patients with one of these indications using a contract sales organization. Our sales and marketing efforts were active only for a brief period and accordingly our revenues were not significant. We terminated our sales efforts and elected to focus our attention on completing development of a cryopreserved form of our product for treatment of chronic wounds affecting larger patient populations. As a result, we completed a clinical trial during 2003 for the use of the cryopreserved form of ORCEL to treat venous stasis ulcers and filed an application for pre-market approval (PMA) with the FDA in February 2004. In a letter dated April 25, 2005, although the FDA concluded that cryopreserved ORCEL showed promise for the effective treatment of venous stasis ulcers, the FDA determined that additional data would be necessary to confirm cryopreserved ORCEL’s effectiveness and safety treating venous stasis ulcers. The clinical data from the pivotal trial of 136 patients submitted to the FDA showed that in 60 patients who had typical venous ulcers (defined as those ulcers with partial or full-thickness ulcers in which the wound base is visible and the ulcer extends through the dermis but not into the subcutaneous tissue to fascia, muscle or bone), 59% of the ORCEL treated patients achieved wound closure versus 36% of the patients who received the standard of care treatment. The FDA agreed that data of these 60 patients would be combined with that of the 60 patients to be enrolled in a confirmatory clinical trial and the combined results will be analyzed using Bayesian statistics. We obtained FDA approval for our confirmatory trial protocol in mid July 2005 and began the confirmatory trial in mid August 2005. In August 2006, we completed the confirmatory trial designed to confirm the superiority of cryopreserved ORCEL in the treatment of difficult-to-heal venous leg ulcers. On February 26, 2007, we announced that we had initiated the filing of the supplement to our Pre Market Approval (PMA) application with the FDA requesting clearance from the FDA to market our tissue engineered product, ORCEL, for the treatment of venous leg ulcers by submitting to the FDA the Manufacturing and Controls (CMC) section of the application. We hope to file the other section of the application, which will report the results of our confirmatory clinical trial, in the third quarter of 2007. Such other section will report the results showing the effectiveness of our ORCEL product – treating venous stasis ulcers as compared with the effectiveness of the current standard of care, the safety of using our product and the labeling we propose to use for our ORCEL product. The filings of these two sections will be amendments to our PMA application filed in February 2004.

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We are working with Lonza Walkersville, Inc, a subsidiary of Lonza Corporation (Lonza) to limit expenditures under our manufacturing agreement primarily to those which are essential for obtaining regulatory approval. Together, we are working on process improvements that we expect will drive down the cost of producing ORCEL as we plan for the potential commercial sales of our product. In January 2007, Lonza agreed to temporarily suspend their monthly $136,591 monthly production suite billing under our Cell Therapy Manufacturing Agreement until such time as the suite is necessary for our ORCEL production purposes which is expected around mid July 2007. We have begun preliminary discussions with Lonza with respect to a potential reduction of our monthly production suite costs and other modifications of our Cell Therapy Manufacturing Agreement as well as changes to our Sales Agency Agreement.

In July 2006, we submitted a Humanitarian Device Exemption (HDE) supplement to the FDA to obtain marketing approval for use of cryopreserved ORCEL in the treatment of Recessive Dystrophic Epidermolysis Bullosa (RDEB), the most severe type of Epidermolysis Bullosa (EB). RDEB is a devastating congenital skin disorder characterized by painful ulcers and widespread, permanent scarring resulting in the deformity of hands and feet. As a result, many RDEB patients require surgeries to allow greater use of their extremities resulting in need for replacement skin. In October 2006, we received a letter from the FDA informing us that the HDE has been approved pending an FDA audit of the manufacturing facility and quality systems at the facility where our ORCEL product will be manufactured. Since we are now close to submitting the PMA for venous stasis ulcers we expect the FDA to inspect the manufacturing facility as part of the PMA approval process.

We have deferred conducting a pivotal clinical trial for the use of ORCEL in the treatment of diabetic foot ulcers until after FDA determination of whether we may make commercial sales of cryopreserved ORCEL to treat venous stasis ulcers. We completed a pilot clinical trial for the use of ORCEL, in its fresh, not cryopreserved, form in the treatment of diabetic foot ulcers in the latter part of 2001. The results of that clinical trial showed a 75% improvement over the standard of care as well as a daily healing rate that was twice as fast as the standard of care, for those patients treated with ORCEL. On January 6, 2005, we submitted a modified protocol to the FDA for the conduct of a clinical trial of cryopreserved ORCEL to treat diabetic foot ulcers. In February 2005, the FDA completed a review of our modified protocol and gave us permission to initiate a pivotal trial evaluating cryopreserved ORCEL in the treatment of diabetic foot ulcers. If we have sufficient funds, we expect to initiate patient enrollment for the diabetic foot ulcers pivotal clinical trial shortly after receiving FDA clearance for commercial sales of ORCEL in the treatment of venous stasis ulcers. We expect that the diabetic foot ulcers clinical trial will be conducted at up to 25 clinical centers and involve up to approximately 200 patients.

In the past twelve months, in anticipation of commercial sales of ORCEL, our operations were focused towards finalizing the ORCEL production process at Ortec and transferring the commercial manufacturing operations to Lonza. During this time we enhanced and validated the ORCEL production process at Ortec allowing for the transfer of the production process and full validation at Lonza. Work was also ongoing in the area of process development to improve the consistency, increase the scale and reduce the cost of producing ORCEL. To increase scale and reduce the cost of producing ORCEL, we developed a cell factory process to provide for the ability to accomplish larger scale cell expansion which will facilitate the production of additional cell inventory. Development efforts were also ongoing to improve the process, and reduce the cost of producing our collagen sponge matrix, which included developing a prelaminated sponge and finding alternative sources of supply of bovine hide collagen and producing various grades of sponges that could provide new business opportunities. We validated several assay methods used to qualify incoming raw materials and to monitor both the ORCEL production process and the final ORCEL product, all required by the FDA. Other manufacturing cost reduction projects may be delayed, or may be accomplished in collaboration with Lonza. Preliminary discussions with Lonza have taken place with respect to the transfer of our cell expansion processes as well as co-development of other cost reduction and increased production projects. The costs associated with these projects will be negotiated with Lonza.

The following is a listing of the projected development activities on which we expect to focus during the next twelve months:

	•	Completion of all FDA required tests and validations;
	•	Completion of development of the cell factory process to increase cell line expansion capacity and reduce costs;
	•	Validation at Lonza of a process which doubles our ORCEL manufacturing capacity;
	•	Transfer of the cell factory process to Lonza, and
	•	Production and expansion of cell inventory for use in the commercialization of ORCEL.
Additionally we may:
	•	Examine potential licensing opportunities for use of our biomaterials in other tissue engineering applications, and
	•	Submit proposals to the appropriate agencies for the purpose of securing available research grants.

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We may invest approximately $125,000 for equipment which will allow us to expand our collagen sponge manufacturing capacity.

We expect that the above projects will require our current level of staffing. We periodically review and adjust our staffing levels and operational expenses for maximum efficiency. Assuming a favorable outcome from the FDA in 2008 we believe our workforce should remain fairly constant. We recently made significant changes in our executive ranks and in overseas personnel.

We will need to secure additional financing for the approximately $500,000 of expenses we are currently incurring on a monthly basis. The amount of cash we consume each month fluctuates, depending, among other things, on whether we are incurring expenses for services provided by third party suppliers in connection with clinical trial or contract manufacturing activities and what payments we have to make on our outstanding debt.

While we have arranged for payment of some of our obligations over a period of time, and have to make other payments of past due obligations to our current and ongoing suppliers, our ability to make payments we have agreed to pay and to insure continued receipt of needed supplies and services, and to continue reducing our past due obligations, will depend on our ability to secure needed financing or our ability to issue equity in satisfaction of certain obligations.

We hope to obtain additional funds through the sale of our securities to the public and through private placements, debt financing or other short-term loans. We may not be able to secure any financing nor may we be able to reach the larger patient population markets of persons with venous stasis ulcers and diabetic foot ulcers, with funds that we may be able to raise. We are also likely to continue to encounter difficulties which are common to development stage companies, including unanticipated costs relating to development, delays in the testing of products, regulatory approval and compliance and competition.

Haptides^™

We acquired the Haptides™ cell attachment technology in our April 2006 acquisition of Hapto Biotech. This technology, which is a synthetic version of fibrin-based natural human peptide sequences with superior cell attraction properties, is simple and inexpensive to manufacture; offers a good safety profile in that it is non-immunogenic, non-inflammatory and non-toxic; and has demonstrated preclinical validation of its ability to enhance cell attachment. Our initial application of the Haptides™ technology is to the active biomaterial collagen. Our findings have shown that Haptides™ modified collagen improved cell attachment and growth In Vitro by 40-50%, and In Vivo implantation studies have continued to show promising soft tissue augmentation results as well. The implanted sponge material attracts fibroblast cell infiltration with minimal associated inflammation.

We have executed material transfer agreements for technology evaluation and have begun preliminary discussions with companies focused on these markets to explore their interest in potentially partnering with us to structure co-development and licensing agreements for our Haptides™ technology platform.

We were notified by the U.S. patent office that the claims of our patent application “Novel Haptotactic Peptides” related to our Haptides™ technology platform, have been allowed. The patent incorporating these claims was issued in the last quarter of 2006. We are currently evaluating the opportunity for additional patent claims and filings around the Haptides™ technology.

Fibrin Microbeads

Also acquired in the acquisition of Hapto Biotech in April 2006, was our Fibrin Microbeads (FMB) technology. FMBs are cross-linked, heat-treated Fibrin beads that can be used to isolate matrix-dependent cells, including Mesenchymal-type Adult Stem Cells. We believe that FMB represent valuable and unique intellectual property, with five U.S. patents issued and a notice of allowance recently received for a European patent, and that this is a technology which may have significant advantages over comparable technologies for adult stem cell isolation.

The FMB stem cell technology, we believe, is a flexible, comprehensive one-bead approach for adult stem cell therapy. FMB have the unique potential to provide the clinician the ability to isolate stem cells from multiple sources including blood, the least invasive tissue source which was previously not considered a viable source of a sufficient quantity of mesenchymal type stem cells for therapeutic application. FMB also have the flexibility to deliver the isolated stem cells therapeutically as an implant to the patient, either as an initial cell product or as an expanded cell product, or as a differentiated stem cell product. All the current autologus adult stem cell methods we are aware of do not have the ability to provide this comprehensive solution to adult stem cell therapy.

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Since acquiring Hapto we completed certain aspects of a milestone driven plan evaluating the use of this novel stem cell technology in bone regeneration. A preclinical trial evaluating FMB for bone regeneration has recently been completed.

We have executed material transfer agreements for technology evaluation and have begun preliminary discussions with companies targeting the stem and progenitor cell markets to explore their interest in potentially partnering with us to structure co-development and licensing agreements for our FMB technology platform.

Liquidity Matters

Beginning on February 13, 2007 we offered all holders of the Series H warrants to purchase 2,169,111 shares of our common stock the opportunity to exchange these warrants for 2,169,111 shares of our common stock and warrants to purchase 542,278 shares of common stock on the same terms as the Series A Warrants which were among the securities we recently sold in a private placement sale of our Series A Convertible Preferred Stock which is described hereafter. The offer was contingent on 100% acceptance. The offer was extended to June 8, 2007. Holders of 1,969,111 shares accepted this offer.

On June 10, 2007, pursuant to the terms of the Series H warrant our Board of Directors voted to lower the exercise prices of all Series H warrants to $0.50 from their current price of $7.50. Such reduction does not increase the number of shares of common stock that could be purchased upon exercise of the Series H warrants, pursuant to the terms of the warrant. Although holders representing only 91% of the shares that could be purchased upon exercise of the Series H warrants agreed to the terms of the Series H Warrant offer, our Board of Directors agreed to consummate exchanges with the holders who accepted the offer provided they agreed to waive any claims that they may have under their April 2006 private placement agreements with us and provided they returned their Series H warrants. On June 27, 2007 our Board of Directors voted to further reduce the exercise price of the remaining Series H warrants to $0.01 per common share.

Our agreement with Paul Royalty Fund L.P. provided that in certain events, including insolvency, PRF may, at its option, compel us to repurchase the interest in our revenues that we sold to PRF for a price equal to the $10,000,000 PRF paid us plus an amount that would yield PRF a 30% per annum internal rate of return on its $10,000,000 investment. As defined in our agreement with PRF we are currently insolvent. As a result of this insolvency our obligation under the revenue interest assignment is stated at $41,006,000, the amount for which PRF could compel us to repurchase their revenue interest at March 31, 2007.

In the fourth quarter of 2006, we agreed on terms which were later incorporated into a January 29, 2007 agreement (the Exchange Agreement) we entered into with Paul Royalty Fund L.P. for the restructuring of our $41,006,000 obligation under our revenue interest assignment agreement. Initially we and PRF agreed that the first $2,000,000 (later amended to $2,800,000) of any amount we had to pay PRF pursuant to our agreements with PRF would be paid to lenders of bridge loans made to us after September 2006. Those bridge loans enabled us to continue our operations while final terms could be determined relating to the restructuring of our obligation to PRF. Such restructuring enabled us to complete a private placement of our equity securities. On June 18, 2007, PRF and we entered into an amended Exchange Agreement to provide for the $41,006,000 liability we owe to PRF to be exchanged for newly created classes of our preferred stock with a stated value of $10,000,000, upon the completion of $8,000,000 of equity financing. Upon securing such financing (which provided for the exchange of bridge loans we received for the equity securities we sold in the private placement described in the June 18, 2007 financing transactions which follow). Additionally, on June 18, 2007 the Exchange Agreement required cancellation of termination of employment agreements we had with Messrs. Katz and Lipstein and to the resignation of Messrs. Katz and Lipstein as our officers and directors, as well as other conditions described hereafter.

During the period January through March 2007, we received bridge loans aggregating $1,424,000. These loans matured on various dates between February 28 and April 30, 2007, respectively, and had been due on demand anytime after such dates. These loans accrued interest at 15% after their due dates. The loans were repayable in cash at 110% of their $1,424,000 face value, or $1,566,400. The lenders had the option to convert their loan at 125% of the loaned amount plus any accrued interest into our June 18, 2007 private placement described below. The intrinsic value of this conversion option will be measured using the commitment date fair value of the stock. This will result in our recording a loss on settlement on the notes in our 2007 second quarter when the private placement was completed. Additionally, on Jun 18, 2007, we issued a warrant to the noteholders exercisable for one share of our common stock for each dollar of the face value of the Note (the “Bridge Warrant”). The Bridge Warrant has terms identical to the warrants we issued in the Private Placement. The Bridge Warrants have piggyback registration rights for the shares of our common stock issuable upon the exercise of the warrants. $139,500 of these notes came either from a member of our board of directors or entities which they control.

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On June 18, 2007 we completed a number of simultaneous financing transactions:

•	We entered into the Amended and Restated Exchange Agreement (Exchange Agreement) with PRF, and PRF exchanged its interest in our future revenues, recorded as a $41,006,000 liability in these financial statements, for 500 shares of our new Series A-1 Convertible Preferred Stock (A-1 Preferred) and 500 shares of our new Series A-2 Convertible Preferred Stock (A-2 Preferred), each share having a stated value/liquidation preference of $10,000. The stated values of the A-1 and A-2 Preferred can be converted to our common stock at conversion rates of $0.50 and $5.00 per share, respectively, or an aggregate of 11,000,000 common shares on an as converted basis for both the A-1 and A-2 Preferred. Our earlier agreements with PRF were cancelled and PRF’s liens were therefore removed from our intellectual property.
	Our Exchange Agreement with PRF also provided for the following:
		i.	Reimbursement of PRF for its legal expenses which we paid from the proceeds of the simultaneous June 18, 2007 closing of the sale of our Series A Convertible Preferred Stock (A Preferred) with warrants attached.
		ii.	Resignation of five of our seven directors.
		iii.	Resignations of our chairman and chief executive officer (CEO), and the execution by us and our chairman and CEO of agreements canceling the termination of employment agreements we entered into with our chairman and CEO in 2002. Such termination of employment agreements required us to make payments to our chairman and CEO based upon a multiple of their five year average annual salaries, as they are defined in those 2002 agreements, if we terminate their employment with us.
		iv.	A change in our Board of Directors with one new director designated by PRF and at least one more director. The Exchange Agreement contemplated the election of our president, Dr. Constantin Papastephanou, as our new CEO.
•	We entered into Cancellation Agreements with our CEO and chairman canceling termination of employment agreements we entered into with them in 2002. Such termination of employment agreements required substantial payments we would have to make to them in the event of the involuntary termination of their employments with us. Under such Cancellation Agreements we made initial payments of $235,000 and $65,000, respectively, to them (including $25,000 to each as part of the consideration for cancellation of the deferred compensation we owed them). Thirty days after we receive the first response from the FDA to our pre-market application for clearance to make commercial sales of ORCEL to treat venous stasis ulcers (FDA’s 100 Day Letter), we will pay them an additional $90,000 and $45,000, respectively. Seven months after we receive the FDA’s 100 Day Letter we will pay them an additional $190,000 and $75,000, respectively. The post 100 Day Letter payments of $90,000 and $45,000 will be accelerated in certain events. Our CEO and chairman received five-year warrants to purchase 2,105,819 and 2,051,798 shares, respectively, of our common stock at $0.55 per share. These share amounts will increase by 3½% of any shares in excess of 27,858,540 shares of common stock which we are required to issue upon conversion of A Preferred shares and upon exercise of Series A warrants which we have sold or may hereafter sell. We will also issue additional five year warrants to each of them entitling them to purchase so many shares of our common stock equal to 3½% of the number of shares of our common stock we issue, or are required to issue upon conversion or exercise of securities we issue, in the period ending 30 days after (and if) we publicly announce that we have received FDA clearance for commercial sales of our ORCEL product for the treatment of venous leg ulcers: (i) in financings in which we receive up to $6,300,000 and (ii) to our creditors in satisfaction of our obligations to them in excess of the number of shares we issue in such period in satisfaction of $3,000,000 of debt we owe. The additional warrants we may issue to our CEO and chairman will also be exercisable at $0.55 per common share. Our CEO and chairman agreed to the cancellation of all their presently held options and warrants to purchase our common stock.
	We owed deferred compensation to our CEO and our chairman of $233,300 and $366,221, respectively. Our chairman and CEO cancelled these obligations we owed them in exchange for payments of $25,000 each and an option to purchase 12 shares of our A Preferred for our CEO and 8 shares of our A Preferred for our chairman (stated value/ liquidation preference of $10,000 per share), plus the number of Series A, M, and M-1 warrants they would have received if they had purchased such A Preferred shares for the $10,000 per share price paid by the investors in our recent private placement. Such options are exercisable at $100 per A Preferred share (plus the percentage of Series A, M and M-1 warrants comparable to the percentage that the purchased A Preferred share(s)

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• We completed a private placement of our A Preferred stock with warrants attached to a group of accredited investors. We sold 579.148 shares of A Preferred for $10,000 per share (its stated value) and received gross cash proceeds from such sales of $5,791,475. At the same time holders of bridge notes who had loaned us an aggregate of $2,701,500, with $94,264 of accrued interest, or $2,795,764, exchanged their bridge notes for an aggregate of 349.470 shares of our A Preferred with warrants attached at 125% of the face value, or $3,494,705, of their bridge notes. We repaid $197,500 of bridge notes, or $226,936 including a $19,750 premium and $9,686 of accrued interest. All noteholders also received our five year Series A warrants to purchase an aggregate of 2,899,000 shares of common stock at $1.00 per share. Each $10,000 A Preferred share converts into 20,000 shares of our common stock at a conversion rate of $0.50 per common share. Our outstanding 928.618 shares of A Preferred can be converted into an aggregate of 18,572,360 shares of our common stock. Each holder of A Preferred shares received a five year warrant to purchase 50% of the number of such holder’s A Preferred as converted shares, or to all such holders warrants to purchase an aggregate 9,286,180 shares of our common stock exercisable at $1.00 per share. Additionally each purchaser and bridge loan investor who acquired A Preferred shares also received our Series M warrants which are exercisable at $0.50 per share at any time hereafter until thirty days after (and if) we have announced receipt of written notice from the FDA clearing our right to sell ORCEL for the treatment of venous stasis ulcers. The number of Series M warrants issued was correlated to the type of investor. Purchasers and bridge note investors who participated in the private placement received Series M warrants to purchase 50% of the A Preferred as converted shares that they received in the private placement, and 100% if they invested $3,500,000 or more in the purchase of A Preferred shares. We issued Series M warrants to purchase an aggregate 12,386,180 shares of common stock to investors in the private placement and to our bridge loan investors. Those purchasers and bridge loan investors who received Series M warrants also received five year Series M-1 warrants, exercisable at $1.00 per share, entitling them to purchase 50% of the number of our common shares they purchase upon exercise of their Series M warrants.

The placement agent who arranged the private placement financing received 10% of the cash proceeds we received from the bridge note loans and in the private placement, and five year warrants to purchase 1,857,236 shares of our common stock exercisable at $0.55 per share (10% of the as converted amount of the A Preferred shares we issued), and warrants to purchase 641,809 more shares of our common stock exercisable at $0.55 per share (5% of the amount of our as exercised Series M warrants we issued). Under an advisory agreement with such placement agent, primarily as compensation for negotiating our recent restructuring transactions (the exchange transaction with PRF and the cancellation of termination of employment agreements with our CEO and chairman, both described in this report, and in connection with the exchange of our outstanding Series H warrants for shares of our common stock and our new Series A warrants, reported in our report on Form 8-K filed on June 12, 2007) we agreed to issue warrants to our placement agent, identical to those issued in the Series A financing, to purchase 2,000,000 shares of our common stock exercisable at $0.55 per share. In addition we agreed to exchange our common stock for our outstanding Series E PA, Series F and Series F PA warrants held by our placement agent, its affiliates or designees, or sub-agents who participated in the Series A Financing. We also agreed in such advisory agreement that the placement agent will be paid a transaction fee based on the closing of a strategic transaction in the future of 3% of the first $50 million, 2% of the next $50 million up to $100 million, and 1% of aggregate consideration we receive un excess of $100 million. Such advisory agreement will be in effect until June 15, 2008.

We are in the process of evaluating the accounting ramifications of the June 18, 2007 transactions and based on our preliminary analysis we expect the transactions will have a material effect on our balance sheet and statement of operations.

We anticipate that we will need to secure additional financing for the period after October 2007 for the approximately $500,000 of cash we are currently consuming per month. The amount of cash we consume each month fluctuates, depending, among other things, on whether we are incurring expenses from services provided by third party suppliers in connection with a clinical trial and what payments we have to make on our outstanding debt.

As of March 31, 2007, payment of approximately $3,154,000 of the approximately $3,403,000 we owed to our trade creditors was past due.

While we have arranged for payment of some of our obligations over a period of time, and have to make other payments of past due obligations to our current and ongoing suppliers, our ability to make payments we have agreed to pay and to insure continued receipt of needed supplies, and to continue reducing our past due obligations, will depend on our ability to secure needed financing or our ability to issue our equity securities in satisfaction of certain obligations.

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We hope to obtain additional funds through the sale of our securities in private placements, debt financing or other short-term loans. We may not be able to secure any future financing nor may we be able to reach the larger patient population markets of persons with venous stasis ulcers and diabetic foot ulcers, with funds that we may be able to raise. We are also likely to continue to encounter difficulties which are common to development stage companies, including unanticipated costs relating to development, delays in the testing of products, regulatory approval and compliance and competition.

Our capital funding requirements depend on numerous factors, including:

• the progress and magnitude of our research and development programs;

• the time involved in obtaining regulatory approvals for the commercial sale of our ORCEL product in its cryopreserved form to treat venous stasis ulcers and, later, diabetic foot ulcers;

• the costs involved in filing and maintaining patent claims;

• technological advances;

• competitive and market conditions;

• the successful implementation of the agreements we have entered into with Lonza for manufacturing and sales of our ORCEL product;

• our ability to establish and maintain other collaborative arrangements, and

• the cost and effectiveness of commercialization activities and arrangements.

Unless we obtain additional financing we will not be able to continue to operate our business.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2007.

Item 3.        CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

Our Principal Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of March 31, 2007 (“Evaluation Date”) have concluded that our disclosure controls and procedures were not effective in timely alerting us to material information relating to us, required to be included in our periodic filings with the Securities and Exchange Commission.

Management identified the following material weaknesses which has caused management to conclude that, as of March 31, 2007, our disclosure controls and procedures were not effective:

	•	During the fourth quarter of 2006, we received a comment letter from the SEC’s Division of Corporation Finance (“Staff”) relating to a routine review of our Form 10-KSB for the year ended December 31, 2005 and Form 10-QSB/A for the quarter ended June 30, 2006. In the course of responding to the Staff’s comments, we reviewed the accounting treatment for the various transactions. We determined that certain transactions, specifically our accounting for the Series C preferred stock exchange in the first quarter of 2005 and our accounting for the reduction in Series E warrant prices to $0.001 in relation to the issuance of promissory notes in the second quarter of 2005 were recorded incorrectly.
Remediation of Material Weakness
Management has corrected the financial statements and disclosures and discussed this matter with the audit committee. Due to limited funding we rely primarily on one person to handle all of the various accounting responsibilities we encounter as well as to determine the appropriate accounting for the various complex accounting transactions we enter into. To remediate the material weaknesses in our disclosure controls and procedures identified above, in addition to working with our independent auditors, we plan to:
	•	dedicate additional time and resources to training, and
	•	consider allocating our limited resources to hiring outside financial consultants to assist with the review of our more complex financing transactions.

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The control deficiencies will be fully remediated when in the opinion of our management, the revised control processes have been operating for a sufficient period of time to provide assurance as to their effectiveness. We believe we will be able to make this assessment by December 31, 2007.

Our management, including the Certifying Officers, do not expect that our disclosure controls and procedures will prevent all errors and all improper conduct. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, a design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any, have been detected. These inherent limitations include the realities that judgments and decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more persons, or by management override of the control. Further, the design of any system of controls is also based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations and a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

(b) Changes in internal controls.

There were no changes in our internal controls or in other factors that could materially affect, or are likely to materially affect, our internal controls over financial reporting in the first quarter of 2007.

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PART II

Item 1.	LEGAL PROCEEDINGS
	None.
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	We issued 60,000 shares and 50,000 shares of our common stock, respectively to Dr. Steven Lilien and Dr. Allen Schiff, who were then members of our Board of Directors, for their service as members on the Board’s audit committee. These issuances were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4 (2) of the Act as transactions not involving a public offering.
Item 3.	DEFAULTS UPON SENIOR SECURITIES
	None.
Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	None.
Item 5.	OTHER INFORMATION
	None.
Item 6.	EXHIBITS

(a)	Exhibit No.		Description
	3.1	*	Amended and Restated Articles of Incorporation and amendments thereto.
	3.2	*	ByLaws.
	10.1		Amended and Restated Exchange Agreement between Ortec International, Inc. and Paul Royalty Fund, L.P. dated June 18, 2007. (Incorporated by Reference to Exhibit 10.1 to Form 8-K/A dated June 18, 2007, filed with the Commission on June 25, 2007, Commission File No. 0-27368).
	10.2		Bill of Sale and Termination Agreement between Ortec International, Inc. and Paul Royalty Fund, L.P. dated June 18, 2007. (Incorporated by Reference to Exhibit 10.2 to Form 8-K/A dated June 18, 2007, filed with the Commission on June 25, 2007, Commission File No. 0-27368).
	10.3		Series A Convertible Preferred Stock Purchase Agreement including Series A, M, and M-1 warrants dated June 18, 2007. (Incorporated by Reference to Exhibit 10.3 to From 8-K/A dated June 18, 2007, filed with the Commission on June 25, 2007, Commission File No. 0-27368).
	10.4		Placement Agent Agreement between Ortec International, Inc. and Burnham Hill Partners, a division of Pali Capital Inc., dated June 15, 2007. (Incorporated by Reference to Exhibit 10.4 to Form 8-K/A dated June 18, 2007, filed with the Commission on June 25, 2007, Commission File No. 0-27368).
	10.5		Financial Advisory Agreement between Ortec International, Inc, and Burnham Hill Partners, a division of Pali Capital Inc., dated June 15, 2007. (Incorporated by Reference to Exhibit 10.5 to Form 8-K/A dated June 18, 2007, filed with the Commission on June 25, 2007, Commission File No. 0-27368).
	10.6		Cancellation Agreement between Ortec International, Inc and Ron Lipstein dated June 18, 2007. (Incorporated by Reference to Exhibit 10.6 to Form 8-K/A dated June 18, 2007, filed with the Commission on June 25, 2007, Commission File No. 0-27368).
	10.7		Cancellation Agreement between Ortec International, Inc and Steven Katz dated June 18, 2007. (Incorporated by Reference to Exhibit 10.7 to Form 8-K/A dated June 18, 2007, filed with the Commission on June 25, 2007, Commission File No. 0-27368).
	10.8		Warrant issued to Ron Lipstein pursuant to Cancellation Agreement dated June 18, 2007. (Incorporated by Reference to Exhibit 10.8 to Form 8-K/A dated June

30

			18, 2007, filed with the Commission on June 25, 2007, Commission File No. 0-27368).
	10.9		Warrant issued to Steven Katz pursuant to Cancellation Agreement dated June 18, 2007. (Incorporated by Reference to Exhibit 10.9 of Form 8-K/A dated June 18, 2007, filed with the Commission on June 25, 2007, Commission File No. 0-27368).
	31.1	*	Rule 13a-14(a) / 15d- 14 (a) Certification of Principal Executive Officer.
	31.2	*	Rule 13a-14(a) / 15d –14 (a) Certification of Principal Financial Officer.
	32.1	*	Section 1350 Certification of Principal Executive Officer.
	32.2	*	Section 1350 Certification of Principal Financial Officer.
* filed herewith

31

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

	Registrant:
	ORTEC INTERNATIONAL, INC.
Date: July 3, 2007	By:	/s/ Costa Papastephanou
		Costa Papastephanou
		Chief Executive Officer
Date: July 3, 2007	By:	/s/ Alan W. Schoenbart
		Alan W Schoenbart
		Chief Financial Officer

32

EX-3.1

Exhibit 3.1

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ORTEC INTERNATIONAL, INC.

