SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended February 28, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from February 28, 1999 to February 28, 1999
Commission File No. 33-51218
MEDISCIENCE TECHNOLOGY CORP.
(Exact name of registrant as specified in its charter
New Jersey 22-1937826
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(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
Issuers telephone number, including area code: (609)- 428-7952
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.01 per share
Check 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 [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-K contained herein, 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-K or any amendment to this
Form 10-K [ X ]
The issuer's revenues for its most recent fiscal year were : $ none
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The aggregate market value of the voting stock and non-voting common equity
held by non-afiliates computed by the average bid and asked price of such common
equity of the Registrant, as of , Dec. 28, 1999 ($.25 per share) was:
$4,755,155.75
The number of shares outstanding of each of the registrant's classes of
common stock, as of May 12, 1999 were: 35,326,130. The issuer had no other
classes of common equity outstanding as of that date.
Title of Each Class Number of Shares Outstanding
------------------- ----------------------------
Common Stock, par value $.01 per share 35,326,130
Preferred Stock, par value $0.1 per share 2,074
DOCUMENTS INCORPORATED BY REFERENCE:
8-K Report, filed 4/8/98, CUNY introduction/review Optical Biopsy-Optical
Mammography Photonics to detect Cancer, March 11, 1998. and
8-K Report, filed 11/23/99 Employment Agreement with. Frank S. Castellana
M.D. as President and Chief Operating Officer of Mediscience Technology Corp are
incorporated by reference into Part 1 of this form.
<PAGE>
MEDISCIENCE CORP.
Annual Report on Form 10-K
Table of Contents
PART I
Item 1. 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 Registrant's Common Equity and Related Shareholder
Matters
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7. Selected Financial Data
Item 8. Financial Statements and Supplemental Data
Report of Independent Public Accountants
Consolidated Balance Sheets- February 28, 1999 and 1998
Consolidated Statements of Operations for the years ended
February 28,1999,1998 and February 29, 1997
Consolidated Statement of Stockholders Equity for the years
ended February 28,1999, 1998 and February 29, 1997
Consolidated Statements of Cash Flows for the years ended
February 28,1999, 1998 and February 29,1997
Consolidated Notes to Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of certain Beneficial Owners of Management
Item 13. Certain Relationships and related transactions
Item 14. Exhibits, List and Reports on Form 8-K
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PART I
Item 1. 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 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. Y2K computer
configuration is not of concern to our design because it is addressed as a
matter of product development.
Mediscience Technology Corp. ("the Company" "us" or "we")) is principally
engaged in the design and development of diagnostic medical devices that detect
cancer using light induced native tissue fluorescence spectroscopy (the
"Technology") to distinguish between malignant and normal or benign tissue, year
2000 computer configuration is not of concern or a problem to our design, it is
addressed as a matter of the product development. Animal and human tissue
contains molecules that fluoresce naturally when exited by light at certain
wavelengths. Since the molecular and or structural 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 spectrum allowing it to distinguish
between normal, precancerous and cancerous tissue.
Background
On December 1, 1988, we acquired all the outstanding stock of Laser Diagnostic
Instruments, Inc. ("LDI") which is now a wholly owned subsidiary of the Company.
The principle asset of ("LDI") was the ownership of 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
US Patent and Trademark Office on June 5, 1990. The "516" claims were expanded
from 9 to 59 on August 8,1998 in a reexamination of that patent initiated by the
Company. Our research and development activities are centered around this patent
and other patents either acquired subsequently by Mediscience or for which
Mediscience is the exclusive licensee.
We have successfully conducted preclinical and clinical evaluations which
continue to support our belief that out proprietary technology, when fully
developed, will be useful in the screening and diagnosis of cancer. We also
believe that our Technology, if successfully developed, will have substantial
commercial appeal due to its non-invasive character, its delivery of immediate,
real time results, its enhanced diagnostic sensitivity and specificity and its
appeal to physicians who can generate additional office revenues that currently
accrue to an off site pathology laboratory.
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On January 6, 1997, we received FDA approval of its Investigational Device
Exemption to initiate human trial Phase II clinical trials with its CD Scan
medical device for early stage detection of cancer.
On January 25,1999 the FDA classified our Mediscience CD-Scan as a
non-significant risk device for human trial Phase II clinical investigation of
the biological basis of fluorescence as applied to medically significant women
OBGYN health issues. This study has begun and is presently conducted under a
research agreement with Yale University directed by Dr. Frederick Naftolin
chairman OBGYN Dept of Obstetrics and Gynecology.
Strategy
On April 15, 1999 the Company entered into a joint effort with Sarnoff
Corporation. of Princeton NJ for the purpose of raising funds to develop a
series of instruments based upon our Technology and the engineering background
and expertise of Sarnoff and City University of New York. On April 15, 1999 the
Company and Sarnoff jointly filed a $2.5 Million funding request with the
National Cancer Institute to support the development over a three year period of
an "Instrument to Screen, Detect and Treat Human Cervical Cancer Based on
Intrinsic Fluorescence Imaging:" Significantly, this filing provided that al
intellectual property contributed to this development project by us and all
patentable improvements which result from the use of our shop-knowledge,
know-how, prototypes and improvements of our patents during this project are to
be our sole property unless we otherwise agree in writing. While the project was
considered to have scientific merit by NCI reviewers, funding was not made
available.
Our 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. Our principle
focus will be on the United States. while we expect to address international
markets via partnering or licensing arrangements with other companies.
We believe our Technology will have 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. We plan to carefully select and prioritize its targeted diagnostic
applications to insure the best possible payback on its product and clinical
development investments. We regard our "516" and other related patents (such as
5,131,398) as pioneering, blocking and dominant in the area of cancer diagnosis
using fluorescence in vivo and in vitro.
On November 29, 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.
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Our Products
We have developed three prototype products that employ our 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 our devices which is used to transmit
the optical excitation signal and to relieve the native fluorescence response.
We believe that the CD instruments 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 evacuation 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. We use the CD Scan whenever possible to
help define the critical scanning and emission wavelengths for its two other
prototype products. On the other hand we are designing the CD Ratiometer as a
simple, compact instrument with user friendly features and characteristics. It
is being designed to optically assess the scanned tissue only at preestablished
optical wavelengths and to instantaneously report out a "yes "no" or "maybe"
result on a computer screen. We expect that the CD Ratiometer with it's
anticipated assortment of disposable probe designs, will be the preferred
product for medical practitioners to use in the office or clinical setting. The
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 the form of a colored map on a
computer screen distinguishing the normal areas from cancerous areas via color
differentiation. If we can successfully develop theCD Map, we expect it to be
especially useful in assisting cancer surgeons in clearly 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 the
acquisition by the Company of LDI from Dr. Alfano in 1988, we also developed a
research agreement with the Research Foundation of CUNY to provide us with
research and development services. 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 us with research and development
services.
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The staff of MPL, which is supervised by Dr. Alfano, developed our current
prototype CD devices. MPL 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 which the Company either owns outright or possesses a world
wide exclusive license, and which the Company regards as pioneering,
blocking.and dominant in the area of cancer diagnosis using fluorescence (e.g.
