SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended February 28, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________to ________________
Commission File No. 33-51218
MEDISCIENCE TECHNOLOGY CORP.
(Name of Small Business Issuer in its Charter)
New Jersey 22-1937826
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1235 Folkestone Way, Cherry Hill, New Jersey 08034
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (609) 428-7952
None
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Securities registered under Section 12(b) of the Exchange Act:
Common Stock, par value S.01 per Share
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Securities registered under Section 12(g) of the Exchange Act:
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X].
<PAGE>
The Registrant did not have any sales, and had interest income of $62,475,
during its fiscal year ended February 28, 1997.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of June 13, 1997, was: $15,807,384.
The numbers of shares outstanding of each of the registrant's classes of stock,
as of June 13, 1997, were:
Title of Each Class Number of Shares Outstanding
------------------- ----------------------------
Common Stock, par value $.01 34,933,618
per share
Preferred Stock, par value $.01 2,074
per share
<PAGE>
MEDISCIENCE TECHNOLOGY CORP.
ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
PART 1
Item 1. Description of Business
Item 2. Description of Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market For Common Equity and Related Shareholder Matters
Item 6. Management's Discussion and Analysis of Plan of Operation
Item 7. Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets- February 28, 1997, and
February 29, 1996
Consolidated Statements of Operations for the years ended
February 28, 1997, February 29, 1996 and February 28, 1995
Consolidated Statement of Stockholders' Equity for the years ended
February 28, 1997, February 29, 1996 and February 28, 1995
Consolidated Statements of Cash Flows for the years ended
February 28, 1997, February 29, 1996 and February 28, 1995
Notes to Consolidated Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits, List and Reports on Form 8-K
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
This Annual Report on Form 10-KSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Actual events or results may
differ materially from those projected in the forward-looking statements as a
result of the factors described herein. Such forward-looking statements include,
but are not limited to, statements concerning business strategy, development and
introduction of new products, research and development, marketing, sales and
distribution, manufacturing, competition, third-party reimbursement, government
regulation (including, but not limited to, FDA requirements), continued clinical
trial relationships and operating and capital requirements.
Mediscience Technology Corp. (the "Company") designs and develops
proprietary diagnostic medical devices that detect cancer using light induced
native tissue fluorescence and Raman spectroscopy to distinguish between
malignant and normal or benign tissue. Animal and human tissue contain molecules
that emit and scatter naturally when excited by light at certain wavelengths.
Since the molecular makeup of tissue changes as it becomes cancerous, the
Company's medical devices are able to detect a shift in the resulting native
tissue fluorescence and Raman spectra allowing them to distinguish between
normal or benign tissue and cancerous tissue. The Company also is developing
optical imaging technology to non-invasively detect and characterize deeply
embedded lesions such as breast, prostate and brain tumors using ultrafast time
resolved methods.
Background
On December 1, 1988 the Company acquired from Professor Robert R.
Alfano all the outstanding stock of Laser Diagnostic Instruments, Inc. ("LDI"),
which is presently a wholly-owned subsidiary of the Company. The principal asset
of LDI was the ownership of all rights, title and interest in a patent
application entitled "Method and Apparatus for Detecting Cancerous Tissue Using
Visible Luminescence", which was subsequently granted as patent number 4,930,516
by the U.S. Patent and Trademark Office on June 5, 1990. The research and
development activities of the Company are the subject of this patent and other
patents subsequently applied for or granted to the Company, acquired by the
Company or exclusively licensed to the Company. The Company has successfully
conducted laboratory and other pre-clinical testing all of which continues to
support the Company's belief that its proprietary native tissue fluorescence and
Raman spectrum cancer detection technology ("its Technology"), when fully
developed, will be useful in the screening and or diagnosis of cancer.
Management believes that its Technology, if successfully developed, will have
substantial commercial appeal due to its non-invasive character, its delivery of
immediate, real-time results, its diagnostic sensitivity and its appeal to
physicians who can generate additional office revenues that currently accrue to
an off site pathology laboratory. On January 6, 1997, the Company received FDA
approval of its Investigational Device Exemption to initiate phase II clinical
trials with its CD Scan medical device for early stage detection of cancer. (See
"Government Regulation (FDA Matters)" below).
<PAGE>
Strategy
The Company's strategy is to develop one or more products for the
non-invasive or minimally-invasive diagnosis of specific types of cancer which
it ultimately plans to market worldwide either directly for its own account or
in various types of partnering or licensing arrangements with other firms. The
United States will be the principal direct focus of the Company while
international markets are expected to be addressed via partnering or licensing
arrangements with other companies.
The Company believes its Technology will have rather broad application
utility in cancer diagnosis, however, each approved labeled indication is
expected to require separate premarketing approval (a "PMA"), which will be both
time-consuming and costly. The Company therefore plans to carefully select and
prioritize its targeted diagnostic applications to insure the best possible
payback on its product and clinical development investments.
The Company has successfully conducted pre-clinical in vitro
investigations with tissue removed from the upper aerodigestive tract, the
cervix, the breast and the colon. A human clinical in vivo feasibility study was
successfully completed for the upper aerodigestive tract and additional human
clinical in vivo feasibility studies are scheduled for the breast and esophagus.
Other possible application opportunities will be evaluated during 1997 and
pre-clinical in vitro evaluations are expected to be undertaken for the more
promising opportunities before moving on to human in vivo clinical studies.
The Products
The Company has developed three prototype products that employ its
Technology for cancer diagnosis. They include Cancer Detection ("CD") Scan, CD
Ratiometer and CD Map. These devices use lamp light to provide a broad spectrum
of safe, scanning excitation light wavelengths to insure that the appropriate
target tissue molecules are sufficiently fluoresced to provide maximum
diagnostic sensitivity. A fiberoptic probe is attached to each of the Company's
devices which is used to transmit the optical excitation signal and to receive
the native fluorescent response. The CD instruments are believed to have a great
deal of versatility and a broad range of potential alternative application
depending on the preferred configuration of the fiberoptic probe. For example,
the fiberoptic probe can be configured as a convenient hand held probe for
easy-to-access areas such as the oral cavity or the skin surface, or the optical
fiber can be fed down the working channel of a rigid or flexible endoscope for
assessment of the upper or lower GI tract, or the optical fiber can be inserted
into a cytoscope for urinary tract exploration, or a colposcope for
gynecological evaluation or a laparoscope for evaluation of internal organs, and
even through a core biopsy needle, to optically assess breast tumors or for
optical assessment of other deep tissue tumors, such as sometimes occur in the
pancreas, liver or prostate.
The CD Scan product prototype is oriented toward medical research. It
is designed to provide optical scanning capability of a broad spectrum of
optical wavelengths for evaluation of tissue. The Company uses the CD Scan
whenever possible to help define the critical scanning and emission wavelengths
for its two other prototype products. CD Ratiometer on the other hand is being
designed as a simple, compact instrument with user friendly features and
characteristics. It is designed to optically assess the scanned tissue only at
pre-established optical wavelengths and report out essentially a yes, no or
<PAGE>
maybe result on a computer screen, instantaneously. CD Ratiometer with its
anticipated assortment of probe designs is expected to be the preferred product
for medical practitioners to use in the office or clinical setting. CD Map is a
vision instrument that is being designed to optically assess an area of tissue
rather than selective individual points. Although it is at an earlier stage of
design than either CD Scan or CD Ratiometer, it is expected to report out
results similar to the CD Ratiometer but in pseudocolored graphics (a "map") on
a computer screen distinguishing the normal areas from cancerous areas via color
differentiation. CD Map, if it can be successfully developed, is expected to be
especially useful in assisting cancer surgeons in defining the surgical margins
of tumors, real time, during cancer surgery without the use of extrinsic dyes,
drugs or other invasive agents.
Research and Product Development
The potential utility of native tissue fluorescence spectroscopy for in
vivo cancer detection in humans was first discovered by Professor Robert R.
Alfano, Distinguished Professor of Physics and Engineering at the City College
of the City University of New York ("CUNY") in the early 1980's. Subsequent to
acquisition by the Company of LDI from Dr. Alfano in 1988, the Company retained
Dr. Alfano as a consultant to advise and assist the Company to develop its
Technology. Shortly thereafter, the Company also developed a research agreement
with the Research Foundation of CUNY to provide research and development
services to the Company. In 1992, the Company, CUNY, and the Research Foundation
of CUNY established the Mediphotonics Laboratory ("MPL") at the City College of
New York which currently provides research and development services to the
Company. (See "Research Arrangements with the City University of New York").
The staff of the MPL, which is supervised by Dr. Alfano, developed the
Company's current prototype CD devices. It has also conducted in vitro
pre-clinical testing of various human tissue types such as breast, cervical,
colon and the upper aerodigestive tract, to develop the preferred optical
scanning and emission wavelengths that yield the most definitive information
about the native fluorescent characteristics of specific scanned tissue. The
insight gained from this work has been the principal source of knowledge for the
subsequently issued and pending patents for which the Company either owns
outright or possesses a world wide exclusive license. The information gleaned
from this work was also the source for a number of scientific papers published
in peer-reviewed journals and for presentations made at scientific symposia.
This in vitro pre clinical research and development work also provided the
starting basis for the optical scanning parameters for the Company's in vivo
human clinical studies.
Clinical Development
The Company's CD products are designed primarily to be used directly on
human patients in vivo. Part of the process of product development and FDA
approval (see "Government Regulation (FDA Matters)") is the development of
sufficiently compelling clinical evidence to demonstrate safety and
effectiveness of one or more of the Company's prototype CD products for each
intended diagnostic application ( labeled or intended use ). Because of the
anticipated clinical utility of the Company's Technology and prototype CD
products, the Company has been able to develop important collaborative
relationships with some of the most highly regarded cancer research hospitals in
the United States to assist it in the clinical evaluation of its prototype CD
products. These institutions include Memorial Sloan-Kettering, Columbia
Presbyterian Hospital and the New York Hospital (Cornell Medical Center), each
of New York, and Massachusetts General Hospital (Harvard Medical School) in
Boston.
<PAGE>
The Phase I clinical feasibility study of the upper aerodigestive tract
was carried out at Memorial Sloan-Kettering under the Principle Investigation of
Stimson P. Schantz, M.D., Associate Professor of Surgery and Director of Cancer
Prevention. It was established in this study that the Company's CD Scan
prototype product is able to distinguish between cancerous and normal tissue in
the oral cavity using its Technology. A phase II clinical study in the upper
aerodigestive tract is scheduled to begin shortly.
At least two other clinical studies are also scheduled to begin during
1997. One such clinical study is focused on diagnosis of breast cancer using the
Company's second prototype product, CD Ratiometer. This clinical study will be
conducted at Massachusetts General Hospital under the Principle Investigation of
Daniel B. Kopans, M.D., Associate Professor of Radiology, Harvard Medical School
and Section Head, Breast Imaging, Massachusetts General Hospital, to determine
whether the Company's Technology can optically distinguish on a real-time basis
between cancerous and benign breast tumors in vivo by passing a specially
designed optical fiber, attached to the CD Ratiometer, through a core biopsy
needle placed to within one millimeter of the tumor by stereotactic x-ray
guidance. If the technique ultimately proves successful, it will offer the
potential to further reduce the frequency of the highly-invasive practice of
open surgical biopsy currently employed while providing additional valuable
cancer staging information to the radiologist when the tumor is cancerous. The
clinical feasibility study will be sponsored by the Company and will be
partially funded by the United States Army Medical Research Acquisition
Activity. If successful, this phase I clinical feasibility study should provide
the basis for additional clinical investigation to establish the safety and
effectiveness of CD Ratiometer in providing minimally-invasive, real time, in
vivo diagnosis of breast tumors. The second, planned, phase I clinical
feasibility study will be done at New York Hospital's Cornell Medical Center to
assess the potential utility of the Company's CD Ratiometer with fiberoptic
probe adapted to a flexible endoscope furnished by Pentax Precision Instrument
Corporation for monitoring Barrett's Esophagus. The clinical trial agreement was
executed on April 24, 1997. Barrett's Esophagus is a malady that is thought to
be a possible precursor to esophageal cancer in certain people. Barrett's
patients are routinely monitored because of the heightened risk that a small
proportion of them is predisposed toward the development of esophageal cancer.