__________________________

Adopted in Accordance with the Provisions of
Section 242 and 245 of the General Corporation Law
of the State of Delaware

__________________________

                    The undersigned, being the secretary of Ortec International, Inc., a corporation existing under the laws of the State of Delaware (the "Corporation") does hereby certify that (i) the Certificate of Incorporation of the Corporation under the name "Ortec International, Inc." was filed with the Secretary of State of the State of Delaware on March 12, 1991 (ii) the Agreement of Merger merging The Skin Group, Ltd. with and into the Corporation was filed with the Secretary of the State of Delaware on July 27, 1992, (iii) a Certificate of Amendment to the Certificate of Incorporation of the Corporation was filed with the Secretary of the State of Delaware on September 4, 1998 and (iv) the Certificate of Incorporation of the Corporation is hereby amended and restated as follows (as so amended and restated, this "Certificate of Incorporation"):

FIRST:           The name of the corporation (hereinafter called the "Corporation") is

                         Ortec International Inc.,

SECOND:    The address, including street, number, city, and county, of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware 19808; and the name of the registered agent of the Corporation in the State of Delaware is Corporation Service Company.

THIRD:         The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "DGCL").

FOURTH:      1. Authorized Capital Stock. The total number of shares of capital stock that the Corporation is authorized to issue is 36,000,000, consisting of 35,000,000 shares of common stock, par value $.001 per share ("Common Stock"), and 1,000,000 shares of preferred stock, par value $.001 per share ("Preferred Stock").

                       2.      Preferred Stock. The Board of Directors of the Corporation is hereby authorized to provide for the issuance of shares of Preferred Stock in one or more series, to increase or decrease the number of shares of Preferred Stock designated for any such series, and to fix the designation, relative powers, preferences, and rights and qualifications, limitations, or restrictions of all shares of such series. The authority of the Board of Directors with respect to each such series will include, without limiting the generality or effect of the foregoing, the determination of any or all of the following:

(a)      the voting powers, if any, and whether such voting powers are full or limited in such series;

(b)      the redemption provisions, if any, applicable to such series, including the redemption price or prices to be paid;

(c)      whether dividends, if any, will be cumulative or noncumulative, the dividend rate, if any, of such series, and the dates and preferences of dividends, if any, on such series;

(d)      the rights of such series upon the voluntary or involuntary dissolution of, or upon any distribution of the assets of, the Corporation;

(e)      the provisions, if any, pursuant to which the shares of such series are convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock, or any other security, of the Corporation or any other corporation or other entity, and the price or prices or the rates of exchange applicable thereto;

(f)      the right, if any, to subscribe for or to purchase any securities of the Corporation or any other corporation or other entity; and

(g)      the provisions, if any, of a sinking fund applicable to such series;

all as may be determined from time to time by the Board of Directors and stated in the resolution or resolutions providing for the issuance of such Preferred Stock (collectively, a "Preferred Stock Designation").

                        3.      Common Stock. Except as may otherwise be provided in a Preferred Stock Designation, the holders of Common Stock will be entitled to one vote on each matter submitted to a vote at a meeting of stockholders for each share of Common Stock held of record by such holder as of the record date for such meeting.

FIFTH:             The Corporation is to have perpetual existence.

SIXTH:            Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of the DGCL or on the application of trustees in dissolution or of any receiver or receivers appointed for the corporation under the provisions of Section 279 of the DGCL order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

SEVENTH:      For the management of the business and the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided:

                        1.      The management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the By-Laws. The phrase "whole Board" and the phrase "total number of directors" shall be deemed to have the same meaning, to wit, the total number of directors which the Corporation would have if there were no vacancies. No election of directors need be by written ballot.

                        2.      The power to adopt, amend, or repeal the By-Laws of the Corporation may be exercised by the Board of Directors of the Corporation; provided, however, that any provision for the classification of directors of the Corporation for staggered terms pursuant to the provisions of subsection (d) of Section 141 of the DGCL shall be set forth in a By-Law adopted by the stockholders entitled to vote of the Corporation unless provisions for such classification shall be set forth in this Certificate of Incorporation.

EIGHTH:        The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by paragraph (7) of subsection (b) of Section 102 of the DGCL. Any repeal or modification of this Article Eighth will

not adversely affect any right or protection of a director of the Corporation existing immediately prior to such repeal or modification.

NINTH:         The Corporation will, to the fullest extent permitted or required by Section 145 of the DGCL, as from time to time amended and supplemented, indemnify any and all persons whom it will have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein will not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of the stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and will continue as to a person who has ceased to be a director, officer, employee or agent and will inure to the benefit of the heirs, executors and administrators of such person. Any repeal or modification of this Article Ninth will not adversely affect any right or protection existing hereunder immediately prior to such repeal or modification.

TENTH:         From time to time any of the provisions of this Certificate of Incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this Certificate of Incorporation are granted subject to the provisions of this Article Tenth.

Signed on September 6, 2001

/s/ Ron Lipstein                                   

Ron Lipstein

Secretary

CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION

OF

ORTEC INTERNATIONAL, INC.

It is hereby certified that:

          1.     The name of the Corporation (hereinafter called the "Corporation") is Ortec International, Inc.

          2.The certificate of incorporation of the Corporation as previously amended and restated is hereby amended by striking out Article FOURTH thereof and by substituting in lieu of said Article the following new Article FOURTH and by adding a new Article ELEVENTH.

FOURTH:      1. Authorized Capital Stock. The total number of shares of capital stock that the Corporation is authorized to issue is 201,000,000, consisting of 200,000,000 shares of common stock, par value $.001 per share ("Common Stock"), and 1,000,000 shares of preferred stock, par value $.001 per share ("Preferred Stock").

                      2. Preferred Stock. The Board of Directors of the Corporation is hereby authorized to provide for the issuance of shares of Preferred Stock in one or more series, to increase or decrease the number of shares of Preferred Stock designated for any such series, and to fix the designation, relative powers, preferences, and rights and qualifications, limitations, or restrictions of all shares of such series. The authority of the Board of Directors with respect to each such series will include, without limiting the generality or effect of the foregoing, the determination of any or all of the following:

(a) the voting powers, if any, and whether such voting powers are full or limited in such series;

(b) the redemption provisions, if any, applicable to such series, including the redemption price or prices to be paid;

(c) whether dividends, if any, will be cumulative or noncumulative, the dividend rate, if any, of such series, and the dates and preferences of dividends, if any, on such series;

(d) the rights of such series upon the voluntary or involuntary dissolution of, or upon any distribution of the assets of, the Corporation;

(e) the provisions, if any, pursuant to which the shares of such series are

convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock, or any other security, of the Corporation or any other corporation or other entity, and the price or prices or the rates of exchange applicable thereto;

(f) the right, if any, to subscribe for or to purchase any securities of the Corporation or any other corporation or other entity; and

(g) the provisions, if any, of a sinking fund applicable to such series;

all as may be determined from time to time by the Board of Directors and stated in the resolution or resolutions providing for the issuance of such Preferred Stock (collectively, a "Preferred Stock Designation").

                     3. Common Stock. Except as may otherwise be provided in a Preferred Stock Designation, the holders of Common Stock will be entitled to one vote on each matter submitted to a vote at a meeting of stockholders for each share of Common Stock held of record by such holder as of the record date for such meeting.

ELEVENTH: The Board of Directors of the Corporation is hereby authorized in its discretion at any time prior to December 31, 2003, to amend the certificate of incorporation of the Corporation to effect a reverse stock split of the Corporation's outstanding shares of common stock at a ratio within the range from one share for each two shares outstanding to one share for each ten shares outstanding, without further approval or authorization of its stockholders.

          3.The amendment of the certificate of incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

Signed on February 11, 2003

/s/ Ron Lipstein
Name:	Ron Lipstein
Title:	Secretary

CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION

OF

ORTEC INTERNATIONAL, INC.

It is hereby certified that:

          1.      The name of the Corporation (hereinafter called the "Corporation") is Ortec International, Inc.

          2.      The certificate of incorporation of the Corporation as previously amended and restated is hereby further amended, by action of the Board of Directors as permitted by the provisions of Article ELEVENTH, by adding a new Article TWLELFTH.

TWELFTH: There shall be a reverse stock split of the Corporation's outstanding shares of common stock effective at 5 P.M. on June 24, 2003, Eastern Daylight Savings Time, at a ratio of one share for each ten shares previously outstanding and that if as a result of such reverse stock split any holder of shares of common stock is entitled to receive a fraction of a share of common stock, such shareholder shall receive one whole share of common stock instead of such fractional share.

          3.      The amendment of the certificate of incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

Signed on June 4, 2003

/s/ Ron Lipstein
Name:	Ron Lipstein
Title:	Secretary

CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION

OF

ORTEC INTERNATIONAL, INC.

It is hereby certified that:

          1.      The name of the Corporation (hereinafter called the “Corporation”) is Ortec International, Inc.

          2.      The certificate of incorporation of the Corporation as previously amended and restated is hereby further amended, by action of the stockholders of the Corporation, by adding a new Article THIRTEENTH:

THIRTEENTH: The Board of Directors of the Corporation is hereby authorized in its discretion at any time prior to September 30, 2006, to amend the certificate of incorporation of the Corporation to effect a reverse stock split of the Corporation's outstanding shares of common stock at a ratio within the range from one share for each five shares outstanding to one share for each fifteen shares outstanding, without further approval or authorization of its stockholders.

          3.      The amendment of the certificate of incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

Signed on June 6, 2006

/s/ Ron Lipstein
Name:	Ron Lipstein
Title:	Secretary

CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION

OF

ORTEC INTERNATIONAL, INC.

It is hereby certified that:

          1.      The name of the Corporation (hereinafter called the “Corporation”) is Ortec International, Inc.

          2.      The certificate of incorporation of the Corporation as previously amended and restated is hereby further amended, by action of the Board of Directors as permitted by the provisions of Article THIRTEENTH, by adding a new Article FOURTEENTH:

FOURTEENTH: There shall be a reverse stock split of the Corporation’s outstanding shares of common stock effective 5 P.M. on July 24, 2006, Eastern daylight Savings Time, at a ratio of one share for each fifteen shares previously outstanding and that if as a result of such reverse stock split any holder of shares of common stock is entitled to receive a fraction of a share of common stock, such shareholder shall receive one whole share of common stock instead of such fractional share.

          3.      The amendment of the certificate of incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

Signed on July 5, 2006

/s/ Ron Lipstein
Name:	Ron Lipstein
Title:	Secretary

CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
PREFERENCES
OF THE
SERIES D CONVERTIBLE PREFERRED STOCK
OF
ORTEC INTERNATIONAL, INC.

          The undersigned, the Chief Executive Officer of Ortec International, Inc., a Delaware corporation (the "Company"), in accordance with the provisions of the Delaware General Corporation Law, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Company, the following resolution creating a series of Series D Convertible Preferred Stock, was duly adopted on August 18, 2003:

          RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Certificate of Incorporation of the Company (the "Certificate of Incorporation"), there hereby is created out of the shares of Preferred Stock, par value $.001 per share, of the Company authorized in Article Fourth of the Certificate of Incorporation (the "Preferred Stock"), a series of Preferred Stock of the Company, to be named "Series D Convertible Preferred Stock," consisting of two thousand (2,000) shares, which series shall have the following designations, powers, preferences and relative and other special rights and the following qualifications, limitations and restrictions:

          1.Designation and Rank. The designation of such series of the Preferred Stock shall be the Series D Convertible Preferred Stock, par value $.001 per share (the "Series D Preferred Stock"). The maximum number of shares of Series D Preferred Stock shall be two thousand (2,000) Shares. The Series D Preferred Stock shall rank prior to the common stock, par value $.001 per share (the "Common Stock") for purposes of liquidation preference, and to all other classes and series of equity securities of the Company that by their terms do not rank senior to the Series D Preferred Stock ("Junior Stock"). Specifically, the Series D Preferred Stock shall be subordinate to and rank junior to all other classes of Preferred Stock of the Company, whether or not outstanding as of the date hereof, which by their terms do not rank junior to the Series B Preferred Stock. The Series D Preferred Stock shall be subordinate to and rank junior to all indebtedness of the Company now or hereafter outstanding.

          2.Dividends. Whenever the Board of Directors declares a dividend on the Common Stock each holder of record of a share of Series D Preferred Stock, or any fraction of a share of Series D Preferred Stock, on the date set by the Board of Directors to determine the owners of the Common Stock of record entitled to receive such dividend (the "Record Date") shall be entitled to receive, out of any assets at the time legally available therefore, an amount equal to such dividend declared on one share of Common Stock multiplied by the number of shares of Common Stock into which such share, or such fraction of a share, of Series D Preferred Stock could be converted on the Record Date.

          3.         Voting Rights.

                        (a)Class Voting Rights. The Series D Preferred Stock shall have the following class voting rights. So long as any shares of the Series D Preferred Stock remain outstanding, the Company shall not, without the affirmative vote or consent of the holders of at least three-fourths (3/4) of the shares of the Series D Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, in which the holders of the Series D Preferred Stock vote separately as a class: (i) amend, alter or repeal the provisions of the Series D Preferred Stock so as to adversely affect any right, preference, privilege or voting power of the Series D Preferred Stock; or (ii) effect any distribution with respect to Junior Stock except that the Company may effect a distribution on the Common stock if the Company makes a like kind distribution on each share, or fraction of a share, of Series D Preferred Stock in an amount equal to the distribution on one share of Common Stock multiplied by the number of shares of Common Stock into which such one share, or such fraction of a share, of Series D Preferred Stock can be converted at the time of such distribution.

                        (b)General Voting Rights. Except with respect to transactions upon which the Series D Preferred Stock shall be entitled to vote separately as a class pursuant to Section 3(a) above, the Series D Preferred Stock shall have no voting rights. The Common Stock into which the Series D Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding Common Stock of the Company.

          4.          Liquidation Preference.

                        (a)In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Company, the holders of shares of the Series D Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company, whether such assets are capital or surplus of any nature, an amount equal to $10,000 per share (the "Liquidation Preference Amount") of the Series D Preferred Stock before any payment shall be made or any assets distributed to the holders of the Common Stock or any other Junior Stock. If the assets of the Company are sufficient to pay in part, but are not sufficient to pay in full, the Liquidation Preference Amount payable to the holders of outstanding shares of the Series D Preferred Stock and any series of preferred stock or any other class of stock on a parity, as to rights on liquidation, dissolution or winding up, with the Series D Preferred Stock, then all of said assets available to pay a part of the Liquidation Preference Amount to the holders of the outstanding shares of Series D Preferred Stock and the other classes of stock on a parity as to rights on liquidation, dissolution or winding up, will be distributed among the holders of the Series D Preferred Stock and the other classes of stock on a parity with the Series D Preferred Stock, if any, ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The liquidation payment with respect to each outstanding fractional share of Series D Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of Series D Preferred Stock. All payments for which this Section 4(a) provides shall be in cash, property (valued at its fair market value as determined by an independent appraiser reasonably

acceptable to the holders of a majority of the Series D Preferred Stock), or a combination thereof; provided, however, that no cash shall be paid to holders of Junior Stock unless each holder of the outstanding shares of Series D Preferred Stock has been paid in cash the full Liquidation Preference Amount to which such holder is entitled as provided herein. After payment of the full Liquidation Preference Amount to which each holder is entitled, such holders of shares of Series D Preferred Stock will not be entitled to any further participation as such in any distribution of the assets of the Company.

                        (b)A consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of transactions in which more than 50% of the voting shares of the Company is disposed of or conveyed, shall not be deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4. In the event of the merger or consolidation of the Company with or into another corporation, the Series D Preferred Stock shall maintain its relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.

                        (c)Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by mail, postage prepaid, no less than forty-five (45) days prior to the payment date stated therein, to the holders of record of the Series D Preferred Stock at their respective addresses as the same shall appear on the books of the Company.

          5.Conversion. The holder of Series D Preferred Stock shall have the following conversion rights (the "Conversion Rights"):

                        (a)Right to Convert. At any time on or after the Issuance Date, the holder of any such shares of Series D Preferred Stock may, at such holder's option, subject to the limitations set forth in Section 7 herein, elect to convert (a "Voluntary Conversion") all or any portion of the shares of Series D Preferred Stock held by such person into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount of the shares of Series D Preferred Stock being converted divided by (ii) the Conversion Price (as defined in Section 5(d) below) then in effect as of the date of the delivery by such holder of its notice of election to convert. The Company shall keep written records of the conversion of the shares of Series D Preferred Stock converted by each holder. A holder shall be required to deliver the original certificates representing the shares of Series D Preferred Stock upon any conversion of the Series D Preferred Stock as provided in Section 5(b) below.

                        (b)Mechanics of Voluntary Conversion. The Voluntary Conversion of Series D Preferred Stock shall be conducted in the following manner:

                                  (i)Holder's Delivery Requirements. To convert Series D Preferred Stock into full shares of Common Stock on any date (the "Voluntary Conversion Date"), the

holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice"), to the Company, and (B) with respect to the conversion of shares of Series D Preferred Stock held by any holder, such holder shall surrender to a common carrier for delivery to the Company as soon as practicable following such Conversion Date, but in no event later than six (6) business days after such date, the original certificates representing the shares of Series D Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "Preferred Stock Certificates").

                                 (ii)Company's Response. Upon receipt by the Company of a facsimile copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such holder and the Company or its designated transfer agent (the "Transfer Agent"), as applicable, shall, within three (3) business days following the date of receipt by the Company of the certificate representing the shares of Series D Preferred Stock being converted, (x) issue and deliver to the Depository Trust Company (“DTC”) account on the holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the Conversion Notice, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled, and (y) if the certificate so surrendered represents more shares of Series D Preferred Stock than those being converted, issue and deliver to the holder a new certificate for such number of shares of Series D Preferred Stock represented by the surrendered certificate which were not converted.

                                (iii)Dispute Resolution. In the case of a dispute as to the arithmetic calculation of the number of shares of Common Stock to be issued upon conversion, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the arithmetic calculations to the holder via facsimile as soon as possible, but in no event later than two (2) business days after receipt of such holder's Conversion Notice. If such holder and the Company are unable to agree upon the arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion within one (1) business day of such disputed arithmetic calculation being submitted to the holder, then the Company shall within one (1) business day submit via facsimile the disputed arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion to the Company’sindependent, outside accountant. The Company shall cause the accountant to perform the calculations and notify the Company and the holder of the results no later than seventy-two (72) hours from the time it receives the disputed calculations. Such accountant's calculation shall be binding upon all parties absent manifest error. The reasonable expenses of such accountant in making such determination shall be paid by the Company, in the event the holder's calculation was correct, or by the holder, in the event the Company's calculation was correct, or equally by the Company and the holder in the event that neither the Company's or the holder's calculation was correct. The period of time in which the Company is required to effect conversions or redemptions under this Certificate of Designation shall be tolled with respect to the subject conversion or redemption pending resolution of any dispute by the Company made in good faith and in accordance with this Section 5(b)(iii).

                               (iv)Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of the Series D Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

                     (c)Mandatory Conversion.

                               (i)Upon the Company's written request a holder of Series D Preferred Stock shall advise the Company in writing the number of shares of Common Stock that are beneficially owned ("Beneficially Owned", as defined in Section 13(d) of the Securities and Exchange Act of 1934 and the rules promulgated thereunder) by such holder. If the shares of Common Stock Beneficially Owned by such holder amount to less than 9.99% of the Shares of Common Stock outstanding at such time, the Company may, at its option, compel such holder, by written notice to such holder (the "Mandatory Conversion Notice"), to convert such portion of the Series D Preferred Stock owned by him into so many shares of Common Stock so that the total number of shares of Common Stock Beneficially Owned by such holder after such conversion shall equal up to 9.99%, but not more, of the shares of Common Stock outstanding after such conversion.

                              (ii)As used herein, a "Mandatory Conversion Date" shall be the date when the Mandatory Conversion Notice shall be deemed delivered pursuant to Section 5(i). The Mandatory Conversion Date and the Voluntary Conversion Date collectively are referred to in this Certificate of Designation as the "Conversion Date."

                              (iii)Each share of Series D Preferred Stock outstanding on the Mandatory Conversion Date shall, automatically and without any action on the part of the holder thereof, convert into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount of the shares of Series D Preferred Stock outstanding on the Mandatory Conversion Date divided by (ii) the Conversion Price in effect on the Mandatory Conversion Date; provided, however, that the Company shall not be obligated to issue the shares of Common Stock issuable upon conversion of any shares of Series D Preferred Stock unless the Preferred Stock certificates representing such shares of Series D Preferred Stock are either delivered to the Company or the holder notifies the Company that such Preferred Stock certificates have been lost, stolen, or destroyed, and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection therewith. Upon the occurrence of the automatic conversion of the Series D Preferred Stock pursuant to this Section 5, the holders of the Series D Preferred Stock shall surrender the Preferred Stock certificates representing the Series D Preferred Stock for which the Mandatory Conversion Date has occurred to the Company and the Company shall deliver the shares of Common Stock issuable upon such conversion (in the same manner set forth in Section 5(b)(ii)) to the holder within three (3) business days of the holder's delivery of the applicable Preferred Stock certificates. If the certificates of Series D Preferred Stock so surrendered represent more shares of Series D Preferred Stock than those being converted, the

Company shall issue to the holder a new certificate for such number of Series D Preferred Stock represented by the surrendered certificates which were not converted.

                    (d)Conversion Price. The term "Conversion Price" shall mean $2.50 per share, subject to adjustment under Section 5(e) hereof.

                    (e)Adjustments of Conversion Price.

                             (i)Adjustments for Stock Splits and Combinations. If the Company shall at any time or from time to time after the Issuance Date, effect a stock split of the outstanding Common Stock, the Conversion Price shall be proportionately decreased. If the Company shall at any time or from time to time after the Issuance Date, combine the outstanding shares of Common Stock, the Conversion Price shall be proportionately increased. Any adjustments under this Section 5(e)(i) shall be effective at the close of business on the date the stock split or combination occurs.

                            (ii)Adjustments for Certain Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the Conversion Price shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, as applicable, the Conversion Price then in effect by a fraction:

                                      (1)the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and

                                      (2)the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

                             (iii)Adjustment for Other Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of Series D Preferred Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had their Series D Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments

called for during such period under this Section 5(e)(iii) with respect to the rights of the holders of the Series D Preferred Stock.

                               (iv)Adjustments for Reclassification, Exchange or Substitution. If the Common Stock issuable upon conversion of the Series D Preferred Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made and provisions shall be made so that the holder of each share of Series D Preferred Stock shall have the right thereafter to convert such share of Series D Preferred Stock into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such share of Series D Preferred Stock might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein.

                              (v)Adjustments for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Issuance Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties or assets to any other person (an "Organic Change"), then as a part of such Organic Change an appropriate revision to the Conversion Price shall be made and provision shall be made so that the holder of each share of Series D Preferred Stock shall have the right thereafter to convert such share of Series D Preferred Stock into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from the Organic Change. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5(e)(v) with respect to the rights of the holders of the Series D Preferred Stock after the Organic Change to the end that the provisions of this Section 5(e)(v) (including any adjustment in the Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of the Series D Preferred Stock) shall be applied after that event in as nearly an equivalent manner as may be practicable.

                             (vi)Record Date. In case the Company shall take record of the holders of its Common Stock or any other Preferred Stock for the purpose of entitling them to subscribe for or purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common Stock shall be deemed to be such record date.

                    (f)No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the

observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith, assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series D Preferred Stock against impairment. In the event a holder shall elect to convert any shares of Series D Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or any one associated or affiliated with such holder has been engaged in any violation of law, unless, an injunction from a court, on notice, restraining and/or adjoining conversion of all or of said shares of Series D Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in an amount equal to 130% of the Liquidation Preference Amount of the Series D Preferred Stock such holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains judgment.

                    (g)Certificates as to Adjustments. Upon occurrence of each adjustment or readjustment of the Conversion Price or number of shares of Common Stock issuable upon conversion of the Series D Preferred Stock pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Series D Preferred Stock a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written request of the holder of such affected Series D Preferred Stock, at any time, furnish or cause to be furnished to such holder a like certificate setting forth such adjustments and readjustments, the Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of a share of such Series D Preferred Stock. Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent of such adjusted amount.

                    (h)Issue Taxes. The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series D Preferred Stock pursuant thereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

                    (i)      Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or three (3) business days following (x) being mailed by certified or registered mail, postage prepaid, return-receipt requested, or (y) delivered to an express mail delivery service such as Federal Express, with written receipt by the addressee required, in either case addressed to the holder of record at its address appearing on the books of the Company. The Company will give written notice to each holder of Series D Preferred Stock at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of

Common Stock or (III) for determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the public. The Company will also give written notice to each holder of Series D Preferred Stock at least twenty (20) days prior to the date on which any Organic Change, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to such holder prior to such information being made known to the public.

                       (j)Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series D Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall pay cash equal to the product of such fraction multiplied by the average of the Closing Bid Prices of the Common Stock for the five (5) consecutive trading immediately preceding the Voluntary Conversion Date or Mandatory Conversion Date, as applicable.

                       (k)Reservation of Common Stock. The Company shall, so long as any shares of Series D Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series D Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series D Preferred Stock then outstanding.

                        (l)Retirement of Series D Preferred Stock. Conversion of Series D Preferred Stock shall be deemed to have been effected on the applicable Voluntary Conversion Date or Mandatory Conversion Date. The Company shall keep written records of the conversion of the shares of Series D Preferred Stock converted by each holder. A holder shall be required to deliver the original certificates representing the shares of Series D Preferred Stock upon any conversion of the Series D Preferred Stock represented by such certificates.

                        (m)Regulatory Compliance. If any shares of Common Stock to be reserved for the purpose of conversion of Series D Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be.

          6.No Preemptive or Redemption Rights. Except as provided in Section 5 hereof no holder of the Series D Preferred Stock shall be entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable. Except as provided in Section 5

neither the Company nor the holder has the right to have the Company redeem the Series D Preferred Stock.

          7.Conversion Restriction. Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series D Preferred Stock convert shares of the Series D Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder owning more than 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon a holder of Series D Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the "Waiver Notice") that such holder would like to waive Section 7(a) of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series D Preferred Stock, this Section 7(a) shall be of no force or effect with regard to those shares of Series D Preferred Stock referenced in the Waiver Notice.

          8.          Inability to Fully Convert.

                        (a)      Holder's Option if Company Cannot Fully Convert. If, upon the Company's receipt of a Conversion Notice, or on the Mandatory Conversion Date, the Company cannot issue shares of Common Stock for any reason, including, without limitation, because the Company (x) does not have a sufficient number of shares of Common Stock authorized and available or (y) is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or its securities, from issuing all of the Common Stock which is to be issued to a holder of Series D Preferred Stock pursuant to a Conversion Notice or a Mandatory Conversion Notice, then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with such holder's Conversion Notice or a Mandatory Conversion Notice, and pursuant to Section 5(b)(ii) or 5(c)(iv) above, and with respect to the unconverted Series D Preferred Stock (the "Unconverted Preferred Stock") the holder, solely at such holder's option, can elect, at any time after receipt of notice from the Company that there is Unconverted Preferred Stock, to void the holder's Conversion Notice or the Mandatory Conversion Notice as to the number of shares of Common Stock the Company is unable to issue (the "Unissued Shares of Common Stock") and retain or have returned, as the case may be, the certificates for the shares of the Unconverted Preferred Stock.

          In the event a Holder shall elect to convert any shares of Series D Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, violation of an agreement to which such Holder is a party or for any reason whatsoever, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or any of said shares of Series D Preferred Stock shall have issued.

                       (b)Mechanics of Fulfilling Holder's Election. The Company shall immediately send via facsimile to a holder of Series D Preferred Stock, upon receipt of a

facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied as described in Section 8(a) above, a notice of the Company's inability to fully satisfy such holder's Conversion Notice (the "Inability to Fully Convert Notice"). Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder's Conversion Notice and (ii) the number of shares of Series D Preferred Stock which cannot be converted.

                        (c)Pro-rata Conversion. In the event the Company within a period of ten days receives Voluntary Conversion Notices from more than one holder of Series D Preferred Stock and the Company can convert some, but not all, of the Series D Preferred Stock required to be converted as a result of such Voluntary Conversion Notices, the Company shall convert from each holder of Series D Preferred Stock electing to have Series D Preferred Stock converted within such ten day period, an amount equal to the number of shares of Series B Preferred Stock such holder elected to have converted in such ten day period multiplied by a fraction, the numerator of which shall be the number of shares of Series B Preferred Stock such holder elected to have converted in such ten day period and the denominator of which shall be the total number of shares of Series B Preferred Stock all holders elected to have converted in such ten day period. The Company shall not convert any Series B Preferred Stock pursuant to a Mandatory Conversion Notice until it shall have converted all Series B Preferred Stock pursuant to any Voluntary Conversion Notice.

          9.          Vote to Change the Terms of or Issue Preferred Stock. The affirmative vote at a meeting duly called for such purpose, or the written consent without a meeting, of the holders of not less than three-fourths (3/4) of the then outstanding shares of Series D Preferred Stock, shall be required for any change to this Certificate of Designation or the Company's Certificate of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Series D Preferred Stock.

          10.        Lost or Stolen Certificates. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the shares of Series D Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Company and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date.

          11.Remedies, Characterizations, Other Obligations, Breaches and InjunctiveRelief. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation. Amounts set forth or provided for herein with respect to conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company

acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series D Preferred Stock and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holders of the Series D Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

          12.        Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein. This Certificate of Designation shall be deemed to be jointly drafted by the Company and all initial purchasers of the Series D Preferred Stock and shall not be construed against any person as the drafter hereof.

          13.Failure or Indulgence Not Waiver. No failure or delay on the part of a holder of Series D Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

          IN WITNESS WHEREOF, the undersigned has executed and subscribed this Amended Certificate and does affirm the foregoing as true this 18^th day of August, 2003.

ORTEC INTERNATIONAL, INC.
By:	/s/ Ron Lipstein
	Name: Ron Lipstein
	Title:    Chief Executive Officer

EXHIBIT I

ORTEC INTERNATIONAL, INC.
CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series D Preferred Stock of Ortec International, Inc. (the "Certificate of Designation"). In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series D Preferred Stock, par value $.001 per share (the "Preferred Shares"), of Ortec International, Inc., a Delaware corporation (the "Company"), indicated below into shares of Common Stock, par value $.001 per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.