Patents 516--398). The information derived 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
Our CD products are designed primarily to be used directly on human patients in
vivo. Part of the process of product development and FDA approval 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 our Technology and prototype CD products, we
have been able to develop important collaborative relationships with some of the
most highly regarded cancer center 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 the
Massachusetts General Hospital (Harvard Medical School) in Boston.
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 1998. One
such clinical study is focused on diagnosis of breast cancer using our 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 our 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 cancer staging information to the
radiologist when the tumor is cancerous. 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.
<PAGE>
The other, planned, Phase I clinical 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. On
April 24, 1997, we entered into a clinical trial agreement and provided initial
funding for this clinical study. However, further progress on this study will
require additional funding which cannot be provided at this time due to resource
constraints. 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 accessional 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 our 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 accessional
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. Dr. Basuk has reported that his :work shows UV emission
measurements can effectively distinguish normal esophageal tissue from Barrett's
or adenocarcinoma. Further preliminary data also indicates that the combination
of UV emission and excitation measurements can potentially separate
non-dysplasia Barrett's from dysplasia and cancer as well as from normal
tissues" On March 19,1999 The New England Journal of Medicine Vol.340, No. 11
reported on a study of "Symptomatic Gastrosophageal Reflux as a risk factor for
esophageal Adenocarcinoma" concluding that there is a strong and probable causal
relation between gastrosophageal reflux and esophageal adenocarcinoma.
Esophageal adenocarcinoma is treatable but rarely curable, mortality is high and
successful treatment depends on early detection, thus screening high risk
patients would be appropriate. Mediscience experience in excitation of important
tissue molecules shows improve diagnostic accuracy in the range of 80 to 90
percent with measurement time a few seconds (real-time). The greatest incidence
of this decease is seen in males over age 60. with the major risk factors of
alcohol and tobacco.
Our experience in excitation of important tissue molecules shows improved
diagnostic accuracy in the range of 80 to 90 percent with measurement time of a
few seconds (real-time). The greatest incidence of Barrett's Esophagus is seen
in males over age 60, with the major risk factors of such disease being use of
alcohol and tobacco.
Business Development and Marketing
More than 120,000 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 1/3 of the population, will develop 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.
<PAGE>
Although several cancer screening techniques have been developed 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, accessional 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 accessional 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 accessional 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 accessional 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.
We believe that our Technology incorporated into one or more of our prototype CD
products will be useful in diagnosing 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, we are in the process of creating a
prioritized list of other potential applications to evaluate on a pre-clinical
basis. If successful, on a pre-clinical basis, we contemplate progressing to the
clinical evaluation phase and premarket approval ("PMA") application phase.
We plan to develop certain of our CD products for diagnostic applications,
(sometimes referred to as "labeled indications"), that we will ultimately market
for our own account in the United States. In addition, we plan to co-develop one
or more of our prototype CD products for specific cancer diagnostic applications
with one or more selected other companies. We have nurtured relationships with a
small number of highly qualified companies which have expressed interest in
working with us to co-develop one or more of our existing CD prototype products
or possible variations thereof in exchange for certain as yet undetermined
rights to commercially exploit a finished approved product in the marketplace or
a geographic segment thereof.
<PAGE>
We have , in the past, and continue to presently 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, we are successful in fostering them, are expected
to add value to the Company by stretching and leveraging the our financial
resource base with development licensing revenues that the Company can then use
to help fund the development of our own products.
We also believe that a market for our CD products will exist in the European
Union and possibly Asia. We 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 2000. We 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
Our 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. We contemplate 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 our products. Although
additional design improvements will likely be required to refine the current
prototype products for commercial use, we still believe that the key components
will be available from one or more suppliers. We executed a lease agreement,
dated January 19, 1997 with City College providing for 900 square feet of space
as a "incubator" in which prototypes of the products have been designed and
assembled by MPL staff working in concert with personnel from an engineering
design firm engaged by the Company.
We plan to out source the manufacture and assembly of our medical device
products to contract manufacturers when it is no longer feasible for the MPL to
perform that service. Our 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, N.J., is owed by John M. Kennedy, an officer, director
and a principal of the Company. It is believed that Pepco is currently or can
become qualified to manufacture our products. Additionally, an opportunity for a
business arrangement with a major marketing co-developer could involve
manufacture as well.
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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 Ultra fast Spectroscopy and Lasers ("IUSL") at the City
of 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 1
of each year. The contract with CUNY- "Establishment of the MediPhotonics
Laboratory" was extended by agreement September 8, 1997 until October 1, 1998.
The Company is reviewing its present research needs with Dr. Alfano in order to
establish its grant of funds for the 1998/1999 budgetary year. In comparison,
the Company committed to funding of $431,017 for the 1996/1997 budgetary year
and provided funding of $242,948 and $245,750 for the budgetary years ending on
May 31, 1996 and May 31, 1997 respectively.
The objective of the MPL is to research the use of light and ultra fast 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 devices to be used with various types of endoscopes and core biopsy
needles. The MPL has additionally conducted in vitro preclinical evaluation of
various tissues to determine the most appropriate excitation and emission
wavelengths for use with a 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 5 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. As of the date of this filing, six patents
for which the Company has an exclusive license from the Research Foundation have
<PAGE>
passed the five year commercialization window. The Company is presently in
negotiations with the Research Foundation to extend the period of exclusivity
for this intellectual property. 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.
In 1994, the Company became a consortium industrial partner in the CUNY Center
for Advanced Technology in Ultra fast 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 in several SBIR and NIST proposals. The
Company has a continuing commitment to the CAT.
Competition
The development of minimally diagnostics for cancer detection is driven by a
critical need for more cost effective screening procedures with increased
sensitivity and specificity. In-vivo tissue autofluorescence spectral analysis,
as pioneered by Mediscience Technology Corp. is a paradigm shift emerging
diagnostic technology with clear potential to favorably impact health care
clinical outcomes as well as economics. In spite of what we believe is a seminal
and dominant Mediscience intellectual property position (in the United States),
there is intense competitive activity in this area, with at least seven
companies conducting active research and development programs. Specifically:
Xillix Technology Corporation, (Richmond, B.C. Canada) is currently the only
competitor with a commercial product (LIFE-Lung System). The Xillix system,
marketed by Olympus Corporation (Japan) at a cost of approximately $200,000 uses
visible light based auto-fluorescence spectroscopy to detect and localize lung
cancer. In association with Olympus, Xillix is also working actively to extend
application of the technology to the GI tract and cervix. On July 22, 1999,
Xillix announced that it was launching legal action against Olympus for
"secretly filing and prosecuting patents potentially competitive to those of
Xillix." On August 19, 1999, Xillix announced that it had suspended all
development and distribution of its products and had terminated almost 80% of
its professional and support staff in order to conserve capital for the
prosecution of its legal claims.
LifeSpex, Inc., (Kirkland WA) is developing two products based on tissue
auto-fluorescence - Cerviscan(tm) for the detection of cervical cancer, and
Deriscan(tm) for skin cancer. Lifespex recently reported success in a 100
patient cervical cancer clinical trial in Canada, claiming 98% sensitivity and
95% specificity. LifeSpex is a privately held company with venture funding from
J&J Development Corporation, The
Centennial Funds and Vanguard Venture Partners. During the 2nd quarter of 1999,
it was reported that the Hoya Corporation made an equity investment in LifeSpex
to fund Cerviscan(tm) development and clinical trials.