The current medical practice requires that multiple excisional biopsies be taken
during regularly scheduled follow-up appointments (typically annually) to
monitor the progression of the disease. The practice is painful, costly and
probably unnecessary in the majority of the Barrett's suffering population but
the current state of medical practice does not provide sufficient molecular
information to distinguish between the high risk group and the lower risk group.
It is hoped that endoscopic application of the Company's Technology will provide
gastroenterologists with the ability to better assess the condition of Barrett's
tissue in the esophagus without the need for the painful multiple excisional
biopsies. It is also hoped that this additional molecular information will
provide the ability to assess the relative risk of Barrett's patients toward the
development of esophageal cancer allowing gastroenterologists to establish
individual patient monitoring schedules appropriate to their relative level of
perceived risk.
Business Development and Marketing
More than 1,200,000 new cancer cases are diagnosed annually in the
United States according to the American Cancer Society. It is estimated by Theta
Corporation, a market research firm, that as many as 85 million people currently
alive in the United States, nearly one third of the population, will develop
<PAGE>
cancer during their lifetimes. Cancer care and treatment is estimated to cost
$104 billion annually, $35 billion of which is estimated to be the direct cost
of the disease. Cancer therapy has progressed rapidly in recent years but the
axiom that early diagnosis is still critical for successful treatment for the
majority of cancer types still remains true.
Although several cancer screening techniques have been developed to
provide early indication of various types of cancer in humans, such as,
mammography for breast cancer, PAP tests for cervical cancer, PSA tests for
prostate cancer and chest x-rays for lung cancer, excisional biopsy is still the
"gold standard" for making a definitive cancer diagnosis and for cancer staging,
i.e., determining the extent of the progression of the disease prior to mapping
out the most appropriate course of therapy.
The excisional biopsy, however, often requires a significant amount of
surgical intervention to collect an adequate tissue sample to make a proper
diagnosis and staging determination. The process can sometimes expose the
patient to unnecessary risks, lengthy hospital stays, long recovery times, pain
and discomfort and significant health care expense. The Company's Technology is
believed to offer the potential of a less physically invasive method to diagnose
and stage a variety of cancers without the excessive costs and potentially
debilitating effects of the excisional biopsy. The most widely practiced
technique for definitive diagnosis of breast cancer, the leading cause of death
among American women between the ages of 40 and 55, is open surgical biopsy (a
specific type of excisional biopsy) which is done under a general anesthetic and
typically results in surgical excision of a golf ball-sized mass of breast
tissue. About 800,000 such procedures are performed annually in the United
States at an estimated annual cost of between $2 billion and $4 billion. If the
Company can successfully adapt its technology to diagnose and stage breast
cancers, it believes it will save up to half the current cost, eliminate a
significant amount of patient discomfort for those patients determined to have
cancer and eliminate most of the trauma for the 70% to 80% of the patients who
are found not to have cancer.
The Company believes that its Technology and one or more of its
prototype CD products will potentially be useful in diagnosis and staging for
more than half of the various types of cancers. In addition to the pre-clinical
and clinical evaluations currently on the docket or already completed, i.e.,
upper aerodigestive tract, breast and esophagus, the Company is in the process
of creating a prioritized list of other potential applications that it will then
evaluate on a pre-clinical basis and, if successful, it contemplates progressing
to the clinical evaluation phase and on to the premarket approval ("PMA")
application phase.
The Company plans to develop certain of its CD products for diagnostic
applications, (sometimes referred to as "labeled indications"), that it will
ultimately market for its own account in the United States. In addition, the
Company also plans to co-develop one or more of its prototype CD products for
specific cancer diagnostic applications with one or more selected other
companies. The Company has nurtured relationships with a small number of highly
qualified other companies who have expressed interest in working with the
Company to co-develop one or more of the Company's existing prototype products
or possibly variations thereof in exchange for certain as yet undetermined
rights to commercially exploit a finished approved product in the marketplace.
<PAGE>
The Company has in the past and continues presently to encourage these
possible collaborations especially with firms that have strong existing
franchises in certain specialized fields of diagnosis and treatment and who have
established reputations with prospective purchasers of diagnostic products and
who have proven selling, marketing and distribution capabilities. A select
number of these kinds of relationships, if the Company is successful in
fostering them, are expected to add value to the Company by stretching and
leveraging the Company's financial resource base with development and licensing
revenues that the Company can then use to help fund the development of its own
products.
The Company also believes that a market for its CD products will exist
in the European Union and possibly in Asia. The Company contemplates making a
concerted effort to identify one or more possible licensees to help develop its
products or variations thereof for the key markets of the European Union during
1997. It will also make a preliminary investigation of the potential for utility
of its products in Asia and if the findings are positive, will develop a
strategy for exploiting its technology and products in that region as well.
Manufacturing
The Company's prototype products have been assembled to date by the
staff of the MPL at the City College of New York from components that are
generally readily available from one or more sources in the marketplace. The
Company contemplates continuing with this approach until the quantity of devices
projected to be required makes it appropriate and necessary to set up a contract
manufacturer to assemble its products. Although additional design improvements
will likely be required to refine the current prototype products for commercial
use it is still believed that the key components will be available from one or
more suppliers. The Company executed a lease agreement, dated January 19, 1997,
with City College providing for 900 square feet of space as an "incubator" in
which prototypes of the products will be designed and assembled by MPL staff
working in concert with personnel from an engineering design firm engaged by the
Company.
The Company plans to outsource the manufacture and assembly of its
medical device products to contract manufacturers when it is no longer feasible
for the MPL to perform that service. The Company's contract manufacturer(s) will
be selected from a list of highly qualified companies who are familiar with the
regulatory requirements of the FDA for the manufacture of medical devices, who
are registered with and in good standing with the FDA and who employ current
Good Manufacturing Practices ("GMP") in accordance with FDA guidelines. Pepco
Manufacturing Company ("Pepco") of Somerdale, New Jersey, which is owned by John
M. Kennedy, an officer, director and a principal stockholder of the Company, has
been granted a right of first refusal to manufacture the Company's products on
terms and conditions no less favorable to the Company than those offered by
other qualified manufacturers. It is believed that Pepco is currently or can
become qualified to manufacture the Company's products. In the event of an
opportunity for a business arrangement with a major marketing co-developer
involving manufacture as well, Pepco has consented to relinquish its right of
first refusal in the best interests of the Company.
<PAGE>
Research Arrangements with the City University of New York
In June 1992, the Company and the Research Foundation of CUNY
established the MPL at the Institute of Ultrafast Spectroscopy and Lasers
("IUSL") at the City College of New York. Dr. Robert Alfano, Distinguished
Professor of Physics and Engineering at City College and the Director of the
IUSL, is also responsible for supervising the operations of the MPL. The IUSL
includes approximately 60 scientists of which about 20 hold Ph.D.'s, 9 hold
various other graduate degrees and about 30 are graduate students from which the
MPL draws its research talent and expertise. The Company provides a funding
grant to the MPL annually in accordance with a budget of activities and
expenditures negotiated between the Company, CCNY and the Research Foundation of
CUNY. The arrangement is renewable annually and may be terminated without cause
by either party upon 90 days notice prior to June first of each year. The
Company agreed to grant funds amounting to $431,017 for the 1996/1997 budgetary
year. In comparison, the Company provided funding of $242,948 and $245,750 for
the budgetary years ending on May 31, 1996 and May 31, 1995 respectively.
The objective of the MPL is to research the use of light and ultrafast
laser technology for cancer diagnosis and therapeutic purposes. The major
projects of the MPL have been the development of the Company's prototype
products, CD Scan, CD Ratiometer and CD Map, including the enhancement of
fiberoptic attachments to enable the devices to be used with various types of
endoscopes and core biopsy needles. The MPL has additionally conducted in vitro
pre clinical evaluation of various tissues to determine the most appropriate
excitation and emission wavelengths for use with the device for different types
of human tissue and cancers, assembled the prototype CD products for use in vivo
for human clinical trials and created the algorithms and computer software
necessary for the accurate performance of the instruments.
Prior to the current arrangement, the Company and the Research
Foundation of CUNY on behalf of the City College of New York worked together
under a Research Agreement pursuant to which the Company and the City College of
New York jointly sponsored the research and development of a cancer detection
apparatus using visible luminescence. The results of such research includes the
development of the proprietary rights that are subjects of several of the
Company's patents and the development of some of the Company's prototype
products. The Research Agreement provided that all patent rights or any CD
inventions conceived or discovered during its term vest in the Company, subject
to a royalty payable to the Research Foundation of CUNY of 5% of the sales of
products resulting from any of the inventions. Beginning in 1992 in concert with
the formation of the MPL, new inventions and patentable discoveries were
assigned to the Research Foundation of CUNY and the Company was (or will be)
granted an exclusive worldwide license to exploit the inventions. The royalty
rate was reduced to 3.5% of the sales of products resulting from patented
inventions conceived or discovered subsequent to June 1, 1992. In the event the
Company has not made any lawful sale of any products or sublicensed any patents
at or above reasonable market price within five years from the date of patent
application, the Company has agreed to negotiate a minimum royalty or return all
rights with respect thereto to the Research Foundation of CUNY. The Research
Foundation of CUNY owns all copyright and publication rights to the results of
the research, subject to the Company's right to produce, translate and use all
materials copyrighted by the Research Foundation of CUNY for the Company's own
purposes on a royalty free, non-transferable and non-exclusive basis.
<PAGE>
In 1994, the Company became a consortium industrial partner in the CUNY
Center for Advanced Technology in Ultrafast Photonic Materials and Applications
(the "CAT"). The participation fee paid was $25,000. The Company's membership in
the CAT has brought it into contact with other members of the New York State CAT
consortium partners and has facilitated its participation in several SBIR and
NIST proposals. On May 1, 1997, the Company confirmed its continuing commitment
to the CAT at the same participation level of $25,000 per annum for 1996 and
1997.
Competition
Cancer screening and diagnosis is a subject of intense current research
and development activity. Medical practitioners, health care payors, other
diagnostic medical device companies and patients are all searching for less
invasive, lower cost and more effective ways for early stage diagnoses of
cancer. The Company's native tissue fluorescence spectroscopy technology is an
emerging field of medical diagnostics.
Xillix Corporation, British Columbia, Canada, is the only competitor of
which the Company is aware with a commercial light-based product. Xillix
received premarket approval from the FDA in September 1996 for its LIFE-Lung
Fluorescence Endoscopy System according to public disclosures made by the
company. Xillix in association with Olympus of Japan has developed a laser
induced fluorescence spectroscopy device for use with a Bronchoscope for early
detection of lung cancer. Xillix and Olympus are also developing the LIFE-GI
Fluorescence Endoscopy System for the gastrointestinal tract.
LifeSpex, Inc, Houston, Texas, is also working in the field using laser
induced fluorescence spectroscopy to develop an optical screening device for
early detection of cervical cancer in vivo. LifeSpex has a relationship with the
University of Texas and the MD Anderson Cancer Treatment Hospital that appears
similar to the relationship that the Company has with the Research Foundation of
CUNY.
The Company is also aware of other technologies that may compete for
cancer diagnostic business. In breast cancer diagnosis alone, there are at least
three other technologies vying for clinical and commercial superiority. Advanced
Technology Laboratories, Bothell, Washington, recently received FDA approval for
the use of one of its ultrasound medical devices for diagnosis of certain breast
lesions. Biofield, Roswell, Georgia, a development stage company, is researching
and developing products that measure the cellular electrical charge distribution
to detect epithelial cancers and is currently conducting clinical trials
targeted to diagnose breast cancers using its new technology. Biopsys, Irvine,
California, has developed and recently received FDA approval for a new core
biopsy gun as an improvement to the original core needle for less invasive
breast cancer biopsy.
The main established competitor technology to both the Company and its
existing and potential new technology competitors, however, is the traditional
excisional biopsy. It is entrenched, trusted and effective. However, it suffers
from many deficiencies that the Company's Technology and prototype CD products
are designed to address. These deficiencies include, among others, [1] it is
physically invasive, [2] there is generally a lapse of one or more days between
taking the excisional sample and receiving the pathology results, [3] there is
risk of human error in accurately reading the pathology slides and [4] there is
risk of mislabeling or mishandling the samples as they are transferred from the
physician's office to the external pathology laboratory. Excisional biopsy can
also be extremely costly, especially if an operating room setting and general
anesthesia is required, and the Company's patient recovery time is often
prolonged due to the healing process related to the excisional biopsy.