Date of Conversion:
Number of Preferred Shares to be converted:	_____
Stock certificate no(s). of Preferred Shares to be converted:           _____
The Common Stock have been sold: YES ____ NO____
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:

                   Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion determined in accordance with Section 16 of the Securities Exchange Act of 1934, as amended: _________________________

Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:

Issue to:
Facsimile Number:
Authorization:
	By:
	Title:
Dated:

PRICES ATTACHED

ORTEC INTERNATIONAL, INC.

CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES E 6% CONVERTIBLE PREFERRED STOCK

PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW

          The undersigned, Costa Papastephanou and Ron Lipstein, do hereby certify that:

                    1.      They are the President and Secretary, respectively, of Ortec International, Inc., a Delaware corporation (the “Corporation”).

                    2.      The Corporation is authorized to issue 1,000,000 shares of preferred stock, 6,272.0156 of which have been issued.

                    3.      The following resolutions were duly adopted by the Board of Directors:

          WHEREAS, the Certificate of Incorporation of the Corporation provides for a class of its authorized stock known as preferred stock, comprised of 1,000,000 shares, $0.001 par value per share, issuable from time to time in one or more series;

          WHEREAS, the Board of Directors of the Corporation is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof, of any of them; and

          WHEREAS, it is the desire of the Board of Directors of the Corporation, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of, except as otherwise set forth in the Purchase Agreement, up to 8,000 shares of the preferred stock which the corporation has the authority to issue, as follows:

          NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferred stock as follows:

TERMS OF PREFERRED STOCK

                    Section 1.           Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. For the purposes hereof, the following terms shall have the following meanings:

          “Alternate Consideration” shall have the meaning set forth in Section 7(e).

          “Bankruptcy Event” means any of the following events: (a) the Corporation or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Corporation or any Significant Subsidiary thereof; (b) there is commenced against the Corporation or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Corporation or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Corporation or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment; (e) the Corporation or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors; (f) the Corporation or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (g) the Corporation or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

          “Base Conversion Price” shall have the meaning set forth in Section 7(b).

          “Business Day” means any day except Saturday, Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

          “Buy-In” shall have the meaning set forth in Section 6(e)(iii).

          “Change of Control Transaction” means the occurrence after the date hereof of any of (i) an acquisition after the date hereof by an individual, legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Corporation, by contract or otherwise) of in excess of 33% of the voting securities of the Corporation (other than by means of conversion or exercise of Preferred Stock and the Securities

issued together with the Preferred Stock), or (ii) the Corporation merges into or consolidates with any other Person, or any Person merges into or consolidates with the Corporation and, after giving effect to such transaction, the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the Corporation or the successor entity of such transaction, or (iii) the Corporation sells or transfers all or substantially all of its assets to another Person and the stockholders of the Corporation immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, or (iv) a replacement at one time or within a one year period of more than one-half of the members of the Corporation’s board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), or (v) the execution by the Corporation of an agreement to which the Corporation is a party or by which it is bound, providing for any of the events set forth in clauses (i) through (iv) above; provided, however, that the Corporation’s issuance of shares of its Common Stock in connection with the Hapto Merger shall not be deemed to constitute a Change of Control Transaction.

          “Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto and all conditions precedent to (i) the Holders’ obligations to pay the Subscription Amount and (ii) the Corporation’s obligations to deliver the Securities have been satisfied or waived.

          “Commission” means the Securities and Exchange Commission.

          “Common Stock” means the Corporation’s common stock, par value $.001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed into.

          “Common Stock Equivalents” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

          “Conversion Amount” means the sum of the Stated Value at issue.

           “Conversion Date” shall have the meaning set forth in Section 6(a).

           “Conversion Price” shall have the meaning set forth in Section 6(b).

          “Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in accordance with the terms hereof.

          “Conversion Shares Registration Statement” means a registration statement that registers the resale of all Conversion Shares of the Holder, who shall be named as a “selling stockholder” therein and meets the requirements of the Registration Rights Agreement.

          “Dilutive Issuance” shall have the meaning set forth in Section 7(b).

          “Dilutive Issuance Notice” shall have the meaning set forth in Section 7(b).

           “Dividend Payment Date” shall have the meaning set forth in Section 3(a).

           “Dividend Share Amount” shall have the meaning set forth in Section 3(a).

          “Effective Date” means the date that the Conversion Shares Registration Statement is declared effective by the Commission.

          “Equity Conditions” means, during the period in question, (i) the Corporation shall have duly honored all conversions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder on or prior to the dates so requested or required, if any, (ii) the Corporation shall have paid all liquidated damages and other amounts owing to the Holder in respect of the Preferred Stock, (iii) there is an effective Conversion Shares Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares of Common Stock issuable pursuant to the Transaction Documents (and the Corporation believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future), (iv) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed for trading on such Trading Market (and the Corporation believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (v) there is a sufficient number of authorized, but unissued and otherwise unreserved, shares of Common Stock for the issuance of all of the shares of Common Stock issuable pursuant to the Transaction Documents, (vi) there is no existing Triggering Event or no existing event which, with the passage of time or the giving of notice, would constitute a Triggering Event, (vii) the issuance of the shares in question to the Holder would not violate the limitations set forth in Section 6(c) herein, (viii) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated, (ix) no Holder is in possession of any information that constitutes, or may constitute, material non-public information and (x) the Corporation shall have received Authorized Share Approval.

          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

          “Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Corporation pursuant to any stock or option plan duly adopted by (i) a majority of the non-employee members of the Board of Directors of the Corporation, (ii) a majority of the members of a committee of non-employee directors established for such purpose or (iii) an affirmative vote of the shareholders of the Corporation pursuant to Delaware law, (b) securities upon the exercise of or conversion of any securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of the Purchase Agreement, provided that such securities have not been amended since the date of the Purchase Agreement to increase the number of such securities or to decrease the exercise or conversion price of any such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors, provided that any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Corporation and shall provide to the Corporation additional benefits in addition to the investment of funds, but shall not include a transaction in which the Corporation is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

          “Forced Conversion” shall mean the automatic conversion of the Preferred Stock pursuant to Section 8(a).

          “Fundamental Transaction” shall have the meaning set forth in Section 7(e).

          “Holder” shall have the meaning given such term in Section 2.

          “Junior Securities” means the Common Stock and all other Common Stock Equivalents of the Corporation other than those securities which are explicitly senior or paripassu to the Preferred Stock in dividend rights or liquidation preference.

          “Liquidation” shall have the meaning set forth in Section 5.

          “New York Courts” shall have the meaning set forth in Section 11(d).

          “Notice of Conversion” shall have the meaning set forth in Section 6(a).

          “Original Issue Date” means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.

          “Permitted Indebtedness” means the Indebtedness existing on the Original Issue Date and set forth on Schedule 3.1(ff) attached to the Purchase Agreement and (b) any other Indebtedness incurred with the prior written consent of the Holders of 75% of the

outstanding Preferred Stock at the time such additional Indebtedness is incurred, which consent may be granted or withheld in the absolute discretion of each Holder.

          “Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Corporation) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Corporation’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Corporation’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Corporation and its consolidated Subsidiaries or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; and (c) Liens incurred in connection with Permitted Indebtedness under clause (b) thereunder, provided that such Liens are not secured by assets of the Corporation or its Subsidiaries other than the assets so acquired or leased.

          “Preferred Stock” shall have the meaning set forth in Section 2.

          “Purchase Agreement” means the Securities Purchase Agreement, dated as of the Original Issue Date, to which the Corporation and the original Holders are parties, as amended, modified or supplemented from time to time in accordance with its terms.

          “Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, to which the Corporation and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms.

          “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

          “Share Delivery Date” shall have the meaning set forth in Section 6(e).

          “Stated Value” shall have the meaning set forth in Section 2.

          “Subscription Amount” means, as to each Purchaser, the amount in United States Dollars and in immediately available funds to be paid for the Preferred Stock purchased pursuant to the Purchase Agreement as specified below such Purchaser’s name on the signature page of the Purchase Agreement and next to the heading “Subscription Amount.”

          “Subsidiary” shall have the meaning set forth in the Purchase Agreement.

          “Trading Day” means a day on which the principal Trading Market is open for business.

          “Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq National Market, the New York Stock Exchange or the OTC Bulletin Board.

          “Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

          “Triggering Event” shall have the meaning set forth in Section 9(a).

          “Triggering Redemption Amount” means, for each share of Preferred Stock, the sum of (i) the greater of (A) 130% of the Stated Value and (B) the product of (a) the VWAP on the Trading Day immediately preceding the date of the Triggering Event and (b) the Stated Value divided by the then Conversion Price, (ii) all accrued but unpaid dividends thereon and (iii) all liquidated damages and other costs, expenses or amounts due in respect of the Preferred Stock.

          “Triggering Redemption Payment Date” shall have the meaning set forth in Section 9(b).

          “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b) if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers and reasonably acceptable to the Corporation.

                    Section 2.           Designation, Amount and Par Value. The series of preferred stock shall be designated as its Series E 6% Convertible Preferred Stock (the “Preferred Stock”) and the number of shares so designated shall be up to 8,000 (which shall not be subject to increase without the written consent of all of the holders of the Preferred Stock (each, a “Holder” and

collectively, the “Holders”)). Each share of Preferred Stock shall have a par value of $.001 per share and a stated value equal to $1,000, subject to increase set forth in Section 3(a) below (the “Stated Value”).

                    Section 3.           Dividends.

          a)Dividends in Cash or in Kind. Holders shall be entitled to receive, and the Corporation shall pay, cumulative dividends at the rate per share (as a percentage of the Stated Value per share) of 6% per annum (subject to increase pursuant to Section 9(b)), payable quarterly on January 1, April 1, July 1 and October 1, beginning on July 1, 2006, and on each Conversion Date (except that, if such date is not a Trading Day, the payment date shall be the next succeeding Trading Day) (each such date, a “Dividend PaymentDate”) in cash or duly authorized, validly issued, fully paid and non-assessable shares of Common Stock as set forth in this Section 3(a), or a combination thereof (the amount to be paid in shares of Common Stock, the “Dividend Share Amount”). The form of dividend payments to each Holder shall be determined in the following order of priority: (i) if funds are legally available for the payment of dividends and the Equity Conditions have not been met during the 20 consecutive Trading Days immediately prior to the applicable Dividend Payment Date, in cash only; (ii) if funds are legally available for the payment of dividends and the Equity Conditions have been met during the 20 consecutive Trading Days immediately prior to the applicable Dividend Payment Date, at the sole election of the Corporation, in cash or shares of Common Stock which shall be valued solely for such purpose at 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the Dividend Payment Date; (iii) if funds are not legally available for the payment of dividends and the Equity Conditions have been met during the 20 consecutive Trading Days immediately prior to the applicable Dividend Payment Date, in shares of Common Stock which shall be valued solely for such purpose at 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the Dividend Payment Date; (iv) if funds are not legally available for the payment of dividends and the Equity Condition relating to an effective Conversion Shares Registration Statement has been waived by such Holder, as to such Holder only, in unregistered shares of Common Stock which shall be valued solely for such purpose at 90% of the average of the VWAPs for the 10 consecutive Trading Days ending on the Trading Day that is immediately prior to the Dividend Payment Date; and (v) if funds are not legally available for the payment of dividends and the Equity Conditions have not been met during the 20 consecutive Trading Days immediately prior to the applicable Dividend Payment Date, then, at the election of such Holder, such dividends shall accrue to the next Dividend Payment Date or shall be accreted to, and increase, the outstanding Stated Value. The Holders shall have the same rights and remedies with respect to the delivery of any such shares as if such shares were being issued pursuant to Section 6. On the Closing Date the Corporation shall have notified the Holders whether or not it may legally pay cash dividends as of the Closing Date. The Corporation shall promptly notify the Holders at any time the Corporation shall become able or unable, as the case may be, to legally pay cash dividends. If at any time the Corporation has the right to pay

dividends in cash or Common Stock, the Corporation must provide the Holder with at least 20 Trading Days’ notice of its election to pay a regularly scheduled dividend in Common Stock (the Corporation may indicate in such notice that the election contained in such notice shall continue for later periods until revised by a subsequent notice). Dividends on the Preferred Stock shall be calculated on the basis of a 360-day year, shall accrue daily commencing on the Original Issue Date, and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. Except as otherwise provided herein, if at any time the Corporation pays dividends partially in cash and partially in shares, then such payment shall be distributed ratably among the Holders based upon the number of shares of Preferred Stock held by each Holder on such Dividend Payment Date. Any dividends, whether paid in cash or shares of Common Stock, that are not paid within three Trading Days following a Dividend Payment Date shall continue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 18% per annum or the lesser rate permitted by applicable law (such fees to accrue daily, from the Dividend Payment Date through and including the date of payment). If at any time the Corporation delivers a notice to the Holders of its election to pay the dividends in shares of Common Stock, the Corporation shall timely file a prospectus supplement pursuant to Rule 424 disclosing such election.

          b)So long as any Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereof shall redeem, purchase or otherwise acquire directly or indirectly any Junior Securities except as expressly permitted by Section 9(a)(viii). So long as any Preferred Stock shall remain outstanding, neither the Corporation nor any Subsidiary thereof shall directly or indirectly pay or declare any dividend or make any distribution upon (other than a dividend or distribution described in Section 6 or dividends due and paid in the ordinary course on preferred stock of the Corporation at such times when the Corporation is in compliance with its payment and other obligations hereunder), nor shall any distribution be made in respect of, any Junior Securities as long as any dividends due on the Preferred Stock remain unpaid, nor shall any monies be set aside for or applied to the purchase or redemption (through a sinking fund or otherwise) of any Junior Securities or shares paripassu with the Preferred Stock.

          c)The Corporation acknowledges and agrees that the capital of the Corporation (as such term is used in Section 154 of the Delaware General Corporation Law) in respect of the Preferred Stock and any future issuances of the Corporation’s capital stock shall be equal to the aggregate par value of such Preferred Stock or capital stock, as the case may be, and that, on or after the date of the Purchase Agreement, it shall not increase the capital of the Corporation with respect to any shares of the Corporation’s capital stock issued and outstanding on such date. The Corporation also acknowledges and agrees that it shall not create any special reserves under Section 171 of the Delaware General Corporation Law without the prior written consent of each Holder.

                    Section 4.           Voting Rights. Subject to the limitations set forth in Section 6(c), the Preferred Stock shall vote on an “as converted” basis on all matters submitted to the holders

of the Common Stock, and as otherwise required by law. In addition, as long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of 67% of the then outstanding shares of the Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to or otherwise paripassu with the Preferred Stock, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the authorized number of shares of Preferred Stock, (e) enter into a Fundamental Transaction or Change of Control Transaction or (f) enter into any agreement with respect to any of the foregoing.

                    Section 5.           Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages owing thereon, for each share of Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A Fundamental Transaction or Change of Control Transaction shall be deemed a Liquidation. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.

                    Section 6.           Conversion.

          a)          Conversions at Option of Holder. Each share of Preferred Stock shall be convertible at the option of the Holder, at any time and from time to time from and after the Original Issue Date into that number of shares of Common Stock (subject to the limitations set forth in Section 6(c) determined by dividing the Stated Value of such share of Preferred Stock by the Conversion Price. Prior to Authorized Share Approval, each Holder shall only be entitled to convert up to that number of shares of Preferred Stock as shall constitute such Holder’s pro-rata portion of the total number of shares of Preferred Stock outstanding on the Original Issue Date in respect of the 30,000,000 authorized but unissued shares of Common Stock reserved for issuance upon conversion of the Preferred Stock. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the Holder delivers by facsimile such Notice of Conversion to the Corporation (the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is

deemed delivered hereunder. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions, as the case may be, of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing such shares of Preferred Stock to the Corporation unless all of the shares of Preferred Stock represented thereby are so converted, in which case the Holder shall deliver the certificate representing such shares of Preferred Stock promptly following the Conversion Date at issue. Shares of Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and shall not be reissued.

          b)Conversion Price. The conversion price for the Preferred Stock shall equal $0.20, subject to adjustment herein (the “Conversion Price”).

          c)Beneficial Ownership Limitation.The Corporation shall not effect any conversion of the Preferred Stock, and a Holder shall not have the right to convert any portion of the Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any other person or entity acting as a group together with such Holder or any of such Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted Stated Value of Preferred Stock beneficially owned by such Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein (including the Warrants) beneficially owned by such Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 6(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 6(c) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates) and of how many shares of Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates) and how many shares of the Preferred Stock are convertible, in each case subject to such aggregate percentage limitations. To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Corporation shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules

and regulations promulgated thereunder. For purposes of this Section 6(c), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Corporation’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (B) a more recent public announcement by the Corporation or (C) a more recent notice by the Corporation or the Corporation’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Corporation shall within two Trading Days confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including the Preferred Stock, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Stock held by the Holder. The Beneficial Ownership Limitation provisions of this Section 6(c) may be waived by such Holder, at the election of such Holder, upon not less than 61 days’ prior notice to the Corporation, to change the Beneficial Ownership Limitation to 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of Preferred Stock held by the Holder and the provisions of this Section 6(c) shall continue to apply. Upon such a change by a Holder of the Beneficial Ownership Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial Ownership Limitation shall not be further waived by such Holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(c) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of Preferred Stock.

          d)          [RESERVED].

          e)Mechanics of Conversion

          i.          Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Corporation shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates which, on or after the Effective Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of shares of Common Stock being acquired upon the conversion of shares of Preferred Stock, and (B) a bank check in the amount of accrued and unpaid dividends (if the Corporation has elected or is required to pay accrued dividends in cash). On or after the Effective Date, the Corporation shall, upon request of the Holder, use its best efforts to

deliver any certificate or certificates required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company or another established clearing corporation performing similar functions. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such certificate or certificates, to rescind such Conversion Notice by written notice to the Corporation, in which event the Corporation shall promptly return to the Holder any original Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return any Common Stock certificates representing the shares of Preferred Stock tendered for conversion to the Corporation.

          ii.        Obligation Absolute; Partial Liquidated Damages. The Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against the Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Preferred Stock of the Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of the Holder in the amount of 150% of the Stated Value of Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to the Holder such certificate or certificates pursuant to Section 6(e)(i) on the second Trading Day after the Share Delivery Date applicable to such conversion, the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Preferred Stock being converted, $50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day and increasing to $200 per Trading Day on the sixth Trading

Day after such damages begin to accrue) for each Trading Day after such second Trading Day after the Share Delivery Date until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare a Triggering Event pursuant to Section 9 for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The Exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

          iii.Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. If the Corporation fails to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 6(e)(i), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) the shares of Preferred Stock equal to the number of shares of Preferred Stock submitted for conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(e)(i). For example, if the Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Preferred Stock with respect to which the actual sale price (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay the Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely deliver certificates representing shares of Common Stock upon conversion of the shares of Preferred Stock as required pursuant to the terms hereof.

          iv.Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it has reserved 30,000,000 shares of Common Stock as of the Original Issue Date, and upon receipt of Authorized Share Approval, will at all times thereafter, reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Preferred Stock and payment of dividends on the Preferred Stock, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holders of the Preferred Stock, not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of all outstanding shares of Preferred Stock and payment of dividends hereunder. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Conversion Shares Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Conversion Shares Registration Statement.

          v.Fractional Shares. Upon a conversion hereunder, the Corporation shall not be required to issue stock certificates representing fractions of shares of Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the VWAP at such time. If the Corporation elects not, or is unable, to make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.

          vi.Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Preferred Stock shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of such shares of Preferred Stock so converted and the Corporation shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

                    Section 7.           Certain Adjustments.

          a)Stock Dividends and Stock Splits. If the Corporation, at any time while this Preferred Stock is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or

payment of a dividend on, this Preferred Stock); (B) subdivides outstanding shares of Common Stock into a larger number of shares; (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (D) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

          b)Subsequent Equity Sales. If the Corporation or any Subsidiary thereof, at any time while this Preferred Stock is outstanding, sells or grants any option to purchase or sells or grants any right to reprice its securities, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Notwithstanding the foregoing, no adjustment will be made under this Section 7(b) in respect of an Exempt Issuance. The Corporation shall notify the Holder in writing, no later than the Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 7(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Corporation provides a Dilutive Issuance Notice pursuant to this Section 7(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

          c)Subsequent Rights Offerings. If the Corporation, at any time while this Preferred Stock is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share that is lower than the VWAP on the record date

referenced below, then the Conversion Price shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered (assuming delivery to the Corporation in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

          d)          Pro Rata Distributions. If the Corporation, at any time while this Preferred Stock is outstanding, distributes to all holders of Common Stock (and not to Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than Common Stock, which shall be subject to Section 7(b)), then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets, evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors of the Corporation in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

          e)Fundamental Transaction. If, at any time while this Preferred Stock is outstanding, (A) the Corporation effects any merger or consolidation of the Corporation with or into another Person, (B) the Corporation effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (C) any tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Corporation effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental

Transaction, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holder new preferred stock consistent with the foregoing provisions and evidencing the Holder’s right to convert such preferred stock into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 7(e) and insuring that this Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

          f)Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.

          g)          Notice to the Holders.

          i.          Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly mail to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Corporation issues a variable rate security, despite the prohibition thereon in the Purchase Agreement, the Corporation shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised in the case of a Variable Rate Transaction (as defined in the Purchase Agreement).

          ii.         Notice to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to

subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Preferred Stock, and shall cause to be delivered to the Holder at its last address as it shall appear upon the stock books of the Corporation, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert the Conversion Amount of this Preferred Stock (or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

                    Section 8.           Forced Conversion.

          a)Forced Conversion. Notwithstanding anything herein to the contrary, on the 21^st Trading Day (the “Automatic Conversion Date”) following the later of the effective date of the Reverse Split and the Effective Date, the Preferred Stock plus all accrued but unpaid dividends thereon and all liquidated damages and other amounts due in respect of the Preferred Stock shall automatically convert into Common Stock pursuant to Section 6, at a conversion price equal to the lesser of (i) $0.20 (subject to adjustment for the Reverse Split) or (ii) 90% of the average of the VWAPs for the 20 Trading Days immediately following the effective date of the Reverse Split. All Forced Conversions shall occur automatically without any action on the part of the Holders; provided, however, that a Holder may voluntarily convert its Preferred Stock prior to the Automatic Conversion Date. Notwithstanding anything herein to the contrary, the limitations on conversion set forth in Section 6(c) hereof shall not apply to any Forced Conversion.

                    Section 9.           Redemption Upon Triggering Events.

          a)          “Triggering Event” means any one or more of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

          i.          the failure of a Conversion Shares Registration Statement to be declared effective by the Commission on or prior to the 270^th day after the Original Issue Date;

          ii.         if, during the Effectiveness Period, the effectiveness of the Conversion Shares Registration Statement lapses for more than an aggregate of 75 calendar days (which need not be consecutive calendar days) during any 12 month period, or the Holder shall not otherwise be permitted to resell Registrable Securities under the Conversion Shares Registration Statement for more than an aggregate of 75 calendar days (which need not be consecutive calendar days) during any 12 month period;

          iii.        the Corporation shall fail to deliver certificates representing Conversion Shares issuable upon a conversion hereunder that comply with the provisions hereof prior to the tenth Trading Day after such shares are required to be delivered hereunder, or the Corporation shall provide written notice to any Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversion of any shares of Preferred Stock in accordance with the terms hereof;

          iv.one of the Events (as defined in the Registration Rights Agreement) described in subsections (i), (ii) or (iii) of Section 2(b) of the Registration Rights Agreement shall not have been cured to the satisfaction of the Holders prior to the expiration of 30 calendar days from the Event Date (as defined in the Registration Rights Agreement) relating thereto (other than an Event resulting from a failure of a Conversion Shares Registration Statement to be declared effective by the Commission on or prior to the 270th day after the Original Issue Date, which shall be covered by Section 9(a)(i));

          v.the Corporation shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In within fifteen calendar days after notice therefor is delivered hereunder or shall fail to pay all amounts owed on account of any Event (as defined in the Registration Rights Agreement) within fifteen days of the date due;

          vi.the Corporation shall fail to have available a sufficient number of authorized and unreserved shares of Common Stock to issue to such Holder upon a conversion hereunder;

          vii.unless specifically addressed elsewhere in this Certificate of Designation as a Triggering Event, the Corporation shall fail to observe or perform any other covenant, agreement or warranty contained in, or otherwise commit any breach of the Transaction Documents, and such failure or breach shall not, if subject to the possibility of a cure by the Corporation, have been cured within 30 calendar days after the date on which written notice of such failure or breach shall have been delivered;

          viii.       the Corporation shall redeem more than a deminimis number of Junior Securities other than as to repurchases of Common Stock or Common Stock Equivalents from departing officers and directors of the Corporation, provided that, while any of the Preferred Stock remains outstanding, such repurchases shall not exceed an aggregate of $100,000 from all officers and directors;

          ix.        the Corporation shall be party to a Change of Control Transaction;

          x.there shall have occurred a Bankruptcy Event;

          xi.        the Common Stock shall fail to be listed or quoted for trading on a Trading Market for more than ten Trading Days, which need not be consecutive Trading Days; or

          xii.any monetary judgment, writ or similar final process shall be entered or filed against the Corporation, any Subsidiary or any of their respective property or other assets for greater than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

          b)          Upon the occurrence of a Triggering Event, each Holder shall (in addition to all other rights it may have hereunder or under applicable law) have the right, exercisable at the sole option of such Holder, to require the Corporation to, (A) with respect to the Triggering Events set forth in Sections 9(a)(iii), (v), (vi), (vii), (viii), (ix) (as to Changes of Control approved by the Board of Directors of the Corporation) and (x) (as to voluntary filings only), redeem all of the Preferred Stock then held by such Holder for a redemption price, in cash, equal to the Triggering Redemption Amount or (B) at the option of the Holder and with respect to the Triggering Events set forth in Sections 9(a)(i), (ii), (iv), (ix) (as to Changes of Control not approved by the Board of Directors of the Corporation), (x) (as to involuntary filings only), (xi) and (xii), either (a) redeem all of the Preferred Stock then held by such Holder for a redemption price, in shares of Common Stock, equal to a number of shares of Common Stock equal to the Triggering Redemption Amount divided by 75% of the average of the 10 VWAPs immediately prior to the date of election hereunder or (b) increase the dividend rate on all of the outstanding Preferred Stock held by such Holder to 18% per annum thereafter. The Triggering

Redemption Amount, in cash or in shares, shall be due and payable or issuable, as the case may be, within five Trading Days of the date on which the notice for the payment therefor is provided by a Holder (the “Triggering Redemption Payment Date”). If the Corporation fails to pay in full the Triggering Redemption Amount hereunder on the date such amount is due in accordance with this Section (whether in cash or shares of Common Stock), the Corporation will pay interest thereon at a rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law, accruing daily from such date until the Triggering Redemption Amount, plus all such interest thereon, is paid in full. For purposes of this Section, a share of Preferred Stock is outstanding until such date as the Holder shall have received Conversion Shares upon a conversion (or attempted conversion) thereof that meets the requirements hereof or has been paid the Triggering Redemption Amount in cash.

                    Section 10.         Negative Covenants. So long as any shares of Preferred Stock are outstanding, the Corporation shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, without the prior written consent of the Holders of 67% of the shares of Preferred Stock then outstanding:

          a)          other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

          b)other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

          c)amend its certificate of incorporation, bylaws or other charter documents so as to materially and adversely affect any rights of any Holder;

          d)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a deminimis number of shares of its Common Stock, Common Stock Equivalents or Junior Securities, except for the Conversion Shares to the extent permitted or required under the Transaction Documents or as otherwise permitted by the Transaction Documents;

          e)          enter into any agreement or understanding with respect to any of the foregoing; or

          f)pay cash dividends or distributions on Junior Securities of the Corporation.

                    Section 11.         Miscellaneous.

          a)Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at the address set forth above, facsimile number 646-218-1885, Attn: Alan Schoenbart or such other facsimile number or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 11. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the Corporation, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder 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 number specified in this Section 11 prior to 5:30 p.m. (New York City time) on any date, (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section 11 between 5:30 p.m. and 11:59 p.m. (New York City time) on any date, (iii) the second 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.

          b)          Absolute Obligation. Except as expressly provided herein, no provision of this Certificate of Designation shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay liquidated damages, accrued dividends and accrued interest, as applicable, on the shares of Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.

          c)          Lost or Mutilated Preferred Stock Certificate. If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.

          d)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby

irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Certificate of Designation and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Certificate of Designation or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

          e)          Waiver. Any waiver by the Corporation or the Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation. The failure of the Corporation or the Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation. Any waiver by the Corporation or the Holder must be in writing.

          f)Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

          g)Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

          h)Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.

          i)Status of Converted or Redeemed Preferred Stock. Shares of Preferred Stock may only be issued pursuant to the Purchase Agreement. If any shares of Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series E 6% Convertible Preferred Stock.

          RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file a Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Delaware law.

          IN WITNESS WHEREOF, the undersigned have executed this Certificate this 5^th day of April, 2006.

/s/ Costa Papastephanou	/s/ Ron Lipstein
Name:  Costa Papastephanou	Name:  Ron Lipstein
Title:  President	Title:  Secretary

ANNEX A

NOTICE OF CONVERSION

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES
OF PREFERRED STOCK)

The undersigned hereby elects to convert the number of shares of Series E 6% Convertible Preferred Stock indicated below into shares of common stock, par value $.001 per share (the “Common Stock”), of Ortec International, Inc., a Delaware corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation in accordance with the Purchase Agreement. No fee will be charged to the Holder for any conversion, except for any such transfer taxes.

Conversion calculations:

Date to Effect Conversion: ______________________________________________________________________

Number of shares of Preferred Stock owned prior to Conversion:_________________________________________

Number of shares of Preferred Stock to be Converted: _________________________________________________

Stated Value of shares of Preferred Stock to be Converted: ______________________________________________

Number of shares of Common Stock to be Issued: _____________________________________________________

Applicable Conversion Price: _____________________________________________________________________

Number of shares of Preferred Stock subsequent to Conversion: ___________________________________________

[HOLDER]
By:
	Name:
	Title:

CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
PREFERENCES
OF THE
SERIES D-1 CONVERTIBLE PREFERRED STOCK
OF
ORTEC INTERNATIONAL, INC.