<PAGE>
Polartechnics, Inc (Sidney, Australia) is developing the TruScan(tm) tissue
auto-fluorescence probe for cervical cancer detection. The company anticipates
initiating clinical trials in Europe in 1999 and in the U.S. in 2000+ (favorable
data is referenced from a previous pilot study in the U.K. using an early
version of the TruScan(tm) device) Polartechnics currently has a strategic
marketing alliance with J&J Ethic on. In 1998 Polartechnics raised $8MM through
a rights issue; they also received a $0.75MM milestone payment from J&J and a
$0.9mm grant from the Australian government. The company projects a 2000
European launch for TruScan(tm).
MediSpectra, Inc. (Lexington, MA) is developing an optical biopsy system for the
detection of cervical cancer based on tissue fluorescence. In 1998 MediSpectra
raised $9.0MM in a private placement through Euclid Partners (Lexington, MA).
SpectrRx, Inc. (Norcross, Ga) is developing a biophotonics technology for the
detection of both cervical and skin (melanoma) cancers. In August, 1999, SpectRx
reported favorable results in cervical scans of 53 patients at three sites using
colposcopy and pathology as reference standards; diagnostic sensitivity and
specificity were not reported; the study is ongoing. In February, 1999, SpectRx
entered into an agreement with Welsh Allyn to develop biophotonics products for
the diagnosis of cervical cancer. SpectRx also has strategic alliances with
Respironics and Abbott for the development of unrelated diagnostic products.
Spectra Science, Inc. (Minneapolis, NM) is focused on the development of an
Optical Biopsy Forceps for polyp evaluation in the lower GI tract. In 1998,
Spectra Science completed a multi-center trial for colorectal cancer in 306
patients; a diagnostic sensitivity of 96.5% vs 86% from visual observation was
claimed; specificity, however, was reported to have decreased from 46% to 43%.
In 1999, the company filed a PMA submission with the U.S. FDA for this
indication. In February, 1999, the company raised an additional $2.2MM in
funding from venture capital sources.
Karl Storz Gmbh & Co. (Tuttlingen, Germany) is known to be pursuing the
development of a fiberoptic lung imaging system based on visible auto
fluorescence.
We are aware of other approaches to cancer screening based on X-ray, CT,
ultrasound, magnetic resonance and radionuclide imaging technologies; these,
however, are based on the detection of intra-tissue structural abnormalities and
are not ideally suited to the evaluation of tissue surface lesions. Our
proprietary approach based on imaging and analysis of autofluorescence native
spectra represents a new diagnostic paradigm. It offers the promise of providing
a more cost effective and user friendly screening procedure with increased
sensitivity and specificity, and ultimately, of replacing excision biopsy as the
diagnostic standard.
While we believe that we have a dominant intellectual property position that
will ultimately permit us to achieve leadership in this important new area,
competition from both new and established firms will continue to be intense.
Many of these firms have greater resources than the Company, and more experience
in the field of cancer diagnostics. Finally, there can be no assurances that the
Mediscience Technology, even if developed successfully, will be accepted
commercially in the marketplace.
<PAGE>
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 insure the safety and effectiveness of the device. Class I devices
are those whose safety and effectiveness can be reasonably 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 implement ion
of general and special controls, such as performance standards, post market
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.
We believe that clinical applications of our 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, we
do not qualify for the 510-(k) process (market pre-notification) of regulatory
compliance Instead we are obliged to submit a full PMA to the FDA for its
careful review and, hopeful, approval. Laboratory versions of our 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.
Although we believe that our cancer diagnostic products will ultimately be
approved, there is no assurance the FDA will act favorably or quickly in making
such reviews and approving our products for sale. We may encounter delays or
unanticipated costs in our efforts to secure governmental approvals or licenses,
which could delay or possibly preclude us from marketing our CD products.
To the extent that we intend to market our CD products in foreign markets, we
will be subject to foreign governmental regulations with respect to the
manufacture and sale of our medical device products. We cannot accurately
estimate the cost and time that will be required in order to comply with such
regulations.
<PAGE>
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 28 U.S. patents, plus 1 in Japan, for a
total of 29 and has rights to exclusively license an additional 10 U.S. patents
pending. 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 we are successful in developing our cancer diagnostic technology, and our
technology is incorporated into medical devices that are used by health care
providers for diagnostic testing for which the providers may seek reimbursement
from third-party payers, 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 payers. Reduced governmental expenditures in the United States and
in many other countries continue to put pressure on diagnostic procedure
reimbursement. We cannot predict what, if any changes, may be forthcoming in
these policies and procedures, nor the effect of such changes on the our
business potential.
Other Technologies and other applications
In addition to our developments in native tissue fluorescence spectroscopy we
have 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 be traditionally be seen
using currently available optical imaging technologies, such as, computed
tomography scanning or x-rays or mammograms. In 1994 the Company and 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 our optical imaging technology.
<PAGE>
Recent Patents Issued
U.S. Patent No. 5,769,081 issued June 23, 1998 METHOD FOR DETECTING
CANCEROUS TISSUE USING OPTICAL SPECTROSCOPY AND FOURIER ANALYSIS.
U.S.Patent No. 5,799,656 issued September 1, 1998 OPTICAL IMAGING OF BREAST
TISSUES TO ENABLE THE DETECTION THEREIN OF CALCIFICATION REGIONS SUGGESTIVE OF
CANCER.
U.S. Patent No. 5,813,988 issued September 29,1998 TIME-RESOLVED DIFFUSION
TOMOGRAPHIC IMAGING IN HIGHLY SCATTERING TURBID MEDIA.
U.S. Patent No. 5,847,394 issued December 8,1998 IMAGING OF OBJECTS BASED
UPON THE POLARIZATION OR DEPOLARIZATION OF LIGHT.
U.S. Patent No. 5,849,595 issued September 29, 1998 METHOD FOR MONITORING
THE EFFECTS OF CHEMOTHERAPEUTIC AGENTS ON NEOPLASTIC MEDIA.
U S Patent No. 5,929,443 issued July 27, 1999 IMAGING OF OBJECTS BASED UPON
THE POLARIZATION OR DEPOLARIZATION OF LIGHT
U S Patent No. 5,931,789 issued August 3, 1999 TIME-RESOLVED DIFFUSION
TOMOGRAPHIC 2D AND 3D IMAGING IN RICHLY SCATTERING TURBID MEDIA
U.S. Patent No. 5,949,077 issued September 7, 1999 TECHNIQUE FOR IMAGING AN
OBJECT IN OR BEHIND A SCATTERED MEDIUM.
U.S. Patent No. 5,983,125 issued November 9.1999 METHOD AND APPARATUS FOR
IN-VIVO EXAMINATION OF SUBCUTANEOUS TISSUES INSIDE AN ORGAN OF A BODY USING
OPTICAL SPECTROSCOPY.
U.S. Patent No. 6,006,001 issued December 21, 1999 FIBEROPTIC ASSEMBLY
USEFUL IN OPTICAL SPECTROSCOPY.
