FORM 10-Q SB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended August 31, 2000 Commission File Number 0-7405
MEDISCIENCE TECHNOLOGY CORP.
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(Exact Name of Registrant as Specified in its Certificate of Incorporation)
New Jersey
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(State or other jurisdiction on incorporation or organization)
22-1937826
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(I.R.S. Employer Identification Number)
1235 Folkestone Way, Cherry Hill, New Jersey 08034
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(Address of principal executive offices)
(Registrant's telephone number, including area code) 609-428-7952
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [_]
Registrant has not been involved in bankruptcy proceedings during the preceding
five years.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 31, 2000.
Title of Class Number of Shares Outstanding
-------------- ----------------------------
Common Stock, par value
$.01 per share 36,226,130
Preferred Stock, par value 2,074
$.01 per share
<PAGE>
MEDISCIENCE TECHNOLOGY CORP.
AUGUST 31, 2000
INDEX
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PAGE
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PART I. Financial Information
Item 1. Financial Statements
Balance Sheets as at August 31, 2000 (Unaudited) and
February 29, 2000 1
Statement of Operations for the Quarter ended August
31, 2000 (Unaudited) and August 31, 1999 (Unaudited) 2
Statement of Cash Flows for the Period ended August
31, 2000 (Unaudited) and August 31, 1999 (Unaudited) 3
Statement of Stockholders' Equity for the Period ended
August 31, 2000 (Unaudited) 4
Exhibit to Statements of Operations 5
Notes to Financial Statements 6
Item 2. Management's Plan of Operation 7
PART II. Other Information 8
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
MEDISCIENCE TECHNOLOGY CORP.
BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
August 31, 2000 February 29,
(Unaudited) 2000
------------------- -------------------
<S> <C> <C>
CURRENT ASSETS
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Cash and Cash Equivalents $ 3,811 $ 17,066
Other Assets - 20,191
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Total Current Assets 3,811 37,257
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PROPERTY, PLANT AND EQUIPMENT
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Net of Accumulated Depreciation $197,284
August 31, 2000; $195,390 - February 29, 2000 6,694 8,588
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TOTAL ASSETS $ 10,505 $ 45,845
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
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Accounts Payable $ 37,810 $ 39,396
Other Accrued Liabilities 2,137,342 1,877,456
Officer and Other Loans 143,192 141,955
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Total Current Liabilities 2,318,344 2,058,807
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STOCKHOLDERS' EQUITY
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Preferred Stock - $.01 Par Value; Authorized
50,000 Shrs; Outstanding 2,074 Shrs;
(Preference on Liquidation $20,740) 21 21
Common Stock $.01 Par Value, Authorized
39,950,000 Shares; Outstanding 36,226,130 Shares 362,261 359,761
Additional Paid-in Capital 18,315,977 18,215,977
Accumulated Deficit (20,986,098) (20,588,721)
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Total Stockholders' Equity (Deficiency) (2,307,839) (2,012,962)
------------------- -------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 10,505 $ 45,845
---------------------------------------- =================== ===================
</TABLE>
1
<PAGE>
MEDISCIENCE TECHNOLOGY CORP.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
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2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ - $ - $ - $ -
Cost of Sales - - - -
-------------- --------------- -------------- ----------------
Gross Profit - - - -
General and Administrative Expense 362,224 446,428 187,618 149,752
Product Development Expense - 5,000 - -
Advertising, Travel and Marketing 35,541 20,601 17,123 8,783
-------------- --------------- -------------- ----------------
Total Expenses 397,765 472,029 204,741 158,535
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Other Income 388 132 164 4
-------------- --------------- -------------- ----------------
Net Loss $ (397,377) $ (471,897) $ (204,577) $ (158,531)
============== =============== ============== ================
Net Loss Per Common Share $ (.01) $ (0.02) $ (0.01) $ (0.01)
============== =============== ============== ================
Weighted Average Number of Shares