          The undersigned, the Chief Executive Officer of Ortec International, Inc., a Delaware corporation (the "Company"), in accordance with the provisions of the Delaware General Corporation Law, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Company, the following resolution creating a series of Series D-1 Convertible Preferred Stock, was duly adopted on August 24, 2006:

          RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Certificate of Incorporation of the Company (the "Certificate of Incorporation"), there hereby is created out of the shares of Preferred Stock, par value $.001 per share, of the Company authorized in Article Fourth of the Certificate of Incorporation (the "Preferred Stock"), a series of Preferred Stock of the Company, to be named "Series D-1 Convertible Preferred Stock," consisting of twenty thousand (20,000) shares, which series shall have the following designations, powers, preferences and relative and other special rights and the following qualifications, limitations and restrictions:

          1.           Designation and Rank. The designation of such series of the Preferred Stock shall be the Series D-1 Convertible Preferred Stock, par value $.001 per share (the "Series D-1 Preferred Stock"). The maximum number of shares of Series D-1 Preferred Stock shall be twenty thousand (20,000) Shares. The Series D-1 Preferred Stock shall rank prior to the common stock, par value $.001 per share (the "Common Stock") for purposes of liquidation preference, and to all other classes and series of equity securities of the Company that by their terms do not rank senior to the Series D-1 Preferred Stock ("Junior Stock"). Specifically, the Series D-1 Preferred Stock shall be subordinate to and rank junior to all other classes of Preferred Stock of the Company, whether or not outstanding as of the date hereof, which by their terms do not rank junior to the Series D-1 Preferred Stock. The Series D-1 Preferred Stock shall be subordinate to and rank junior to all indebtedness of the Company now or hereafter outstanding.

          2.           Dividends. Whenever the Board of Directors declares a dividend on the Common Stock each holder of record of a share of Series D-1 Preferred Stock, or any fraction of a share of Series D-1 Preferred Stock, on the date set by the Board of Directors to determine the owners of the Common Stock of record entitled to receive such dividend (the "Record Date") shall be entitled to receive, out of any assets at the time legally available therefore, an amount equal to such dividend declared on one share of Common Stock multiplied by the number of shares of Common Stock into which such share, or such fraction of a share, of Series D-1 Preferred Stock could be converted on the Record Date.

          3.           Voting Rights.

                        (a)Class Voting Rights. The Series D-1 Preferred Stock shall have the following class voting rights. So long as any shares of the Series D-1 Preferred Stock remain outstanding, the Company shall not, without the affirmative vote or consent of the holders of at least three-fourths (3/4) of the shares of the Series D-1 Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, in which the holders of the Series D-1 Preferred Stock vote separately as a class: (i) amend, alter or repeal the provisions of the Series D-1 Preferred Stock so as to adversely affect any right, preference, privilege or voting power of the Series D-1 Preferred Stock; or (ii) effect any distribution with respect to Junior Stock except that the Company may effect a distribution on the Common stock if the Company makes a like kind distribution on each share, or fraction of a share, of Series D-1 Preferred Stock in an amount equal to the distribution on one share of Common Stock multiplied by the number of shares of Common Stock into which such one share, or such fraction of a share, of Series D-1 Preferred Stock can be converted at the time of such distribution.

                        (b)General Voting Rights. Except with respect to transactions upon which the Series D-1 Preferred Stock shall be entitled to vote separately as a class pursuant to Section 3(a) above, the Series D-1 Preferred Stock shall have no voting rights. The Common Stock into which the Series D-1 Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding Common Stock of the Company.

          4.           Liquidation Preference.

                        (a)     In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Company, the holders of shares of the Series D-1 Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company, whether such assets are capital or surplus of any nature, an amount equal to the greater of:

                      (i)           ten ($10.00) per share of Series D-1 Preferred Stock, or

                      (ii)          an amount per share of Series D-1 Preferred Stock calculated by taking the total amount available for distribution to holders of all of the Company’s outstanding Common Stock before deduction of any preference payments for the Series D-1 Preferred Stock, divided by the total of (x) all of the then outstanding shares of the Company’s Common stock, plus (y) all of the shares of the Company’s Common Stock into which all of the outstanding shares of the Series D-1 Preferred Stock can then be converted.

(the "Liquidation Preference Amount") before any payment shall be made or any assets distributed to the holders of the Common Stock or any other Junior Stock. If the assets of the Company are sufficient to pay in part, but are not sufficient to pay in full, the Liquidation Preference Amount payable to the holders of outstanding shares of the Series D-1 Preferred

Stock and any series of preferred stock or any other class of stock on a parity, as to rights on liquidation, dissolution or winding up, with the Series D-1 Preferred Stock, then all of said assets available to pay a part of the Liquidation Preference Amount to the holders of the outstanding shares of Series D-1 Preferred Stock and the other classes of stock on a parity as to rights on liquidation, dissolution or winding up, will be distributed among the holders of the Series D-1 Preferred Stock and the other classes of stock on a parity with the Series D-1 Preferred Stock, if any, ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The liquidation payment with respect to each outstanding fractional share of Series D-1 Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of Series D-1 Preferred Stock. All payments for which this Section 4(a) provides shall be in cash, property (valued at its fair market value as determined by an independent appraiser reasonably acceptable to the holders of a majority of the Series D-1 Preferred Stock), or a combination thereof; provided, however, that no cash shall be paid to holders of Junior Stock unless each holder of the outstanding shares of Series D-1 Preferred Stock has been paid in cash the full Liquidation Preference Amount to which such holder is entitled as provided herein. After payment of the full Liquidation Preference Amount to which each holder is entitled, such holders of shares of Series D-1 Preferred Stock will not be entitled to any further participation as such in any distribution of the assets of the Company.

                        (b)      A consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of transactions in which more than 50% of the voting shares of the Company is disposed of or conveyed, shall not be deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4. In the event of the merger or consolidation of the Company with or into another corporation, the Series D-1 Preferred Stock shall maintain its relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.

                        (c)Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by mail, postage prepaid, no less than forty-five (45) days prior to the payment date stated therein, to the holders of record of the Series D-1 Preferred Stock at their respective addresses as the same shall appear on the books of the Company.

          5.           Conversion. The holder of Series D-1 Preferred Stock shall have the following conversion rights (the "Conversion Rights"):

                        (a)           Right to Convert. At any time on or after the Issuance Date, the holder of any such shares of Series D-1 Preferred Stock may, at such holder's option, subject to the limitations set forth in Section 7 herein, elect to convert (a "Voluntary Conversion") all or any portion of the shares of Series D-1 Preferred Stock held by such person into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount of the shares of Series D-1 Preferred Stock being converted divided by (ii)

the Conversion Price (as defined in Section 5(d) below) then in effect as of the date of the delivery by such holder of its notice of election to convert. The Company shall keep written records of the conversion of the shares of Series D-1 Preferred Stock converted by each holder. A holder shall be required to deliver the original certificates representing the shares of Series D-1 Preferred Stock upon any conversion of the Series D-1 Preferred Stock as provided in Section 5(b) below.

                        (b)      Mechanics of Voluntary Conversion. The Voluntary Conversion of Series D-1 Preferred Stock shall be conducted in the following manner:

                                  (i)           Holder's Delivery Requirements. To convert Series D-1 Preferred Stock into full shares of Common Stock on any date (the "Voluntary Conversion Date"), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice"), to the Company, and (B) with respect to the conversion of shares of Series D-1 Preferred Stock held by any holder, such holder shall surrender to a common carrier for delivery to the Company as soon as practicable following such Conversion Date, but in no event later than six (6) business days after such date, the original certificates representing the shares of Series D-1 Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "Preferred Stock Certificates").

                                 (ii)           Company's Response. Upon receipt by the Company of a facsimile copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such holder and the Company or its designated transfer agent (the "Transfer Agent"), as applicable, shall, within three (3) business days following the date of receipt by the Company of the certificate representing the shares of Series D-1 Preferred Stock being converted, (x) issue and deliver to the Depository Trust Company (“DTC”) account on the holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the Conversion Notice, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled, and (y) if the certificate so surrendered represents more shares of Series D-1 Preferred Stock than those being converted, issue and deliver to the holder a new certificate for such number of shares of Series D-1 Preferred Stock represented by the surrendered certificate which were not converted.

                                (iii)           Dispute Resolution. In the case of a dispute as to the arithmetic calculation of the number of shares of Common Stock to be issued upon conversion, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the arithmetic calculations to the holder via facsimile as soon as possible, but in no event later than two (2) business days after receipt of such holder's Conversion Notice. If such holder and the Company are unable to agree upon the arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion within one (1) business day of such disputed arithmetic calculation being submitted to the holder, then the Company shall within one (1) business day submit via facsimile the disputed arithmetic

calculation of the number of shares of Common Stock to be issued upon such conversion to the Company’sindependent, outside accountant. The Company shall cause the accountant to perform the calculations and notify the Company and the holder of the results no later than seventy-two (72) hours from the time it receives the disputed calculations. Such accountant's calculation shall be binding upon all parties absent manifest error. The reasonable expenses of such accountant in making such determination shall be paid by the Company, in the event the holder's calculation was correct, or by the holder, in the event the Company's calculation was correct, or equally by the Company and the holder in the event that neither the Company's or the holder's calculation was correct. The period of time in which the Company is required to effect conversions or redemptions under this Certificate of Designation shall be tolled with respect to the subject conversion or redemption pending resolution of any dispute by the Company made in good faith and in accordance with this Section 5(b)(iii).

                              (iv)          Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of the Series D-1 Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

                   (c)      Mandatory Conversion.

                             (i)            Upon the Company's written request a holder of Series D-1 Preferred Stock shall advise the Company in writing the number of shares of Common Stock that are beneficially owned ("Beneficially Owned", as defined in Section 13(d) of the Securities and Exchange Act of 1934 and the rules promulgated thereunder) by such holder. If the shares of Common Stock Beneficially Owned by such holder amount to less than 9.99% of the Shares of Common Stock outstanding at such time, the Company may, at its option, compel such holder, by written notice to such holder (the "Mandatory Conversion Notice"), to convert such portion of the Series D-1 Preferred Stock owned by him into so many shares of Common Stock so that the total number of shares of Common Stock Beneficially Owned by such holder after such conversion shall equal up to 9.99%, but not more, of the shares of Common Stock outstanding after such conversion.

                            (ii)           As used herein, a "Mandatory Conversion Date" shall be the date when the Mandatory Conversion Notice shall be deemed delivered pursuant to Section 5(i). The Mandatory Conversion Date and the Voluntary Conversion Date collectively are referred to in this Certificate of Designation as the "Conversion Date."

                            (iii)           Each share of Series D-1 Preferred Stock required to be converted pursuant to the Mandatory Conversion Notice shall on the Mandatory Conversion Date, automatically and without any action on the part of the holder thereof, convert into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount of such Series D-1 Preferred Stock divided by (ii) the Conversion Price in effect on the Mandatory Conversion Date; provided, however, that the Company shall not be obligated to issue the shares of Common Stock issuable upon conversion of any shares of Series D-1 Preferred Stock unless the Preferred Stock certificates representing such shares of Series D-1

Preferred Stock are either delivered to the Company or the holder notifies the Company that such Preferred Stock certificates have been lost, stolen, or destroyed, and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection therewith. Upon the occurrence of the automatic conversion of any Series D-1 Preferred Stock pursuant to this Section 5, the holders of the Series D-1 Preferred Stock shall surrender the Preferred Stock certificates representing the Series D-1 Preferred Stock for which the Mandatory Conversion Date has occurred to the Company and the Company shall deliver the shares of Common Stock issuable upon such conversion (in the same manner set forth in Section 5(b)(ii)) to the holder within three (3) business days of the holder's delivery of the applicable Preferred Stock certificates. If the certificates of Series D-1 Preferred Stock so surrendered represent more shares of Series D-1 Preferred Stock than those being converted, the Company shall issue to the holder a new certificate for such number of Series D-1 Preferred Stock represented by the surrendered certificates which were not converted.

                   (d)      Conversion Price. The term "Conversion Price" shall mean $.0375, subject to adjustment under Section 5(e) hereof.

                   (e)      Adjustments of Conversion Price.

                             (i)           Adjustments for Stock Splits and Combinations. If the Company shall at any time or from time to time after the Issuance Date, effect a stock split of the outstanding Common Stock, the Conversion Price shall be proportionately decreased. If the Company shall at any time or from time to time after the Issuance Date, combine the outstanding shares of Common Stock, the Conversion Price shall be proportionately increased. Any adjustments under this Section 5(e)(i) shall be effective at the close of business on the date the stock split or combination occurs.

                            (ii)           Adjustments for Certain Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the Conversion Price shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, as applicable, the Conversion Price then in effect by a fraction:

                                           (1)          the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and

                                           (2)           the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

                                (iii)       Adjustment for Other Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of Series D-1 Preferred Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had their Series D-1 Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 5(e)(iii) with respect to the rights of the holders of the Series D-1 Preferred Stock.

                               (iv)        Adjustments for Reclassification, Exchange or Substitution. If the Common Stock issuable upon conversion of the Series D-1 Preferred Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made and provisions shall be made so that the holder of each share of Series D-1 Preferred Stock shall have the right thereafter to convert such share of Series D-1 Preferred Stock into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such share of Series D-1 Preferred Stock might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein.

                              (v)          Adjustments for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Issuance Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties or assets to any other person (an "Organic Change"), then as a part of such Organic Change an appropriate revision to the Conversion Price shall be made and provision shall be made so that the holder of each share of Series D-1 Preferred Stock shall have the right thereafter to convert such share of Series D-1 Preferred Stock into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from the Organic Change which the holder of such share of Series D-1 Preferred Stock would have received if such share of Series D-1 Preferred Stock had been converted prior to such Organic Change.

                             (vi)           Record Date. In case the Company shall take record of the holders of its Common Stock or any other Preferred Stock for the purpose of entitling them to subscribe for or purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common Stock shall be deemed to be such record date.

                   (f)      No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith, assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series D-1 Preferred Stock against impairment. In the event a holder shall elect to convert any shares of Series D-1 Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or any one associated or affiliated with such holder has been engaged in any violation of law, unless, an injunction from a court, on notice, restraining and/or adjoining conversion of all or of said shares of Series D-1 Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in an amount equal to 130% of the Liquidation Preference Amount of the Series D-1 Preferred Stock such holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains judgment.

                   (g)      Certificates as to Adjustments. Upon occurrence of each adjustment or readjustment of the Conversion Price or number of shares of Common Stock issuable upon conversion of the Series D-1 Preferred Stock pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Series D-1 Preferred Stock a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written request of the holder of such affected Series D-1 Preferred Stock, at any time, furnish or cause to be furnished to such holder a like certificate setting forth such adjustments and readjustments, the Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of a share of such Series D-1 Preferred Stock. Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent of such adjusted amount.

                   (h)      Issue Taxes. The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series D-1 Preferred Stock pursuant thereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

                   (i)      Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or three (3) business days following (x) being mailed by certified or registered mail, postage prepaid, return-receipt requested, or (y) delivered to an express mail delivery service such as Federal Express, with written receipt by the addressee required, in either case addressed to the holder of record at its address appearing on the books of the Company. The Company will give written notice to each holder of Series D-1 Preferred Stock at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the public. The Company will also give written notice to each holder of Series D-1 Preferred Stock at least twenty (20) days prior to the date on which any Organic Change, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to such holder prior to such information being made known to the public.

                   (j)      Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series D-1 Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall pay cash equal to the product of such fraction multiplied by the average of the Closing Bid Prices of the Common Stock for the five (5) consecutive trading immediately preceding the Voluntary Conversion Date or Mandatory Conversion Date, as applicable.

                   (k)      Reservation of Common Stock. The Company shall, so long as any shares of Series D-1 Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series D-1 Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series D-1 Preferred Stock then outstanding.

                   (l)      Retirement of Series D-1 Preferred Stock. Conversion of Series D-1 Preferred Stock shall be deemed to have been effected on the applicable Voluntary Conversion Date or Mandatory Conversion Date. The Company shall keep written records of the conversion of the shares of Series D-1 Preferred Stock converted by each holder. A holder shall be required to deliver the original certificates representing the shares of Series D-1 Preferred Stock upon any conversion of the Series D-1 Preferred Stock represented by such certificates.

                   (m)    Regulatory Compliance. If any shares of Common Stock to be reserved for the purpose of conversion of Series D-1 Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be.

          6.        No Preemptive or Redemption Rights. Except as provided in Section 5 hereof no holder of the Series D-1 Preferred Stock shall be entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable. Except as provided in Section 5 neither the Company nor the holder has the right to have the Company redeem the Series D-1 Preferred Stock.

          7.        Conversion Restriction. Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series D-1 Preferred Stock convert shares of the Series D-1 Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder owning more than 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon a holder of Series D-1 Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the "Waiver Notice") that such holder would like to waive Section 7(a) of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series D-1 Preferred Stock, this Section 7(a) shall be of no force or effect with regard to those shares of Series D-1 Preferred Stock referenced in the Waiver Notice.

          8.        Inability to Fully Convert.

                    (a)      Holder's Option if Company Cannot Fully Convert. If, upon the Company's receipt of a Conversion Notice, or on the Mandatory Conversion Date, the Company cannot issue shares of Common Stock for any reason, including, without limitation, because the Company (x) does not have a sufficient number of shares of Common Stock authorized and available or (y) is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or its securities, from issuing all of the Common Stock which is to be issued to a holder of Series D-1 Preferred Stock pursuant to a Conversion Notice or a Mandatory Conversion Notice, then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with such holder's Conversion Notice or a Mandatory Conversion Notice and with respect to the unconverted Series D-1 Preferred Stock (the "Unconverted Preferred Stock") the holder, solely at such holder's option, can elect, at any time after receipt of notice from the Company that there is Unconverted Preferred Stock, to void the holder's Conversion Notice or the Mandatory Conversion Notice as to the number of shares of Common Stock the Company is unable to issue and retain or have returned, as the case may be, the certificates for the shares of the Unconverted Preferred Stock.

          In the event a Holder shall elect to convert any shares of Series D-1 Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, violation of an agreement to which such Holder is a party or for any reason whatsoever, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or any of said shares of Series D-1 Preferred Stock shall have issued.

                     (b)      Mechanics of Fulfilling Holder's Election. The Company shall immediately send via facsimile to a holder of Series D-1 Preferred Stock, upon receipt of a facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied as described in Section 8(a) above, a notice of the Company's inability to fully satisfy such holder's Conversion Notice (the "Inability to Fully Convert Notice"). Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder's Conversion Notice and (ii) the number of shares of Series D-1 Preferred Stock which cannot be converted.

                     (c)      Pro-rata Conversion. In the event the Company within a period of ten days receives Voluntary Conversion Notices from more than one holder of Series D-1 Preferred Stock and the Company can convert some, but not all, of the Series D-1 Preferred Stock required to be converted as a result of such Voluntary Conversion Notices, the Company shall convert from each holder of Series D-1 Preferred Stock electing to have Series D-1 Preferred Stock converted within such ten day period, an amount equal to the number of shares of Series B Preferred Stock such holder elected to have converted in such ten day period multiplied by a fraction, the numerator of which shall be the number of shares of Series B Preferred Stock such holder elected to have converted in such ten day period and the denominator of which shall be the total number of shares of Series B Preferred Stock all holders elected to have converted in such ten day period. The Company shall not convert any Series B Preferred Stock pursuant to a Mandatory Conversion Notice until it shall have converted all Series B Preferred Stock pursuant to any Voluntary Conversion Notice.

          9.         Vote to Change the Terms of or Issue Preferred Stock. The affirmative vote at a meeting duly called for such purpose, or the written consent without a meeting, of the holders of not less than three-fourths (3/4) of the then outstanding shares of Series D-1 Preferred Stock, shall be required for any change to this Certificate of Designation or the Company's Certificate of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Series D-1 Preferred Stock.

          10.       Lost or Stolen Certificates. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the shares of Series D-1 Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Company and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date.

          11.         Remedies, Characterizations, Other Obligations, Breaches and InjunctiveRelief. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation. Amounts set forth or provided for herein with respect to conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series D-1 Preferred Stock and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holders of the Series D-1 Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

          12.         Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein. This Certificate of Designation shall be deemed to be jointly drafted by the Company and all holders of the Series D-1 Preferred Stock and shall not be construed against any person as the drafter hereof.

          13.         Failure or Indulgence Not Waiver. No failure or delay on the part of a holder of Series D-1 Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

          IN WITNESS WHEREOF, the undersigned has executed and subscribed this Amended Certificate and does affirm the foregoing as true this 28^th day of August, 2006.

ORTEC INTERNATIONAL, INC.
By:	/s/ Ron Lipstein
	Name: Ron Lipstein
	Title:   Chief Executive Officer

EXHIBIT I

ORTEC INTERNATIONAL, INC.
CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series D-1 Preferred Stock of Ortec International, Inc. (the "Certificate of Designation"). In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series D-1 Preferred Stock, par value $.001 per share (the "Preferred Shares"), of Ortec International, Inc., a Delaware corporation (the "Company"), indicated below into shares of Common Stock, par value $.001 per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.

Date of Conversion:
Number of Preferred Shares to be converted:	______
Stock certificate no(s). of Preferred Shares to be converted:           ______
The Common Stock has been sold: YES ____     NO____
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:

                          Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion determined in accordance with Section 16 of the Securities Exchange Act of 1934, as amended: _________________________

Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:

Issue to:
Facsimile Number:
Authorization:
	By:
	Title:
Dated:

PRICES ATTACHED

CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
PREFERENCES
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
ORTEC INTERNATIONAL, INC.

          The undersigned, the Chief Executive Officer of Ortec International, Inc., a Delaware corporation (the “Company”), in accordance with the provisions of the Delaware General Corporation Law, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Company, the following resolution creating a series of Series A Convertible Preferred Stock, was duly adopted on June 10, 2007:

          RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Certificate of Incorporation of the Company (the “Certificate of Incorporation”), there hereby is created out of the shares of Preferred Stock, par value $.001 per share, of the Company authorized in Article IV of the Certificate of Incorporation (the “Preferred Stock”), a series of Preferred Stock of the Company, to be named “Series A Convertible Preferred Stock,” consisting of two thousand (2,000) shares, which series shall have the following designations, powers, preferences and relative and other special rights and the following qualifications, limitations and restrictions:

          1.           Designation and Rank.

                        (a)           Designation. The designation of such series of the Preferred Stock shall be the Series A Convertible Preferred Stock, par value $.001 per share (the “Series A Preferred Stock”). The maximum number of shares of Series A Preferred Stock shall be two thousand (2,000) Shares.

                        (b)           Rank. The Series A Preferred Stock shall rank prior to the common stock, par value $.001 per share (the “Common Stock”), and to all other classes and series of equity securities of the Company which by its terms does not rank senior to or pari passu with the Series A Preferred Stock (“Junior Stock”). The Series A Preferred Stock shall be subordinate to and rank junior to all indebtedness of the Company now or hereafter outstanding. The Series A Preferred Stock shall rank on a pari passu basis to the Series A-1 Convertible Preferred Stock, par value $.001 per share (the “Series A-1 Preferred Stock”) and the Series A-2 Convertible Preferred Stock, par value $.001 per share (the “Series A-2 Preferred Stock” and together with the Series A-1 Preferred Stock, the “Pari Passu Preferred Stock”).

          2.           Dividends. The holders of record of shares of Series A Preferred Stock shall not be entitled to receive dividends.

          3.           Voting Rights.

                        (a)           Class Voting Rights. The Series A Preferred Stock shall have the following class voting rights (in addition to the voting rights set forth in Section 3(b) hereof). Subject to Section 10 hereof, so long as any shares of the Series A Preferred Stock remain outstanding, the Company shall not, without the affirmative vote or consent of the holders of at least seventy percent (70%) of the shares of the Series A Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, in which the holders of the Series A Preferred Stock vote separately as a class: (i) amend, alter or repeal the provisions of the Series A Preferred Stock, whether by merger, consolidation or otherwise, so as to adversely affect any right, preference, privilege or voting power of the Series A Preferred Stock; provided, however, that any creation and issuance of another series of Junior Stock and, to the extent approved in accordance with Section 3.16 of the Series A Convertible Preferred Stock Purchase Agreement among the Company and the purchasers listed therein (the “Purchase Agreement”), pari passu stock and senior stock shall not be deemed to adversely affect such rights, preferences, privileges or voting powers; (ii) repurchase, redeem or pay dividends in cash or in kind on shares of the Company's Junior Stock and pari passu stock and senior stock; (iii) amend the Certificate of Incorporation or By-Laws of the Company so as to affect materially and adversely any right, preference, privilege or voting power of the Series A Preferred Stock; provided, however, that any creation and issuance of another series of Junior Stock and, to the extent approved in accordance with Section 3.16 of the Purchase Agreement, pari passu stock and senior stock shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers; (iv) effect any distribution with respect to Junior Stock and Pari Passu Preferred Stock; or (v) reclassify the Company’s outstanding securities.

                        (b)           General Voting Rights. Except with respect to transactions upon which the Series A Preferred Stock shall be entitled to vote separately as a class pursuant to Section 3(a) above and except as otherwise required by Delaware law, the Series A Preferred Stock shall have no voting rights. The Common Stock into which the Series A Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding Common Stock of the Company.

          4.           Liquidation Preference.

                        (a)          In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of shares of the Series A Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company whether such assets are capital or surplus of any nature, an amount equal to $10,000 per share (the “Liquidation Preference Amount”) of the Series A Preferred Stock, on a pro rata and pari passu basis with the Pari Passu Preferred Stock, before any payment shall be made or any assets distributed to the holders of the Common Stock or any other Junior Stock. If the assets of the Company are not sufficient to pay in full the Liquidation Preference Amount payable to the holders of outstanding shares of the Series A Preferred Stock and any series of preferred stock or any other class of stock on a parity, including, without limitation, the Pari Passu Preferred Stock, as to rights on liquidation, dissolution or winding up, with the Series A Preferred Stock, then all

of said assets will be distributed among the holders of the Series A Preferred Stock, the Pari Passu Preferred Stock and the other classes of stock on a parity with the Series A Preferred Stock, if any, ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The liquidation payment with respect to each outstanding fractional share of Series A Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of Series A Preferred Stock. All payments for which this Section 4(a) provides shall be in cash, property (valued at its fair market value as determined by an independent appraiser reasonably acceptable to the holders of a majority of the Series A Preferred Stock) or a combination thereof; provided, however, that no cash shall be paid to holders of Junior Stock unless each holder of the outstanding shares of Series A Preferred Stock has been paid in cash the full Liquidation Preference Amount to which such holder is entitled as provided herein. After payment of the full Liquidation Preference Amount to which each holder is entitled, such holders of shares of Series A Preferred Stock will not be entitled to any further participation as such in any distribution of the assets of the Company.

                        (b)          A consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of transactions in which more than fifty percent (50%) of the voting shares of the Company is disposed of or conveyed, or other acquisition type transaction, or upon the payment by the Company of interest, dividends or other distributions to the holders of securities or financial instruments (including Indebtedness) ranking senior to or pari passu with the Series A Preferred Stock exceeding $10 million in the aggregate, shall be, at the election of a majority of the holders of the Series A Preferred Stock, deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4. The grant of an exclusive license for all or substantially all of the Company's intellectual property assets covered by the Cambrex license shall also be deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4 in the event that either (i) the holders of the Series A Preferred Stock, and all affiliates of such holders, together own directly or indirectly ten percent (10%) or more of the outstanding equity of the licensee, or (ii) seventy percent (70%) of the Company's Series A Preferred Stock and Series A-1 Preferred Stock voting together as a class so elect. In the event of the merger or consolidation of the Company with or into another corporation that is not treated as a liquidation pursuant to this Section 4(b), the Series A Preferred Stock shall maintain its relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.

                        (c)          Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by mail, postage prepaid, no less than forty-five (45) days prior to the payment date stated therein, to the holders of record of the Series A Preferred Stock at their respective addresses as the same shall appear on the books of the Company.

          5.           Conversion. The holder of Series A Preferred Stock shall have the following conversion rights (the “Conversion Rights”):

                        (a)           Right to Convert. At any time on or after the Issuance Date, the holder of any such shares of Series A Preferred Stock may, at such holder’s option, subject to the limitations set forth in Section 7 herein, elect to convert (a “Voluntary Conversion”) all or any portion of the shares of Series A Preferred Stock held by such person into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount of the shares of Series A Preferred Stock being converted thereon divided by (ii) the Conversion Price (as defined in Section 5(d) below) then in effect as of the date of the delivery by such holder of its notice of election to convert. The Company shall keep written records of the conversion of the shares of Series A Preferred Stock converted by each holder. A holder shall be required to deliver the original certificates representing the shares of Series A Preferred Stock upon complete conversion of the Series A Preferred Stock.

                        (b)           Mechanics of Voluntary Conversion. The Voluntary Conversion of Series A Preferred Stock shall be conducted in the following manner:

                                        (i)           Holder’s Delivery Requirements. To convert Series A Preferred Stock into full shares of Common Stock on any date (the “Voluntary Conversion Date”), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”), to the Company, and (B) with respect to the final conversion of shares of Series A Preferred Stock held by any holder, such holder shall surrender to a common carrier for delivery to the Company as soon as practicable following such Conversion Date but in no event later than six (6) business days after such date the original certificates representing the shares of Series A Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the “Preferred Stock Certificates”).

                                        (ii)          Company’s Response. Upon receipt by the Company of a facsimile copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such holder and the Company or its designated transfer agent (the “Transfer Agent”), as applicable, shall, within three (3) business days following the date of receipt by the Company of the executed Conversion Notice, issue and deliver to the Depository Trust Company (“DTC”) account on the holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the Conversion Notice, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled.