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. We believe that we will be
able to attract accomplished clinicians who will help guide us in clinical study
design aimed at gaining regulatory approval for applications of our diagnostic
Technology. They will also be called upon to advise us about priorities and
unmet needs in their respective disciplines and in matters such as physician's
habits and preferences that would bear on product design and configuration.
<PAGE>
Employees
As of February 28, 1998, the Company had one full-time employee and several
retained consultants who dedicate a substantial portion of their 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 to the present time.
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.
Seventy-five percent of such office space is occupied in accordance with an oral
arrangement with Mr. Katevatis pursuant to which the Company is required to pay
its proportionate share of total occupancy costs, maintenance, utilities and
taxes. The New York Office is located at the leased "incubator" site at CCNY.
The Company files New York State tax Returns.
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 ending February 28,1998, 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
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.
Fiscal Period Common Stock
- ------------- ---------------------------
High Bid Low Bid
-------- -------
1999
1st Quarter 5/31/98 0.33 0.27
2nd Quarter 8/31/98 0.18 0.13
3rd Quarter 11/30/98 0.18 0.10
4th Quarter 2/28/99 0.16 0.10
1998
1st Quarter 5/31/97 0.34 0.9/16
2nd Quarter 8/31/97 0.68 0.43
3rd Quarter 11/30/97 0.73 0.52
4th Quarter 2/28/98 0.9/16 0.40
(b) Holders. The approximate number of holders of record of the Companys
Common Stock and Series A Preferred Stock as of December 4, 1998 were 880 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 ending February 28, 1999 compared to year ended February 28, 1998.
The Company had no revenues during its fiscal years ended February 28, 1999
"(its 1999 Fiscal Year") and February 28, 1998 ("its 1998 fiscal year"). The
Company's primary focus was the development of its light-based technology.The
Company's technology embedded in its design and computer related format confirms
to year 2000 requirements.
General and administrative expenses decreased approximately $313,700 or 33%
during its 1999 fiscal year as compared to its 1998 fiscal year. A principle
reason for the decline was a reversal of accrued professional fees of
approximately $145,000, which were no longer required. The Company also reduced
approximately $61,000 of its consulting costs associated with its general and
financial management. As a result of writing off its patent costs and goodwill
in the prior fiscal year (1998), the current year's depreciation and
amortization also declined $40,000. The balance in the decline of general and
administrative expenses primarily represented a decrease in advertising, travel
and marketing expense approximating 59% or $50,000 during its 1999 fiscal year.
This was directly related to a decrease in activity with prospective corporate
business partners which was the result of a decline in available funds to
conduct these activities.
The Company's product development expense decreased approximately 64% or
$340,000 during the 1999 fiscal year when compared to the 1998 fiscal year. The
Company conducts a number of R&D projects with the City College of C During the
1999 fiscal year, the Company advanced or accrued approximately $171,000 to CUNY
for reimbursement of development costs. This represented a decline of
approximately $197,000 to the City College of CUNY. There was also a decline in
patent application and filing fees approximating $35,000 during the current
fiscal year 1999. The primary balance of the decline in product development
expense represented a decline in Food and Drug Administration (FDA) monitoring
costs approximating $58,000 and a decrease in product or equipment design costs
of $34,000.
During fiscal year 1998 The Company concluded that its intangible assets
including goodwill and patents should be written-off. As a result, The Company
recorded a non-cash charge of $274,675, which represents the difference between
the carrying value of these assets and their fair value based on estimated
discounted future cash flows.
Other income decreased by approximately $225,000 in the 1999 fiscal year when
compared to the 1998 fiscal year. The decrease was primarily comprised of a 1998
receipt of $200,000 from Spectrx, Inc., which entered into a no-shop agreement
while it studied possible merger, joint venture licensing or other substantial
collaboration with the Company by accessing the Company's United States and
Japanese patent portfolio and research capabilities for both corporate and
world-wide synergy. The no-shop agreement expired on January 18, 1998. The
balance represented a decline of approximately $14,000 of interest income due to
decreased cash balances previously invested in money market funds and the
recognition of approximately $11,000 interest expense as related to a warrant
issued to a creditor in exchange for a loan.
<PAGE>
Year ended February 28, 1998 Compared to Year ended February 29, 1997
The Company had no revenues during its fiscal years ended February 28, 1998
(its 1998 fiscal year") and February 29,1997 (its "1997 fiscal year"). The
Company's primary focus was the development of its light-based technology.
General and administrative expenses decreased approximately 55% or $1,147,000
during its 1998 fiscal year as compared to its 1997 fiscal year. The principle
reason for the decrease was in fiscal 1997, 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 decrease was in 1997 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. As a result, stock
was issued to an officer as additional compensation for the amendment which
increased compensation in the prior year by $353,000 when compared to the
current year.
The Company's product development expense decreased approximately 22% or
$145,000 during the 1998 fiscal year when compared to the 1997 fiscal year. The
Company conducts a number of R&D projects with the City College of the City
University of New York. During the 1998 fiscal year the Company advanced or
accrued approximately $369,000 to CUNY for reimbursement of development costs
which approximated a decline of approximately $15,000 when compared to 1997. The
balance of the decrease represented a decline in costs for cancer research
conducted at Sloan-Kettering Institute, $81,000, for patent applications filings
and fees, $23,000 and other research and development costs totaling $26,000.
During fiscal year 1998 the Company concluded that its intangible Assets
including goodwill and patents should be written off. As a result the Company
recorded a non-cash charge of $274,675 which represents the difference between
the carrying value of these assets and their fair value based on estimated
discounted cash flows.
Other income increased by approximately $152,000 in the 1998 fiscal year when
compared to the 1997 fiscal year. The increase was primarily comprised of a
$200,000 receipt from Spectrx Inc, which entered into a no-shop agreement while
it studied possible merger, joint venture, licensing or other substantial
collaboration with the Company by accessing the Company's United States and
Japanese patent portfolio and research capabilities for both corporate and
world-wide synergy. The no-shop agreement expired on January 18, 1998. The
increase was offset by a decline of approximately $48,000 of interest income,
due to decreased cash balances previously invested in money market funds.
Liquidity and Capital Resources:
The Company has a deficiency in working capital as of February 28, 1999 of
approximately ($1,487,293) representing an increase in the deficiency
approximating ($597,000) during the 1999 fiscal year. The deficiency is
primarily comprised of accruals for professional fees, research and development
costs and salaries and wages. 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.
<PAGE>
The ability of the Company to generate significant revenues from operations is
largely dependent upon obtaining regulatory approval for the commercialization
of its cancer detection technology. There can be no assurance as to whether or
when the various requisite government 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-promotional 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.
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
resources 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 SELECTED FINANCIAL DATA
The selected financial data set forth below is qualified by reference to, and
should be read in conjunction with, the Consolidated Financial Statments and
Notes thereto and Management's Discussion and Analysis of Financial Condition
and results of operations included elsewhere in this Form 10-K. The selected
financial data have been derived from the Company's Consolidated Financial
Statements which have been audited by Arthur Andersen LLP, independent public
accountants as indicated in their report.