<PAGE>
The Company believes its technology has certain advantages over that of
other developers of fluorescence techniques described above. Broad band xenon
lamp, not laser, is used as the excitation source. Laser energy, which is far
more expensive, is not needed. More importantly, a laser can only interrogate
tissue at a single wavelength. To improve both the Sensitivity and Specificity
of the method it is necessary to use several wavelengths to derive information
from several key fluorescent molecules. In the Company method, scans or ratios
are taken both by holding the excitation wavelength constant with the emission
wavelength as the variable and by reversing the constant and variable. With this
technique, the Company believes its Technology is further advanced than its
direct competitors' and that its proprietary rights are protected by its
patents. However, the competition from both new firms offering potential new
methods of cancer diagnosis and from established firms already in the business
is expected to be intense. Many of the competing firms have greater resources
than the Company including financial resources, more employees, larger research
staffs and more experience in the cancer diagnosis field. There can be no
assurances that the Company's Technology, even if successfully developed, will
be commercially accepted in the marketplace.
Government Regulation (FDA Matters)
The FDA classifies medical devices into one of three classes, Class I,
II or III. This classification is based on the controls deemed necessary by the
FDA to reasonably ensure the safety and effectiveness of the device. Class I
devices are those whose safety and effectiveness can reasonably be ensured
through the use of general controls, such as labeling, adherence to GMP
requirements and the "510-(k)" process of marketing pre-notification. Class II
devices are those whose safety and effectiveness can reasonably be ensured
through implementation of general and special controls, such as performance
standards, postmarket surveillance, patient registries, and FDA guidelines.
Class III devices are those devices that must receive premarket approval ("PMA")
to insure their safety and effectiveness. They are generally life-sustaining,
life-supporting, or implantable devices, and also include devices that are not
substantially equivalent to a legally marketed Class I or II device or to a
Class III device first marketed prior to May 28, 1976 for which a PMA has not
yet been requested by the FDA.
The Company believes that clinical applications of its native tissue
fluorescence spectroscopy devices (CD Scan, CD Ratiometer and CD Map) are Class
III medical devices because they lack substantial equivalency to a legally
marketed Class I or II device or a pre-1976 Class III device. Because of this
classification, the Company does not qualify for the 510-(k) process (market
pre-notification) of regulatory compliance but instead is obliged to submit a
full PMA to the FDA for its careful review and, hopefully, approval. Laboratory
versions of its native tissue fluorescence spectroscopy devices for non-clinical
in vitro applications may face a less lengthy approval process.
FDA review and approval of PMA Applications usually takes from 12 to 24
months after they are submitted and considered "complete" (meaning that they are
sufficiently in compliance with filing requirements that the FDA will
substantively review the application) but sometimes can take longer and on rare
occasions can take less time. Additional delay often results from insufficient
clinical data to satisfactorily prove safety and effectiveness for the proposed
intended use of the device and it is not unusual for an applicant to be required
to produce additional data to satisfy an objection raised by the FDA in its
review process prior to granting a PMA.
<PAGE>
Although Management of the Company believes that its cancer diagnostic
products will ultimately be approved, there is no assurance the FDA will act
favorably or quickly in making such reviews and approving its products for sale.
Delays or unanticipated costs may be encountered by the Company in its efforts
to secure governmental approvals or licenses, which could delay or possibly
preclude the Company from marketing its CD products.
To the extent the Company intends to market it CD products in foreign
markets it will be subject to foreign governmental regulations with respect to
the manufacture and sale of its medical device products. The Company cannot
accurately estimate the cost and time that will be required in order to comply
with such regulations.
Patents and Proprietary Rights
The medical device industry places considerable importance on obtaining
patent protection and protecting trade secrets for new technologies, products
and processes because of the substantial length of time and expense associated
with bringing new products through development and regulatory approval to the
marketplace. Accordingly, the Company or the Research Foundation of CUNY files
patent applications to protect technologies that the Company believes are
significant to the development of the Company's business. The Company either
owns or holds exclusive licenses to 14 U.S. patents and has rights to
exclusively license U.S. pending patents of which 24 are in the US and (1) is in
Japan. There can be no assurance, however, that the pending patent applications
will ultimately issue as patents, or if patents do issue, that the claims will
be sufficiently broad to protect what the Company believes to be its proprietary
rights. In addition, there can be no assurance that issued patents or pending
patent applications will not be challenged or circumvented by competitors, or
that the rights granted thereunder will provide competitive advantage to the
Company.
The Company also relies on trade secrets and know how that it seeks to
protect, in part, through the use of confidentiality agreements. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets and know
how will not otherwise become known to or independently developed by
competitors.
Third Party Reimbursement
If the Company is successful in developing its cancer diagnostic
Technology and one or more medical devices that are used by health care
providers for diagnostic testing for which the providers may seek reimbursement
from third-party payors, principally, in the United States, Medicare, Medicaid
and private health insurance plans, and in many other countries, typically
national government sponsored health and welfare plans, such reimbursement will
be subject to the regulations and policies of governmental agencies and other
third-party payors. Reduced governmental expenditures in the United States and
in many other countries continue to put pressure on diagnostic procedure
reimbursement. The Company cannot predict what if any changes may be forthcoming
in these policies and procedures, nor the effect of such changes on the
Company's business potential.
<PAGE>
Other Technologies and Other Applications
The Company, in addition to its developments in native tissue
fluorescence spectroscopy has also invented certain other potentially useful
diagnostic optical imaging technology. The optical imaging technology uses laser
light to image dense tissues by capturing the early photons of light shown
through the imaged tissue and gating off the scattered, later arriving light,
which reduces the interference and results in clearer images than can
traditionally be seen using currently available optical imaging technologies,
such as, computed tomography scanning or x-rays or mammograms. In 1994 the
Company and the General Electric Company ("GE") acting on behalf of its
Corporate Research and Development component signed a five year non-exclusive
Collaborative Research Agreement to explore potential uses of the Company's
optical imaging technology. (See "Subsequent Events" below).
The objective of the collaboration is to develop optical mammography
(and optical tomography) systems for clinical trials and eventual
commercialization. Optical mammography, for example, is an extension and
refinement of the technique of diaphanography that involves illuminating the
breast with bright light in order to search for indication of pathology in the
observed transillumination pattern. Strong scattering of light by tissues,
however, severely deteriorates the image and limits the use of diaphanography as
a screening procedure. So, a major thrust of the optical mammography research is
to devise methods to eliminate the scattered light so that a precise image of
the breast image may be formed. The aim of the proposed research is to evaluate
and test the system components, source and detector geometries, grating methods
for scattered light rejection, image acquisition, enhancement, and analysis
hardware and algorithms, and methods for medical diagnosis of images so that
design parameters for the optimal system may be specified.
The impetus for developing a breast cancer screening system that uses
optical radiation stems both from safety concerns as well as from a desire to
overcome some of the limitations of the current "gold standard", the x-ray
mammography. Because of the exposure to cumulative ionization radiation doses,
the use of x-ray mammography as a routine screening tool is potentially
hazardous. X-ray mammography cannot distinguish between malignant and cystic
tumors in general. The ability of the method to detect small tumors is
problematic, especially for dense young breasts. Optical mammography has
demonstrated advantages in these respects. First, optical radiation is
non-invasive and non-ionizing. Second, cystic lesions show up as regions of
increased brightness, while malignant tumors appear as dark regions in
transilluminated image, and, hence, may be distinguished. Third, there is
particular promise for use with the younger age group because differential
spectroscopic techniques will be incorporated that can emphasize diagnostic
structures over the fibrous background.
Subsequent Events
On April 21, 1997, the Company announced the contracting of a joint
collaboration with GE and the Research Foundation of CUNY to develop proprietary
imaging technology for medical purposes. The development and commercialization
of non x-ray based optical mammography and optical tomography products with
greater effectiveness, decreased side effects and improved cost efficiencies are
the objective of this collaboration. The Research Foundation of CUNY's
contractual commitment is anticipated to amount in excess of $3,800,000 over a
five-year period. The Company's contribution to this joint collaborative effort
is its patents in the field of optical imaging. (See Item 13, Exhibit 10.28,
below).
<PAGE>
On June 3, 1997, the Company was issued U.S. Patent 5,625,402
"Technique for Determining Whether a Cell is Malignant as Opposed to
Non-Malignant Using Extrinsic Fluorescence Spectroscopy". This invention relates
to an automated system depicting the spatial distribution of cells within an
area of a pap smear-type sample characterizing which of the cells are malignant.
On June 16, 1997, the Company was issued Japanese Patent 4473/91
"Method and Apparatus for Distinguishing Cancerous Tissue from Benign Tumor
Tissue, Benign Tissue or Normal Tissue Using Native Fluorescence". This patent
expires January 18, 2011 and corresponds to the Company's U.S. Patent 5,131,398
which was issued on July 21, 1992.
On June 15, 1996, the Company, Mallinckrodt Medical Inc., St. Louis,
Missouri, and the Research Foundation of CUNY entered into a research agreement
in the field of imaging and photophysics related to the use of contrast dyes.
Inventions developed under this research agreement utilizing technology
protected by patents owned or licensed to the Company will result in royalties
to be negotiated in good faith by the respective parties on a sharing basis.
(See Item 13, Exhibit 10.25, below.)
The Company has also explored certain other non-medical potential
applications of its technologies. A feasibility evaluation was successfully
carried out using one of the Company's technologies to optically detect the
cleanliness after washing and rinsing pharmaceutical processing vessels. The
Company is currently discussing with the client the possibility of developing an
instrument that can be used commercially to support the client's market leading
position in pharmaceutical processing vessel cleaning system services.
Scientific/Medical Advisory Board
The Company established a Scientific Advisory Board in January, 1993
under the chairmanship of Professor Robert R. Alfano to provide critical review
and analysis of its research and product development programs in the area of
photonics (lasers and optics) and to serve as a source of information on new
product ideas, new technologies and current research activities. Its function
served the Company well during the formative stages of its research. Currently,
the Board consisting of Dr. Alfano and one other continuing member, is being
expanded to include increased representation from the medical arts, including
pathology, and will be staffed with medical specialists who are skilled in the
medical fields of primary interest to the Company. The Company believes that it
will be able to attract accomplished clinicians who will help guide it in
clinical study design aimed at gaining regulatory approval for applications of
the Company's diagnostic technology. They will also be called upon to advise the
Company about priorities and unmet needs in their respective disciplines and in
matters such a physician's habits and preferences that would bear on product
design and configuration. (see Management)
Employees
As of February 28, 1997, the Company had one full-time employee and
several key retained consultants who dedicate a substantial portion of there
time toward the affairs of the Company and the full-time equivalent of a number
of scientists, most of whom hold Ph.D.'s. in physics or electrical engineering
or lesser advanced degrees in similar disciplines from the MPL at the City
College of New York (See "Research Arrangements with the City University of New
York"). None of the employees, retained consultants or contract researchers is
governed by any collective bargaining agreement and the relations between the
Company and its employees, retained consultants and contract researchers is
believed to be satisfactory.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's headquarters are located at 1235 Folkestone Way, Cherry
Hill, New Jersey, which is owned by Peter Katevatis, who is Chairman of the
Company. Such offices are occupied in accordance with an oral arrangement with
Mr. Katevatis pursuant to which the Company is required to pay its proportionate
share of utilities and taxes. The New York Office is located at the leased
"incubator" site at CCNY.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently a party to any litigation, nor to the
knowledge of management is any litigation threatened against the Company, which
may materially affect the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During its fiscal year ended February 28, 1997, no matters were
submitted to a vote of the Company's security holders.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
(a) Market Information. The Company's Common Stock is traded on the
over-the-counter market under the symbol, "MDSC". The following table sets forth
the range of high and low bid quotations of the Company's Common Stock for the
periods set forth below, as reported by the National Association of Securities
Dealers, Inc. Such quotations represent inter-dealer quotations, without
adjustment for retail markets, markdowns or commissions, and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Period Common Stock
------------- ------------
High Low
Bid Bid
--- ---
<S> <C> <C> <C>
1997
1st Quarter 5/31/96 1 31/32 1 9/32
2nd Quarter 8/31/96 1 19/32 15/16
3rd Quarter 11/30/96 1 5/8
4th Quarter 2/28/97 1 1/2
1996
1st Quarter 5/31/95 0.5625 0.28125
2nd Quarter 8/31/95 1.9375 0.3125
3rd Quarter 11/31/95 2.00 0.6875
4th Quarter 2/29/96 1.9625 0.6875
</TABLE>
(b) Holders. The approximate number of holders of record of the
Company's Common Stock and Series A Preferred Stock as of June 13, 1997 were
1,174 and 8 respectively.