                                        (iii)          Dispute Resolution. In the case of a dispute as to the arithmetic calculation of the number of shares of Common Stock to be issued upon conversion, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the arithmetic calculations to the holder via facsimile as soon as possible, but in no event later than two (2) business days after receipt of such holder’s Conversion Notice. If such holder and the Company are unable to agree upon the arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion within

one (1) business day of such disputed arithmetic calculation being submitted to the holder, then the Company shall within one (1) business day submit via facsimile the disputed arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion to the Company’sindependent, outside accountant. The Company shall cause the accountant to perform the calculations and notify the Company and the holder of the results no later than seventy-two (72) hours from the time it receives the disputed calculations. Such accountant’s calculation shall be binding upon all parties absent manifest error. The reasonable expenses of such accountant in making such determination shall be paid by the Company, in the event the holder’s calculation was correct, or by the holder, in the event the Company’s calculation was correct, or equally by the Company and the holder in the event that neither the Company’s or the holder’s calculation was correct. The period of time in which the Company is required to effect conversions or redemptions under this Certificate of Designation shall be tolled with respect to the subject conversion or redemption pending resolution of any dispute by the Company made in good faith and in accordance with this Section 5(b)(iii).

                                   (iv)         Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of the Series A Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

                                   (v)          Company’s Failure to Timely Convert. If within three (3) business days of the Company’s receipt of the Conversion Notice (the “Share Delivery Period”) the Company shall fail to issue and deliver to a holder the number of shares of Common Stock to which such holder is entitled upon such holder’s conversion of the Series A Preferred Stock (a “Conversion Failure”), in addition to all other available remedies which such holder may pursue hereunder and under the Purchase Agreement (including indemnification pursuant to Section 6 thereof), the Company shall pay additional damages to such holder on each business day after such third (3^rd) business day that such conversion is not timely effected in an amount equal 0.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the holder on a timely basis pursuant to Section 5(b)(ii) and to which such holder is entitled and (B) the Closing Bid Price (as defined in Section 5(d)(ii) hereof) of the Common Stock on the last possible date which the Company could have issued such Common Stock to such holder without violating Section 5(b)(ii). If the Company fails to pay the additional damages set forth in this Section 5(b)(v) within five (5) business days of the date incurred, then such payment shall bear interest at the rate of 2% per month (pro rated for partial months) until such payments are made.

                   (c)           Mandatory Conversion.

                                   (i)           All or a portion of the shares of Series A Preferred Stock outstanding on the Mandatory Conversion Date shall, depending on the Closing Bid Price on such Mandatory Conversion Date, automatically and without any action on the part of the holder thereof, convert into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount of the shares of Series A Preferred Stock outstanding on the Mandatory Conversion Date divided by (ii) the Conversion Price in effect on the Mandatory Conversion Date. If the Closing Bid Price of the Common Stock on the

Mandatory Conversion Date is equal to or greater than $1.50 but less than $2.00, one-third (1/3) of the shares of Series A Preferred Stock outstanding shall automatically convert into shares of Common Stock in accordance with this Section 5(c)(i). If the Closing Bid Price of the Common Stock on the Mandatory Conversion Date is equal to or greater than $2.00 but less than $3.00, two-thirds (2/3) of the original shares of Series A Preferred Stock outstanding shall automatically convert into shares of Common Stock in accordance with this Section 5(c)(i). If the Closing Bid Price of the Common Stock on the Mandatory Conversion date is greater than $3.00, all of the shares of Series A Preferred Stock outstanding shall automatically convert into shares of Common Stock in accordance with this Section 5(c)(i).

                                   (ii)         As used herein, a “Mandatory Conversion Date” shall be the date which is at least one (1) day after the Effectiveness Date (as defined in the Registration Rights Agreement), provided, that the Closing Bid Price of the Common Stock exceeds $1.50 for a period of ten (10) consecutive trading days; and provided further that the Registration Statement (as defined in the Registration Rights Agreement) is effective with respect to all shares of Common Stock issuable upon such Mandatory Conversion or the shares of Common Stock into which the Series A Preferred Stock can be converted may be offered for sale to the public pursuant to Rule 144(k) (“Rule 144(k)”) under the Securities Act of 1933, as amended. Notwithstanding the foregoing, no Mandatory Conversion shall be effected if, on the Mandatory Conversion Date, the conversion of such share of Preferred Stock would violate Section 7. The Mandatory Conversion Date and the Voluntary Conversion Date collectively are referred to in this Certificate of Designation as the “Conversion Date.”

                                   (iii)        On the Mandatory Conversion Date, the outstanding shares of Series A Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the Preferred Stock Certificates are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue the shares of Common Stock issuable upon conversion of any shares of Series A Preferred Stock unless the Preferred Stock Certificates evidencing such shares of Series A Preferred Stock are either delivered to the Company or the holder notifies the Company that such Preferred Stock Certificates have been lost, stolen, or destroyed, and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection therewith. Upon the occurrence of the automatic conversion of the Series A Preferred Stock pursuant to this Section 5, the holders of the Series A Preferred Stock shall surrender the Preferred Stock Certificates representing the Series A Preferred Stock for which the Mandatory Conversion Date has occurred to the Company and the Company shall deliver the shares of Common Stock issuable upon such conversion (in the same manner set forth in Section 5(b)(ii)) to the holder within three (3) business days of the holder’s delivery of the applicable Preferred Stock Certificates.

                   (d)           Conversion Price.

                                   (i)           The term “Conversion Price” shall mean $0.50 per share, subject to adjustment under Section 5(e) hereof. Notwithstanding any adjustment hereunder, at no time

shall the Conversion Price be greater than $0.50 per share other than pursuant to the second sentence of Section 5(e)(i) in connection with a reverse stock split effected by the Company.

                                   (ii)          The term “Closing Bid Price” shall mean, for any security as of any date, the last closing bid price of such security on the OTC Bulletin Board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the “pink sheets” by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the holders of a majority of the outstanding shares of Series A Preferred Stock.

                                   (iii)         The term “Release Event” means, with respect to a holder’s shares of Series A Preferred Stock, the date on which the Company files a Form 8-K with the Commission disclosing the Company’s receipt of written notice from the U.S. Food and Drug Administration regarding the granting the Company the right to commercialize and market (i.e., formal approval of the Company’s Pre-Market Application for) its OrCel product for the treatment of venous leg ulcers.

                   (e)           Adjustments of Conversion Price.

                                   (i)           Adjustments for Stock Splits and Combinations. If the Company shall at any time or from time to time after the Issuance Date, effect a stock split of the outstanding Common Stock, the Conversion Price shall be proportionately decreased. If the Company shall at any time or from time to time after the Issuance Date, combine the outstanding shares of Common Stock, the Conversion Price shall be proportionately increased. Any adjustments under this Section 5(e)(i) shall be effective at the close of business on the date the stock split or combination occurs.

                                   (ii)          Adjustments for Certain Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the Conversion Price shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, as applicable, the Conversion Price then in effect by a fraction:

                                                  (1)           the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and

                                                  (2)           the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance

or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

                                   (iii)         Adjustment for Other Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of Series A Preferred Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had their Series A Preferred Stock been converted into Common Stock immediately prior to such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 5(e)(iii) with respect to the rights of the holders of the Series A Preferred Stock.

                                   (iv)        Adjustments for Reclassification, Exchange or Substitution. If the Common Stock issuable upon conversion of the Series A Preferred Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made and provisions shall be made (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series A Preferred Stock shall have the right thereafter to convert such share of Series A Preferred Stock into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such share of Series A Preferred Stock might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein.

                                   (v)         Adjustments for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Issuance Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company’s properties or assets to any other person that is not deemed a liquidation pursuant to Section 4(b) (an “Organic Change”), then as a part of such Organic Change an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series A Preferred Stock shall have the right thereafter to convert such share of Series A Preferred Stock into the kind and amount of shares of stock and other securities or property of the Company or any successor

corporation resulting from the Organic Change as the holder would have received as a result of the Organic Change and if the holder had converted its Series A Preferred Stock into the Company’s Common Stock prior to the Organic Change. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5(e)(v) with respect to the rights of the holders of the Series A Preferred Stock after the Organic Change to the end that the provisions of this Section 5(e)(v) (including any adjustment in the Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of the Series A Preferred Stock) shall be applied after that event in as nearly an equivalent manner as may be practicable.

                                   (vi)          Adjustments for Issuance of Additional Shares of Common Stock.

                                   (A)          In the event the Company, shall, at any time, from time to time, prior to a Release Event, issue or sell any additional shares of Common Stock (otherwise than as provided in the foregoing subsections (i) through (v) of this Section 5(e) or upon exercise or conversion of Common Stock Equivalents (hereafter defined) granted or issued prior to the Issuance Date) (the “Additional Shares of Common Stock”), at a price per share less than the Conversion Price, or without consideration, the Conversion Price then in effect upon each such issuance shall be adjusted to a price equal to the consideration per share paid for such Additional Shares of Common Stock. Upon and after a Release Event, the price shall be adjusted to the price (rounded to the nearest cent) determined by multiplying the Conversion Price by a fraction:

                                   (1)           the numerator of which shall be equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus (B) the number of shares of Common Stock (rounded to the nearest whole share) which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at a price per share equal to the Conversion Price then in effect, and

                                   (2)           the denominator of which shall be equal to the number of shares of Common Stock outstanding immediately after the issuance of such Additional Shares of Common Stock.

No adjustment of the number of shares of Common Stock shall be made under paragraph (A) of Section 5(e)(vi) upon the issuance of any Additional 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 Common Stock Equivalents (as defined below), if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Common Stock Equivalents (or upon the issuance of any warrant or other rights therefor) pursuant to Section 5(e)(vii).

                                   (vii)          Issuance of Common Stock Equivalents. If the Company, at any time after the Issuance Date and prior to a Release Event, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities”), other than (x) the Series A Preferred Stock or warrants issued to the holders of the Series A Preferred

Stock pursuant to the Purchase Agreement as in effect on the date hereof, or (y) the Series A-1 Preferred Stock and the Series A-2 Preferred Stock pursuant to the Exchange Agreement as in effect on the date hereof, or any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold (collectively, the “Common Stock Equivalents”) and the aggregate of the price per share for which Additional Shares of Common Stock may be issuable thereafter pursuant to such Common Stock Equivalent, plus the consideration received by the Company for issuance of such Common Stock Equivalent, divided by the number of shares of Common Stock issuable pursuant to such Common Stock Equivalent (the “Aggregate Per Common Share Price”), shall be less than the Conversion Price, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall make the Aggregate Per Common Share Price be less than Conversion Price in effect at the time of such amendment, then the Conversion Price then in effect shall upon each such issuance be adjusted to a price equal to the consideration per share paid for such Additional Shares of Common Stock. Upon and after a Release Event, the price shall be adjusted to the price (rounded to the nearest cent) determined by multiplying the Conversion Price by a fraction:

                                   (1)           the numerator of which shall be equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to the issuance of such Common Stock Equivalents plus (B) the number of shares of Common Stock (rounded to the nearest whole share) which the Aggregate Per Common Share Price multiplied by the number of shares of Common Stock issuable upon the exercise or conversion of all such Common Stock Equivalents, would purchase at a price per share equal to the Conversion Price then in effect, and

                                   (2)           the denominator of which shall be equal to the number of shares of Common Stock that would be outstanding assuming the exercise or conversion of all such Common Stock Equivalents.

No adjustment of the Conversion Price shall be made under this subsection (vii) upon the issuance of any Convertible Security which is issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any adjustment shall previously have been made to the exercise price of such warrants then in effect upon the issuance of such warrants or other rights pursuant to this subsection (vii).

                                   (viii)       Consideration for Stock. In case any shares of Common Stock or Convertible Securities other than the Series A Preferred Stock, or any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold in connection with any merger or consolidation in which the Company is the surviving corporation (other than any consolidation or merger in which the previously outstanding shares of Common Stock of the Company shall be changed to or exchanged for the stock or other securities of another corporation), the amount of consideration therefor shall be deemed to be the fair value, as determined reasonably and in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board may determine to be attributable to such shares of Common Stock, Convertible Securities, rights or warrants or options, as the case may be.

                                   (ix)         Record Date. In case the Company shall take record of the holders of its Common Stock or any other Preferred Stock for the purpose of entitling them to subscribe for or purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common Stock shall be deemed to be such record date.

                                   (x)          Certain Issues Excepted. Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment of the Conversion Price of shares of Common Stock issuable upon conversion of the Series A Preferred Stock upon (i) the Company’s issuance of Additional Shares of Common Stock and/or Common Stock Equivalents in connection with strategic license agreements so long as such issuances are not for the purpose of raising capital, (ii) when approved by the Company’s Board of Directors or by a committee of the Board of Directors the majority of whom are independent directors, the Company’s (A) issuance of Additional Shares of Common Stock to the Company’s officers, directors, employees and consultants and to suppliers of goods and/or services to the Company, whether pursuant to the 2006 Stock Award and Incentive Plan, any other plan hereafter adopted, or otherwise, so long as such issuances under this subsection (ii) which would cause the provisions of Section 5(e) hereof to be applied in the aggregate do not exceed ten percent (10%) of the issued and outstanding shares of Common Stock as of the Issuance Date, and (B) grant of stock options or warrants to purchase shares of Common Stock, whether the grants of such options or warrants are made under the Company’s Employee Stock Option Plan or its 2006 Stock Award and Incentive Plan, as they now exist, an employee or director stock option plan and a stock award and incentive plan hereafter adopted or otherwise, so long as such issuances under this subsection (ii) which would cause the provisions of Section 5(e) hereof to be applied in the aggregate do not exceed ten percent (10%) of the issued and outstanding shares of Common Stock as of the Issuance Date, (iii) securities issued upon the exercise, conversion or exchange of any Common Stock Equivalents outstanding on the Issuance Date at the conversion price in effect on the Issuance Date, as may be adjusted by the anti-dilution provisions thereof as in effect on the date hereof, (iv) issuance of Series A Preferred Stock or warrants issued by the Company pursuant to the Purchase Agreement, or Common Stock issued upon conversion or exercise thereof, (v) issuance of Series A-1 Convertible Preferred Stock, Series A-2 Convertible Preferred Stock, Series D-2 Convertible Preferred Stock or Common Stock issued upon conversion thereof at the conversion price in effect on the Issuance Date, as such conversion price may be adjusted pursuant to Section 5 hereof, or (vi) any warrants issued to Burnham Hill Partners, a division of Pali Capital Inc. or any other person or entity for services in connection with the transactions contemplated by the Purchase Agreement and the shares of Common Stock issued upon exercise thereof at the conversion price in effect on the Issuance Date, as may be adjusted by the anti-dilution provisions thereof as in effect on the date hereof, or (vii) warrants issued to Ron Lipstein and Steven Katz in connection with the agreements terminating their employment with the Company at the conversion price in effect on the Issuance Date or as may be adjusted by the anti-dilution provision thereof as in effect on the Issuance Date.

                        (f)           No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the

observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith, assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock against impairment. In the event a holder shall elect to convert any shares of Series A Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or any one associated or affiliated with such holder has been engaged in any violation of law, unless, an injunction from a court, on notice, restraining and/or enjoining conversion of all or of said shares of Series A Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in an amount equal to 130% of the Liquidation Preference Amount of the Series A Preferred Stock such holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains judgment.

                        (g)           Certificates as to Adjustments. Upon occurrence of each adjustment or readjustment of the Conversion Price or number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Series A Preferred Stock a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written request of the holder of such affected Series A Preferred Stock, at any time, furnish or cause to be furnished to such holder a like certificate setting forth such adjustments and readjustments, the Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of a share of such Series A Preferred Stock. Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent of such adjusted amount.

                        (h)           Issue Taxes. The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series A Preferred Stock pursuant thereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

                        (i)           Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or three (3) business days following being mailed by certified or registered mail, postage prepaid, return-receipt requested, addressed to the holder of record at its address appearing on the books of the Company. The Company will give written notice to each holder of Series A Preferred Stock at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up and in no event shall

such notice be provided to such holder prior to such information being made known to the public. The Company will also give written notice to each holder of Series A Preferred Stock at least twenty (20) days prior to the date on which any Organic Change, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to such holder prior to such information being made known to the public.

                        (j)           Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series A Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall at its option either (i) pay cash equal to the product of such fraction multiplied by the average of the Closing Bid Prices of the Common Stock for the five (5) consecutive trading days immediately preceding the Voluntary Conversion Date or Mandatory Conversion Date, as applicable, or (ii) in lieu of issuing such fractional shares issue one additional whole share to the holder.

                        (k)           Reservation of Common Stock. The Company shall, so long as any shares of Series A Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series A Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series A Preferred Stock then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than 120% of the number of shares of Common Stock for which the shares of Series A Preferred Stock are at any time convertible (without regard to limitations on conversion set forth in Section 7). The initial number of shares of Common Stock reserved for conversions of the Series A Preferred Stock and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Series A Preferred Stock based on the number of shares of Series A Preferred Stock held by each holder at the time of issuance of the Series A Preferred Stock or increase in the number of reserved shares, as the case may be. In the event a holder shall sell or otherwise transfer any of such holder’s shares of Series A Preferred Stock, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and which remain allocated to any person or entity which does not hold any shares of Series A Preferred Stock shall be allocated to the remaining holders of Series A Preferred Stock, pro rata based on the number of shares of Series A Preferred Stock then held by such holder.

                        (l)           Retirement of Series A Preferred Stock. Conversion of Series A Preferred Stock shall be deemed to have been effected on the applicable Voluntary Conversion Date or Mandatory Conversion Date. The Company shall keep written records of the conversion of the shares of Series A Preferred Stock converted by each holder. A holder shall be required to deliver the original certificates representing the shares of Series A Preferred Stock upon complete conversion of the Series A Preferred Stock.

                         (m)         Regulatory Compliance. If any shares of Common Stock to be reserved for the purpose of conversion of Series A Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or

delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be.

          6.           No Preemptive Rights. Except as provided in Section 5 hereof and in the Purchase Agreement, no holder of the Series A Preferred Stock shall be entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable.

          7.           Conversion Restriction. Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series A Preferred Stock convert shares of the Series A Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon a holder of Series A Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the “Waiver Notice”) that such holder would like to waive Section 7 of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series A Preferred Stock, this Section 7 shall be of no force or effect with regard to those shares of Series A Preferred Stock referenced in the Waiver Notice.

          8.           Most Favored Nations Exchange Right. If the Company enters into any equity or equity linked financing (“Subsequent Financing”) on terms more favorable than the terms governing the Series A Preferred Stock, then the holders of the Series A Preferred Stock together the holders of the Company’s Series A-1 Preferred Stock in their sole discretion may exchange their Series A Preferred Stock and Series A-1 Preferred Stock, as the case may be, valued at their Liquidation Preference Amount, for the securities issued or to be issued in the Subsequent Financing to the extent a Release Event has not occurred.

          9.           Inability to Fully Convert.

                        (a)           Holder’s Option if Company Cannot Fully Convert. If, upon the Company’s receipt of a Conversion Notice, the Company cannot issue shares of Common Stock registered for resale to the extent required under the Registration Statement for any reason, including, without limitation, because the Company (x) does not have a sufficient number of shares of Common Stock authorized and available, (y) is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-

regulatory organization with jurisdiction over the Company or its securities from issuing all of the Common Stock which is to be issued to a holder of Series A Preferred Stock pursuant to a Conversion Notice or (z) fails to have a sufficient number of shares of Common Stock registered for resale required under the Registration Statement, then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with such holder’s Conversion Notice and pursuant to Section 5(b)(ii) above and, with respect to the unconverted Series A Preferred Stock, the holder, solely at such holder’s option, can elect, in addition to other remedies available to such holder, within five (5) business days after receipt of notice from the Company thereof to:

                                        (i)           require the Company to redeem from such holder those Series A Preferred Stock for which the Company is unable to issue Common Stock in accordance with such holder’s Conversion Notice (“Mandatory Redemption”) at a price per share equal to the 100% of the Liquidation Preference Amount as of such Conversion Date (the “Mandatory Redemption Price”).

                                        (ii)           if the Company’s inability to fully convert Series A Preferred Stock is pursuant to Section 9(a)(z) above, require the Company to issue restricted shares of Common Stock in accordance with such holder’s Conversion Notice and pursuant to Section 5(b)(ii) above.

                                        (iii)           void its Conversion Notice and retain or have returned, as the case may be, the shares of Series A Preferred Stock that were to be converted pursuant to such holder’s Conversion Notice (provided that a holder’s voiding its Conversion Notice shall not effect the Company’s obligations to make any payments which have accrued prior to the date of such notice).

In the event a Holder shall elect to convert any shares of Series A Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, violation of an agreement to which such Holder is a party or for any reason whatsoever, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or of said shares of Series A Preferred Stock shall have issued and the Company posts a surety bond for the benefit of such Holder in an amount equal to 130% of the amount of shares of Series A Preferred Stock the Holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder in the event it obtains judgment.

                        (b)           Mechanics of Fulfilling Holder’s Election. The Company shall immediately send via facsimile to a holder of Series A Preferred Stock, upon receipt of a facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied as described in Section 9(a) above, a notice of the Company’s inability to fully satisfy such holder’s Conversion Notice (the “Inability to Fully Convert Notice”). Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder’s Conversion Notice, (ii) the number of Series A Preferred Stock which cannot be converted and

(iii) the applicable Mandatory Redemption Price. Such holder shall notify the Company of its election pursuant to Section 9(a) above by delivering written notice via facsimile to the Company (“Notice in Response to Inability to Convert”).

                        (c)           Payment of Redemption Price. If such holder shall elect to have its shares redeemed pursuant to Section 9(a)(i) above, the Company shall pay the Mandatory Redemption Price to such holder within thirty (30) days of the Company’s receipt of the holder’s Notice in Response to Inability to Convert, provided that prior to the Company’s receipt of the holder’s Notice in Response to Inability to Convert the Company has not delivered a notice to such holder stating, to the satisfaction of the holder, that the event or condition resulting in the Mandatory Redemption has been cured and all Conversion Shares issuable to such holder can and will be delivered to the holder in accordance with the terms of Section 2(g). If the Company shall fail to pay the applicable Mandatory Redemption Price to such holder on a timely basis as described in this Section 9(c) (other than pursuant to a dispute as to the determination of the arithmetic calculation of the Redemption Price), in addition to any remedy such holder of Series A Preferred Stock may have under this Certificate of Designation and the Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full. Until the full Mandatory Redemption Price is paid in full to such holder, such holder may (i) void the Mandatory Redemption with respect to those Series A Preferred Stock for which the full Mandatory Redemption Price has not been paid, (ii) receive back such Series A Preferred Stock, and (iii) require that the Conversion Price of such returned Series A Preferred Stock be adjusted to the lesser of (A) the Conversion Price and (B) the lowest Closing Bid Price during the period beginning on the Conversion Date and ending on the date the holder voided the Mandatory Redemption.

                        (d)           Pro-rata Conversion and Redemption. In the event the Company receives a Conversion Notice from more than one holder of Series A Preferred Stock on the same day and the Company can convert and redeem some, but not all, of the Series A Preferred Stock pursuant to this Section 9, the Company shall convert and redeem from each holder of Series A Preferred Stock electing to have Series A Preferred Stock converted and redeemed at such time an amount equal to such holder’s pro-rata amount (based on the number shares of Series A Preferred Stock held by such holder relative to the number shares of Series A Preferred Stock outstanding) of all shares of Series A Preferred Stock being converted and redeemed at such time.

          10.         Vote to Change the Terms of or Issue Preferred Stock. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the holders of not less than a majority of the then outstanding shares of Series A Preferred Stock, shall be required (a) for any change to this Certificate of Designation or the Company’s Certificate of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Series A Preferred Stock or (b) for the issuance of shares of Series A Preferred Stock other than pursuant to the Purchase Agreement. Notwithstanding anything herein to the contrary, Section 8, the first sentence of Section 5(e)(vi)(A) and the first sentence of Section 5(e)(vii) hereof may only be waived with the written consent of the holders of not less than thirty percent (30%) of the then outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock voting together as one class; provided, that, such waiver shall be effective

for all shares of Series A Preferred Stock and Series A-1 Preferred Stock; provided, further, that a separate class vote shall not be required from the holders of the Series A Preferred Stock to effect the waiver of Section 8, the first sentence of Section 5(e)(vi)(A) and the first sentence of Section 5(e)(vii). No consideration shall be offered or paid to any holder of Series A Preferred Stock or Series A-1 Preferred Stock to consent to a waiver of Section 8, the first sentence of Section 5(e)(vi)(A) or the first sentence of Section 5(e)(vii) hereof unless the same consideration is also offered to all of the holders of Series A Preferred Stock and Series A-1 Preferred Stock.

          11.         Lost or Stolen Certificates. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the shares of Series A Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Company and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date.

          12.         Remedies, Characterizations, Other Obligations, Breaches and InjunctiveRelief. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder’s right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series A Preferred Stock and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holders of the Series A Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

          13.        Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein. This Certificate of Designation shall be deemed to be jointly drafted by the Company and all initial purchasers of the Series A Preferred Stock and shall not be construed against any person as the drafter hereof.

          14.         Failure or Indulgence Not Waiver. No failure or delay on the part of a holder of Series A Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

          IN WITNESS WHEREOF, the undersigned has executed and subscribed this Amended Certificate and does affirm the foregoing as true this 14^th day of June, 2007.

ORTEC INTERNATIONAL, INC.
By:	/s/ Ron Lipstein
	Name: Ron Lpstein
	Title:   Chief Executive Officer

EXHIBIT I

ORTEC INTERNATIONAL, INC.
CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series A Preferred Stock of Ortec International, Inc. (the “Certificate of Designation”). In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series A Preferred Stock, par value $.001 per share (the “Preferred Shares”), of Ortec International, Inc., a Delaware corporation (the “Company”), indicated below into shares of Common Stock, par value $.001 per share (the “Common Stock”), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.

Date of Conversion:
Number of Preferred Shares to be converted:	_____
Stock certificate no(s). of Preferred Shares to be converted:                     _____
The Common Stock have been sold pursuant to the Registration Statement (as defined in the
Registration Rights Agreement): YES ____                     NO____
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:

                    Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion determined in accordance with Section 16 of the Securities Exchange Act of 1934, as amended: _________________________

Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:

Issue to:
Facsimile Number:
Authorization:
	By:
	Title:
Dated:

PRICES ATTACHED

CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
PREFERENCES
OF THE
SERIES A-1 CONVERTIBLE PREFERRED STOCK
OF
ORTEC INTERNATIONAL, INC.

          The undersigned, the Chief Executive Officer of Ortec International, Inc., a Delaware corporation (the "Company"), in accordance with the provisions of the Delaware General Corporation Law, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Company, the following resolution creating a series of Series A-1 Convertible Preferred Stock, was duly adopted on June 10, 2007:

          RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Certificate of Incorporation of the Company (the "Certificate of Incorporation"), there hereby is created out of the shares of Preferred Stock, par value $.001 per share, of the Company authorized in Article IV of the Certificate of Incorporation (the "Preferred Stock"), a series of Preferred Stock of the Company, to be named "Series A-1 Convertible Preferred Stock," consisting of five hundred (500) shares, which series shall have the following designations, powers, preferences and relative and other special rights and the following qualifications, limitations and restrictions:

          1.           Designation and Rank.

                        (a)           Designation. The designation of such series of the Preferred Stock shall be the Series A-1 Convertible Preferred Stock, par value $.001 per share (the "Series A-1 Preferred Stock"). The maximum number of shares of Series A-1 Preferred Stock shall be five hundred (500) Shares.

                        (b)           Rank. The Series A-1 Preferred Stock shall rank prior to the common stock, par value $.001 per share (the "Common Stock"), and to all other classes and series of equity securities of the Company which by its terms does not rank senior to or pari passu with the Series A-1 Preferred Stock ("Junior Stock"). The Series A-1 Preferred Stock shall be subordinate to and rank junior to all indebtedness of the Company now or hereafter outstanding. The Series A-1 Preferred Stock shall rank on a pari passu basis to the Series A Convertible Preferred Stock, par value $.001 per share (the “Series A Preferred Stock”) and the Series A-2 Convertible Preferred Stock, par value $.001 per share (the “Series A-2 Preferred Stock” and together with the Series A Preferred Stock, the “Pari Passu Preferred Stock”).

          2.           Dividends. The holders of record of shares of Series A-1 Preferred Stock shall not be entitled to receive dividends.

          3.           Voting Rights.

                        (a)           Class Voting Rights. The Series A-1 Preferred Stock shall have the following class voting rights (in addition to the voting rights set forth in Section 3(b) hereof). Subject to Section 10 hereof, so long as any shares of the Series A-1 Preferred Stock remain outstanding, the Company shall not, without the affirmative vote or consent of the holders of at least seventy percent (70%) of the shares of the Series A-1 Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, in which the holders of the Series A-1 Preferred Stock vote separately as a class: (i) amend, alter or repeal the provisions of the Series A-1 Preferred Stock, whether by merger, consolidation or otherwise, so as to adversely affect any right, preference, privilege or voting power of the Series A-1 Preferred Stock; provided, however, that any creation and issuance of another series of Junior Stock and, to the extent approved in accordance with Section 7(q) of the Amended and Restated Exchange Agreement between the Company and Paul Royalty Fund, L.P. (the “Exchange Agreement”), pari passu stock and senior stock shall not be deemed to adversely affect such rights, preferences, privileges or voting powers; (ii) repurchase, redeem or pay dividends in cash or in kind on shares of the Company's Junior Stock and pari passu stock and senior stock; (iii) amend the Certificate of Incorporation or By-Laws of the Company so as to affect materially and adversely any right, preference, privilege or voting power of the Series A-1 Preferred Stock; provided, however, that any creation and issuance of another series of Junior Stock and, to the extent approved in accordance with Section 7(q) of the Exchange Agreement, pari passu stock and senior stock shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers; (iv) effect any distribution with respect to Junior Stock and Pari Passu Preferred Stock; or (v) reclassify the Company's outstanding securities.

                        (b)           General Voting Rights. Except with respect to transactions upon which the Series A-1 Preferred Stock shall be entitled to vote separately as a class pursuant to Section 3(a) above and except as otherwise required by Delaware law, the Series A-1 Preferred Stock shall have no voting rights. The Common Stock into which the Series A-1 Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding Common Stock of the Company.