of Common Stock Outstanding 36,159,463 35,451,130 36,226,130 35,542,797
============== =============== ============== ================
</TABLE>
2
<PAGE>
MEDISCIENCE TECHNOLOGY CORP.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (397,377) $ (471,897)
Adjustment for Item Not Requiring Cash Outlay
Depreciation 1,894 2,911
Stock Issued for Services 65,000 53,075
Issuance of Warrants - 164,031
---------------- -----------------
Subtotal (330,483) (251,880)
Changes in Assets and Liabilities:
Decrease in Other Assets 20,191 -
Increase (Decrease) in Accounts Payable (1,586) 3,333
Increase (Decrease) in Other Accrued Liabilities 259,886 196,831
Increase (Decrease) In Officer and Other Loans 1,237 17,521
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Net Cash Flows (Used for) Operating Activities (50,755) (34,195)
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CASH FLOWS FROM INVESTING ACTIVITIES - -
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CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from Issuance of Common Stock 37,500 11,000
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,255) (23,195)
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CASH AND CASH EQUIVALENTS
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Beginning Balance 17,066 24,940
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Ending Balance $ 3,811 $ 1,745
================ =================
</TABLE>
3
<PAGE>
MEDISCIENCE TECHNOLOGY CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED AUGUST 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred
Stock Common Stock
Number of Preferred Number of Common Additional Paid Accumulated
Shares Stock Shares Stock in Capital Deficit
---------- ------------- ------------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance February 29, 2000 2,074 $ 21 35,976,130 $ 359,761 $ 18,215,977 $ (20,588,721)
Issuance of Stock for Cash - - 150,000 1,500 36,000 -
Issuance of Stock for Services - - 100,000 1,000 64,000 -
Net Loss for the Six Months Ended
August 31, 2000 - - - - - (397,377)
---------- ------------- ------------- ------------ -------------- ---------------
Balance August 31, 2000 2,074 $ 21 36,226,130 $ 362,261 $ 18,315,977 $ (20,986,098)
========== ============= ============= ============ ============== ===============
</TABLE>
4
<PAGE>
EXHIBIT TO STATEMENTS OF OPERATIONS
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
<TABLE>
<CAPTION>
Weighted
Common Stock Average
$.01 Par Value Common Number of Number of
Issued and Stock Shares Shares
Outstanding Equivalents Outstanding Outstanding
------------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
March 2000 35,976,130 - 35,976,130
April 2000 36,076,130 - 36,076,130
May 2000 36,226,130 - 36,226,130
June 2000 36,226,130 - 36,226,130
July 2000 36,226,130 - 36,226,130
August 2000 36,226,130 - 36,226,130 36,159,463
</TABLE>
5
<PAGE>
MEDISCIENCE TECHNOLOGY CORP.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2000
(UNAUDITED)
NOTE 1 RESULTS OF OPERATIONS
The financial statements, in the opinion of management, include all
adjustments and accruals necessary for a fair presentation.
The results of operations for each interim period are not necessarily
indicative of results to be expected for the year due to the
unpredictability of market factors, product development, competition
and sales in general.
NOTE 2 OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
Legal and Professional Fees $ 268,600
Research & Development 458,484
Salaries, Consulting and Other 1,410,258
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$ 2,137,342
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6
<PAGE>
MANAGEMENT'S PLAN OF OPERATION
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The Company is engaged in the design, development and commercialization of
medical devices for early cancer detection based on the use of light induced
native tissue fluorescence spectroscopy to distinguish between pre-malignant,
malignant, and normal or benign tissue. Pre-clinical and clinical study results
support the Company's belief that its proprietary technology, when fully
developed, will be a useful and cost effect adjunct to the physician for cancer
screening and diagnosis.
While we believe that our diagnostic technology will be broadly useful in
multiple organ systems, each approved indication will require a separate, costly
and time-consuming pre-marketing approval (PMA). We plan to carefully select and
prioritize our targeted indications to maximize the return on development and
clinical investments. We regard our seminal U.S. "516" and other related patents
(such as 5, 131, 398) as pioneering, blocking and dominant in the area of cancer
diagnosis using fluorescence spectroscopy both in- vivo and in-vitro.