(c) Dividends. The Company has not paid or declared any dividends on
its Common Stock since its inception, and intends to reinvest earnings, if any,
in the Company to accelerate its growth. Accordingly, the Company does not
contemplate or anticipate paying any dividends upon its Common Stock in the
foreseeable future.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
Results of Operations
YEAR ENDED FEBRUARY 28, 1997 COMPARED TO
YEAR ENDED FEBRUARY 29, 1996
The Company had no revenues during its fiscal years ended February 28, 1997 (its
"1997 fiscal year") and February 29, 1996 (its "1996 fiscal year"). The
Company's primary focus was the development of its light-based technology.
General and administrative expenses increased approximately 70%, or $820,000,
during its 1997 fiscal year as compared to its 1996 fiscal year. The principal
reason for the increase was in April 1996 various directors and shareholders of
the Company, collectively exercised options for 2,763,166 shares of the
Company's Common Stock at no cost in consideration for the cancellation of the
remaining 452,582 options held by these individuals. The exercise price for
these options was $0.25 per share and, accordingly, the Company recorded
approximately $691,000 as additional compensation expense. An additional reason
for the increase was in March 1996 the Company incurred a compensation charge in
connection with the amendment of an employment agreement with a key officer,
whereby annual compensation was fixed at $100,000 per year for a three year
period. As a result, stock was issued to an officer as additional compensation
for the amendment which increased compensation approximately $181,000 during the
current year when compared to the prior year. The Company also increased its
outside consulting approximating $119,000 for costs associated with its Food and
Drug Administration applications.
The increases for the 1997 fiscal year were partially offset by decreases in
other consulting fees, professional fees, salaries and license fee income
credited against general and administrative expense of $32,000, $54,000, $50,000
and $25,000, respectively, when compared to the 1996 fiscal year.
The Company's product development expense increased approximately 80%, or
$300,400, during the 1997 fiscal year when compared to the 1996 fiscal year. The
Company conducts a number of R&D projects with the City College of CUNY. During
the 1997 fiscal year the Company advanced or accrued approximately $384,000 to
CUNY for reimbursement of development costs. In addition, increases were also
attributable to research conducted at Sloan-Kettering Institute for cancer
research and to patent application filings and fees.
The Company increased its advertising, travel and marketing expense
approximately 34%, or $24,700, during its 1997 fiscal year as compared to its
1996 fiscal year. This reflects increased activity with prospective corporate
business "partners" and increased fund-raising efforts.
Net interest income increased by approximately $53,000 in the 1997 fiscal year
due to increased cash balances invested in money market funds, derived from a
prior private placement.
<PAGE>
Year Ended February 29, 1996 Compared to
Year Ended February 28, 1995
The Company had no revenues during its fiscal year ended February 28, 1995 (its
"1995 fiscal year").
General and administrative expenses increased approximately 31%, or $277,000,
during its 1996 fiscal year as compared to its 1995 fiscal year. The principal
reasons for the increase were a compensation charge of approximately $309,000 in
the form of restricted shares issued to an officer of the Company (See Note 8 of
Consolidated Notes to Financial Statements) and an increase in professional fees
and consulting fees in the amounts of $37,000 and $28,000 respectively. This was
partially offset by the non-recurrence of a $92,000 charge for public relations
and administrative costs in its 1995 fiscal year and the reduction of
approximately $10,000 in automobile expenses.
The Company's product development expenses decreased approximately 14%, or
$60,000, during the 1996 fiscal year when compared to the 1995 fiscal year. The
Company reports its R&D expenses which includes compensation and cash
out-of-pocket infusion of funds from grant support or corporate collaborators.
The Company increased its advertising, travel and marketing expense
approximately 72%, or $31,000, during its 1996 fiscal year as compared to its
1995 fiscal year. This reflects increased activity with prospective corporate
business "partners" and increased fund-raising efforts.
The improvement in net interest of approximately $52,000 to income of $9,042 in
the 1996 fiscal year from a net expense of $43,679 in the 1995 fiscal year is
due mainly to the non-recurrence of $50,548 in interest charges incurred in its
bridge financing which was converted to equity. The private placement expense of
$200,000 in its 1995 fiscal year was a non-recurring charge (See Note 2 of Notes
to Consolidated Financial Statements.
Liquidity and Capital Resources
The Company's working capital as of February 28, 1997 was $189,199 representing
an increase of approximately $580,000 during the 1997 fiscal year. During its
1997 fiscal year, the Company successfully completed a private placement
offering of 2,666,667 shares of its Common Stock for proceeds to the Company of
approximately $2,000,000. The Company's ability to maintain its operations
throughout its history has been dependent upon the periodic infusion of capital
and the willingness of its creditors to accept payment beyond normal terms.
The ability of the Company to generate significant revenues from operations is
largely dependent upon obtaining regulatory approval for the commercialization
of its CD Technology. There can be no assurance as to whether or when the
various requisite governmental approvals will be obtained or the terms or scope
of these approvals. The Company intends to defray the costs of obtaining
regulatory approval for the commercialization of such technology by the
establishment of clinical trial arrangements with medical institutions, similar
to its agreement with Sloan-Kettering Memorial Hospital. The Company intends to
continue to pursue the establishment of co-promotion arrangements for the
marketing, distribution and commercial exploitation of its cancer detection
technology. Such arrangements, if established, may include up-front payments
sharing of sales revenues after deduction of certain expenses, and/or product
development funding.
<PAGE>
Management of the Company anticipates that substantial resources will be
committed to a continuation of its research and development efforts and to
finance government regulatory applications. While management believes that the
Company will obtain sufficient funds to satisfy its liquidity and capital
resource needs for the short term, no assurances can be given that additional
funding, or capital from other sources, such as co-promotion arrangements, will
be obtained on a satisfactory basis. In the absence of the availability of
financing on a timely basis, the Company may be forced to materially curtail or
cease its operations. The Company's operating and capital requirements, as
described above, may change depending upon several factors, including: (i)
results of research and development activities; (ii) competitive and
technological developments; (iii) the timing and cost of obtaining required
regulatory approvals for its products; (iv) the amount of resources which the
Company devotes to clinical evaluation and the establishment of marketing and
sales capabilities; and (v) the Company's success in entering into, and cash
flows derived from, co-promotion arrangements.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Mediscience Technology Corp. and Subsidiary
Consolidated Financial Statements as of February 28, 1997 and February 29, 1996
Together With
Report of Independent Public Accountants
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mediscience Technology Corp.:
We have audited the accompanying consolidated balance sheets of Mediscience
Technology Corp. (a New Jersey corporation) and subsidiary as of February 28,
1997 and February 29, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended February 28, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mediscience
Technology Corp. and subsidiary as of February 28, 1997 and February 29, 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended February 28, 1997 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has no revenues,
has incurred significant losses from operations, has an accumulated deficit and
requires substantial additional capital to fund its operations. These factors
raise substantial doubt about the ability of the Company to continue as a going
concern. Management's plans in regard to these matters are described in Note 1.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 25, 1997
<PAGE>
<TABLE>
<CAPTION>
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2) .............................. $ 678,397 $ 110,161
Other asset ..................................................... 31,664 0
------------ ------------
Total current assets ............................... 710,061 110,161
EQUIPMENT, net of accumulated depreciation of $150,820 and
$118,605 in 1997 and 1996, respectively (Note 2) ................ 40,275 67,481
INTANGIBLES, net of amortization of $198,725 and $173,125
in 1997 and 1996, respectively (Note 2) ......................... 300,283 325,883
------------ ------------
Total assets ....................................... $ 1,050,619 $ 503,525
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................ $ 101,313 $ 16,785
Accrued liabilities (Notes 3 and 4) ............................. 419,549 483,752
------------ ------------
Total current liabilities .......................... 520,862 500,537
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)
STOCKHOLDERS' EQUITY (Notes 2, 3, and 8):
Preferred stock, $.01 par value; authorized 50,000 shares-
Series A preferred stock; issued and outstanding 2,074 shares
(preference on liquidation $20,740) ......................... 21 21
Common stock, $.01 par value; authorized 39,950,000 shares;
issued and outstanding 34,691,952 and 28,474,455 shares in 1997
and 1996, respectively ........................................ 346,920 284,745
Additional paid-in capital ...................................... 17,430,196 14,275,896
Common stock subscription receivable ............................ 0 (18,750)
Accumulated deficit ............................................. (17,247,380) (14,538,924)
------------ ------------
Total stockholders' equity ......................... 529,757 2,988
------------ ------------
Total liabilities and stockholders' equity ......... $ 1,050,619 $ 503,525
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES .................................. $ 0 $ 0 $ 0
COST OF SALES .............................. 0 0 0
------------ ------------ ------------
Gross profit ............... 0 0 0
------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSE
(Notes 2, 3 and 4) ...................... 1,997,422 1,177,006 899,905
PRODUCT DEVELOPMENT EXPENSE (Note 4) ....... 675,178 374,781 434,859
ADVERTISING, TRAVEL AND MARKETING
EXPENSE ................................. 98,331 73,599 42,753
------------ ------------ ------------
Total expenses ............. 2,770,931 1,625,386 1,377,517
------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense (income), net .......... (62,475) (9,042) 43,679
Private placement expenses (Note 2) ..... 0 0 200,000
------------ ------------ ------------
Total other expense (income) (62,475) (9,042) 243,679
------------ ------------ ------------
Net loss ................... ($ 2,708,456) ($ 1,616,344) ($ 1,621,196)
============ ============ ============
NET LOSS PER COMMON SHARE (Note 6) ......... ($ .08) ($ .06) ($ .07)
============ ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ( NOTE 8)
FOR THE YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
Preferred Common
Stock Stock
Number of Preferred Number of Common
Shares Stock Shares Stock
------ ----- ------ -----
<S> <C> <C> <C> <C>
BALANCE, February 28, 1994 2,074 21 20,414,038 204,140
Conversion of private placement bridge loan
and interest into common stock, net of costs of $170,645 0 0 2,151,087 21,511
Issuance of common stock for services rendered in
connection with a private placement 0 0 200,000 2,000
Issuance of common stock for cash 0 0 40,000 400
Issuance of common stock for legal and consulting
services rendered 0 0 147,500 1,475
Issuance of common stock for services rendered in connection
with a failed private placement 0 0 200,000 2,000
Exercise of options and warrants for common stock 0 0 388,000 3,880
Net loss for the year ended February 28, 1995 0 0 0
----- ---- ---------- ----------
BALANCE, February 28, 1995 2,074 $ 21 23,540,625 $ 235,406
Issuance of common stock for cash 0 0 3,393,000 33,930
Exercise of options and warrants for common stock 0 0 323,750 3,238
Issuance of common stock for legal and consulting
services rendered 0 0 392,500 3,925
Stock issued to officer as additional compensation 0 0 824,580 8,246
Cash received in advance for stock issuance in March 1996 0 0 0 0
Net loss for the year ended February 29, 1996 0 0 0 0
----- ---- ---------- ----------
BALANCE, February 29, 1996 2,074 $21 28,474,455 $ 284,745
Collection of stock subscription receivable 0 0 0 0
Issuance of common stock for cash in connection with a
private placement 0 0 2,666,667 26,666
Stock issued upon exercise of stock options at
no cost 0 0 2,843,166 28,432
Stock issued to officer as additional compensation 0 0 602,664 6,027
Exercise of warrants for common stock 0 0 100,000 1,000
Issuance of common stock for consulting services 0 0 5,000 50
Net loss for the year ended February 28, 1997 0 0 0 0
----- ---- ---------- ----------
BALANCE, February 28, 1997 2,074 $21 34,691,952 $ 346,920
===== === ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED FEBRUARY 28 (29), 1997, 1996 AND 1995
(continued)
Common
Additional Stock
Paid-in Subscriptions Accumulated
Capital Receivables Deficit
------- ----------- -------
<S> <C> <C> <C>
BALANCE, February 28, 1994 11,345,254 0 (11,301,384)
Conversion of private placement bridge loan
and interest into common stock, net of costs of $170,645 883,392 0 0
Issuance of common stock for services rendered in