<TABLE>
<CAPTION>
Statement of Operations: For the Years Ended February 29 (28)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales -0- -0- -0- -0- -0-
Operating Loss (824,574) (1,753,336) (2,770,931) (1,625,386) (1,377,517)
Interest (income) 11,332 (14,144) (62,475) (9,042) 43,679
Expense
Net Loss (835,906) (1,539,192) (2,708,456) (1,616,344) (1,621,196)
Net Loss per
Common Share ($.02) ($.04) ($.08) ($.06) ($.07)
<CAPTION>
Balance Sheet Data As of February 29 (28)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital (1,487,293) (890,423) 189,199 (390,376) (411,886)
(deficit)
Total Assets 59,539 64,767 1,050,619 503,525 506,237
Long Term Debt -0- -0- -0- -0- -0-
Total Liabilities 1,532,424 928,786 520,862 500,537 467,499
Stockholders
Equity (deficit) (1,472,885) (864,019) 529,757 2,988 38,738
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS ARTHUR ANDERSEN LLP
Mediscience Technology Corp. and Subsidiary
Consolidated Financial Statements as of February 28, 1999 And 1998
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,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended February 28, 1999. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Mediscience Technology Corp.
and subsidiary as of February 28, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1999 in conformity with generally accepted accounting principles.
The accompanying 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 and has an accumulated deficit.
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.
/s/ARTHUR ANDERSEN LLP
Roseland, New Jersey
December 27, 1999
<PAGE>
<TABLE>
<CAPTION>
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- FEBRUARY 28, 1999 AND 1998
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents (Note 2) .............................. $ 24,940 $ 21,240
Other assets .................................................... 20,191 17,123
------------ ------------
Total current assets ............................... 45,131 38,363
EQUIPMENT, net of accumulated depreciation of $189,570 and
$177,574 in 1999 and 1998, respectively (Note 2) ................ 14,408 26,404
------------ ------------
Total assets ....................................... $ 59,539 $ 64,767
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable ................................................ $ 47,108 $ 30,860
Accrued liabilities (Note 4) .................................... 1,421,207 897,926
Officer and other loans (Note 3) ................................ 64,109 0
------------ ------------
Total current liabilities .......................... 1,532,424 928,786
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)
STOCKHOLDERS' DEFICIT (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 35,276,130 and 34,943,618 shares in 1999
and 1998, respectively ........................................ 352,761 349,436
Additional paid-in capital ...................................... 17,796,811 17,573,096
Accumulated deficit ............................................. (19,622,478) (18,786,572)
------------ ------------
Total stockholders' deficit ........................ (1,472,885) (864,019)
------------ ------------
Total liabilities and stockholders' deficit ........ $ 59,539 $ 64,767
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
1999 1998 1997
------------ ------------ ------------
<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) ................. 635,406 949,110 2,095,753
PRODUCT DEVELOPMENT EXPENSE ........... 189,168 529,551 675,178
WRITE-OFF OF INTANGIBLES (Note 10) .... 0 274,675 0
------------ ------------ ------------
Total expenses ........ 824,574 1,753,336 2,770,931
------------ ------------ ------------
OTHER:
Interest expense (income), net ..... 11,332 (14,144) (62,475)
Other income (Note 9) .............. 0 (200,000) 0
------------ ------------ ------------
Total other income .... 11,332 (214,144) (62,475)
------------ ------------ ------------
Net loss .............. ($ 835,906) ($ 1,539,192) ($ 2,708,456)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE ($ .02) ($ .04) ($ .08)
============ ============ ============
WEIGHTED AVERAGE COMMON SHARES ........ 35,046,594 34,893,011 33,908,028
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
Preferred Common
Stock Stock
Number of Preferred Number of Common
Shares Stock Shares Stock
------ ----- ------ -----
<S> <C> <C> <C> <C>
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
Issuance of common stock for services 0 0 85,000 850
Stock issued to a director at no cost 0 0 166,666 1,666
Net loss for the year ended February 28, 1998 0 0 0 0
----- --- ---------- --------
BALANCE, February 28, 1998 2,074 21 34,943,618 349,436
Issuance of common stock and warrants for cash 0 0 200,000 2,000
Issuance of common stock for legal services 0 0 132,512 1,325
Issuance of warrants 0 0 0 0
Net loss for the year ended February 28, 1999 0 0 0 0
----- --- ---------- --------
BALANCE, February 28, 1999 2,074 $21 35,276,130 $352,761
===== === ========== ========
<PAGE>
<CAPTION>
Common
Additional Stock
Paid-in Subscriptions Accumulated
Capital Receivables Deficit
------- ----------- -------
<S> <C> <C> <C>
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 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)
Issuance of common stock for services 102,900 0 0
Stock issued to a director at no cost 40,000 0 0
Net loss for the year ended February 28, 1998 0 0 (1,539,192)
----------- -------- ------------
BALANCE, February 28, 1998 17,573,096 0 (18,786,572)
Issuance of common stock and warrants for cash 48,000 0 0
Issuance of common stock for legal services 164,315 0 0
Issuance of warrants 11,400 0 0
Net loss for the year ended February 28, 1999 0 0 835,906
----------- -------- ------------
BALANCE, February 28, 1999 $17,796,811 $0 ($19,622,478)
=========== ======== ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................ ($ 835,906) ($1,539,192) ($2,708,456)
----------- ----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization ................... 23,396 52,362 57,815
Write-off of intangibles ........................ 0 274,675 0
Stock issued for consulting services and interest 0 103,750 5,000
Stock issued upon exercise of stock options
at no cost .................................... 0 0 690,792
Stock issued to a director at no cost ........... 0 41,666 0
Stock issued to officer as additional
compensation .................................. 0 0 490,684
Stock issued for legal services ................. 165,640 0 0
Changes in assets and liabilities-
Decrease (increase) in other assets ............... (3,068) 14,541 (31,664)
(Decrease) increase in accounts payable ........... 16,248 (70,453) 84,528
(Decrease) increase in accrued liabilities ........ 523,281 478,377 (64,203)
----------- ----------- -----------
Total adjustments ...................... 725,497 894,918 1,232,952
----------- ----------- -----------
Net cash used in operating activities .. (110,409) (644,274) (1,475,504)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchase of fixed assets ............................ 0 (12,883) (5,009)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in stock subscription receivable ........... 0 0 18,750
Proceeds from issuance of common stock and
warrants .......................................... 50,000 0 2,029,999
Proceeds from officer and other loans ............... 64,109 0 0
----------- ----------- -----------
114,109 0 2,048,749
----------- ----------- -----------
Net (decrease) increase in cash ........ 3,700 (657,157) 568,236
CASH AND CASH EQUIVALENTS, beginning of year ........... 21,240 678,397 110,161
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year ................. $ 24,940 $ 21,240 $ 678,397
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF
NONCASH ACTVITIES:
Common stock was issued for the following-
Legal and consulting services rendered ............. $165,640 $103,750 $ 5,000
To officer as additional compensation .............. 0 41,666 490,684
-------- -------- --------
$165,640 $145,416 $495,684
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<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 operates in one business segment and 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, the uncertainties related
to technological improvements and advances, the ability to obtain
adequate additional financing necessary to fund continuing operations and
product development and the uncertainties of future profitability. The
Company expects to incur substantial additional costs 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 1997 and 1996 (Note 8), substantial additional financing is needed by
the Company.