          4.           Liquidation Preference.

                        (a)          In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of shares of the Series A-1 Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company whether such assets are capital or surplus of any nature, an amount equal to $10,000 per share (the "Liquidation Preference Amount") of the Series A-1 Preferred Stock, on a pro rata and pari passu basis with the Pari Passu Preferred Stock, before any payment shall be made or any assets distributed to the holders of the Common Stock or any other Junior Stock. If the assets of the Company are not sufficient to pay in full the Liquidation Preference Amount payable to the holders of outstanding shares of the Series A-1 Preferred Stock and any series of preferred stock or any other class of stock on a parity, including, without limitation, the Pari Passu Preferred Stock, as to rights on liquidation, dissolution or winding up, with the Series A-1 Preferred Stock,

then all of said assets will be distributed among the holders of the Series A-1 Preferred Stock, the Pari Passu Preferred Stock and the other classes of stock on a parity with the Series A-1 Preferred Stock, if any, ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The liquidation payment with respect to each outstanding fractional share of Series A-1 Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of Series A-1 Preferred Stock. All payments for which this Section 4(a) provides shall be in cash, property (valued at its fair market value as determined by an independent appraiser reasonably acceptable to the holders of a majority of the Series A-1 Preferred Stock) or a combination thereof; provided, however, that no cash shall be paid to holders of Junior Stock unless each holder of the outstanding shares of Series A-1 Preferred Stock has been paid in cash the full Liquidation Preference Amount to which such holder is entitled as provided herein. After payment of the full Liquidation Preference Amount to which each holder is entitled, such holders of shares of Series A-1 Preferred Stock will not be entitled to any further participation as such in any distribution of the assets of the Company.

                        (b)          A consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of transactions in which more than fifty percent (50%) of the voting shares of the Company is disposed of or conveyed, or other acquisition type transaction, or upon the payment by the Company of interest, dividends or other distributions to the holders of securities or financial instruments (including Indebtedness) ranking senior to or pari passu with the Series A-1 Preferred Stock exceeding $10 million in the aggregate, shall be, at the election of a majority of the holders of the Series A-1 Preferred Stock, deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4. The grant of an exclusive license for all or substantially all of the Company's intellectual property assets covered by the Cambrex license shall also be deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4 in the event that either (i) the holders of the Series A Preferred Stock, and all affiliates of such holders, together own directly or indirectly ten percent (10%) or more of the outstanding equity of the licensee, or (ii) seventy percent (70%) of the Company's Series A Preferred Stock and Series A-1 Preferred Stock voting together as a class so elect. In the event of the merger or consolidation of the Company with or into another corporation that is not treated as a liquidation pursuant to this Section 4(b), the Series A-1 Preferred Stock shall maintain its relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.

                        (c)          Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by mail, postage prepaid, no less than forty-five (45) days prior to the payment date stated therein, to the holders of record of the Series A-1 Preferred Stock at their respective addresses as the same shall appear on the books of the Company.

          5.           Conversion. The holder of Series A-1 Preferred Stock shall have the following conversion rights (the "Conversion Rights"):

                        (a)           Right to Convert. At any time on or after the Issuance Date, the holder of any such shares of Series A-1 Preferred Stock may, at such holder's option, subject to the limitations set forth in Section 7 herein, elect to convert (a "Voluntary Conversion") all or any portion of the shares of Series A-1 Preferred Stock held by such person into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation Preference Amount of the shares of Series A-1 Preferred Stock being converted thereon divided by (ii) the Conversion Price (as defined in Section 5(d) below) then in effect as of the date of the delivery by such holder of its notice of election to convert. The Company shall keep written records of the conversion of the shares of Series A-1 Preferred Stock converted by each holder. A holder shall be required to deliver the original certificates representing the shares of Series A-1 Preferred Stock upon complete conversion of the Series A-1 Preferred Stock.

                        (b)           Mechanics of Voluntary Conversion. The Voluntary Conversion of Series A-1 Preferred Stock shall be conducted in the following manner:

                                        (i)           Holder's Delivery Requirements. To convert Series A-1 Preferred Stock into full shares of Common Stock on any date (the "Voluntary Conversion Date"), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice"), to the Company, and (B) with respect to the final conversion of shares of Series A-1 Preferred Stock held by any holder, such holder shall surrender to a common carrier for delivery to the Company as soon as practicable following such Conversion Date but in no event later than six (6) business days after such date the original certificates representing the shares of Series A-1 Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "Preferred Stock Certificates").

                                        (ii)          Company's Response. Upon receipt by the Company of a facsimile copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such holder and the Company or its designated transfer agent (the "Transfer Agent"), as applicable, shall, within three (3) business days following the date of receipt by the Company of the executed Conversion Notice, issue and deliver to the Depository Trust Company (“DTC”) account on the holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the Conversion Notice, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled.

                                        (iii)          Dispute Resolution. In the case of a dispute as to the arithmetic calculation of the number of shares of Common Stock to be issued upon conversion, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the arithmetic calculations to the holder via facsimile as soon as possible, but in no event later than two (2) business days after receipt of such holder's Conversion Notice. If such holder and the Company are unable to agree upon the arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion within

one (1) business day of such disputed arithmetic calculation being submitted to the holder, then the Company shall within one (1) business day submit via facsimile the disputed arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion to the Company’sindependent, outside accountant. The Company shall cause the accountant to perform the calculations and notify the Company and the holder of the results no later than seventy-two (72) hours from the time it receives the disputed calculations. Such accountant's calculation shall be binding upon all parties absent manifest error. The reasonable expenses of such accountant in making such determination shall be paid by the Company, in the event the holder's calculation was correct, or by the holder, in the event the Company's calculation was correct, or equally by the Company and the holder in the event that neither the Company's or the holder's calculation was correct. The period of time in which the Company is required to effect conversions or redemptions under this Certificate of Designation shall be tolled with respect to the subject conversion or redemption pending resolution of any dispute by the Company made in good faith and in accordance with this Section 5(b)(iii).

                                        (iv)         Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of the Series A-1 Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

                                        (v)          Company's Failure to Timely Convert. If within three (3) business days of the Company's receipt of the Conversion Notice (the "Share Delivery Period") the Company shall fail to issue and deliver to a holder the number of shares of Common Stock to which such holder is entitled upon such holder's conversion of the Series A-1 Preferred Stock (a "Conversion Failure"), in addition to all other available remedies which such holder may pursue hereunder and under the Amended and Restated Exchange Agreement among the Company and the initial holder of the Series A-1 Preferred Stock (the "Exchange Agreement") (including indemnification pursuant to Section 13 thereof), the Company shall pay additional damages to such holder on each business day after such third (3^rd) business day that such conversion is not timely effected in an amount equal 0.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the holder on a timely basis pursuant to Section 5(b)(ii) and to which such holder is entitled and (B) the Closing Bid Price (as defined in Section 5(d)(ii) hereof) of the Common Stock on the last possible date which the Company could have issued such Common Stock to such holder without violating Section 5(b)(ii). If the Company fails to pay the additional damages set forth in this Section 5(b)(v) within five (5) business days of the date incurred, then such payment shall bear interest at the rate of 2% per month (pro rated for partial months) until such payments are made.

                        (c)           Intentionally Omitted.

                        (d)           Conversion Price.

                                        (i)           The term "Conversion Price" shall mean $0.50 per share, subject to adjustment under Section 5(e) hereof. Notwithstanding any adjustment hereunder, at no time

shall the Conversion Price be greater than $0.50 per share other than pursuant to the second sentence of Section 5(e)(i) in connection with a reverse stock split effected by the Company.

                                        (ii)         The term "Closing Bid Price" shall mean, for any security as of any date, the last closing bid price of such security on the OTC Bulletin Board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the holders of a majority of the outstanding shares of Series A-1 Preferred Stock.

                                        (iii)         The term “Release Event” means, with respect to a holder’s shares of Series A-1 Preferred Stock, the date on which the Company files a Form 8-K with the Commission disclosing the Company’s receipt of written notice from the U.S. Food and Drug Administration regarding the granting the Company the right to commercialize and market (i.e., formal approval of the Company’s Pre-Market Application for) its OrCel product for the treatment of venous leg ulcers.

                        (e)           Adjustments of Conversion Price.

                                        (i)           Adjustments for Stock Splits and Combinations. If the Company shall at any time or from time to time after the Issuance Date, effect a stock split of the outstanding Common Stock, the Conversion Price shall be proportionately decreased. If the Company shall at any time or from time to time after the Issuance Date, combine the outstanding shares of Common Stock, the Conversion Price shall be proportionately increased. Any adjustments under this Section 5(e)(i) shall be effective at the close of business on the date the stock split or combination occurs.

                                        (ii)          Adjustments for Certain Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the Conversion Price shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, as applicable, the Conversion Price then in effect by a fraction:

                                                       (1)           the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and

                                                       (2)           the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance

or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

                                        (iii)       Adjustment for Other Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of Series A-1 Preferred Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had their Series A-1 Preferred Stock been converted into Common Stock immediately prior to such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 5(e)(iii) with respect to the rights of the holders of the Series A-1 Preferred Stock.

                                        (iv)       Adjustments for Reclassification, Exchange or Substitution. If the Common Stock issuable upon conversion of the Series A-1 Preferred Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made and provisions shall be made (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series A-1 Preferred Stock shall have the right thereafter to convert such share of Series A-1 Preferred Stock into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such share of Series A-1 Preferred Stock might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein.

                                        (v)       Adjustments for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Issuance Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties or assets to any other person that is not deemed a liquidation pursuant to Section 4(b) (an "Organic Change"), then as a part of such Organic Change an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series A-1 Preferred Stock shall have the right thereafter to convert such share of Series A-1 Preferred Stock into the kind and amount of shares of stock and other securities or property of the Company or any successor

corporation resulting from the Organic Change as the holder would have received as a result of the Organic Change and if the holder had converted its Series A-1 Preferred Stock into the Company’s Common Stock prior to the Organic Change. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5(e)(v) with respect to the rights of the holders of the Series A-1 Preferred Stock after the Organic Change to the end that the provisions of this Section 5(e)(v) (including any adjustment in the Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of the Series A-1 Preferred Stock) shall be applied after that event in as nearly an equivalent manner as may be practicable.

                                        (vi)          Adjustments for Issuance of Additional Shares of Common Stock.

                                                       (A)           In the event the Company, shall, at any time, from time to time, prior to a Release Event, issue or sell any additional shares of Common Stock (otherwise than as provided in the foregoing subsections (i) through (v) of this Section 5(e) or upon exercise or conversion of Common Stock Equivalents (hereafter defined) granted or issued prior to the Issuance Date) (the “Additional Shares of Common Stock”), at a price per share less than the Conversion Price, or without consideration, the Conversion Price then in effect upon each such issuance shall be adjusted to a price equal to the consideration per share paid for such Additional Shares of Common Stock. Upon and after a Release Event, the price shall be adjusted to the price (rounded to the nearest cent) determined by multiplying the Conversion Price by a fraction:

                                                       (1)           the numerator of which shall be equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus (B) the number of shares of Common Stock (rounded to the nearest whole share) which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at a price per share equal to the Conversion Price then in effect, and

                                                       (2)           the denominator of which shall be equal to the number of shares of Common Stock outstanding immediately after the issuance of such Additional Shares of Common Stock.

No adjustment of the number of shares of Common Stock shall be made under paragraph (A) of Section 5(e)(vi) upon the issuance of any Additional 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 Common Stock Equivalents (as defined below), if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Common Stock Equivalents (or upon the issuance of any warrant or other rights therefor) pursuant to Section 5(e)(vii).

                                        (vii)         Issuance of Common Stock Equivalents. If the Company, at any time after the Issuance Date and prior to a Release Event, shall issue any securities convertible into or exchangeable for, directly or indirectly, Common Stock (“Convertible Securities”), other than (x) the Series A Preferred Stock or warrants issued to the holders of the Series A Preferred

Stock pursuant to the Series A Convertible Preferred Stock Purchase Agreement among the Company and the purchasers listed therein (the “Purchase Agreement”) as in effect on the date hereof, or (y) the Series A-1 Preferred Stock and the Series A-2 Preferred Stock pursuant to the Exchange Agreement as in effect on the date hereof, or any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold (collectively, the "Common Stock Equivalents") and the aggregate of the price per share for which Additional Shares of Common Stock may be issuable thereafter pursuant to such Common Stock Equivalent, plus the consideration received by the Company for issuance of such Common Stock Equivalent, divided by the number of shares of Common Stock issuable pursuant to such Common Stock Equivalent (the "Aggregate Per Common Share Price"), shall be less than the Conversion Price, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall make the Aggregate Per Common Share Price be less than Conversion Price in effect at the time of such amendment, then the Conversion Price then in effect shall upon each such issuance be adjusted a price equal to the consideration per share paid for such Additional Shares of Common Stock. Upon and after a Release Event, the price shall be adjusted to the price (rounded to the nearest cent) determined by multiplying the Conversion Price by a fraction:

                                        (1)           the numerator of which shall be equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to the issuance of such Common Stock Equivalents plus (B) the number of shares of Common Stock (rounded to the nearest whole share) which the Aggregate Per Common Share Price multiplied by the number of shares of Common Stock issuable upon the exercise or conversion of all such Common Stock Equivalents, would purchase at a price per share equal to the Conversion Price then in effect, and

                                        (2)           the denominator of which shall be equal to the number of shares of Common Stock that would be outstanding assuming the exercise or conversion of all such Common Stock Equivalents.

No adjustment of the Conversion Price shall be made under this subsection (vii) upon the issuance of any Convertible Security which is issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any adjustment shall previously have been made to the exercise price of such warrants then in effect upon the issuance of such warrants or other rights pursuant to this subsection (vii).

                                        (viii)         Consideration for Stock. In case any shares of Common Stock or Convertible Securities other than the Series A-1 Preferred Stock, or any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold in connection with any merger or consolidation in which the Company is the surviving corporation (other than any consolidation or merger in which the previously outstanding shares of Common Stock of the Company shall be changed to or exchanged for the stock or other securities of another corporation), the amount of consideration therefor shall be deemed to be the fair value, as determined reasonably and in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board may determine

to be attributable to such shares of Common Stock, Convertible Securities, rights or warrants or options, as the case may be.

                                        (ix)          Record Date. In case the Company shall take record of the holders of its Common Stock or any other Preferred Stock for the purpose of entitling them to subscribe for or purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common Stock shall be deemed to be such record date.

                                        (x)           Certain Issues Excepted. Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment of the Conversion Price of shares of Common Stock issuable upon conversion of the Series A-1 Preferred Stock upon (i) the Company's issuance of Additional Shares of Common Stock and/or Common Stock Equivalents in connection with strategic license agreements so long as such issuances are not for the purpose of raising capital, (ii) when approved by the Company’s Board of Directors or by a committee of the Board of Directors the majority of whom are independent directors, the Company’s (A) issuance of Additional Shares of Common Stock to the Company's officers, directors, employees and consultants and to suppliers of goods and/or services to the Company, whether pursuant to the 2006 Stock Award and Incentive Plan, any other plan hereafter adopted, or otherwise, so long as such issuances under this subsection (ii) which would cause the provisions of Section 5(e) hereof to be applied in the aggregate do not exceed ten percent (10%) of the issued and outstanding shares of Common Stock as of the Issuance Date, and (B) grant of stock options or warrants to purchase shares of Common Stock, whether the grants of such options or warrants are made under the Company's Employee Stock Option Plan or its 2006 Stock Award and Incentive Plan, as they now exist, an employee or director stock option plan and a stock award and incentive plan hereafter adopted or otherwise, so long as such issuances under this subsection (ii) which would cause the provisions of Section 5(e) hereof to be applied in the aggregate do not exceed ten percent (10%) of the issued and outstanding shares of Common Stock as of the Issuance Date, (iii) securities issued upon the exercise, conversion or exchange of any Common Stock Equivalents outstanding on the Issuance Date at the conversion price in effect on the Issuance Date, as may be adjusted by the anti-dilution provisions thereof as in effect on the date hereof, (iv) issuance of Series A Preferred Stock or warrants issued by the Company pursuant to the Purchase Agreement, or Common Stock issued upon conversion or exercise thereof, (v) issuance of Series A-1 Convertible Preferred Stock, Series A-2 Convertible Preferred Stock, Series D-2 Convertible Preferred Stock or Common Stock issued upon conversion thereof at the conversion price in effect on the Issuance Date, as such conversion price may be adjusted pursuant to Section 5 hereof, (vii) any warrants issued to Burnham Hill Partners, a division of Pali Capital Inc. or any other person or entity for services in connection with the transactions contemplated by the Purchase Agreement and the shares of Common Stock issued upon exercise thereof at the conversion price in effect on the Issuance Date, as may be adjusted by the anti-dilution provisions thereof as in effect on the date hereof, or (vii) warrants issued to Ron Lipstein and Steven Katz in connection with the agreements terminating their employment with the Company at the conversion price in effect on the Issuance Date or as may be adjusted by the anti-dilution provision thereof as in effect on the Issuance Date.

                        (f)           No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith, assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A-1 Preferred Stock against impairment. In the event a holder shall elect to convert any shares of Series A-1 Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or any one associated or affiliated with such holder has been engaged in any violation of law, unless, an injunction from a court, on notice, restraining and/or enjoining conversion of all or of said shares of Series A-1 Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in an amount equal to 130% of the Liquidation Preference Amount of the Series A-1 Preferred Stock such holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains judgment.

                        (g)           Certificates as to Adjustments. Upon occurrence of each adjustment or readjustment of the Conversion Price or number of shares of Common Stock issuable upon conversion of the Series A-1 Preferred Stock pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Series A-1 Preferred Stock a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written request of the holder of such affected Series A-1 Preferred Stock, at any time, furnish or cause to be furnished to such holder a like certificate setting forth such adjustments and readjustments, the Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of a share of such Series A-1 Preferred Stock. Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent of such adjusted amount.

                        (h)           Issue Taxes. The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series A-1 Preferred Stock pursuant thereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

                        (i)           Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or three (3) business days following being mailed by certified or registered mail, postage prepaid, return-receipt requested, addressed to the holder of record at its address appearing on the books of the Company. The Company will give written notice to each holder of Series A-1 Preferred Stock at least twenty (20) days prior to the date on which the Company closes its books or takes a record

(I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the public. The Company will also give written notice to each holder of Series A-1 Preferred Stock at least twenty (20) days prior to the date on which any Organic Change, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to such holder prior to such information being made known to the public.

                        (j)           Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series A-1 Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall at its option either (i) pay cash equal to the product of such fraction multiplied by the average of the Closing Bid Prices of the Common Stock for the five (5) consecutive trading days immediately preceding the Voluntary Conversion Date, or (ii) in lieu of issuing such fractional shares issue one additional whole share to the holder.

                        (k)           Reservation of Common Stock. The Company shall, so long as any shares of Series A-1 Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series A-1 Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series A-1 Preferred Stock then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than 120% of the number of shares of Common Stock for which the shares of Series A-1 Preferred Stock are at any time convertible (without regard to limitations on conversion set forth in Section 7). The initial number of shares of Common Stock reserved for conversions of the Series A-1 Preferred Stock and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Series A-1 Preferred Stock based on the number of shares of Series A-1 Preferred Stock held by each holder at the time of issuance of the Series A-1 Preferred Stock or increase in the number of reserved shares, as the case may be. In the event a holder shall sell or otherwise transfer any of such holder's shares of Series A-1 Preferred Stock, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and which remain allocated to any person or entity which does not hold any shares of Series A-1 Preferred Stock shall be allocated to the remaining holders of Series A-1 Preferred Stock, pro rata based on the number of shares of Series A-1 Preferred Stock then held by such holder.

                        (l)           Retirement of Series A-1 Preferred Stock. Conversion of Series A-1 Preferred Stock shall be deemed to have been effected on the applicable Voluntary Conversion Date. The Company shall keep written records of the conversion of the shares of Series A-1 Preferred Stock converted by each holder. A holder shall be required to deliver the original certificates representing the shares of Series A-1 Preferred Stock upon complete conversion of the Series A-1 Preferred Stock.

                        (m)          Regulatory Compliance. If any shares of Common Stock to be reserved for the purpose of conversion of Series A-1 Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be.

          6.           No Preemptive Rights. Except as provided in Section 5 hereof and in the Exchange Agreement, no holder of the Series A-1 Preferred Stock shall be entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable.

          7.           Conversion Restriction. Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series A-1 Preferred Stock convert shares of the Series A-1 Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon a holder of Series A-1 Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the "Waiver Notice") that such holder would like to waive Section 7 of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series A-1 Preferred Stock, this Section 7 shall be of no force or effect with regard to those shares of Series A-1 Preferred Stock referenced in the Waiver Notice.

          8.           Most Favored Nations Exchange Right. If the Company enters into any equity or equity linked financing (“Subsequent Financing”) on terms more favorable than the terms governing the Series A-1 Preferred Stock, then the holders of the Series A-1 Preferred Stock together the holders of the Company’s Series A Preferred Stock in their sole discretion may exchange their Series A Preferred Stock and Series A-1 Preferred Stock, as the case may be, valued at their Liquidation Preference Amount, for the securities issued or to be issued in the Subsequent Financing to the extent a Release Event has not occurred.

          9.           Inability to Fully Convert.

                         (a)           Holder's Option if Company Cannot Fully Convert. If, upon the Company's receipt of a Conversion Notice, the Company cannot issue shares of Common Stock

registered for resale to the extent required under the Registration Statement for any reason, including, without limitation, because the Company (x) does not have a sufficient number of shares of Common Stock authorized and available, (y) is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or its securities from issuing all of the Common Stock which is to be issued to a holder of Series A-1 Preferred Stock pursuant to a Conversion Notice or (z) fails to have a sufficient number of shares of Common Stock registered for resale required under the Registration Statement, then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with such holder's Conversion Notice and pursuant to Section 5(b)(ii) above and, with respect to the unconverted Series A-1 Preferred Stock, the holder, solely at such holder's option, can elect, in addition to other remedies available to such holder, within five (5) business days after receipt of notice from the Company thereof to:

                                        (i)           require the Company to redeem from such holder those Series A-1 Preferred Stock for which the Company is unable to issue Common Stock in accordance with such holder’s Conversion Notice (“Mandatory Redemption”) at a price per share equal to the 100% of the Liquidation Preference Amount as of such Conversion Date (the “Mandatory Redemption Price”).

                                        (ii)          if the Company's inability to fully convert Series A-1 Preferred Stock is pursuant to Section 9(a)(z) above, require the Company to issue restricted shares of Common Stock in accordance with such holder's Conversion Notice and pursuant to Section 5(b)(ii) above.

                                        (iii)         void its Conversion Notice and retain or have returned, as the case may be, the shares of Series A-1 Preferred Stock that were to be converted pursuant to such holder's Conversion Notice (provided that a holder's voiding its Conversion Notice shall not effect the Company's obligations to make any payments which have accrued prior to the date of such notice).

In the event a Holder shall elect to convert any shares of Series A-1 Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, violation of an agreement to which such Holder is a party or for any reason whatsoever, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or of said shares of Series A-1 Preferred Stock shall have issued and the Company posts a surety bond for the benefit of such Holder in an amount equal to 130% of the amount of shares of Series A-1 Preferred Stock the Holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder in the event it obtains judgment.

                        (b)           Mechanics of Fulfilling Holder's Election. The Company shall immediately send via facsimile to a holder of Series A-1 Preferred Stock, upon receipt of a facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied as

described in Section 9(a) above, a notice of the Company's inability to fully satisfy such holder's Conversion Notice (the "Inability to Fully Convert Notice"). Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder's Conversion Notice, (ii) the number of Series A-1 Preferred Stock which cannot be converted and (iii) the applicable Mandatory Redemption Price. Such holder shall notify the Company of its election pursuant to Section 9(a) above by delivering written notice via facsimile to the Company ("Notice in Response to Inability to Convert").

                        (c)           Payment of Redemption Price. If such holder shall elect to have its shares redeemed pursuant to Section 9(a)(i) above, the Company shall pay the Mandatory Redemption Price to such holder within thirty (30) days of the Company’s receipt of the holder’s Notice in Response to Inability to Convert, provided that prior to the Company’s receipt of the holder’s Notice in Response to Inability to Convert the Company has not delivered a notice to such holder stating, to the satisfaction of the holder, that the event or condition resulting in the Mandatory Redemption has been cured and all Conversion Shares issuable to such holder can and will be delivered to the holder in accordance with the terms of Section 2(g). If the Company shall fail to pay the applicable Mandatory Redemption Price to such holder on a timely basis as described in this Section 9(c) (other than pursuant to a dispute as to the determination of the arithmetic calculation of the Redemption Price), in addition to any remedy such holder of Series A Preferred Stock may have under this Certificate of Designation and the Exchange Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full. Until the full Mandatory Redemption Price is paid in full to such holder, such holder may (i) void the Mandatory Redemption with respect to those Series A Preferred Stock for which the full Mandatory Redemption Price has not been paid, (ii) receive back such Series A Preferred Stock, and (iii) require that the Conversion Price of such returned Series A Preferred Stock be adjusted to the lesser of (A) the Conversion Price and (B) the lowest Closing Bid Price during the period beginning on the Conversion Date and ending on the date the holder voided the Mandatory Redemption.

                        (d)           Pro-rata Conversion and Redemption. In the event the Company receives a Conversion Notice from more than one holder of Series A-1 Preferred Stock on the same day and the Company can convert and redeem some, but not all, of the Series A-1 Preferred Stock pursuant to this Section 9, the Company shall convert and redeem from each holder of Series A-1 Preferred Stock electing to have Series A-1 Preferred Stock converted and redeemed at such time an amount equal to such holder's pro-rata amount (based on the number shares of Series A-1 Preferred Stock held by such holder relative to the number shares of Series A-1 Preferred Stock outstanding) of all shares of Series A-1 Preferred Stock being converted and redeemed at such time.

          10.         Vote to Change the Terms of or Issue Preferred Stock. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the holders of not less than a majority of the then outstanding shares of Series A-1 Preferred Stock, shall be required (a) for any change to this Certificate of Designation or the Company’s Certificate of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Series A-1 Preferred Stock or (b) for the issuance of shares of

Series A-1 Preferred Stock other than pursuant to the Exchange Agreement. Notwithstanding anything herein to the contrary, Section 8, the first sentence of Section 5(e)(vi)(A) and the first sentence of Section 5(e)(vii) hereof may only be waived with the written consent of the holders of not less than thirty percent (30%) of the then outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock voting together as one class; provided, that, such waiver shall be effective for all shares of Series A Preferred Stock and Series A-1 Preferred Stock; provided, further, that a separate class vote shall not be required from the holders of the Series A-1 Preferred Stock to effect the waiver of Section 8, the first sentence of Section 5(e)(vi)(A) and the first sentence of Section 5(e)(vii). No consideration shall be offered or paid to any holder of Series A Preferred Stock or Series A-1 Preferred Stock to consent to a waiver of Section 8, the first sentence of Section 5(e)(vi)(A) or the first sentence of Section 5(e)(vii) hereof unless the same consideration is also offered to all of the holders of Series A Preferred Stock and Series A-1 Preferred Stock.

          11.         Lost or Stolen Certificates. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the shares of Series A-1 Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Company and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date.

          12.         Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series A-1 Preferred Stock and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holders of the Series A-1 Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

          13.         Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein. This Certificate of Designation shall be deemed to be jointly drafted by the Company and all initial purchasers of the Series A-1 Preferred Stock and shall not be construed against any person as the drafter hereof.

          14.         Failure or Indulgence Not Waiver. No failure or delay on the part of a holder of Series A-1 Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

          IN WITNESS WHEREOF, the undersigned has executed and subscribed this Amended Certificate and does affirm the foregoing as true this 14^th day of June, 2007.

ORTEC INTERNATIONAL, INC.
By:	/s/ Ron Lipstein
	Name: Ron Lipstein
	Title:   Chief Executive Officer

EXHIBIT I

ORTEC INTERNATIONAL, INC.
CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series A-1 Preferred Stock of Ortec International, Inc. (the "Certificate of Designation"). In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series A-1 Preferred Stock, par value $.001 per share (the "Preferred Shares"), of Ortec International, Inc., a Delaware corporation (the "Company"), indicated below into shares of Common Stock, par value $.001 per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.

Date of Conversion:
Number of Preferred Shares to be converted:	_____
Stock certificate no(s). of Preferred Shares to be converted:           _____
The Common Stock have been sold pursuant to the Registration Statement (as defined in the
Registration Rights Agreement): YES ____                              NO____
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:

                    Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion determined in accordance with Section 16 of the Securities Exchange Act of 1934, as amended: _________________________

Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:

Issue to:
Facsimile Number:
Authorization:
	By:
	Title:
Dated:

PRICES ATTACHED

CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
PREFERENCES
OF THE
SERIES A-2 CONVERTIBLE PREFERRED STOCK
OF
ORTEC INTERNATIONAL, INC.

          The undersigned, the Chief Executive Officer of Ortec International, Inc., a Delaware corporation (the "Company"), in accordance with the provisions of the Delaware General Corporation Law, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Company, the following resolution creating a series of Series A-2 Convertible Preferred Stock, was duly adopted on June 10, 2007:

          RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Certificate of Incorporation of the Company (the "Certificate of Incorporation"), there hereby is created out of the shares of Preferred Stock, par value $.001 per share, of the Company authorized in Article IV of the Certificate of Incorporation (the "Preferred Stock"), a series of Preferred Stock of the Company, to be named "Series A-2 Convertible Preferred Stock," consisting of five hundred (500) shares, which series shall have the following designations, powers, preferences and relative and other special rights and the following qualifications, limitations and restrictions:

          1.           Designation and Rank.

                        (a)           Designation. The designation of such series of the Preferred Stock shall be the Series A-2 Convertible Preferred Stock, par value $.001 per share (the "Series A-2 Preferred Stock"). The maximum number of shares of Series A-2 Preferred Stock shall be five hundred (500) Shares.

                        (b)           Rank. The Series A-2 Preferred Stock shall rank prior to the common stock, par value $.001 per share (the "Common Stock"), and to all other classes and series of equity securities of the Company which by its terms does not rank senior to or pari passu with the Series A-2 Preferred Stock ("Junior Stock"). The Series A-2 Preferred Stock shall be subordinate to and rank junior to all indebtedness of the Company now or hereafter outstanding. The Series A-2 Preferred Stock shall rank on a pari passu basis to the Series A Convertible Preferred Stock, par value $.001 per share (the “Series A Preferred Stock”) and the Series A-1 Convertible Preferred Stock, par value $.001 per share (the “Series A-1 Preferred Stock” and together with the Series A Preferred Stock, the “Pari Passu Preferred Stock”).