connection with a private placement (2,000) 0 0
Issuance of common stock for cash 9,600 0 0
Issuance of common stock for legal and consulting
services rendered 146,025 0 0
Issuance of common stock for services rendered in connection
with a failed private placement 198,000
Exercise of options and warrants for common stock 145,620 0 0
Net loss for the year ended February 28, 1995 0 0 (1,621,196)
----------- -------- -----------
BALANCE, February 28, 1995 12,725,891 0 (12,922,580)
Issuance of common stock for cash 839,320 0 0
Exercise of options and warrants for common stock 113,638 (18,750) 0
Issuance of common stock for legal and consulting
services rendered 276,075 0 0
Stock issued to officer as additional compensation 300,972 0 0
Cash received in advance for stock issuance in March 1996 20,000 0 0
Net loss for the year ended February 29, 1996 0 0 (1,616,344)
----------- -------- -----------
BALANCE, February 29, 1996 $14,275,896 (18,750) (14,538,924)
Collection of stock subscription receivable 0 18,750 0
Issuance of common stock for cash in connection with a
private placement 1,953,333 0 0
Stock issued upon exercise of stock options at
no cost 662,360 0 0
Stock issued to officer as additional compensation 484,657 0 0
Exercise of warrants for common stock 49,000 0 0
Issuance of common stock for legal consulting services 4,950 0 0
Net loss for the year ended February 28, 1997 0 0 ($ 2,708,456)
----------- -------- -----------
BALANCE, February 28, 1997 $17,430,196 $ 0 ($17,247,380)
=========== ======= ============
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss ....................................... ($2,708,456) ($1,616,344) ($1,621,196)
----------- ----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization .............. 57,815 59,122 57,567
Stock issued for consulting services and
interest ................................. 5,000 280,000 398,048
Stock issued upon exercise of
stock options at no cost ................. 690,792 0 0
Stock issued to officer as additional
compensation ............................. 490,684 309,218 0
Changes in assets and liabilities-
Decrease in prepaid expenses ............. 0 0 11,233
(Increase) decrease in other assets ...... (31,664) 4,564 45,716
Increase (decrease) in accounts payable .. 84,528 12,790 (11,308)
(Decrease) increase in accrued liabilities (64,203) 20,248 (19,616)
----------- ----------- -----------
Total adjustments ................... 1,252,952 685,912 481,640
----------- ----------- -----------
Net cash used in operating activities (1,475,504) (930,402) (1,139,556)
----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of fixed assets ......................... (5,009) (6,426) (9,573)
----------- ----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Decrease in stock subscription receivable ...... 18,750 0 0
Proceeds from issuance of common stock, net of
costs ........................................ 2,029,999 991,376 159,500
Proceeds from issuance of bridge financing ..... 0 0 854,355
----------- ----------- -----------
2,048,749 991,376 1,013,855
----------- ----------- -----------
Net increase (decrease) in cash ..... 568,236 54,548 (135,274)
CASH AND CASH EQUIVALENTS, beginning of year ........ 110,161 55,613 190,887
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year .............. $ 678,397 $ 110,161 $ 55,613
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
(continued)
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Common stock was issued for the following-
Legal and consulting services rendered $ 5,000 $ 280,000 $ 349,500
To officer as additional compensation . 490,684 309,218 0
Private placement bridge financing,
net of costs ........................ 0 0 854,355
Accrued liabilities, including interest 0 0 50,548
---------- ---------- ----------
$ 458,184 $ 589,218 $1,254,403
========== ========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION OF THE COMPANY:
The consolidated financial statements include the accounts of Mediscience
Technology Corp. ("Mediscience") and its wholly-owned subsidiary, Laser
Diagnostic Instruments, Inc. ("Laser") (collectively the "Company").
The Company is principally engaged in the design and development of
medical diagnostic instruments that detect cancer in vivo in humans by
using light to excite the molecules contained in tissue and measuring the
differences in the resulting natural fluorescence between cancerous and
normal tissue.
The Company is subject but not limited to a number of risks similar to
those of other companies at this stage of development, including
dependence on key individuals, the development of commercially usable
products and processes, competition from substitute products or
alternative processes, the impact of research and product development
activity, competitors of the Company, many of whom have greater financial
or other resources than those of the Company, uncertainties related to
technological improvements and advances, the ability to obtain adequate
additional financing necessary to fund continuing operations and product
development and uncertainties of future profitability. The Company
expects to incur substantial additional cost before beginning to generate
income from product sales, including costs related to ongoing research
and development activities, preclinical studies and regulatory
compliance. Although the Company was able to obtain additional financing
in April 1996 (Note 8), substantial additional financing is needed by the
Company.
On April 21, 1997, the Company announced the contracting of a joint
collaboration with General Electric Company (GE) and the Research
Foundation of the City University of New York (CUNY) to develop
proprietary imaging technology for medical purposes. The development and
commercialization of non x-ray based optical mammography and optical
tomography products with greater effectiveness, decreased side effects
and improved cost efficiencies are the objective of this collaboration.
The collaboration will focus on noninvasive methods to image subsurface
tumors in the breast, brain, etc. CUNY, through a NSASA Institutional
Research Award, through a Navy grant, and through the New York State HEAT
program, anticipates more than $3,800,000 of funding over a five year
period to support his collaboration. GE did not disclose the amount it
intends to spend on the development and commercialization of the
Company's proprietary technology.
<PAGE>
The Company's financial statements have been prepared on a going concern
basis which contemplates the realization of assets, liabilities and
commitments in the normal course of business. The Company has no
revenues, incurred substantial net losses and has an accumulated deficit
through February 28, 1997. The Company expects to incur substantial
expenditures to further the development and commercialization of its
products. To achieve this, management will seek additional financing
through private placements or other financing alternatives, and might
also seek to sell the Company or its technology. There can be no
assurance that continued financings will be available to the Company or
that, if available, the amounts will be sufficient or the terms will be
acceptable to the Company.
(2) SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents-
Cash and cash equivalents includes cash held in banks and mutual funds
and is stated at cost, which approximates market. For purposes of the
statement of cash flows, the Company considers all highly liquid
financial instruments purchased with an initial maturity of three
months or less to be cash equivalents.
Equipment-
Equipment is stated at cost. Depreciation is computed using the
straight-line method over an estimated useful life of five years.
Long-Lived Assets-
During 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets" ("SFAS 121"). SFAS 121 requires, among other
things, that an entity review its long-lived assets and certain related
intangibles for impairment whenever changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. As a
result of its review, the Company does not believe that any impairment
currently exists related to its long-lived assets.
Intangibles-
Intangibles include goodwill and patents. Goodwill represents the
excess of the purchase price over the net assets acquired in the
acquisition of Laser. Goodwill of $460,000 is being amortized over 20
years, using the straight-line method.
<PAGE>
Costs of patents are amortized over the life of the patent, generally
fifteen years, using the straight-line method. Capitalized costs
related to unsuccessful patent applications are expensed when it
becomes determinable that such applications will not be successful.
The realization of the carrying value of these assets is dependent on
the success of the Company's future operations.
Private Placement Expenses-
In fiscal 1995, the Company issued 200,000 shares of common stock to
the President of the Company. The President had previously transferred
200,000 of his own shares to two individuals who assisted in a prior
failed private placement offering. Accordingly, $200,000, which
represents the approximate fair market value of such shares, has been
recorded as an expense in the accompanying statement of operations.
Expenses associated with successful private placements are netted
against the proceeds of the respective private placements.
Income Taxes-
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 utilizes the liability method, and
deferred taxes are determined based on the estimated future tax effects
of differences between the financial statement and tax bases of assets
and liabilities at currently enacted tax laws and rates.
Accounting for Stock-Based Compensation-
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 requires that an entity account
for employee stock compensation under a fair value-based method.
However, SFAS 123 also allows an entity to continue to measure
compensation cost for employee stock-based compensation plans using the
intrinsic value-based method of accounting prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Effective for fiscal years beginning after December 15, 1995, entities
electing to continue with accounting under APB 25 are required to make
pro forma disclosures of net income and earnings per share as if the
fair value-based method of accounting under SFAS 123 had been applied.
The Company has elected the disclosure requirements of SFAS 123 and
will continue to account for employee stock-based compensation under
APB 25. The Company's proforma net loss and net loss per share did not
materially differ from the amounts reported.
Reclassifications-
Certain reclassifications have been made to the 1996 financial
statements to conform to the 1997 presentation.
<PAGE>
(3) RELATED PARTY TRANSACTIONS:
In May 1992, the Company entered into a five year employment agreement
with Peter Katevatis, then Chief Executive Officer, President and
Stockholder of the Company. Pursuant to the terms of such agreement, Mr.
Katevatis was to be paid $190,000 per year, plus annual increases based
on the consumer price index. The employment agreement further provided
for a bonus and fringe benefits in accordance with policies and formulas
mutually agreed upon by Mr. Katevatis and the Board of Directors.
In January 1996, the Company elected a new President and Chief Executive
Officer, Herbert L. Hugill. Mr. Katevatis remains chairman and Treasurer
of the Company. Accordingly, the employment agreement with Mr. Katevatis
was amended effective March 1, 1996 providing for an annual salary of
$100,000 per year for the next three years. In connection with this
amendment, in March, 1996 the Company issued 552,664 restricted shares of
the Company's common stock to Mr. Katevatis, which was recorded as
additional compensation expense in fiscal 1997 of $453,184. All other
provisions of the agreement remained the same.
In January 1996, the Company entered into an employment agreement with
Mr. Hugill. Pursuant to the terms of such agreement, Mr. Hugill was to be
paid $50,000 per annum, was issued options to purchase 200,000 shares of
the Company's stock (Note 8), and was to receive warrants to purchase
shares equal to 5% of the number of common shares outstanding on January
18, 1996 (or up to 10% as of such date at the discretion of the Board of
Directors) at an option price of $1.00 per share, upon the attainment of
certain milestones in the future. On January 31, 1997, Mr. Hugill
resigned as President and Chief Executive Officer of the Company and the
200,000 options were canceled. The warrant agreement was amended and
effective January 31, 1997, Mr. Hugill was granted a warrant to purchase
up to 473,220 shares of the Company's common stock at a price of $1.00
per share. This warrant is exercisable at any time through July, 2003
except for 315,480 shares which is exercisable only upon the attainment
of certain milestones. Compensation expense will be recognized for the
difference between the warrant price and the fair market value of the
stock at the date that the milestones are attained. In addition, the
Company issued 50,000 shares of common stock to Mr. Hugill upon his
termination. The Company recorded $37,500 as compensation expense for the
fair value of the shares issued.
Legal services rendered by Mr. Katevatis amounted to $50,000 for each of
the three years ended February 29, 1997. These amounts have been charged
to operations.
(4) ACCRUED LIABILITIES:
Accrued liabilities consist of the following-
1997 1996
-------- --------
Legal and professional fees ............... $194,700 $ 77,000
Research and development (see Note 7) ..... 224,849 233,350
Salaries and wages ........................ 0 173,402
-------- --------
$419,549 $483,752
======== ========
<PAGE>
(5) INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS 109. Under
SFAS 109, deferred tax assets and liabilities are computed based on the
differences between the financial statement and income tax bases of
assets and liabilities as measured by currently enacted tax laws and
rates. As of February 28, 1997, the Company has operating loss
carryforwards of approximately $10,600,000 which may be used to reduce
future income subject to income taxes and expire in various amounts from
1998 to 2012. As of February 28, 1997 and February 29, 1996, the Company
had a deferred tax asset of $3,600,000 and $3,000,000, respectively, for
which valuation allowances for the entire amounts were provided.