On April 21, 1997, the Company announced a joint collaboration agreement
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 this collaboration agreement. GE did not disclose the amount it
intends to spend on the development and commercialization of the
Company's proprietary technology. To date no funding has been received
pursuant to this collaboration agreement.
<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, has incurred substantial net losses and has an accumulated
deficit through February 28, 1999. 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 that 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 include cash held in banks 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-
The provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets" ("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 (see Note 10 for write-off of intangibles).
Income Taxes-
The provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("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.
<PAGE>
Accounting for Stock-Based Compensation-
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("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"). The
Company has elected the disclosure requirements of SFAS 123 and will
continue to account for employee stock-based compensation under APB 25.
(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 remained 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.
Pursuant to the terms of an employment 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 cancelled. 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. As of February 28,
1999, no milestones have been achieved.
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.
<PAGE>
In February 1997, Mr. Katevatis resumed the role as President and Chief
Executive Officer. Accordingly, the employment Agreement with Mr.
Katevatis was amended for an annual salary of $200,000 per year. In
August 1999, the Board of Directors approved the extension of Mr.
Katevatis's existing contract from March 5, 2002 to March 5, 2007,
maintaining all other original contract terms and conditions.
Legal services rendered by Mr. Katevatis amounted to $50,000 for each of
the three years ended February 28, 1999. These amounts have been charged
to operations.
In 1999, Mr. Katevatis advanced funds to the Company in order to provide
the Company with the funding to pay operational expenses as they became
due. These advances do not accrue interest and are to be repaid as soon
as the Company raises additional funds. As of February 28, 1999, the
balance of the advances payable to Mr. Katevatis is $39,109. Mr.
Katevatis has loaned additional money to the Company subsequent to
February 28, 1999 in order to continue to sustain operations.
In fiscal 1999, the Company borrowed $25,000 from Tami Adelstein and
issued Mr. Adelstein a warrant to purchase 100,000 shares of the
Company's common stock at $.25 per share. The warrant was valued at
$11,400 and was recorded as interest expense. The loan is due and payable
by the Company without interest on or before August 12, 1999, thereafter,
interest is payable at the rate of 1.5% per month. On August 12, 1999,
the Company did not repay the note. On October 12, 1999, Peter Katevatis,
advanced the funds for the repayment of the note and accrued interest to
October 12, 1999.
On November 17, 1999, the Company entered into a three-year employment
agreement beginning February 1, 2000 with Dr. Frank S. Castellana.
Pursuant to the terms of such agreement, Dr. Castellana is to become the
President and Chief Executive Officer of the Company and is to be paid
$100,000 per annum. In addition, he will be issued options to purchase up
to 914,373 shares of the Company's common stock at an option price of
$.32 per share and will be issued a warrant to purchase up to 1,978,746
shares of the Company's common stock at an exercise price of $.05 per
share for the first 150,000 shares and at an exercise price of $.50 per
share for the remaining 1,828,746 shares. Dr. Castellana's ability to
exercise these options and warrants is subject to a series of milestones
described in his employment agreement. The Company may have to recognize
compensation expense in the future on the issuance of these options and
warrants calculated as the difference between the option and warrant
prices and the fair market value of the Company's common stock on the
date the warrants and options are issued or for those subject to
milestones, on the date the milestones are obtained.
<PAGE>
(4) ACCRUED LIABILITIES:
Accrued liabilities consist of the following-
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Legal and professional fees ............. $ 165,937 $ 240,350
Research and development (see Note 7) ... 810,137 485,141
Salaries and wages ...................... 445,133 172,435
---------- ----------
$1,421,207 $ 897,926
========== ==========
</TABLE>
<PAGE>
(5) INCOME TAXES:
As of February 28, 1999, the Company has operating loss carryforwards of
approximately $11,900,000 which may be used to reduce future income
subject to income taxes and expire in various amounts from 1999 to 2013.
As of February 28, 1999 and February 28, 1998, the Company had a deferred
tax asset of approximately $4,000,000 and $3,800,000, respectively, for
which valuation allowances for the entire amounts were provided.
(6) LOSS PER COMMON SHARE:
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128") requires the presentation of basic earnings (loss) per share
and diluted earnings (loss) per share. Basic loss per share is based on
the average number of shares outstanding during the year. Diluted loss
per share is the same as basic loss per share, as the inclusion of common
stock equivalents would be antidilutive.
(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 1999, the contract was extended to March 2007. 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 $157,565, $402,000 and $384,000 for each of the
twelve-month periods ending May 31, 1999, 1998 and 1997.
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 of any invention from the Company's existing patents or newly
obtained patents, respectively. No amounts have been paid during the
three years ended February 28, 1999.
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 during the three years ended
February 28, 1999.
<PAGE>
(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, 1999. 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.
Private Placement Offerings-
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. During 1999, the
Company issued 200,000 shares of the Company's common stock and 200,000
warrants to purchase the Company's common stock at an exercise price of
$.25 per share for $50,000. The warrants expire in 2003.
Common Stock Issued for Service-
During fiscal 1999, 1998 and 1997, respectively, the Company issued
132,512, 85,000 and 5,000 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).
<PAGE>
In April 1996, Messrs. Katevatis, Kouvatis, Kennedy and Armstrong,
directors and stockholders of the Company, collectively exercised
options for 2,843,166 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.
In May 1997, Mr. Kraum, a director and stockholder of the Company, was
issued 166,666 shares of the Company's common stock at no cost in
consideration for the cancellation of the remaining 200,000 options he
held. The Company recorded $41,666 as additional compensation expense
in connection with the issuance of the stock.
Stock option activity during the three year period ended February 28,
1999, was as follows-
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Shares Price Range Price
------ ----------- -----
<S> <C> <C> <C>
Outstanding, February 29, 1996 3,930,748 $0.25 - $2.00 $0.40
Exercised (2,843,166) $0.25 $0.25
Cancelled (652,582) $0.25-$1.00 $0.48
---------- ------------- -----
Outstanding, February 28, 1997 435,000 $1.00-$2.00 $1.25
Cancelled (200,000) $1.00 $1.00
---------- ------------- -----
Outstanding, February 28, 1998 235,000 $1.00-$2.00 $0.95
---------- ------------- -----
Outstanding, February 28, 1999 235,000 $1.00-$2.00 $0.95
========== ============= =====
</TABLE>
Stock Warrants-
Stock warrant activity during the three year period ended February 28,
1999, was as follows-
<TABLE>
<CAPTION>
Shares Exercise
Available Price Range
--------- -----------
<S> <C> <C>
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
--------- -----------
Outstanding, February 28, 1998 2,046,632 $.50-$1.20
Granted 300,000 $.25
--------- -----------
Outstanding, February 28, 1999 2,346,632 $.25-$1.20
========= ===========
</TABLE>
<PAGE>
(9) OTHER INCOME:
On October 20, 1997 the Company entered into a 90 day "no shop"
agreement with SpectRx, Inc. Norcross Ga., a developer of products for
less invasive and painless alternatives to blood tests for glucose
monitoring, diabetic screening, and infant jaundice based on
proprietary technology for the consideration of $200,000. This was to
enable discussions toward a merger, joint venture licensing or other
substantial collaboration with the Company by accessing the Company's
United States and Japanese patent portfolio and research capabilities
for both corporate and world-wide synergy. On January 18, 1998 the no
shop agreement expired. In 1998, the Company recorded the $200,000 as
other income in the accompanying statement of operations.