Until July, 1998, the Company provided annual funding grants to the
Mediphotonics Laboratory of the City University of New York in accordance with a
budget of activities and expenditures negotiated between the Company and the
University. The arrangement was renewable annually and could be terminated
without cause by either party upon 90 days notice prior to June 1st of each
year. The contract with the City University was extended by agreement at no cost
until October 1, 1998. Because of funding limitations, the Company was unable to
renew its contract following expiration of the October, 1998 extension. The
Company plans to resume its support of relevant programs when, and if, current
fund raising efforts are successful.
In April, 1999, the Company and the City University initiated a joint effort
with Sarnoff Corporation of Princeton NJ for the purpose of developing a
commercial imaging system based on the Company's technology, and on the
engineering background and expertise, and certain proprietary technology of
Sarnoff.
In November, 1999, the Company announced that Frank S. Castellana, M.D., Eng.
Sc. D. would join its executive team as President and Chief Executive Officer,
effective February 1, 2000. It also announced that it was seeking investment
partners to support the funding of a joint effort between itself, Sarnoff
Corporation, and the Mediphotonics Laboratory of the City University of New York
to develop and commercialize an advanced, second generation version of its
proprietary two-dimensional fluorescence imaging system for early cancer
detection.
In August 2000, the Company and Sarnoff Corporation agreed in principle to form
a Joint Venture to develop optical diagnostic products based on the Company's
proprietary technology and using key enabling technologies and know-how
proprietary to Sarnoff. Under terms of the Agreement, and predicated on
achieving targeted levels of initial capitalization, Sarnoff will provide
royalty free access to its technology, and agree to work exclusively with the
Joint Venture in the defined Field of Use, in return for an equity interest in
the Joint Venture.
The principal issue which continues to face the Company is a lack of the
financial resources and liquidity required to maintain business momentum and to
properly leverage intellectual property assets; the resolution of this issue is
the principal focus and the highest priority of management. In the absence of
the availability of such financing on a timely basis, the Company may be forced
to materially curtail or cease its operations.
Two important derivative issues relate to the Company's research and licensing
agreements with the City University of New York. The Company has an outstanding
financial obligation to the University for work conducted during the period
August 1997 through July 1998. In 1999, an agreement was reached to extend the
time for payment until June 30, 2000. In October 2000, the Company and the City
University entered into a second agreement, which further extended the time for
payment until October 31, 2001. The time period for negotiating a minimum
royalty agreement on certain patents, which have or will pass the five-year
period for commercialization, was also extended until October 31, 2001.
According to the terms of this Agreement, Mediscience is required to make a
payment of $175,000 to the City University on or before November 15, 2000.
We believe that the Company is eligible to receive benefits under the State of
New Jersey Technology Business Tax Certificate Program (which allows emerging
technology and biotechnology businesses to sell their unused Net Operating Loss
(NOL) carryover to any corporate taxpayer in the state for at least 75% of the
tax benefits) through the sale of its New Jersey Net Operating Loss carryover.
On June 28, 2000, the Company submitted an application for benefits under this
program (approved 9/14/00). It is our intention to use any proceeds derived to
fully fund the payment of our obligation to the City University and to support
other relevant development activity. The Company has already entered into a
three year agreement on very favorable terms with a New Jersey corporate
taxpayer to purchase the NOL state tax certificate upon issuance.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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None
Item 2. Changes in Securities
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None
Item 3. Defaults Upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K
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On August 14, 2000 Mediscience Technology Corp. and Sarnoff Research
Corp. (Princeton, NJ) entered a letter of understanding establishing
Sarnoff's equity participation in a joint venture company based on
agreed to initial capitalization and valuation. The party's purpose
is to join respective world-class intellectual property, Sarnoff
engineering expertise and know-how to develop Mediscience/Sarnoff
optical diagnostic products as a broad platform of commercial
applications.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND 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.
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(REGISTRANT)
DATE: By: /s/ PETER KATEVATIS
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PETER KATEVATIS
Chairman/CEO
By: /s/ JOHN M. KENNEDY
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JOHN M. KENNEDY
Treasurer
Chief Accounting Officer