(6) NET LOSS PER COMMON SHARE:
Net loss per common share has been computed on the basis of the weighted
average number of shares outstanding during each year. No consideration
has been given to the potential exercise of stock options as the effect
would be antidilutive. Shares used in the computation of net loss per
common share were 33,908,028, 26,261,301 and 23,578,353 for the years
ended February 28, 1997, February 29, 1996 and February 28, 1995,
respectively.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"). SFAS 128 is effective for financial statements for both
interim and annual periods ending after December 15, 1997 and early
adoption is not permitted. When adopted, the statement will require
restatement of prior years' earnings per share. The Company will adopt
this statement for reporting periods ending after December 15, 1997.
Assuming that SFAS 128 had been implemented, basic earnings per share
would not have been materially different than the amounts presented for
1997 or 1996.
(7) COMMITMENTS AND CONTINGENCIES:
In April 1992, the Company entered into a five year consulting agreement
(the "Agreement") with Dr. Robert R. Alfano, a principal shareholder of
the Company and Chairman of its Scientific Advisory Board. Pursuant to
the terms of such Agreement, Dr. Alfano is to be paid a consulting fee of
not less than $150,000 per annum in exchange for services to be rendered
for approximately fifty (50) days per annum in connection with the
Company's medical photonics business. The Agreement further provides that
Dr. Alfano is to be paid a bonus and fringe benefits in accordance with
policies and formulas provided to key executives of the Company. In
August 1995, the contract was extended to March 2002. All other
provisions of the agreement remained the same.
The Company has committed to fund approximately $295,000 over a
twelve-month period beginning June 1, 1995 for Mediphotonics Laboratory
research at the City College of the City University of New York (CCNY)
under a contract which is renewed annually. The Company has funded CCNY
approximately $384,000, $220,000 and $295,000 for each of the
twelve-month periods ending May 31, 1997, 1996 and 1995.
On July 1, 1994, the Company entered into a Research Agreement with
Sloan-Kettering Institute for Cancer Research and the Company has agreed
to fund $100,000 towards such efforts. The Company funded $80,000 and
$20,000 in fiscal 1996 and in fiscal 1995.
<PAGE>
In connection with the acquisition of patent rights to its cancer
detection technology, the Company assumed an obligation to pay to Dr.
Alfano's daughter a royalty of one percent of the gross sales derived
from any equipment made, leased or sold which utilizes the concepts
described in the Company's cancer detection patent. Additionally, the
Company is to pay a royalty equal to three and one half percent of the
gross sales value of any invention from the Company's existing patents or
newly obtained patents, respectively. No amounts have been paid for the
three year period ended February 28, 1997.
In addition to the above royalties, the Company has obtained worldwide
licensing rights for patents from two universities and has agreed to pay
royalties of four percent of the net sales of all products generated from
the patents and fifty percent of any income received from sublicensing of
the patents. No amounts have been paid for the three year period ended
February 28, 1997.
(8) STOCKHOLDERS' EQUITY:
Preferred Stock-
The Company is authorized to issue 50,000 shares of Preferred Stock,
$.01 par value per share, which may be issued from time-to-time in one
or more series, the terms of which may be designated by the Board of
Directors without further action by shareholders. The Board of
Directors has designated 2,074 shares of Preferred Stock as Series A
Preferred Stock, all of which series is issued and outstanding as of
February 28, 1997. Any preferred stock issued will have preferences
with respect to dividends, liquidation and other rights, but will not
have preemptive rights.
Holders of Series A Preferred Stock are entitled to a preference of $10
per share before any payment is made to holders of common stock in
liquidation of the assets of the Company. Additionally, holders of
Series A Preferred Stock have no redemption or dividend rights and vote
only with respect to corporate matters affecting their respective
rights, preferences or limitations, but do not vote for the election of
directors or on general corporate matters.
Common Stock Compensation Award-
In December 1995, the Board approved the issuance of 824,580 restricted
shares of the Company's common stock to Mr. Katevatis for past
performance and services rendered to the Company. The restricted shares
were recorded based on their deemed fair market value and accordingly,
the Company recorded a compensation charge of $309,218 in the
accompanying consolidated statement of operations.
Private Placement Offering-
During fiscal 1996, the Company closed on a private placement offering
("Offering") with Allen & Company ("Allen"), whereby Allen purchased
2,000,000 restricted shares of the Company's common stock at $.25 per
share. In connection with the Offering, Allen received warrants to
purchase 975,000 shares of the Company's common stock and another
individual, instrumental to the Offering, received warrants to purchase
50,000 shares of the Company's common stock. The warrants are fully
vested and are exercisable at $1.00 per share.
<PAGE>
In addition, during fiscal 1996 the Company also sold 1,393,000 shares
of common stock for aggregate proceeds of $373,250.
During fiscal 1997, the Company successfully completed a private
placement offering (the "97 Offering") of 2,666,667 shares of its
common stock for proceeds to the Company of approximately $2,000,000.
In connection with the 97 Offering, the Company issued warrants to
purchase 400,000 shares of the Company's common stock at an exercise
price of $1.00 per share. The warrants are exercisable, at the option
of the holder, at any time through March 27, 2003.
Convertible Bridge Notes-
During fiscal 1995, the Company privately sold units, each consisting
of a promissory note, bearing interest at 10% per annum and convertible
into common stock of the Company at $.50 per share under certain
conditions, as defined, and a warrant to purchase shares of common
stock of the Company at $.50 per share. Total cash proceeds from the
private placement financing were $1,025,000. The warrants are
exercisable for two years from the date of issuance. On January 3, 1995
the promissory notes were converted, including interest of $50,548,
into common stock at $.50 per share, and as a result stockholders'
equity was increased by $904,903, net of transaction costs of $170,645.
In addition, 200,000 shares of common stock were issued to an
individual who assisted in the private placement.
Common Stock Issued for Service-
During fiscal 1997 and 1996, respectively, the Company issued 5,000 and
392,500 shares, respectively, of restricted common stock for various
legal and consulting services provided to the Company. The number of
shares issued were determined based on the fair market value of the
services provided.
Stock Options-
Prior to fiscal 1996, all stock options were issued at the discretion
of management. In fiscal 1996, the Company adopted the 1996 incentive
stock option plan (the "Plan") which provides for granting of incentive
stock options ("ISO's") to employees. Options vest over a period of
time as determined by the Board of Directors upon the granting of such
options, except that no option shall be exercisable in whole or in part
prior to the first anniversary of the date of granting of such option.
Options are exercisable 10 years from the grant date. The exercise
price of ISO's granted under the Plan will not be less than 100% of the
fair market value on the date of grant (110% for ISO's granted to more
than 10% stockholders).
In April 1996, Messrs. Katevatis, Kouvatis, Kennedy and Armstrong,
directors and shareholders of the Company, collectively exercised
options for 2,763,166 shares of the Company's common stock at no cost
in consideration for the cancellation of the remaining 452,582 options
held by these individuals. The exercise price for these options was
$0.25 per share and, accordingly, the Company recorded $690,792 as
additional compensation expense.
<PAGE>
Stock option activity during the three year period ended February 28,
1997, was as follows-
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Shares Price Range Price
---------- -------------- --------
<S> <C> <C> <C>
Outstanding, February 28, 1994 .... 4,003,748 $0.25-$2.00 $ 0.33
Granted ........................... 145,000 $1.00-$2.00 $ 1.14
Exercised ......................... (238,000) $ 0.25 $ 0.25
---------- -------------- --------
Outstanding, February 28, 1995 .... 3,910,748 $0.25-$2.00 $ 0.36
Granted ........................... 200,000 $ 1.00 $ 1.00
Exercised ......................... (180,000) $ 0.25 $ 0.25
---------- -------------- --------
Outstanding, February 29, 1996 .... 3,930,748 $0.25-$2.00 $ 0.40
Exercised ......................... (2,843,166) $ 0.25 $ 0.25
Canceled .......................... (652,582) $0.25-$1.00 $ 0.48
---------- -------------- --------
Outstanding, February 28, 1997 .... 435,000 $1.00-$2.00 $ 1.25
========== ============== ========
</TABLE>
Options granted in fiscal 1995 were granted for consulting services
rendered.
<PAGE>
Stock Warrants-
Stock warrant activity during the three year period ended February 28,
1997, was as follows-
<TABLE>
<CAPTION>
Shares Exercise
Available Price Range
---------- ------------
<S> <C> <C>
Outstanding February 28, 1994 ........... 235,912 $.53-$1.20
Granted ................................. 306,250 $.50-$ .60
Exercised ............................... (150,000) $ .60
---------- ------------
Outstanding, February 28, 1995 .......... 392,162 $.50-$1.20
Granted ................................. 1,025,000
Exercised ............................... (143,750) $ .50
---------- ------------
Outstanding February 29, 1996 ........... 1,273,412 $.50-$1.20
Granted ................................. 873,220 $ 1.00
Exercised ............................... (100,000) $ .50
---------- ------------
Outstanding February 28, 1997 ........... 2,046,632 $.50-$1.20
========== ============
</TABLE>
In connection with the private placement offerings described above, the
Company granted warrants to purchase 400,000, 1,025,000 and 256,250
shares of common stock in 1997, 1996 and 1995, respectively.
Additionally, a warrant was issued for 50,000 shares of common stock in
exchange for legal services provided in 1995. In 1997, the Company
granted warrants to purchase 473,200 shares of common stock to Mr.
Hugill at an exercise price of $1.00 (Note 3).
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Officers and Directors
The directors, executive officers and significant employees of the
Company are:
Name Age Position
- ---- --- --------
Peter Katevatis 63 Chairman of the Board, Chief
Executive Officer and Treasurer
John M. Kennedy 60 Vice President and Secretary
William Armstrong 80 Director
Matthew Culligan 78 Director
Herbert L. Hugill 49 Director
Michael N. Kouvatas 70 Director
Ronald W. Krumm 58 Director
John P. Matheu 75 Director
Robert C. Miller 31 Director
Clarence Z. Wurts 56 Director
Directors-hold office until the next annual shareholders' meeting or
until their successors have been duly elected and qualified. Executive officers
are appointed by and serve at the pleasure of the Board of Directors.
Peter Katevatis has served as Chairman of the Board of Directors since
1993. He served as President and Chief Executive Officer of the Company from
November, 1983 until the appointment of Herbert L. Hugill and served as a
director of the Company since 1981. From 1981 until his election as President
and Chief Executive Officer, Mr. Katevatis was a Vice President of the Company.
Mr. Katevatis was elected as Treasurer of the Company in January, 1996. Mr.
Katevatis has been a practicing attorney in Philadelphia, Pennsylvania and
Marlton, New Jersey, and is also licensed as an attorney in the State of New
York and in the District of Columbia. He also served as a Managing Partner of
Penn National Leasing and was a principal shareholder of Penn National Leasing,
Inc. an equipment leasing company located in Cherry Hill, New Jersey. Mr.
Katevatis is currently a trustee of the New Jersey State's Police and Firemen's
Retirement Pension Fund and served as a member of the New Jersey Investment
Council from 1990 until December, 1992. He is also a member of the American
Arbitration Association and a member of the National District Attorney's
Association.
<PAGE>
John M. Kennedy currently serves as Vice President and Secretary of the
Company, as well as being a director of the Company since 1982. Mr. Kennedy has
served the Company as Vice President since 1983, as Treasurer from 1984 to
January, 1996 and as Secretary since 1986. Mr. Kennedy is Chairman of the Board,
Secretary-Treasurer and General Manager, of Pepco Manufacturing Co., a sheet
metal fabricator for the electronics industry located in Somerdale, New Jersey.
Mr. Kennedy also serves as commissioner of the Delaware River Port Authority.
Mr. Kennedy was a director of First Peoples Bank of New Jersey from 1979 and
served as a member of its executive board until 1994 when Core-States Bank
purchased First Peoples.