(10) WRITE-OFF OF INTANGIBLES:
Applying the criteria established by Statement of Financial Accounting
Standards No. 121, Accounting for the Impairments of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, the Company concluded that
certain intangible assets including goodwill and patents were impaired.
Goodwill of $460,000 represented the excess of the purchase price over
the net assets acquired in the acquisition of Laser and was being
amortized over twenty years, using straight-line method. In 1998, as a
result of the impairment, the Company recorded a non-cash charge of
$274,675, which represents the difference between the carrying value of
these assets and their fair value based on estimated discounted future
cash flows. The circumstances that led to this impairment relate
primarily from the Company's inability to generate revenue.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. 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:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter Katevatis 65 Chairman of the Board, Chief Executive
Officer and Treasurer
John M. Kennedy 62 Vice President and Secretary
William Armstrong 82 Director
Mathew Culligan 79 Director
Michael N. Kouvatas 72 Director
John P. Matheu 77 Director
</TABLE>
Directors hold office until the next annual shareholders' meeting or until their
successors have been duly elected and qualified. Executive officers are
appointed 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 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 Treasurer of the Company in January, 1996. Mr. Katevatis
has been a practicing attorney in Philadelphia Penna. and Marlton New Jersey,
and is also licensed as an attorney in the State of New York and in the District
of Columbia. Mr. Katevatis was a trustee of the New Jersey State's Police and
Fireman Retirement Pension Fund and served as a member of the State of 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 a 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 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 Bank.
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 with 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.
Mathew Culligan has served as a director of the Company since March, 1990.
Since 1988, Mr. Culligan has served as Chairman and Chief Executive 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 Present of the NBC Radio Network; Elective
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.
John P. Matheu has served as a director of the Company since July , 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 devices and health care firms. Previously, he was
employed by Pfizer Inc. during which time he held a wide range 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 in 1984 and
founded Matheu Associates, a management consulting firm.
Michael N. Kouvatas has served as a Director of the Company since 1971. For
the past 10 years Mr. Kouvatas has been an attorney with offices in Haddonfield
New Jersey and additionally is a principal in various food operations in the
Southern New Jersey area.
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.
<PAGE>
Scientific Advisory Board
The Scientific Advisory Board's Chairman is Dr. Robert R. Alfano 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 Ultra fast
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 ultra fast 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, photo biology, 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.
Stimson P. Schantz, M.D. is Director of Cancer Prevention, Department of Surgery
Cornell University Memorial Sloan-Kettering Cancer Center, New York. Dr. Schantz
has been appointed as the principle 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 auto fluorescence 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
biomarkers awarded in 1995. Dr. Schantz serves as reviewer and editor of a
number of professional medical publications and is the author of numerous
articles. papers, 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. In April ,1998 Dr. Schantz was recruited to lead a
multi-institutional effort revolving around cancer prevention clinical research
programs and constituting a consortium effort with hospitals in the metropolitan
New York City area supported by the National Cancer Institute approval and high
priority rating on a $1.6 million dollar grant to carry out collaborative
clinical trials which will be targeted specifically at developing Mediscience
Technology and positioned to conduct phase II and phase III trials on a
multi-organ basis involving diseases of the breast, upper and lower
aerodigestive tract, and gynecologic tissues.
<PAGE>
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 from the
Company's Common Stock at a price of $2.00 per share.
ITEM 11. EXECUTIVE COMPENSATION
The following sets forth a summary of compensation paid or accrued to the
executive officers of the Company or fiscal years ending February, 28,1998,
February 28, 1997 and February 28, 1996 whose compensation exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Year ended Other Annual
Principle Position Feb. 28 (29) Salary Compensation
- ------------------ ------------ ------ ------------
<S> <C> <C> <C>
Peter Katevatis 1999 $200,000 $ 61,936 (2)
Chairman and Chief 1998 $200,000 $ 64,865 (2)
Executive Officer 1997 $100,000 (1) $523,231 (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 ending February 28,1999 February 28,1998,
February 28,1997 (fiscal years 1999,1998,1997 respectively). and fringe
benefits under his employment agreement for 1999; automobile expense
$5,464, auto insurance $3,541, and health insurance $2,931. Contract
benefits paid in 1998; automobile expense of $6,000 , automobile insurance
of $2,856 and health insurance of $4,800. Contract benefits paid in 1997;
automobile expense $12,721, automobile insurance $2,155 and health
insurance $4,470. Also included $453,184 of stock compensation expense. See
Note 3 to Notes to Consolidated Statements.
Option Exercises and Holdings
In April 1996, Messrs. Katevatis, Kouvatas, 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 flowing table provides information regarding the number of shares covered by
both exercisable and non-execisable stock options held by the Company's
executive officers at February 28, 1998 (sea Notes to Consolidated 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 $___________ which was the closing price for the Company's
Common Stock in the over-the-counter market on February 28, 1998.
<PAGE>
UNEXERCISED OPTIONS AT FISCAL YEAR-END
Number of shares underlying Value of unexercised
unexercised options at year end in-the-money options at year end
- -------------------------------- -------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ----------- ------------- ----------- -------------
0 0 0 0
The Company does not have any other continent 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
The following table sets forth certain information at December 4, 1998 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 Common Stock by all
elective 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 Beneficial Percentage of
Name and Address Ownership Class
- ---------------- -------------------- -------------
<S> <C> <C>
Peter Katevatis
P.O. Box 598
Woodcrest Cherry Hill NJ 08003 4,725,595 (1)(2)(3)(4)(5)(12) 13.4%
John M. Kennedy
c/o Pepco Mfg. Co.
100 Somerdale, NJ 08083 2,677,933 (5)(6)(12) 7.6
William W.Armtsrong
P.O Box 607
Tupper Lake, NY 2986 355,200 (5)(7)(12) 1.0
Michael Kouvatas
27 Kings Highway
East Haddonfield NJ 08033 684,666 (5)(8)(12) 1.9
Mathew Culligan
410 East 65 Street
New York, NY 10021 20,000 (10) 0.006
Robert C. Miller
c/o Allen &Company, Inc
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) 4.02
All directors and officers as a group
7 persons 8,770,894 (13) 24.9
</TABLE>
- ---------------------
(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's 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 footnote
(5) and (12). Also includes 100,000 shares registered in the name of Mr.
Kennedy 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). Ado included are 6,000 shares registered in the name of Mr.
Armstrong's wife.
(8) Includes lithe issuance of a net of $466,666 restricted shares acquired by
Mr. Kouvatas pursuant to the exercise of stock options describe in
footnotes (5) and (12). Also included are; 14,000 shares owned by Mr.