          2.           Dividends. The holders of record of shares of Series A-2 Preferred Stock shall not be entitled to receive dividends.

          3.           Voting Rights.

                        (a)           Class Voting Rights. The Series A-2 Preferred Stock shall have the following class voting rights (in addition to the voting rights set forth in Section 3(b) hereof). So long as any shares of the Series A-2 Preferred Stock remain outstanding, the Company shall not, without the affirmative vote or consent of the holders of at least seventy-five percent (75%) of the shares of the Series A-2 Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, in which the holders of the Series A-2 Preferred Stock vote separately as a class: (i) amend, alter or repeal the provisions of the Series A-2 Preferred Stock, whether by merger, consolidation or otherwise, so as to adversely affect any right, preference, privilege or voting power of the Series A-2 Preferred Stock; provided, however, that any creation and issuance of another series of Junior Stock and, to the extent approved in accordance with Section 7(q) of the Amended and Restated Exchange Agreement between the Company and Paul Royalty Fund, L.P. (the “Exchange Agreement”), pari passu stock and senior stock shall not be deemed to adversely affect such rights, preferences, privileges or voting powers; (ii) repurchase, redeem or pay dividends in cash or in kind on shares of the Company's Junior Stock and pari passu stock and senior stock; (iii) amend the Certificate of Incorporation or By-Laws of the Company so as to affect materially and adversely any right, preference, privilege or voting power of the Series A-2 Preferred Stock; provided, however, that any creation and issuance of another series of Junior Stock and, to the extent approved in accordance with Section 7(q) of the Exchange Agreement, pari passu stock and senior stock shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers; (iv) effect any distribution with respect to Junior Stock and Pari Passu Preferred Stock; or (v) reclassify the Company's outstanding securities.

                        (b)           General Voting Rights. Except with respect to transactions upon which the Series A-2 Preferred Stock shall be entitled to vote separately as a class pursuant to Section 3(a) above and except as otherwise required by Delaware law, the Series A-2 Preferred Stock shall have no voting rights. The Common Stock into which the Series A-2 Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding Common Stock of the Company.

          4.           Liquidation Preference.

                        (a)          In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of shares of the Series A-2 Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company whether such assets are capital or surplus of any nature, an amount equal to $10,000 per share (the "Liquidation Preference Amount") of the Series A-2 Preferred Stock, on a pro rata and pari passu basis with the Pari Passu Preferred Stock, before any payment shall be made or any assets distributed to the holders of the Common Stock or any other Junior Stock. If the assets of the Company are not sufficient to pay in full the Liquidation Preference Amount payable to the holders of outstanding shares of the Series A-2 Preferred Stock and any series of preferred stock or any other class of stock on a parity, including, without limitation, the Pari Passu Preferred Stock, as to rights on liquidation, dissolution or winding up, with the Series A-2 Preferred Stock,

then all of said assets will be distributed among the holders of the Series A-2 Preferred Stock, the Pari Passu Preferred Stock and the other classes of stock on a parity with the Series A-2 Preferred Stock, if any, ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The liquidation payment with respect to each outstanding fractional share of Series A-2 Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of Series A-2 Preferred Stock. All payments for which this Section 4(a) provides shall be in cash, property (valued at its fair market value as determined by an independent appraiser reasonably acceptable to the holders of a majority of the Series A-2 Preferred Stock) or a combination thereof; provided, however, that no cash shall be paid to holders of Junior Stock unless each holder of the outstanding shares of Series A-2 Preferred Stock has been paid in cash the full Liquidation Preference Amount to which such holder is entitled as provided herein. After payment of the full Liquidation Preference Amount to which each holder is entitled, such holders of shares of Series A-2 Preferred Stock will not be entitled to any further participation as such in any distribution of the assets of the Company.

                        (b)          A consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of transactions in which more than fifty percent (50%) of the voting shares of the Company is disposed of or conveyed, or other acquisition type transaction, or upon the payment by the Company of interest, dividends or other distributions to the holders of securities or financial instruments (including Indebtedness) ranking senior to or pari passu with the Series A-2 Preferred Stock exceeding $10 million in the aggregate, shall be, at the election of a majority of the holders of the Series A-2 Preferred Stock, deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4. In the event of the merger or consolidation of the Company with or into another corporation that is not treated as a liquidation pursuant to this Section 4(b), the Series A-2 Preferred Stock shall maintain its relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.

                        (c)          Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by mail, postage prepaid, no less than forty-five (45) days prior to the payment date stated therein, to the holders of record of the Series A-2 Preferred Stock at their respective addresses as the same shall appear on the books of the Company.

          5.           Conversion. The holder of Series A-2 Preferred Stock shall have the following conversion rights (the "Conversion Rights"):

                        (a)           Right to Convert. At any time on or after the Issuance Date, the holder of any such shares of Series A-2 Preferred Stock may, at such holder's option, subject to the limitations set forth in Section 7 herein, elect to convert (a "Voluntary Conversion") all or any portion of the shares of Series A-2 Preferred Stock held by such person into a number of fully paid and nonassessable shares of Common Stock equal to the quotient of (i) the Liquidation

Preference Amount of the shares of Series A-2 Preferred Stock being converted thereon divided by (ii) the Conversion Price (as defined in Section 5(d) below) then in effect as of the date of the delivery by such holder of its notice of election to convert. The Company shall keep written records of the conversion of the shares of Series A-2 Preferred Stock converted by each holder. A holder shall be required to deliver the original certificates representing the shares of Series A-2 Preferred Stock upon complete conversion of the Series A-2 Preferred Stock.

                        (b)           Mechanics of Voluntary Conversion. The Voluntary Conversion of Series A-2 Preferred Stock shall be conducted in the following manner:

                                        (i)           Holder's Delivery Requirements. To convert Series A-2 Preferred Stock into full shares of Common Stock on any date (the "Voluntary Conversion Date"), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice"), to the Company, and (B) with respect to the final conversion of shares of Series A-2 Preferred Stock held by any holder, such holder shall surrender to a common carrier for delivery to the Company as soon as practicable following such Conversion Date but in no event later than six (6) business days after such date the original certificates representing the shares of Series A-2 Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "Preferred Stock Certificates").

                                        (ii)          Company's Response. Upon receipt by the Company of a facsimile copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such holder and the Company or its designated transfer agent (the "Transfer Agent"), as applicable, shall, within three (3) business days following the date of receipt by the Company of the executed Conversion Notice, issue and deliver to the Depository Trust Company (“DTC”) account on the holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the Conversion Notice, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled.

                                        (iii)         Dispute Resolution. In the case of a dispute as to the arithmetic calculation of the number of shares of Common Stock to be issued upon conversion, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the arithmetic calculations to the holder via facsimile as soon as possible, but in no event later than two (2) business days after receipt of such holder's Conversion Notice. If such holder and the Company are unable to agree upon the arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion within one (1) business day of such disputed arithmetic calculation being submitted to the holder, then the Company shall within one (1) business day submit via facsimile the disputed arithmetic calculation of the number of shares of Common Stock to be issued upon such conversion to the Company’sindependent, outside accountant. The Company shall cause the accountant to perform the calculations and notify the Company and the holder of the results no later than seventy-two (72) hours from the time it receives the disputed calculations. Such accountant's

calculation shall be binding upon all parties absent manifest error. The reasonable expenses of such accountant in making such determination shall be paid by the Company, in the event the holder's calculation was correct, or by the holder, in the event the Company's calculation was correct, or equally by the Company and the holder in the event that neither the Company's or the holder's calculation was correct. The period of time in which the Company is required to effect conversions or redemptions under this Certificate of Designation shall be tolled with respect to the subject conversion or redemption pending resolution of any dispute by the Company made in good faith and in accordance with this Section 5(b)(iii).

                                        (iv)         Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of the Series A-2 Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

                                        (v)          Company's Failure to Timely Convert. If within three (3) business days of the Company's receipt of the Conversion Notice (the "Share Delivery Period") the Company shall fail to issue and deliver to a holder the number of shares of Common Stock to which such holder is entitled upon such holder's conversion of the Series A-2 Preferred Stock (a "Conversion Failure"), in addition to all other available remedies which such holder may pursue hereunder and under the Amended and Restated Exchange Agreement among the Company and the and the initial holder of the Series A-2 Preferred Stock (the "Exchange Agreement") between the Company and the initial holders of the Series A-2 Preferred Stock (including indemnification pursuant to Section 13 thereof), the Company shall pay additional damages to such holder on each business day after such third (3^rd) business day that such conversion is not timely effected in an amount equal 0.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the holder on a timely basis pursuant to Section 5(b)(ii) and to which such holder is entitled and (B) the Closing Bid Price (as defined in Section 5(d)(ii) hereof) of the Common Stock on the last possible date which the Company could have issued such Common Stock to such holder without violating Section 5(b)(ii). If the Company fails to pay the additional damages set forth in this Section 5(b)(v) within five (5) business days of the date incurred, then such payment shall bear interest at the rate of 2% per month (pro rated for partial months) until such payments are made.

                        (c)           Intentionally Omitted.

                        (d)           Conversion Price.

                                        (i)           The term "Conversion Price" shall mean $5.00 per share, subject to adjustment under Section 5(e) hereof. Notwithstanding any adjustment hereunder, at no time shall the Conversion Price be greater than $5.00 per share other than pursuant to the second sentence of Section 5(e)(i) in connection with a reverse stock split effected by the Company.

                                        (ii)          The term "Closing Bid Price" shall mean, for any security as of any date, the last closing bid price of such security on the OTC Bulletin Board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg,

the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the holders of a majority of the outstanding shares of Series A-2 Preferred Stock.

                        (e)           Adjustments of Conversion Price.

                                        (i)           Adjustments for Stock Splits and Combinations. If the Company shall at any time or from time to time after the Issuance Date, effect a stock split of the outstanding Common Stock, the Conversion Price shall be proportionately decreased. If the Company shall at any time or from time to time after the Issuance Date, combine the outstanding shares of Common Stock, the Conversion Price shall be proportionately increased. Any adjustments under this Section 5(e)(i) shall be effective at the close of business on the date the stock split or combination occurs.

                                        (ii)          Adjustments for Certain Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the Conversion Price shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, as applicable, the Conversion Price then in effect by a fraction:

                                                       (1)           the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and

                                                       (2)           the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

                                        (iii)          Adjustment for Other Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of Series A-2 Preferred Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had their Series A-2 Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of

such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 5(e)(iii) with respect to the rights of the holders of the Series A-2 Preferred Stock.

                                        (iv)         Adjustments for Reclassification, Exchange or Substitution. If the Common Stock issuable upon conversion of the Series A-2 Preferred Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in each event, an appropriate revision to the Conversion Price shall be made and provisions shall be made (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series A-2 Preferred Stock shall have the right thereafter to convert such share of Series A-2 Preferred Stock into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such share of Series A-2 Preferred Stock might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein.

                                        (v)         Adjustments for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Issuance Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties or assets to any other person that is not deemed a liquidation pursuant to Section 5.14(b) (an "Organic Change"), then as a part of such Organic Change an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holder of each share of Series A-2 Preferred Stock shall have the right thereafter to convert such share of Series A-2 Preferred Stock into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from the Organic Change as the holder would have received as a result of the Organic Change and if the holder had converted its Series A-2 Preferred Stock into the Company’s Common Stock prior to the Organic Change. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5(e)(v) with respect to the rights of the holders of the Series A-2 Preferred Stock after the Organic Change to the end that the provisions of this Section 5(e)(v) (including any adjustment in the Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of the Series A-2 Preferred Stock) shall be applied after that event in as nearly an equivalent manner as may be practicable.

                                        (vi)         Intentionally Omitted.

                                        (vii)         Intentionally Omitted.

                                        (viii)        Consideration for Stock. In case any shares of Common Stock or Convertible Securities other than the Series A-2 Preferred Stock, or any rights or warrants or options to purchase any such Common Stock or Convertible Securities, shall be issued or sold in connection with any merger or consolidation in which the Company is the surviving corporation (other than any consolidation or merger in which the previously outstanding shares of Common Stock of the Company shall be changed to or exchanged for the stock or other securities of another corporation), the amount of consideration therefor shall be deemed to be the fair value, as determined reasonably and in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board may determine to be attributable to such shares of Common Stock, Convertible Securities, rights or warrants or options, as the case may be.

                                        (ix)          Record Date. In case the Company shall take record of the holders of its Common Stock or any other Preferred Stock for the purpose of entitling them to subscribe for or purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common Stock shall be deemed to be such record date.

                                        (x)           Certain Issues Excepted. Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment of the Conversion Price of shares of Common Stock issuable upon conversion of the Series A Preferred Stock upon (i) the Company’s issuance of Additional Shares of Common Stock and/or Common Stock Equivalents in connection with strategic license agreements so long as such issuances are not for the purpose of raising capital, (ii) when approved by the Company’s Board of Directors or by a committee of the Board of Directors the majority of whom are independent directors, the Company’s (A) issuance of Additional Shares of Common Stock to the Company’s officers, directors, employees and consultants and to suppliers of goods and/or services to the Company, whether pursuant to the 2006 Stock Award and Incentive Plan, any other plan hereafter adopted, or otherwise, so long as such issuances under this subsection (ii) which would cause the provisions of Section 5(e) hereof to be applied in the aggregate do not exceed ten percent (10%) of the issued and outstanding shares of Common Stock as of the Issuance Date, and (B) grant of stock options or warrants to purchase shares of Common Stock, whether the grants of such options or warrants are made under the Company’s Employee Stock Option Plan or its 2006 Stock Award and Incentive Plan, as they now exist, an employee or director stock option plan and a stock award and incentive plan hereafter adopted or otherwise, so long as such issuances under this subsection (ii) which would cause the provisions of Section 5(e) hereof to be applied in the aggregate do not exceed ten percent (10%) of the issued and outstanding shares of Common Stock as of the Issuance Date, (iii) securities issued upon the exercise, conversion or exchange of any Common Stock Equivalents outstanding on the Issuance Date at the conversion price in effect on the Issuance Date as may be adjusted by the anti-dilution provisions thereof as in effect on the date hereof, (iv) issuance of Series A Preferred Stock or warrants issued by the Company pursuant to the Series A Convertible Preferred Stock Purchase Agreement among the Company and the purchasers listed therein (the “Purchase Agreement”), or Common Stock issued upon conversion or exercise thereof, as may be adjusted by the anti-dilution provisions thereof as in effect on the date hereof, (v) issuance of Series A-1 Convertible Preferred Stock,

Series A-2 Convertible Preferred Stock, Series D-2 Convertible Preferred Stock or Common Stock issued upon conversion thereof at the conversion price in effect on the Issuance Date, as such conversion price may be adjusted pursuant to Section 5 hereof, (vi) any warrants issued to Burnham Hill Partners, a division of Pali Capital Inc. or any other person or entity for services in connection with the transactions contemplated by the Purchase Agreement and the shares of Common Stock issued upon exercise thereof at the conversion price in effect on the Issuance Date, as may be adjusted by the anti-dilution provisions thereof as in effect on the date hereof, or (vii) warrants issued to Ron Lipstein and Steven Katz in connection with the agreements terminating their employment with the Company at the conversion price in effect on the Issuance Date or as may be adjusted by the anti-dilution provision thereof as in effect on the Issuance Date.

                        (f)           No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith, assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A-2 Preferred Stock as provided herein. In the event a holder shall elect to convert any shares of Series A-2 Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or any one associated or affiliated with such holder has been engaged in any violation of law, unless, an injunction from a court, on notice, restraining and/or enjoining conversion of all or of said shares of Series A-2 Preferred Stock shall have been issued and the Company posts a surety bond for the benefit of such holder in an amount equal to 130% of the Liquidation Preference Amount of the Series A-2 Preferred Stock such holder has elected to convert, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such holder in the event it obtains judgment.

                        (g)           Certificates as to Adjustments. Upon occurrence of each adjustment or readjustment of the Conversion Price or number of shares of Common Stock issuable upon conversion of the Series A-2 Preferred Stock pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Series A-2 Preferred Stock a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written request of the holder of such affected Series A-2 Preferred Stock, at any time, furnish or cause to be furnished to such holder a like certificate setting forth such adjustments and readjustments, the Conversion Price in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of a share of such Series A-2 Preferred Stock. Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent of such adjusted amount.

                        (h)           Issue Taxes. The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series A-2 Preferred Stock pursuant thereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

                        (i)           Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or three (3) business days following being mailed by certified or registered mail, postage prepaid, return-receipt requested, addressed to the holder of record at its address appearing on the books of the Company. The Company will give written notice to each holder of Series A-2 Preferred Stock at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the public. The Company will also give written notice to each holder of Series A-2 Preferred Stock at least twenty (20) days prior to the date on which any Organic Change, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to such holder prior to such information being made known to the public.

                        (j)           Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series A-2 Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall at its option either (i) pay cash equal to the product of such fraction multiplied by the average of the Closing Bid Prices of the Common Stock for the five (5) consecutive trading days immediately preceding the Voluntary Conversion Date, or (ii) in lieu of issuing such fractional shares issue one additional whole share to the holder.

                        (k)           Reservation of Common Stock. The Company shall, so long as any shares of Series A-2 Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series A-2 Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series A-2 Preferred Stock then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than 120% of the number of shares of Common Stock for which the shares of Series A-2 Preferred Stock are at any time convertible(without regard to limitations on conversion set forth in Section 7). The initial number of shares of Common Stock reserved for conversions of the Series A-2 Preferred Stock and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Series A-2 Preferred Stock based on the number of shares of Series A-2 Preferred Stock held by each holder at the time of issuance of the Series A-2 Preferred Stock or increase in the number of reserved shares, as the case may be. In the event a holder shall sell or otherwise transfer any of such holder's shares of Series A-2 Preferred Stock, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for

such transferor. Any shares of Common Stock reserved and which remain allocated to any person or entity which does not hold any shares of Series A-2 Preferred Stock shall be allocated to the remaining holders of Series A-2 Preferred Stock, pro rata based on the number of shares of Series A-2 Preferred Stock then held by such holder.

                        (l)           Retirement of Series A-2 Preferred Stock. Conversion of Series A-2 Preferred Stock shall be deemed to have been effected on the applicable Voluntary Conversion Date. The Company shall keep written records of the conversion of the shares of Series A-2 Preferred Stock converted by each holder. A holder shall be required to deliver the original certificates representing the shares of Series A-2 Preferred Stock upon complete conversion of the Series A-2 Preferred Stock.

                        (m)         Regulatory Compliance. If any shares of Common Stock to be reserved for the purpose of conversion of Series A-2 Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be.

          6.           No Preemptive Rights. Except as provided in Section 5 hereof, no holder of the Series A-2 Preferred Stock shall be entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereinafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable.

          7.           Conversion Restriction. Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series A-2 Preferred Stock convert shares of the Series A-2 Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) in excess of 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon a holder of Series A-2 Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the "Waiver Notice") that such holder would like to waive Section 7 of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series A-2 Preferred Stock, this Section 7 shall be of no force or effect with regard to those shares of Series A-2 Preferred Stock referenced in the Waiver Notice.

          8.           Intentionally Omitted.

          9.           Inability to Fully Convert.

                        (a)           Holder's Option if Company Cannot Fully Convert. If, upon the Company's receipt of a Conversion Notice, the Company cannot issue shares of Common Stock registered for resale to the extent required under the Registration Statement for any reason, including, without limitation, because the Company (x) does not have a sufficient number of shares of Common Stock authorized and available, (y) is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or its securities from issuing all of the Common Stock which is to be issued to a holder of Series A-2 Preferred Stock pursuant to a Conversion Notice or (z) fails to have a sufficient number of shares of Common Stock registered for resale required under the Registration Statement, then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with such holder's Conversion Notice and pursuant to Section 5(b)(ii) above and, with respect to the unconverted Series A-2 Preferred Stock, the holder, solely at such holder's option, can elect, in addition to other remedies available to such holder, within five (5) business days after receipt of notice from the Company thereof to:

                                        (i)           require the Company to redeem from such holder those Series A-2 Preferred Stock for which the Company is unable to issue Common Stock in accordance with such holder’s Conversion Notice (“Mandatory Redemption”) at a price per share equal to the 100% of the Liquidation Preference Amount as of such Conversion Date (the “Mandatory Redemption Price”);

                                        (ii)          if the Company's inability to fully convert Series A-2 Preferred Stock is pursuant to Section 9(a)(z) above, require the Company to issue restricted shares of Common Stock in accordance with such holder's Conversion Notice and pursuant to Section 5(b)(ii) above.

                                        (iii)          void its Conversion Notice and retain or have returned, as the case may be, the shares of Series A-2 Preferred Stock that were to be converted pursuant to such holder's Conversion Notice (provided that a holder's voiding its Conversion Notice shall not effect the Company's obligations to make any payments which have accrued prior to the date of such notice).

In the event a Holder shall elect to convert any shares of Series A-2 Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, violation of an agreement to which such Holder is a party or for any reason whatsoever, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or of said shares of Series A-2 Preferred Stock shall have issued and the Company posts a surety bond for the benefit of such Holder in an amount equal to 130% of the amount of shares of Series A-2 Preferred Stock the Holder has elected to convert, which bond shall remain in effect until the completion of

arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder in the event it obtains judgment.

                        (b)           Mechanics of Fulfilling Holder's Election. The Company shall immediately send via facsimile to a holder of Series A-2 Preferred Stock, upon receipt of a facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied as described in Section 9(a) above, a notice of the Company's inability to fully satisfy such holder's Conversion Notice (the "Inability to Fully Convert Notice"). Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder's Conversion Notice, (ii) the number of Series A-2 Preferred Stock which cannot be converted, and (iii) the applicable Mandatory Redemption Price. Such holder shall notify the Company of its election pursuant to Section 9(a) above by delivering written notice via facsimile to the Company ("Notice in Response to Inability to Convert").

                        (c)           Payment of Redemption Price. If such holder shall elect to have its shares redeemed pursuant to Section 9(a)(i) above, the Company shall pay the Mandatory Redemption Price to such holder within thirty (30) days of the Company’s receipt of the holder’s Notice in Response to Inability to Convert, provided that prior to the Company’s receipt of the holder’s Notice in Response to Inability to Convert the Company has not delivered a notice to such holder stating, to the satisfaction of the holder, that the event or condition resulting in the Mandatory Redemption has been cured and all Conversion Shares issuable to such holder can and will be delivered to the holder in accordance with the terms of Section 2(g). If the Company shall fail to pay the applicable Mandatory Redemption Price to such holder on a timely basis as described in this Section 9(c) (other than pursuant to a dispute as to the determination of the arithmetic calculation of the Redemption Price), in addition to any remedy such holder of Series A Preferred Stock may have under this Certificate of Designation and the Exchange Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full. Until the full Mandatory Redemption Price is paid in full to such holder, such holder may (i) void the Mandatory Redemption with respect to those Series A Preferred Stock for which the full Mandatory Redemption Price has not been paid, (ii) receive back such Series A Preferred Stock, and (iii) require that the Conversion Price of such returned Series A Preferred Stock be adjusted to the lesser of (A) the Conversion Price and (B) the lowest Closing Bid Price during the period beginning on the Conversion Date and ending on the date the holder voided the Mandatory Redemption.

                        (d)           Pro-rata Conversion and Redemption. In the event the Company receives a Conversion Notice from more than one holder of Series A-2 Preferred Stock on the same day and the Company can convert and redeem some, but not all, of the Series A-2 Preferred Stock pursuant to this Section 9, the Company shall convert from each holder of Series A-2 Preferred Stock electing to have Series A-2 Preferred Stock converted at such time an amount equal to such holder's pro-rata amount (based on the number shares of Series A-2 Preferred Stock held by such holder relative to the number shares of Series A-2 Preferred Stock outstanding) of all shares of Series A-2 Preferred Stock being converted and redeemed at such time.

          10.         Vote to Change the Terms of or Issue Preferred Stock. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the holders of not less than a majority of the then outstanding shares of Series A-2 Preferred Stock, shall be required for any change to this Certificate of Designation or the Company's Certificate of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Series A-2 Preferred Stock.

          11.         Lost or Stolen Certificates. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the shares of Series A-2 Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Company and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date.

          12.         Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series A-2 Preferred Stock and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holders of the Series A-2 Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

          13.         Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein. This Certificate of Designation shall be deemed to be jointly drafted by the Company and all initial purchasers of the Series A-2 Preferred Stock and shall not be construed against any person as the drafter hereof.

          14.         Failure or Indulgence Not Waiver. No failure or delay on the part of a holder of Series A-2 Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

          IN WITNESS WHEREOF, the undersigned has executed and subscribed this Amended Certificate and does affirm the foregoing as true this 14^th day of June, 2007.

ORTEC INTERNATIONAL, INC.
By:	/s/ Ron Lipstein
	Name: Ron Lipstein
	Title:    Chief Executive Officer

EXHIBIT I

ORTEC INTERNATIONAL, INC.
CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series A-2 Preferred Stock of Ortec International, Inc. (the "Certificate of Designation"). In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series A-2 Preferred Stock, par value $.001 per share (the "Preferred Shares"), of Ortec International, Inc., a Delaware corporation (the "Company"), indicated below into shares of Common Stock, par value $.001 per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.

Date of Conversion:
Number of Preferred Shares to be converted:	_____
Stock certificate no(s). of Preferred Shares to be converted:                     _____
The Common Stock have been sold pursuant to the Registration Statement (as defined in the
Registration Rights Agreement): YES ____                          NO____
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:

                         Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion determined in accordance with Section 16 of the Securities Exchange Act of 1934, as amended: _________________________

Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:

Issue to:
Facsimile Number:
Authorization:
	By:
	Title:
Dated:

PRICES ATTACHED

CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND
PREFERENCES

OF THE
SERIES D-2 CONVERTIBLE PREFERRED STOCK
OF
ORTEC INTERNATIONAL, INC.

          The undersigned, the Chief Executive Officer of Ortec International, Inc., a Delaware corporation (the “Company”), in accordance with the provisions of the Delaware General Corporation Law, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Company, the following resolution creating a series of Series D-2 Convertible Preferred Stock, was duly adopted on June 10, 2007:

          RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Certificate of Incorporation of the Company (the “Certificate of Incorporation”), there hereby is created out of the shares of Preferred Stock, par value $.001 per share, of the Company authorized in Article IV of the Certificate of Incorporation (the “Preferred Stock”), a series of Preferred Stock of the Company, to be named “Series D-2 Convertible Preferred Stock,” consisting of Twenty Thousand (20,000) shares, which series shall have the following designations, powers, preferences and relative and other special rights and the following qualifications, limitations and restrictions:

          1.           Designation and Rank. The designation of such series of the Preferred Stock shall be the Series D-2 Convertible Preferred Stock, par value $.001 per share (the “Series D-2 Preferred Stock”). The maximum number of shares of Series D-2 Preferred Stock shall be Twenty Thousand (20,000) shares. The Series D-2 Preferred Stock shall rank prior to the common stock, par value $.001 per share (the “Common Stock”) for purposes of liquidation preference, and to all other classes and series of equity securities of the Company that by their terms do not rank senior to the Series D-2 Preferred Stock (“Junior Stock”). Specifically, the Series D-2 Preferred Stock shall be subordinate to and rank junior to the Series A Preferred Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock and all other classes of Preferred Stock of the Company, whether or not outstanding as of the date hereof, which by their terms do not rank junior to the Series D-2 Preferred Stock. The Series D-2 Preferred Stock shall be subordinate to and rank junior to all indebtedness of the Company now or hereafter outstanding. The Series D-2 Preferred Stock shall be issued only pursuant to the exercise of Series M Warrants of the Company issued on or about June 18, 2007.

          2.           Dividends. Whenever the Board of Directors declares a dividend on the Common Stock each holder of record of a share of Series D-2 Preferred Stock, or any fraction of a share of Series D-2 Preferred Stock, on the date set by the Board of Directors to determine the owners of the Common Stock of record entitled to receive such dividend (the “Record Date”) shall be entitled to receive, out of any assets at the time legally available therefore, an amount equal to such dividend declared on one share of Common Stock multiplied by the number of shares of

Common Stock into which such share, or such fraction of a share, of Series D-2 Preferred Stock could be converted on the Record Date.

          3.           Voting Rights.

                        (a)           Class Voting Rights. The Series D-2 Preferred Stock shall have the following class voting rights. So long as any shares of the Series D-2 Preferred Stock remain outstanding, the Company shall not, without the affirmative vote or consent of the holders of at least three-fourths (3/4) of the shares of the Series D-2 Preferred Stock outstanding at the time, given in person or by proxy, either in writing or at a meeting, in which the holders of the Series D-2 Preferred Stock vote separately as a class: (i) amend, alter or repeal the provisions of the Series D-2 Preferred Stock so as to adversely affect any right, preference, privilege or voting power of the Series D-2 Preferred Stock; or (ii) effect any distribution with respect to Junior Stock except that the Company may effect a distribution on the Common stock if the Company makes a like kind distribution on each share, or fraction of a share, of Series D-2 Preferred Stock in an amount equal to the distribution on one share of Common Stock multiplied by the number of shares of Common Stock into which such one share, or such fraction of a share, of Series D-2 Preferred Stock can be converted at the time of such distribution.

                        (b)           General Voting Rights. Except with respect to transactions upon which the Series D-2 Preferred Stock shall be entitled to vote separately as a class pursuant to Section 3(a) above, the Series D-2 Preferred Stock shall have no voting rights. The Common Stock into which the Series D-2 Preferred Stock is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding Common Stock of the Company.