William W. Armstrong has served as a Director of the Company since
1978. He has been in retirement since 1982 following a 36 year career as a
research scientist for Pfizer Inc, a world wide health care, personal care and
specialty chemicals manufacturer headquartered in New York City. Since his
retirement, Mr. Armstrong has continued to serve as a consultant to Pfizer
concerning programs involved with disperse systems and complex liquids, his
field of expertise. He has been awarded 14 patents concerned in general with
therapeutic agent dosage delivery systems.
Matthew Culligan has served as a Director of the Company since March,
1990. Since 1988, Mr. Culligan has served as Chairman and Chief Executive
Officer of Culligan/Kahn Associates, a broadcast production company located in
New York, New York. Mr. Culligan, in 1984, founded Environmental Monitor, a
non-profit organization dedicated to providing a computerized service of
environmental conditions, and currently serves as its Chairman. Mr. Culligan
has, at various times during his career, served as President of the NBC Radio
Network; Executive Vice President of NBC Television; Chairman of the Mutual
Broadcasting Company; and as Chairman and President of Curtis Publishing Inc.,
the publisher of, among other periodicals, Saturday Evening Post, Ladies Home
Journal and Holiday. Mr. Culligan has also been the author of twelve published
books and was the creator of two television shows.
Herbert L. Hugill was elected a Director of the Company in January 1996
and served as President and Chief Executive Officer until January 1997. He was
President of R.P. Scherer North America, a Division of R.P. Scherer Corporation
from December 1991 through October 1995 and Vice President, Sales and Marketing
from June 1989 to December 1991. From January 1987 to June 1989 he was Director
of Corporate Development of R.P. Scherer Corporation.
Michael N. Kouvatas has served as a Director of the Company since 1971.
For more than the past five years, Mr. Kouvatas has been an attorney with
offices in Haddonfield, New Jersey.
Ronald W. Krumm has served as a Director of the Company since March,
1990. From January, 1989 through May, 1990, Mr. Krumm served as Executive Vice
President of Polar Molecular Corporation, a producer of gasoline fuel additives
located in Saginaw, Michigan. Prior thereto, until his retirement after 31 years
service, Mr. Krumm was employed in various marketing and technical capacities by
Pfizer Inc. From 1983 to 1988 he was Senior Marketing Manager responsible for
new business development for Pfizer Specialty Chemicals.
John P. Matheu has served as a Director of the Company since July 23,
1996. Mr. Matheu is currently general partner and co-founder of MATCO &
Associates, a firm specializing in providing management consulting services to
decision makers in biopharmaceutical, medical device and health care firms.
Previously, he was employed by Pfizer Inc during which time he held a wide range
<PAGE>
of management positions primarily in distribution, marketing and sales. As Vice
President, he established and directed Pfizer's generic drug division. Prior to
that assignment he directed Pfizer Laboratories' 800 person field sales force,
its hospital marketing group and its training department. he left Pfizer Inc in
1984 and founded Matheu Associates, a management consulting firm.
Robert C. Miller has served as a Director of the Company since May 30,
1996. Mr. Miller is a Vice President and Director of the investment banking firm
of Allen & Company Incorporated and has been associated with the firm since June
1986. Mr. Miller is a director of Envirogen, Inc., a public environmental
company, Audits & Survey's Worldwide, Inc., a public medical device company, as
well as a director of several privately-held companies in which Allen & Company
Incorporated has an investment.
Clarence Z. Wurts has served as a Director of the Company since July
23, 1996. Mr. Wurts is founder, President and CEO of Philadelphia Investors,
Ltd., a full service regional investment bank. Previously, he was President and
Director of Edward C. Rorer & Co., Inc. and Partner of Alex Brown & Sons.
There are no family relationships among directors and, to the knowledge
of the Company, there have been no legal proceedings or judgments during the
past five years which would be material to the evaluation of the ability and
integrity of any director.
Scientific Advisory Board
The Scientific Advisory Board's Chairman is Dr. Robert R. Alfano. Dr.
Alfano is Distinguished Professor of Science and Engineering and the Director of
the IUSL at the City College of CUNY. He is co-author of a number of patents
concerning the Company's photonic technology and a principal stockholder of the
Company. He supervises the research and development of the Company's cancer
diagnostic technology and is principal investigator at CCNY. Since 1972, he has
been affiliated with the Physics Department of CCNY. He presently directs the
Institute for Ultrafast Spectroscopy and Lasers and the Photonics Engineering
Laboratories at City College. From 1964 to 1972, he was a member of the
technical staff of General Telephone & Electronics Laboratories. Dr. Alfano
received an Alfred P. Sloan Fellowship Research Corporation Award and was made a
Fellow of the American Physical Society in 1976. In 1983, he received the
Outstanding Italian-American Award for Science. In May, 1989, Dr. Alfano was
elected a Fellow of the Optical Society of America for his studies of ultrafast
phenomena. He has been a consultant to several major corporations including GTE,
Clairol, Phillips Dental and Hamamatsu Photonics. Dr. Alfano is on the advisory
board of Photonics Spectra Magazine. He is a reviewer for prestigious
professional journals in the fields of physics, optics, photobiology,
photochemistry and biophysics. He received his B.S. and M S. degrees in Physics
from Fairleigh Dickinson University in 1963 and 1964, respectively. He received
his Ph.D. in Physics from New York University in 1972.
<PAGE>
Stimson P. Schantz, M.D., is Director of Cancer Prevention, Department
of Surgery Cornell University Memorial Sloan-Kettering Cancer Center, New York,
New York. Dr. Schantz has been appointed as the principal investigator under the
Company's Clinical Trial Agreement with Memorial Hospital for Cancer and Allied
Diseases and, in such capacity, oversees the pilot study of tissue
autofluorescence pursuant to such agreement. Between 1984 and 1991, Dr Schantz
served in various faculty positions at the M.D. Anderson Cancer Center in the
Department of Head and Neck Surgery. Dr. Schantz is presently a member of the
Society of Surgical Oncology, American Society for Head and Neck Surgeons, the
Society of Head and Neck Surgery, and has served as the director of research
programs and as a member of the research committee at the University of Texas,
M.D Anderson Cancer Center. He has been the recipient of several honors and
awards, including the First Independent Investigator Award of the National
Cancer Institute awarded in March, 1988 and an NCI contract to study cancer
biomarkers awarded in November 1995. Dr. Schantz serves as a reviewer and editor
of a number of professional medical publications and is the author of numerous
papers, articles, books and chapters, and abstracts. He was awarded a Bachelor
of Arts Degree from Harvard College in 1970 and his M D from the University of
Cincinnati in 1975.
Each member of the Scientific Advisory Board is paid a fee of $1,000
for each meeting attended. Additionally, certain members past and present have
been granted an option of unlimited duration to purchase 10,000 shares of the
Company's Common Stock at a price of $2.00 per share.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation paid or
accrued to the executive officers of the Company for the fiscal years ended
February 28, 1997, February 29, 1996 and February 28, 1995 whose compensation
exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Principal Year Ended Other Annual
Position Feb. 29 (28) Salary Compensation
- -------- ------------ ------ ------------
<S> <C> <C> <C>
Peter Katevatis 1997 $100,000 (1) $523,231 (2)
Chairman and
Chief Executive 1996 $208,578 (1) $ 64,176 (2)
Officer
1995 $199,500 (1) $ 77,383 (2)
</TABLE>
(1) See Note 3 Of Notes to Consolidated Financial Statements.
(2) Includes payment to Mr. Katevatis of $50,000 for legal services
rendered during each of the fiscal years ended February 28, 1997, February 29,
1996 and 1995 ("fiscal years, 1997, 1996 and 1995" respectively), and fringe
benefits under his employment agreement for automobile expenses of $12,721,
automobile insurance of $2,856 and health insurance of $4,470 paid during fiscal
year 1997; for automobile expenses of $4,928, automobile and insurance of $2,155
and health insurance of $7,093 paid during fiscal year 1996; for automobile
expenses of $17,489, automobile insurance of $2,575 and health insurance of
$7,319 paid during fiscal year 1995. Fiscal year 1997 also includes $453,184 of
stock compensation expense. See Note 3 to Notes to Consolidated Statements.
<PAGE>
Option Exercises and Holdings
In April 1996, Messrs. Katevatis, Kouvatis, Kennedy and Armstrong,
directors and shareholders of the Company, collectively exercised options for
2,763,166 shares of the Company's common stock at no cost in consideration for
the cancellation of the remaining 452,582 options held by these individuals. The
exercise price for these options was $0.25 per share and, accordingly, the
Company recorded $690,792 as additional compensation expense.
The following table provides information regarding the number of shares
covered by both exercisable and non-exercisable stock options held by the
Company's executive officers at February 28, 1997 (See Note 8 of Notes to
Consolidated Financial Statements). In addition, the following table sets forth
the values for "in-the-money" options, which represent the positive spread
between the exercise price of the existing options and $.50, which was the
closing price for the Company's Common Stock in the over-the-counter market on
February 28, 1997.
<TABLE>
<CAPTION>
UNEXERCISED OPTIONS AT FISCAL YEAR-END
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Year End Year End
------------------------------ ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C>
- 0 - - 0 - - 0 - - 0 -
</TABLE>
The Company does not have any other contingent forms of compensation
for officers and directors, including any pension, retirement, stock bonus or
other compensation plan. No compensation has been paid to any individual for
services rendered as a director.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information at June 13, 1997
with respect to (i) those persons known by the Company to be the owners of more
than 5% of the Company's Common Stock, (ii) the ownership of the Company's
Common Stock by each director, and (iii) the ownership of the Company's Common
Stock by all executive officers and directors of the Company as a Group. Except
as otherwise indicated, each of the stockholders named below has sole voting and
investment power with respect to the Shares of Common Stock beneficially owned
by him:
<TABLE>
<CAPTION>
Amount of
Name and Address Beneficial Ownership Percentage of Class
- ---------------- -------------------- -------------------
<S> <C> <C>
Peter Katevatis
P.O. Box 598, Woodcrest
Cherry Hill, NJ 08003 4,725,595 (1)(2)(3)(4)(5)(12) 13.67 %
John M. Kennedy
c/o Pepco Manufacturing Co.
100 East Evergreen Avenue
Somerdale, NJ 08083 2,677,933 (5)(6)(12) 7.75
William W. Armstrong
P.O. Box 607
Tupper Lake, NY 12986 355,200 (5)(7)(12) 1.03
Michael Kouvatas
27 Kings Highway East
Haddonfield, NJ 08033 684,666 (5)(8)(12) 1.98
Ronald W. Krumm
49 Willow Place
Albertson, NY 11507 274,166 (9)(12) 0.89
Matthew J. Culligan
410 East 65 Street
New York, NY 10021 20,000 (10) 0.06
Herbert L. Hugill
160 Turtle Creek Circle
Oldsmar, FL 34677 - 0 - (15) 0.00
Robert C. Miller
c/o Allen & Company, Incorporated
711 Fifth Avenue
New York, NY 10022 - 0 - (14) 0.00
Dr. Robert R. Alfano
c/o City College of CUNY
Convent Avenue @ 138th Street
New York, NY 10031 1,414,000 (11) 4.10
All directors and officers
as a group (8 persons) 8,770,894 (13) 25.38
</TABLE>
<PAGE>
(1) Includes the issuance of a net of 398,167 restricted shares acquired by Mr.
Katevatis pursuant to the exercise of stock options described in footnotes (5)
and (12) below.
(2) Includes 824,500 restricted shares issued for past performance and services
rendered to the Company. See Note 8 of Notes to Consolidated Financial
Statements.
(3) Includes 552,664 restricted shares issued in consideration for contractual
reduction in salary described in Note 3 of Notes to Consolidated Financial
Statements.
(4) Excludes 50,000 shares owned by Mr. Katevatis' daughter as custodian for his
grandchildren, and a total of 500,000 shares owned by his sons, as to all of
which he disclaims beneficial ownership.
(5) On December 13, 1985, the Company granted stock options at an exercise price
of $0.25 per share to the following Officers and Directors in exchange for
cancellation of certain of the Company's accrued indebtedness to such persons,
portions of which were assigned as follows: Mr. Katevatis received options to
purchase 4,400,000 shares (2,200,000 of which were assigned by Mr. Katevatis to
Mr. Kennedy); Winston Frost, a former director, received options to purchase
476,000 shares, 238,000 of which were assigned by Mr. Frost to Mr. Armstrong;
and Mr. Kouvatas received options to purchase 560,000 shares.