Kouvatas's wife; 6000 shares for which Mr. Kouvatas is custodian for three
(3) of his children and 36,000 shares for which Mr. Kouvatas's 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.
(12) In April 1996, Messrs. Katevatis, Kouvatas, 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 3,041,500 shares beneficially owned by Allen & Company,
Incorporated, (8.5%- includes 1,041,500 warrants) as reflected in Amendment
No. 4 to their Schedule 13G filed February 11, 1998. 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.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 1, 1988, the Company acquired from Dr. Robert Alfano, a principle
stockholder of the Company and Chairman of the Scientific Advisory Board, all of
the issued and outstanding stock of Laser Diagnostic Instruments, Inc. whose
only asset was US patent number 4,930,516 (previously defined as "LDI") in
exchange for 1,500,000 shares of the Company's Common Stock. Additional, 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 no less that $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 paid a bonus and fringe benefits in accordance with
policies and formulas applied to the key executives of the Company.
Ronald Krumm, resigned from the Board of Directors effective August 18, 1998.
Herbert L. Hugill terminated his tenure as President /CEO January 31, 1998,
whereupon Mr. Katevatis reassumed those responsibilities, and Mr. Hugill
resigned from the Board of Directors effective March 6, 1998. Mr. Clarence Wurtz
resigned from the board effective September 30, 1998.
Peter Katevatis Pres/CEO and Dr. Alfano principle scientific advisor have agreed
to forbear any and all collection action against Mediscience for accrued salary
and related contractually entitled items including forgiveness of interest in
exchange for the option of converting such accrued debts into MTC common stock
on the basis of (0.25 cents), which is above the average High Bid price on June
9 through the 12th 1998, which was 0.15 cents. Said option to be unlimited in
duration. Should MTC receive funding Katevatis and Alfano may elect to receive
all or part of such accrued debt in cash/shares. This right shall be assignable
in whole or in part without condition to any assignee or heirs and in no way is
intended to negate the corporate debt accrued and owing to Katevatis/Alfano.
This offer by Katevatis/Alfano was unanimously accepted by the Board of
Directors December 4, 1998 and continues in effect. On August 18,1999 the board
of directors unanimously extended Mr. Katevatis's existing contract expiration
date from March 5, 2002 to March 5, 2007, maintaining all other original
contract terms and conditions, in recognition of his personal financial
investment in the Company, the periodic voluntary non-assertion of his
contractual anti-dilution rights and other significant consideration to the
Company. On August 18,1999 Dr. Alfano agreed to extend his agreement, on the
same original contract terms and conditions, from its expiration date of March
5, 2002 to March 5, 2007.
<PAGE>
On November 17, 1999 the Company entered into a three year employment agreement
beginning February 1, 2000 with Dr. Frank S. Castellana, approved by Board of
Director action November 18, 1999. Pursuant to the terms of such agreement, Dr.
Castellana will assume the position as President and Chief Executive Officer at
a salary of $100,000 per annum with eligibility for an additional $50,000 annual
bonus based on milestone achievement. I addition, Dr. Castellana will be issued
options to purchase up to 914,373 shares of Mediscience Common Stock at an
option price of $.32 per share and will purchase a warrant to purchase up to
1,978,746 shares of Mediscience Common Stock at an exercise price of $.05 per
share for the first 150,000 shares and at an exercise price of $.50 per share
for the remaining 1,828,746. Dr. Castellana is subject to a series of
contractual milestones described in his business plan (approved by Board of
Directors 11/18/99) for development and marketing the registrant's platform
technology with Sarnoff Research Corporation, including the obtaining of funding
on terms favorable to the Company. The agreement provides for anti-dilution
protection for Dr. Castellana and founders Dr. Robert Alfano and Peter
Katevatis.
<PAGE>
ITEM 14. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) 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 Collage
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
Diagnosis 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 (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, 1993amending 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 tar Registrant and the
Trustees of Columbia University in the City of New York (13)
10.17 Research Agreement effective July 1, 1994 between 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)
10.20 SBIR Grant Award effective September September 30,1994 between the
Registrant and the National Institutes of Health (17)
<PAGE>
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 between the Registrant and H.L Hugill effective
January 18, 1996 (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 gaited January 3, 1997 by the U.S Food
and Drug Administration (FDA) (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 Co, and the Research Foundation of the City University
of New York (25)
10.29 Employment Agreement between the Registrant and Dr. Frank S. Castellana
dated November 17, 1999
(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
Investigational Device Exemption granted January 6, 1997 by the U.S. Food and
Drug Administration (FDA) (23)
See Exhibit 10.27
Employment Agreement 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)
See Exhibit 10.29
Employment Agreement dated November 17, 1999 between Registrant and Dr. Frank S.
Castellana (32)
<PAGE>
- ------------------
(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 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 by reference hereto.
(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 hereto.
(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, 195.
(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 February 28, 1995.
(19) Filed as Exhibit 10.22 to Registrants Annual Report on Form 10-K for the
fiscal year February 28, 1995.
(20) Filed as Exhibit A to Registrant's current report on Form 10-K dated
September 23, 1995.
(21)Filed as Exhibit A to Registrant's current report on Form 10-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 Jan 13,
1997
(25) Filed as Exhibit A to Registrants current report on Form 8-K dated January
28, 1997
(26) Filed as Exhibit A to Registrant's current report on Form 8-K dated April
21, 1997.
(27) Filed as Exhibit A to Registrant's current report on Form 8-K dated May
16.1997
(28) Filed as Exhibit A to Registrant's current report on Form 8-K dated Oat 21,
1997
(29) Filed as Exhibit A to Registrant's current report on Form SEC13G dated Feb
12, 1998
(30) Filed as Exhibit A to Registrant's current report on Form 8-K dated April
8, 1998
(31) Filed as Exhibit A to Registrant's current report on Form 8-K dated May 29,
1998
(32) Filed as exhibit A to Registrant's current report on Form 8-K dated Nov 23,
1999
<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, hereunto duly authorized.
Mediscience Technology Corp.
/s/Peter Katevatis
------------------------------------------
Date: Dec 10, 1999 By: 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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Peter Katevatis Chairman of the Board,Principle Officer
- ----------------------- and Financial Officer December 10, 1999
Peter Katevatis, Esq.
/s/William Armstrong
- -----------------------
William Armstrong Director December 10, 1999
/s/Mathew J. Culligan
- -----------------------
Mathew J. Culligan Director December 10, 1999
/s/John M. Kennedy
- -----------------------
John M. Kennedy Director December 10, 1999
/s/ Michael N. Kouvatas
- -----------------------
Michael N. Kouvatas, Esq. Director December 10, 1999
/s/John P, Matheu
- -----------------------
John P.Matheu Director December 10, 1999
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> FEB-28-1999
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45
<PP&E> 204
<DEPRECIATION> 190
<TOTAL-ASSETS> 59
<CURRENT-LIABILITIES> 1,532
<BONDS> 0
0
0
<COMMON> 353
<OTHER-SE> (1,826)
<TOTAL-LIABILITY-AND-EQUITY> 59
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 825
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (836)
<INCOME-TAX> 0
<INCOME-CONTINUING> (836)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (836)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