          4.           Liquidation Preference.

                        (a)          In the event of the liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Company, the holders of shares of the Series D-2 Preferred Stock then outstanding shall be entitled to receive, out of the assets of the Company, whether such assets are capital or surplus of any nature, an amount equal an amount per share of Series D-2 Preferred Stock calculated by taking the total amount available for distribution to holders of all the Company’s outstanding Common Stock before deduction of any preference payments for the Series D-2 Preferred Stock, divided by the total of (x) all of the then outstanding shares of the Company’s Common Stock, plus (y) all of the shares of the Company’s Common Stock into which all of the outstanding shares of the Series D-2 Preferred Stock can be converted (the “Liquidation Preference Amount”) before any payment shall be made or any assets distributed to the holders of the Common Stock or any other Junior Stock. If the assets of the Company are sufficient to pay in part, but are not sufficient to pay in full, the Liquidation Preference Amount payable to the holders of outstanding shares of the Series D-2 Preferred Stock and any series of preferred stock or any other class of stock on a parity, as to rights on liquidation, dissolution or winding up, with the Series D-2 Preferred Stock, then all of said assets available to pay a part of the Liquidation Preference Amount to the holders of the outstanding shares of Series D-2 Preferred Stock and the other classes of stock on a parity as to rights on liquidation, dissolution

or winding up, will be distributed among the holders of the Series D-2 Preferred Stock and the other classes of stock on a parity with the Series D-2 Preferred Stock, if any, ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The liquidation payment with respect to each outstanding fractional share of Series D-2 Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of Series D-2 Preferred Stock. All payments for which this Section 4(a) provides shall be in cash, property (valued at its fair market value as determined by an independent appraiser reasonably acceptable to the holders of a majority of the Series D-2 Preferred Stock), or a combination thereof; provided, however, that no cash shall be paid to holders of Junior Stock unless each holder of the outstanding shares of Series D-2 Preferred Stock has been paid in cash the full Liquidation Preference Amount to which such holder is entitled as provided herein. After payment of the full Liquidation Preference Amount to which each holder is entitled, such holders of shares of Series D-2 Preferred Stock will not be entitled to any further participation as such in any distribution of the assets of the Company.

                        (b)          A consolidation or merger of the Company with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the Company, or the effectuation by the Company of a transaction or series of transactions in which more than 50% of the voting shares of the Company is disposed of or conveyed, or other acquisition type transaction shall be, at the election of a majority of the holders of the Series D-2 Preferred Stock, deemed to be a liquidation, dissolution, or winding up within the meaning of this Section 4. In the event of the merger or consolidation of the Company with or into another corporation that is not treated as a liquidation pursuant to this Section 4(b), the Series D-2 Preferred Stock shall maintain its relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.

                        (c)          Written notice of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, stating a payment date and the place where the distributable amounts shall be payable, shall be given by mail, postage prepaid, no less than forty-five (45) days prior to the payment date stated therein, to the holders of record of the Series D-2 Preferred Stock at their respective addresses as the same shall appear on the books of the Company.

          5.           Conversion. The holder of Series D-2 Preferred Stock shall have the following conversion rights (the “Conversion Rights”):

                        (a)           Right to Convert. At any time on or after the Issuance Date, the holder of any such shares of Series D-2 Preferred Stock may, at such holder’s option, subject to the limitations set forth in Section 7 herein, elect to convert (a “Voluntary Conversion”) all or any portion of the shares of Series D-2 Preferred Stock held by such person into a number of fully paid and nonassessable shares of Common Stock at a conversion rate of One Thousand (1,000) shares of Common Stock for each share of Preferred Stock (subject to adjustments set forth in Section 7(e) herein, the “Conversion Rate”) . The Company shall keep written records of the conversion of the shares of Series D-2 Preferred Stock converted by each holder. A holder shall

be required to deliver the original certificates representing the shares of Series D-2 Preferred Stock upon any conversion of the Series D-2 Preferred Stock as provided in Section 5(b) below.

                        (b)           Mechanics of Voluntary Conversion. The Voluntary Conversion of Series D-2 Preferred Stock shall be conducted in the following manner:

                                        (i)           Holder’s Delivery Requirements. To convert Series D-2 Preferred Stock into full shares of Common Stock on any date (the “Voluntary Conversion Date”), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”), to the Company, and (B) with respect to the conversion of shares of Series D-2 Preferred Stock held by any holder, such holder shall surrender to a common carrier for delivery to the Company as soon as practicable following such Conversion Date, but in no event later than six (6) business days after such date, the original certificates representing the shares of Series D-2 Preferred Stock being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the “Preferred Stock Certificates”).

                                        (ii)          Company’s Response. Upon receipt by the Company of a facsimile copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such holder and the Company or its designated transfer agent (the “Transfer Agent”), as applicable, shall, within three (3) business days following the date of receipt by the Company of the certificate representing the shares of Series D-2 Preferred Stock being converted, (x) issue and deliver to the Depository Trust Company (“DTC”) account on the holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the Conversion Notice, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled, and (y) if the certificate so surrendered represents more shares of Series D-2 Preferred Stock than those being converted, issue and deliver to the holder a new certificate for such number of shares of Series D-2 Preferred Stock represented by the surrendered certificate which were not converted.

                                        (iii)         Intentionally Omitted.

                                        (iv)         Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of the Series D-2 Preferred Stock shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

                                        (v)          Company's Failure to Timely Convert. If within three (3) business days of the Company's receipt of the Conversion Notice (the "Share Delivery Period") the Company shall fail to issue and deliver to a holder the number of shares of Common Stock to which such holder is entitled upon such holder's conversion of the Series D-2 Preferred Stock (a "Conversion Failure"), in addition to all other available remedies which such holder may pursue hereunder, the Company shall pay additional damages to such holder on each business day after

such third (3^rd) business day that such conversion is not timely effected in an amount equal 0.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the holder on a timely basis pursuant to Section 5(b)(ii) and to which such holder is entitled and (B) the closing bid price of the Common Stock on the last possible date which the Company could have issued such Common Stock to such holder without violating Section 5(b)(ii). If the Company fails to pay the additional damages set forth in this Section 5(b)(v) within five (5) business days of the date incurred, then such payment shall bear interest at the rate of 2% per month (pro rated for partial months) until such payments are made.

                        (c)           Mandatory Conversion.

                                        (i)           Upon the Company’s written request a holder of Series D-2 Preferred Stock shall advise the Company in writing the number of shares of Common Stock that are beneficially owned (“Beneficially Owned”, as defined in Section 13(d) of the Securities and Exchange Act of 1934 and the rules promulgated thereunder) by such holder. If the shares of Common Stock Beneficially Owned by such holder amount to less than 9.999% of the Shares of Common Stock outstanding at such time, the Company may, at its option, compel such holder, by written notice to such holder (the “Mandatory Conversion Notice”), to convert such portion of the Series D-2 Preferred Stock owned by him into so many shares of Common Stock so that the total number of shares of Common Stock Beneficially Owned by such holder after such conversion shall equal up to 9.999%, but not more, of the shares of Common Stock outstanding after such conversion. A Mandatory Conversion Date shall not occur more than once every 30 days.

                                        (ii)           As used herein, a “Mandatory Conversion Date” shall be the date when the Mandatory Conversion Notice shall be deemed delivered pursuant to Section 5(i). The Mandatory Conversion Date and the Voluntary Conversion Date collectively are referred to in this Certificate of Designation as the “Conversion Date.”

                                        (iii)           Each share of Series D-2 Preferred Stock required to be converted pursuant to the Mandatory Conversion Notice shall on the Mandatory Conversion Date, automatically and without any action on the part of the holder thereof, convert into a number of fully paid and nonassessable shares of Common Stock based on the Conversion Rate in effect on the Mandatory Conversion Date; provided, however, that the Company shall not be obligated to issue the shares of Common Stock issuable upon conversion of any shares of Series D-2 Preferred Stock unless the Preferred Stock certificates representing such shares of Series D-2 Preferred Stock are either delivered to the Company or the holder notifies the Company that such Preferred Stock certificates have been lost, stolen, or destroyed, and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection therewith. Upon the occurrence of the automatic conversion of the Series D-2 Preferred Stock pursuant to this Section 5, the holders of the Series D-2 Preferred Stock shall surrender the Preferred Stock certificates representing the Series D-2 Preferred Stock for which the Mandatory Conversion Date has occurred to the Company and the Company shall deliver the shares of Common Stock issuable upon such conversion (in the same manner set forth in Section 5(b)(ii)) to the holder within three (3) business days of the holder’s delivery of the applicable

Preferred Stock certificates. If the certificates of Series D-2 Preferred Stock so surrendered represent more shares of Series D-2 Preferred Stock than those being converted, the Company shall issue to the holder a new certificate for such number of Series D-2 Preferred Stock represented by the surrendered certificates which were not converted.

                        (d)           Intentionally Omitted.

                        (e)           Adjustments of Conversion Rate.

                                        (i)           Adjustments for Stock Splits and Combinations. If the Company shall at any time or from time to time after the Issuance Date, effect a stock split of the outstanding Common Stock, the Conversion Rate shall be proportionately increased. If the Company shall at any time or from time to time after the Issuance Date, combine the outstanding shares of Common Stock, the Conversion Rate shall be proportionately decreased. Any adjustments under this Section 5(e)(i) shall be effective at the close of business on the date the stock split or combination occurs.

                                        (ii)           Adjustments for Certain Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the Conversion Rate shall be increased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, as applicable, the Conversion Rate then in effect by a fraction:

                                                       (1)           the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately after such issuance on the close of business on such record date; and

                                                       (2)           the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance on the close of business on such record date.

                                        (iii)          Adjustment for Other Dividends and Distributions. If the Company shall at any time or from time to time after the Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Rate shall be made and provision shall be made (by adjustments of the Conversion Rate or otherwise) so that the holders of Series D-2 Preferred Stock shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Company which they would have received had their Series D-2 Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for

during such period under this Section 5(e)(iii) with respect to the rights of the holders of the Series D-2 Preferred Stock.

                                        (iv)         Adjustments for Reclassification, Exchange or Substitution. If the Common Stock issuable upon conversion of the Series D-2 Preferred Stock at any time or from time to time after the Issuance Date shall be changed to the same or different number of shares of any class or classes of stock, whether by reclassification, exchange, substitution or otherwise (other than by way of a stock split or combination of shares or stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then, and in each event, an appropriate revision to the Conversion Rate shall be made and provisions shall be made so that the holder of each share of Series D-2 Preferred Stock shall have the right thereafter to convert such share of Series D-2 Preferred Stock into the kind and amount of shares of stock and other securities receivable upon reclassification, exchange, substitution or other change, by holders of the number of shares of Common Stock into which such share of Series D-2 Preferred Stock might have been converted immediately prior to such reclassification, exchange, substitution or other change, all subject to further adjustment as provided herein.

                                        (v)         Adjustments for Reorganization, Merger, Consolidation or Sales of Assets. If at any time or from time to time after the Issuance Date there shall be a capital reorganization of the Company (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in Section 5(e)(i), (ii) and (iii), or a reclassification, exchange or substitution of shares provided for in Section 5(e)(iv)), or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company’s properties or assets to any other person (an “Organic Change”), then as a part of such Organic Change an appropriate revision to the Conversion Rate shall be made and provision shall be made so that the holder of each share of Series D-2 Preferred Stock shall have the right thereafter to convert such share of Series D-2 Preferred Stock into the kind and amount of shares of stock and other securities or property of the Company or any successor corporation resulting from the Organic Change which the holder of such share of Series D-2 Preferred Stock would have received if such share of Series D-2 Preferred Stock had been converted prior to such Organic Change.

                                        (vi)         Record Date. In case the Company shall take record of the holders of its Common Stock or any other Preferred Stock for the purpose of entitling them to subscribe for or purchase Common Stock or Convertible Securities, then the date of the issue or sale of the shares of Common Stock shall be deemed to be such record date.

                        (f)           No Impairment. The Company shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith, assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series D-2 Preferred Stock against impairment. In the event a holder shall elect to convert any shares of Series D-2 Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such holder or any one associated or affiliated with such holder has been engaged in any violation of law, unless, an injunction from a court, on notice, restraining and/or adjoining conversion of all or of said shares of Series D-2 Preferred Stock shall have been issued.

                        (g)           Certificates as to Adjustments. Upon occurrence of each adjustment or readjustment of the Conversion Rate or number of shares of Common Stock issuable upon conversion of the Series D-2 Preferred Stock pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Series D-2 Preferred Stock a certificate setting forth such adjustment and readjustment, showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon written request of the holder of such affected Series D-2 Preferred Stock, at any time, furnish or cause to be furnished to such holder a like certificate setting forth such adjustments and readjustments, the Conversion Rate in effect at the time, and the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon the conversion of a share of such Series D-2 Preferred Stock. Notwithstanding the foregoing, the Company shall not be obligated to deliver a certificate unless such certificate would reflect an increase or decrease of at least one percent of such adjusted amount.

                        (h)           Issue Taxes. The Company shall pay any and all issue and other taxes, excluding federal, state or local income taxes, that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series D-2 Preferred Stock pursuant hereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.

                        (i)            Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile or three (3) business days following (x) being mailed by certified or registered mail, postage prepaid, return-receipt requested, or (y) delivered to an express mail delivery service such as Federal Express, with written receipt by the addressee required, in either case addressed to the holder of record at its address appearing on the books of the Company. The Company will give written notice to each holder of Series D-2 Preferred Stock at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change, dissolution,

liquidation or winding-up and in no event shall such notice be provided to such holder prior to such information being made known to the public. The Company will also give written notice to each holder of Series D-2 Preferred Stock at least twenty (20) days prior to the date on which any Organic Change, dissolution, liquidation or winding-up will take place and in no event shall such notice be provided to such holder prior to such information being made known to the public.

                        (j)           Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series D-2 Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company, at its option, shall pay cash equal to the product of such fraction multiplied by the average of the closing bid prices of the Common Stock for the five (5) consecutive trading immediately preceding the Voluntary Conversion Date or Mandatory Conversion Date, as applicable, or (ii) issue one whole share of Common Stock to the holder.

                        (k)           Reservation of Common Stock. The Company shall, so long as any shares of Series D-2 Preferred Stock are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series D-2 Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series D-2 Preferred Stock then outstanding (without giving effect to the limitations set forth in Section 7 hereof).

                        (l)            Retirement of Series D-2 Preferred Stock. Conversion of Series D-2 Preferred Stock shall be deemed to have been effected on the applicable Voluntary Conversion Date or Mandatory Conversion Date. The Company shall keep written records of the conversion of the shares of Series D-2 Preferred Stock converted by each holder. A holder shall be required to deliver the original certificates representing the shares of Series D-2 Preferred Stock upon any conversion of the Series D-2 Preferred Stock represented by such certificates.

                        (m)          Regulatory Compliance. If any shares of Common Stock to be reserved for the purpose of conversion of Series D-2 Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, the Company shall, at its sole cost and expense, in good faith and as expeditiously as possible, endeavor to secure such registration, listing or approval, as the case may be.

          6.           No Preemptive or Redemption Rights. Except as provided in Section 5 hereof no holder of the Series D-2 Preferred Stock shall be entitled to rights to subscribe for, purchase or receive any part of any new or additional shares of any class, whether now or hereafter authorized, or of bonds or debentures, or other evidences of indebtedness convertible into or exchangeable for shares of any class, but all such new or additional shares of any class, or any bond, debentures or other evidences of indebtedness convertible into or exchangeable for shares, may be issued and disposed of by the Board of Directors on such terms and for such consideration (to the extent permitted by law), and to such person or persons as the Board of Directors in their absolute discretion may deem advisable. Except as provided in Section 5

neither the Company nor the holder has the right to have the Company redeem the Series D-2 Preferred Stock.

          7.           Conversion Restriction. Notwithstanding anything to the contrary set forth in Section 5 of this Certificate of Designation, at no time may a holder of shares of Series D-2 Preferred Stock convert shares of the Series D-2 Preferred Stock if the number of shares of Common Stock to be issued pursuant to such conversion would exceed, when aggregated with all other shares of Common Stock owned by such holder at such time, the number of shares of Common Stock which would result in such holder beneficially owning (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) more than 9.99% of all of the Common Stock outstanding at such time; provided, however, that upon a holder of Series D-2 Preferred Stock providing the Company with sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the “Waiver Notice”) that such holder would like to waive Section 7(a) of this Certificate of Designation with regard to any or all shares of Common Stock issuable upon conversion of Series D-2 Preferred Stock, this Section 7(a) shall be of no force or effect with regard to those shares of Series D-2 Preferred Stock referenced in the Waiver Notice.

          8.           Inability to Fully Convert.

                        (a)           Holder’s Option if Company Cannot Fully Convert. If, upon the Company’s receipt of a Conversion Notice, or on the Mandatory Conversion Date, the Company cannot issue shares of Common Stock for any reason, including, without limitation, because the Company (x) does not have a sufficient number of shares of Common Stock authorized and available or (y) is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or its securities, from issuing all of the Common Stock which is to be issued to a holder of Series D-2 Preferred Stock pursuant to a Conversion Notice or a Mandatory Conversion Notice, then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with such holder’s Conversion Notice or a Mandatory Conversion Notice and with respect to the unconverted Series D-2 Preferred Stock (the “Unconverted Preferred Stock”) the holder, solely at such holder’s option, can elect, at any time after receipt of notice from the Company that there is Unconverted Preferred Stock, to void the holder’s Conversion Notice or the Mandatory Conversion Notice as to the number of shares of Common Stock the Company is unable to issue and retain or have returned, as the case may be, the certificates for the shares of the Unconverted Preferred Stock.

          In the event a Holder shall elect to convert any shares of Series D-2 Preferred Stock as provided herein, the Company cannot refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, violation of an agreement to which such Holder is a party or for any reason whatsoever, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or any of said shares of Series D-2 Preferred Stock shall have issued.

                        (b)           Mechanics of Fulfilling Holder’s Election. The Company shall immediately send via facsimile to a holder of Series D-2 Preferred Stock, upon receipt of a facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied as described in Section 8(a) above, a notice of the Company’s inability to fully satisfy such holder’s Conversion Notice (the “Inability to Fully Convert Notice”). Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder’s Conversion Notice and (ii) the number of shares of Series D-2 Preferred Stock which cannot be converted.

                        (c)           Pro-rata Conversion. In the event the Company within a period of ten days receives Voluntary Conversion Notices from more than one holder of Series D-2 Preferred Stock and the Company can convert some, but not all, of the Series D-2 Preferred Stock required to be converted as a result of such Voluntary Conversion Notices, the Company shall convert from each holder of Series D-2 Preferred Stock electing to have Series D-2 Preferred Stock converted within such ten day period, an amount equal to the number of shares of Series D-2 Preferred Stock the Company can convert in such ten day period multiplied by a fraction, the numerator of which shall be the number of shares of Series D-2 Preferred Stock such holder elected to have converted in such ten day period and the denominator of which shall be the total number of shares of Series D-2 Preferred Stock all holders elected to have converted in such ten day period. The Company shall not convert any Series D-2 Preferred Stock pursuant to a Mandatory Conversion Notice until it shall have converted all Series D-2 Preferred Stock pursuant to any Voluntary Conversion Notice.

          9.           Vote to Change the Terms of or Issue Preferred Stock. The affirmative vote at a meeting duly called for such purpose, or the written consent without a meeting, of the holders of not less than three-fourths (3/4) of the then outstanding shares of Series D-2 Preferred Stock, shall be required for any change to this Certificate of Designation or the Company’s Certificate of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Series D-2 Preferred Stock.

          10.         Lost or Stolen Certificates. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the shares of Series D-2 Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Company and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date.

          11.         Remedies, Characterizations, Other Obligations, Breaches and InjunctiveRelief. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder’s right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation. Amounts set forth or provided for herein with respect to conversion and the like (and the computation thereof) shall be the amounts

to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Series D-2 Preferred Stock and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holders of the Series D-2 Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

          12.         Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein. This Certificate of Designation shall be deemed to be jointly drafted by the Company and all initial purchasers of the Series A Convertible Preferred Stock and Series M Warrants of the Company which is exercisable into Series D-2 Preferred Stock and shall not be construed against any person as the drafter hereof.

          13.         Failure or Indulgence Not Waiver. No failure or delay on the part of a holder of Series D-2 Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

          IN WITNESS WHEREOF, the undersigned has executed and subscribed this Amended Certificate and does affirm the foregoing as true this 14^th day of June, 2007.

ORTEC INTERNATIONAL, INC.
By:	/s/ Ron Lipstein
	Name: Ron Lipstein
	Title:    Chief Executive Officer

EXHIBIT I

ORTEC INTERNATIONAL, INC.
CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series D-2 Preferred Stock of Ortec International, Inc. (the “Certificate of Designation”). In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series D-2 Preferred Stock, par value $.001 per share (the “Preferred Shares”), of Ortec International, Inc., a Delaware corporation (the “Company”), indicated below into shares of Common Stock, par value $.001 per share (the “Common Stock”), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.

Date of Conversion:
Number of Preferred Shares to be converted:	_____
Stock certificate no(s). of Preferred Shares to be converted:                     _____
The Common Stock have been sold: YES ____  NO____
Please confirm the following information:
Conversion Rate:
Number of shares of Common Stock
to be issued:

                         Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion determined in accordance with Section 16 of the Securities Exchange Act of 1934, as amended: _________________________

Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:

Issue to:
Facsimile Number:
Authorization:
	By:
	Title:
Dated:

EX-3.2

Exhibit 3.2

BYLAWS

OF

OrtecInternationalInc.

(a Delaware corporation)

____________

ARTICLE I

STOCKHOLDERS

                    1. CERTIFICATESREPRESENTINGSTOCK. Certificates representing stock in the corporation shall be signed by, or in the name of, the corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation. Any or all the signatures on any such certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.

                    Whenever the corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, and whenever the corporation shall issue any shares of its stock as partly paid stock, the certificates representing shares of any such class or series or of any such partly paid stock shall set forth thereon the statements prescribed by the General Corporation Law. Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificate representing such shares.

                    The corporation may issue a new certificate of stock or uncertificated shares in place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Board of Directors may require the owner of the lost, stolen, or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of any such new certificate or uncertificated shares.

                    2.UNCERTIFICATEDSHARES. Subject to any conditions imposed by the General Corporation Law, the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of the stock of the corporation shall be uncertificated shares. Within a reasonable time after the issuance or transfer of any uncertificated shares, the corporation shall send to the registered owner thereof any written notice prescribed by the General Corporation Law.

                    3.FRACTIONALSHAREINTERESTS. The corporation may, but shall not be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (1) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered form (either represented by a certificate or uncertificated) or bearer form (represented by a certificate) which shall entitle the holder to receive a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share or an uncertificated fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon,and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing the full shares or uncertificated full shares before a specified date, or subject to the conditions that the shares for whichscrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose.

                    4.STOCKTRANSFERS. Upon compliance with provisions restricting the transfer or registration of transfer of shares of stock, if any, transfers or registration of transfers of shares of stock of the corporation shall be made only on the stock ledger of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and, in the case of shares represented by certificates, on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon.

                    5. RECORDDATEFORSTOCKHOLDERS. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining the stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the General Corporation Law, shall be the first date onwhicha signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the General Corporation Law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion, or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may

fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

                    6.MEANINGOFCERTAINTERMS. As used herein in respect of the right to notice of a meeting of stockholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "share of stock" or "shares of stock" or "stockholder" or "stockholders" refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the certificate of incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the certificate of incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the certificate of incorporation, except as any provision of law may otherwise require.

                    7.STOCKHOLDERMEETINGS.

                    - TIME. The annual meeting shall be held on the date and at the time fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors.

                    - PLACE. Annual meetings and special meetings shall be held at such place, within or without the State of Delaware, as the directors may, from time to time, fix. Whenever the directors shall fail to fix such place, the meeting shall be held at the registered office of the corporation in the State of Delaware.

                    - CALL. Annual meetings and special meetings may be called by the directors or by any officer instructed by the directors to call the meeting.

                    - NOTICEORWAIVEROFNOTICE. Written notice of all meetings shall be given, stating the place, date, and hour of the meeting and stating the place within the city or other municipality or community at which the list of stockholders of the corporation may be examined. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting, and shall (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. Except as otherwise provided by the General Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States Mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given t o anystockholder who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice.

                    - STOCKHOLDERLIST. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the

stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city or other municipality or community where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote at any meeting of stockholders.

                    - CONDUCTOFMEETING. Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the Chairman of the meeting shall appoint a secretary of the meeting.

                    - PROXYREPRESENTATION. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally.

                    - INSPECTORS. The directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspectors at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots, or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots, or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question, or matter determined by him or them and execute a certificate of any fact found by him or them.

                    - QUORUM. The holders of a majority of the outstanding shares of stock shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum.

                    - VOTING. Each share of stock shall entitle the holders thereof to one vote. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Any other action shall be authorized by a majority of the votes cast except where the General Corporation Law prescribes a different percentage of votes and/or a different exercise of voting power, and except as may be otherwise prescribed by the provisions of the certificate of incorporation and these Bylaws. In the election of directors, and for any other action, voting need not be by ballot.

                    8. STOCKHOLDERACTIONWITHOUTMEETINGS. Any action required by the General Corporation Law to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Action taken pursuant to this paragraph shall be subject to the provisions of Section 228 of the General Corporation Law.

ARTICLEII

DIRECTORS

                    1.FUNCTIONSANDDEFINITION. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors of the corporation. The Board of Directors shall have the authority to fix the compensation of the members thereof. The use of the phrase "whole board" herein refers to the total number of directors which the corporation would have if there were no vacancies.

                    2.QUALIFICATIONSANDNUMBER. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The initial Board of Directors shall consist of one person. Thereafter the number of directors constituting the whole board shall be at least one. Subject to the foregoing limitation and except for the first Board of Directors, such number may be fixed from time to time by action of the stockholders or of the directors, or, if the number is not fixed, the number shall be one. The number of directors may be increased or decreased by action of the stockholders or of the directors.

                    3.ELECTIONANDTERM. The first Board of Directors, unless the members thereof shall have been named in the certificate of incorporation, shall be elected by the incorporator or incorporators and shall hold office until the first annual meeting of

stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon written notice to the corporation. Thereafter, directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Except as the General Corporation Law may otherwise require, in the interim between annual meetings of stockholders or of special meetings of stockholders called for the election of directors and/or for the removal of one or more directors and for the filling of any vacancy in that connection, newly created directorships and any vacancies in the Board of Directors, including unfilled vacancies resulting from the removal of directors for cause or without cause, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director.

                    4.MEETINGS.

                    - TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble.

                    - PLACE. Meetings shall be held at such place within or without the State of Delaware as shall be fixed by the Board.

                    - CALL. No call shall be required for regular meetings for which the time and place have been fixed. Special meetings may be called by or at the direction of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of the President, or of a majority of the directors in office.

                    - NOTICEORACTUALORCONSTRUCTIVEWAIVER. No notice shallbe required for regular meetings for which the time and place have been fixed. Written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting,

except when he attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice.

                    - QUORUMANDACTION. A majority of the whole Board shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided, that such majority shall constitute at least one-third of the whole Board. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the General Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the General Corporation Law and these Bylaws which govern a meeting of directors held to fill vacancies and newly created directorships in the Board or action of disinterested directors.

                    Any member or members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of the Board, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.

                    - CHAIRMANOFTHEMEETING. The Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the Board, shall preside.

                    5.REMOVALOFDIRECTORS. Except as may otherwise be provided by the General Corporation Law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

                    6.COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of any such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the corporation with the exception of any authority the delegation of which is prohibited by Section 141 of the General Corporation Law, and may authorize the seal of the corporation to be affixed to all papers which may require it.

                    7.WRITTENACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

ARTICLEIII

OFFICERS

                    The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive Vice-President, one or more other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers with such titles as the resolution of the Board of Directors choosing them shall designate. Except as may otherwise be provided in the resolution of the Board of Directors choosing him, no officer other than the Chairman or Vice-Chairman of the Board, if any, need be a director. Any number of offices may be held by the same person, as the directors may determine.

                    Unless otherwise provided in the resolution choosing him, each officer shall be chosen fora term which shall continue until the meeting of the Board of Directors following the next annual meeting of stockholders and until his successor shall have been chosen and qualified.

                    All officers of the corporation shall have such authority and perform such duties in the management and operation of the corporation as shall be prescribed in the resolutions of the Board of Directors designating and choosing such officers and prescribing their authority and duties, and shall have such additional authority and duties as are incident to their office except to the extent that such resolutions may be inconsistent therewith. The Secretary or an Assistant Secretary of the corporation shall record all of the proceedings of all meetings and actions in writing of stockholders, directors, and committees of directors, and shall exercise such additional authority and perform such additional duties as the Board shall assign to him. Any officer may be removed, with or without cause, by the Board of Directors. Any vacancy in any office may be filled by the Board of Directors.

ARTICLEIV

CORPORATESEAL

                    The corporate seal shall be in such form as the Board of Directors shall prescribe.

ARTICLEV

FISCALYEAR

                    The fiscal year of the corporation shall be fixed, and shall be subject to change, by the Board of Directors.

ARTICLEVI

CONTROLOVERBYLAWS

                    Subject to the provisions of the certificate of incorporation and the provisions of the General Corporation Law, the power to amend, alter, or repeal these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors or by the stockholders.

                    I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of the Bylaws of Ortec International Inc., a Delaware corporation, as in effect on the date hereof.

Dated: March 12, 1991

/s/ Ron Lipstein
Secretary of
Ortec International Inc.

(SEAL)

EX-31.1

EXHIBIT 31.1          

CERTIFICATION

I, Costa Papastephanou, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Ortec International, 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 quarterly 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 small business issuer as of, and for, the periods presented in this quarterly report;
4. The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the small business issuer and we 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 small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and
5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):
	(a)	A1l significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’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 small business issuer’s internal controls over financial reporting.

Date: July 3, 2007
	/s/ Costa Papastephanou
	Costa Papastephanou
	Principal Executive Officer

EX-31.2

EXHIBIT 31.2         

CERTIFICATION

I, Alan W. Schoenbart, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Ortec International, 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 quarterly 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 small business issuer as of, and for, the periods presented in this quarterly report;
4. The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the small business issuer and we 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 small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and
5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’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 small business issuer’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 small business issuer’s internal controls over financial reporting.

Date: July 3, 2007
	/s/ Alan W. Schoenbart
	Alan W. Schoenbart
	Principal Financial and Accounting Officer

EX-32.1

EXHIBIT 32.1          

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Ortec International, Inc. (“Ortec”), hereby certifies that Ortec’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ortec.

Dated: July 3, 2007

/s/ Costa Papastephanou

Costa Papastephanou

Principal Executive Officer

EX-32.2

EXHIBIT 32.2          

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Ortec International, Inc. (“Ortec”), hereby certifies that Ortec’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ortec.

Dated: July 3, 2007

/s/ Alan W. Schoenbart

Alan W. Schoenbart

Principal Financial Officer