(6) Includes the issuance of a net of 1,833,333 restricted shares acquired by
Mr. Kennedy pursuant to the exercise of stock options described in footnotes (5)
and (12). Also included are 100,000 shares registered in the name of Mr.
Kennedy's wife.
(7) Includes the issuance of a net of 65,000 restricted shares acquired by Mr.
Armstrong pursuant to the exercise of stock options described in footnotes (5)
and (12). Also included are 6,000 shares registered in the name of Mr.
Armstrong's wife.
(8) Includes the issuance of a net of 466,666 restricted shares acquired by Mr.
Kouvatas pursuant to the exercise of stock options described in footnotes (5)
and (12). Also included are; 114,000 shares owned by Mr. Kouvatas' wife; 6,000
shares for which Mr. Kouvatas is custodian for three (3) of his children and
36,000 shares for which Mr. Kouvatas' daughter is custodian for her two children
under the New Jersey Uniform Gift to Minors Act; and 30,000 shares registered in
the names of each his children.
(9) Includes the issuance of a net of 166,666 shares acquired by Mr. Krumm
pursuant to the exercise of stock options on May 1, 1997; also includes 6,000
shares registered in the name of his wife's IRA.
(10) Includes 20,000 shares which may be acquired by Mr. Culligan at $2.00 per
share pursuant to immediately exercisable stock options.
(11) Includes 44,000 shares owned by Dr. Alfano's daughter and 44,000 shares
held by Dr. Alfano's wife in trust for their minor son.
<PAGE>
(12) In April 1996, Messrs. Katevatis, Kouvatis, Kennedy and Armstrong,
directors and shareholders of the Company, collectively exercised options for
2,763,166 shares of the Company's common stock at no cost in consideration for
the cancellation of the remaining 452,582 options held by these individuals. The
exercise price for these options was $0.25 per share and, accordingly, the
Company recorded $690,792 as additional compensation expense.
(13) Includes the shares described in notes (1), (6), (7), (8), (9) and (10)
above.
(14) Excludes 3,084,200 shares beneficially owned by Allen & Company,
Incorporated, as reflected in Amendment No. 3 to their Schedule 13G filed
February 14, 1997. Mr. Miller is a vice president and a director of Allen &
Company, Incorporated.
(15) See Note 3 of Notes to Consolidated Financial Statements.
The foregoing table does not include options granted to former
placement agents of the Company's securities to purchase 111,912 shares of
Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended February 28, 1989, the Company ratified
and confirmed a prior letter agreement granting Pepco Manufacturing Co. a right
of first refusal for any and all manufacturing either for or through the Company
for a ten year period ending October 29, 1997. The terms and provisions of such
arrangements will be at least as favorable to the company as would otherwise be
available from unaffiliated third parties. The Chairman of the Board of Pepco
Manufacturing Co. is John M. Kennedy, who serves as an officer and director of
the Company. In the event of an opportunity for a business arrangement with a
major marketing co-developer involving manufacture as well, Pepco has consented
to relinquish its right of first refusal in the best interests of the Company.
On December 1, 1988, the Company acquired from Dr. Robert Alfano, a
principal stockholder of the Company and Chairman of the Company's Scientific
Advisory Board, all of the issued and outstanding stock of Laser Diagnostic
Investments, Inc. (previously defined as "LDI") in exchange for 1,500,000 shares
of the Company's Common Stock. Additionally, LDI is under an obligation to pay a
royalty in the aggregate amount of 1% of gross sales from any equipment made,
leased or sold which embodies the concepts described in patent number 4,930,516
to Michelle Alfano, Dr. Alfano's daughter. In April, 1992 the Company entered
into a five (5) year Consulting Agreement with Dr. Alfano. By letter Agreement,
dated August 5, 1995, the Company extended his Employment Agreement to March 5,
2002 under the same terms and conditions. Pursuant to the terms of such
Consulting Agreement, Dr. Alfano is to be paid a consulting fee of not less than
$150,000 per annum in exchange for services to be rendered for approximately
fifty (50) days per annum in connection with the Company's medical photonics
business. The Consulting Agreement further provides that Dr. Alfano is to be
paid a bonus and fringe benefits in accordance with policies and formulas
applied to the key executives of the Company.
During the fiscal year ended February 28, 1997, Mr. Katevatis was paid
$50,000 for legal services rendered and $20,047.
<PAGE>
ITEM 13. EXHIBITS, LISTS AND & REPORTS ON FORM 8-K
(9) Exhibits.
10.01 Employment Agreement dated May 1, 1992 between the Registrant and Peter
Katevatis. (1)
10.02 Consulting Agreement dated April 21, 1992 between the Registrant and Dr.
Robert R. Alfano. (2)
10.03 Extension Agreement between the Registrant and City College of the City of
New York. (3)
10.04 Research Proposal to Registrant submitted jointly by the City College of
the City University of New York and the Research Foundation of the City
University of New York. (4)
10.07 Agreement, dated December 1, 1988, by and among the Registrant, Laser
Diagnostics, Inc. and Robert Alfano, as amended and modified on October 24,
1988. (7)
10.08 Research Agreement between The Research Foundation of the City University
of New York and the Registrant dated as of June 1, 1992. (8)
10.09 Clinical Trial Agreement between Memorial Hospital for Cancer and Allied
Diseases and the Registrant dated as of June 1, 1992. (9)
10.10 License Agreement between Virginia Commonwealth University and the
Registrant. (10)
10.11 Letter Agreement between Memorial Hospital for Cancer and Allied Diseases
and the Registrant dated March 30, 1993 amending Clinical Trial Agreement dated
June 1, 1992. (11)
10.12 Amendment No. 3 to Agreement between the Registrant and City College of
the City University of New York.
10.13 Research Agreement effective July 1, 1994 between the Registrant and
Sloan- Kettering Institute for Cancer Research. (12)
10.14 License Agreement between Yale University and the Registrant dated May 4,
1993.
10.15 License Agreement between Yale University and the Registrant dated
November 30, 1993.
10.16 Research Agreement effective July 1, 1994 between the Registrant and the
Trustees of Columbia University in the City of New York. (13)
10.17 Research Agreement effective July 1, 1994 between the Registrant and the
Free University, Amsterdam, N.V. (14)
10.18 Microbial Detection protocol dated August 15, 1994 between and the
Registrant and Merck & Co. (15)
10.19 Collaborative Research Agreement effective September 23, 1994 between the
Registrant and General Electric Company. (16)
<PAGE>
10.20 SBIR Grant Award effective September 30, 1994 between the Registrant and
the National Institutes of Health. (17)
10.21 Award / Contract effective September 30, 1994 between the Registrant and
the U.S. Army Medical Research Acquisition Activity. (18)
10.22 Clinical Trial Agreement effective December 1, 1994 between the Registrant
and the General Hospital Corporation, d.b.a. Massachusetts General Hospital.
(19)
10.23 Investment Banking Agreement effective August 8, 1995 between the
Registrant and Allen & Company Incorporated. (20)
10.24 Employment Agreement effective January 18, 1996 between the Registrant and
H. L. Hugill. (21)
10.25 Collaborative Research Agreement effective June 15, 1996 between the
Registrant, Mallinckrodt Medical Inc. and the Research Foundation of the City
University of New York. (22)
10.26 Investigational Device Exemption granted January 3, 1997 by the U.S. Food
and Drug Administration. (23)
10.27 Employment Agreement Extension effective January 17, 1997 between the
Registrant and H. L. Hugill. (24)
10.28 Research Agreement effective April 21, 1997 among the Registrant, General
Electric Company and the Research Foundation of the City University of New York
(25).
(1) Filed as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1993.
(2) Filed as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1993.
(3) Filed as Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1993.
(4) Filed as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1989 and incorporated by reference thereto.
(5) Filed as Exhibit 10.3 to Registrant's Registration Statement on Form S-1
filed on July 5, 1991 and incorporated herein by reference thereto.
(6) Filed as Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1987 and incorporated by reference thereto.
(7) Filed as Exhibit 10.5 to Registrant's Registration Statement on Form S-1
filed on July 5, 1991 and incorporated herein by reference thereto.
(8) Filed as Exhibit 10.8 to Registrant's Registration Statement on Form S-1
filed on August 24, 1992 and incorporated herein by reference thereto.
(9) Filed as Exhibit 10.9 to Registrant's Registration Statement on Form S-1
filed on August 24, 1992 and incorporated herein by reference thereto.
<PAGE>
(10) Filed as Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1993.
(11) Filed as Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1993.
(12) Filed as Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
(13) Filed as Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
(14) Filed as Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
(15) Filed as Exhibit 10.18 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
(16) Filed as Exhibit 10.19 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
(17) Filed as Exhibit 10.20 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
(18) Filed as Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
(19) Filed as Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
(20) Filed as Exhibit A to Registrant's Current Report on Form 8-K dated
September 23, 1995.
(21) Filed as Exhibit A to Registrant's Current Report on Form 8-K dated April
23, 1996.
(22) Filed as Exhibit A to Registrant's Current Report on Form 8-K dated June
15, 1996.
(23) Filed as Exhibit A to Registrant's Current Report on Form 8-K dated January
6, 1997.
(24) Filed as Exhibit A to Registrant's Current Report on Form 8-K dated January
28, 1997.
(25) Filed as Exhibit A to Registrant's Current Report on Form 8-K dated April
21, 1997.
(b) Reports on Form 8-K
See Exhibit 10.25
Collaborative Research Agreement effective June 15, 1996
between the Registrant, Mallinckrodt Medical Inc. and the
Research Foundation of the City University of New York. (22)
See Exhibit 10.26
<PAGE>
Investigational Device Exemption granted January 6, 1997 by
the U.S. Food and Drug Administration. (23)
See Exhibit 10.27
Employment Agreement Extension effective January 17, 1997
between the Registrant and H. L. Hugill. (24)
See Exhibit 10.28
Research Agreement effective April 21, 1997 with General
Electric Company and the Research Foundation of the City
University of New York. (25)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MEDISCIENCE TECHNOLOGY CORP.
Date: June 27, 1997 By: /s/Peter Katevatis
------------------
Peter Katevatis
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Mediscience Technology
Corp., hereby severally constitute and appoint Peter Katevatis, our true and
lawful attorney, with full power to sign for us and in our names in the
capacities indicated below, any amendments to this Report on Form 10-KSB, and
generally to do all things in our names and on our behalf in such capacities to
enable Mediscience Technology Corp., to comply with the provisions of the
Securities Exchange Act of 1934, as amended, and all the requirements of the
Securities and Exchange Commission.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the date
indicated:
Signature Title Date
--------- ----- ----
/s/Peter Katevatis
- ------------------
Peter Katevatis, Esq. Chairman of the Board June 27, 1997
Principal Executive and
Financial Officer
/s/William Armstrong
- --------------------
William Armstrong Director June 27, 1997
/s/Matthew J. Culligan
- ----------------------
Matthew J. Culligan Director June 27, 1997
/s/Herbert L. Hugill
- --------------------
Herbert L. Hugill Director June 27, 1997
/s/John M. Kennedy
- ------------------
John M. Kennedy Director June 27, 1997
Principal Accounting
Officer
<PAGE>
/s/Michael N. Kouvatas
- ----------------------
Michael N. Kouvatas, Esq. Director June 27, 1997
/s/Ronald W. Krumm
- ------------------
Ronald W. Krumm Director June 27, 1997
John P. Matheu
- -----------------
John P. Matheu Director June 27, 1997
Robert C. Miller
- -------------------
Robert C. Miller Director June 27, 1997
Clarence Z. Wurts
- --------------------
Clarence Z. Wurts Director June 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<CASH> 678,397
<SECURITIES> 0
<RECEIVABLES> 31,664
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 710,061
<PP&E> 191,095
<DEPRECIATION> 150,820
<TOTAL-ASSETS> 1,050,619
<CURRENT-LIABILITIES> 520,862
<BONDS> 0
0
21
<COMMON> 346,920
<OTHER-SE> 182,816
<TOTAL-LIABILITY-AND-EQUITY> 1,050,619
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,770,931
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,708,456)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,708,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,708,456)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
