-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AVyDf1/9zCrnYM0dpxwbW9tqIK9Ab4OteP1fMRVYZLiLRUcgD32J3yFKDrR4hIV9 u6Qa0+LfmkqDME6oggnIPg== 0000914317-04-004489.txt : 20041221 0000914317-04-004489.hdr.sgml : 20041221 20041221161346 ACCESSION NUMBER: 0000914317-04-004489 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20041221 DATE AS OF CHANGE: 20041221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDISCIENCE TECHNOLOGY CORP CENTRAL INDEX KEY: 0000064647 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 221937826 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-121498 FILM NUMBER: 041217529 BUSINESS ADDRESS: STREET 1: 1235 FOLKESTONE WY CITY: CHERRY HILL STATE: NJ ZIP: 08034 BUSINESS PHONE: 6094287952 MAIL ADDRESS: STREET 1: 1235 FOLKESTONE WAY CITY: CHERRY HILL STATE: NJ ZIP: 08034 FORMER COMPANY: FORMER CONFORMED NAME: CARDIAC TECHNIQUES INC DATE OF NAME CHANGE: 19730920 SB-2 1 sb2-61452_medscience.txt As filed with the Securities and Exchange Commission on December 21, 2004 Registration No. 333-11782 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ----------------------- PRE-EFFECTIVE AMENDMENT NO. 1 to FORM S-3 on FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------------- MEDISCIENCE TECHNOLOGY CORP. (Name of Small Business Issuer in Its Charter)
New Jersey 541700 22-1937826 (State or Other Jurisdiction of (North American Industry (I.R.S. Employer Incorporation or Organization) Classification System Code Number) Identification No.)
1235 Folkestone Way Cherry Hill, New Jersey 08034 Telephone: (856) 428-7952 (Address, and Telephone Number of Registrant's Principal Executive Offices) ----------------------- Peter Katevatis Chairman and Chief Executive Officer Mediscience Technology Corp. 1235 Folkestone Way Cherry Hill, New Jersey 08034 Telephone: (856) 428-7952 (Name, Address and Telephone Number of Agent for Service) Copy to: Peter B. Hirshfield, Esq. 1035 Park Avenue Suite 7B New York, New York 10028 (646) 827-9362 ----------------------- As soon as practicable after the effective date of this registration statement (Approximate Date of Proposed Sale to the Public) If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. |_| THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE. 2 Subject to completion. PROSPECTUS MEDISCIENCE TECHNOLOGY CORP. 8,075,000 Shares of Common Stock This prospectus relates to the sale by the Selling Shareholders identified in this prospectus of up to an aggregate of 8,075,000 shares of our common stock, $0.01 par value per share ("Common Stock"), which includes (i) an aggregate of 6,000,000 shares of Common Stock that were issued upon the conversion of 60 shares of our Series A Preferred Stock, (ii) an aggregate of 1,925,000 shares of Common Stock that were issued to consultants, and (iii) an aggregate of 150,000 shares of Common Stock that were issued upon the exercise of warrants with an exercise price of $0.25 per share. We will not receive any of the proceeds from the sale of these shares by the Selling Shareholders. However, we received an aggregate of $37,500 from the exercise of warrants to purchase 150,000 shares to be sold hereunder. See "Use of Proceeds." We will bear all costs relating to the registration of the shares. All of such shares of Common Stock are being offered for resale by the Selling Shareholders. Our Common Stock is traded on the OTC Bulletin Board Market under the symbol "MDSC." The last sales price of our Common Stock on December 14, 2004 as reported by the OTC Bulletin Board was $0.77 per share. The information in this prospectus is not complete and may be changed. The Selling Shareholders may not sell these securities (except pursuant to a transaction exempt from the registration requirements of the Securities Act) until the Registration Statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Investing in our Common Stock involves a high degree of risk. You should read this entire prospectus carefully, including the section entitled "Risk Factors" beginning on page 7 which describes certain material risk factors you should consider before investing. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is January __, 2005 3 TABLE OF CONTENTS Page PROSPECTUS SUMMARY........................................................ 5 FORWARD LOOKING STATEMENTS................................................ 7 RISK FACTORS.............................................................. 7 USE OF PROCEEDS........................................................... 15 MARKET FOR OUR COMMON STOCK AND RELATED SHAREHOLDER MATTERS............................................... 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................. 16 BUSINESS.................................................................. 21 MANAGEMENT ................................................................ 31 PRINCIPAL SHAREHOLDERS.................................................... 35 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 36 DESCRIPTION OF THE TRANSACTIONS........................................... 37 SELLING SHAREHOLDERS...................................................... 38 DESCRIPTION OF SECURITIES................................................. 41 PLAN OF DISTRIBUTION...................................................... 43 WHERE YOU CAN FIND MORE INFORMATION ABOUT US.............................. 44 LEGAL MATTERS............................................................. 45 EXPERTS................................................................... 45 INDEX TO FINANCIAL STATEMENTS............................................. F-1 You should rely only on the information contained in this prospectus and in any prospectus supplement we may file after the date of this prospectus. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only, regardless of the time of delivery of this prospectus or of any sale of our Common Stock. Our business, financial condition, results of operations and prospects may have changed since that date. 4 PROSPECTUS SUMMARY The following summary highlights aspects of the offering. This prospectus does not contain all of the information that may be important to you. You should read this entire prospectus carefully, including the "Risk Factors" section and the financial statements, related notes and the other more detailed information appearing elsewhere in this prospectus before making an investment decision. Unless otherwise indicated, "we", "us", "our" and similar terms, as well as references to the "Company" and "Registrant", refer to Mediscience Technology Corp. and its wholly owned subsidiaries and not to the Selling Shareholders. Company Background We are 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. 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 principal asset of LDI was the ownership of a U.S. patent application entitled "Method and Apparatus for Detecting Cancerous Tissue Using Visible Luminescence," which patent was subsequently granted in 1990 and 1998, and expanded from 9 to 59 claims in a re-examination of that patent. Our research and development activities are centered in and around this patent and other patents either acquired subsequently from The Research Foundation of City University of New York ("RFCUNY") by us or for which we are the exclusive licensee from RFCUNY. On April 14, 2003 we acquired two exclusive world-wide licenses for US patent applications filed by RFCUNY: "Stokes-Shift Fluorescence Spectroscopy for Detection of Disease and Physiological State of Specimen" and "Three-Dimensional Radiative Transfer Tomography for Turbid Media" which when issued, would extend our core technology in the optical biopsy field. Our claim of priority right runs for a twenty year period from February 5, 2003, thus providing our core technology patent protection for that period. We have successfully conducted preclinical and clinical evaluations which continue to support our belief that our 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. On January 6, 1997, we received approval from the United States Food and Drug Administration ("FDA") of our investigational device exemption application to initiate human Phase II clinical trials with our cancer detection ("CD") medical device ("CD Ratiometer") for early stage detection of cancer. This trial has not been initiated at this time because of the lack of funding. On January 25, 1999 the FDA classified our CD Ratiometer as a non-significant risk device for human trial Phase I clinical investigation of the biological basis of fluorescence as applied to medically significant female OBGYN health issues. This pilot study is being conducted under a research agreement with Yale University and RFCUNY. On December 11, 2003 the FDA, after audit review, qualified us as a small entity allowing reduced or waived FDA fees for any medical device 510k or other market approval submissions and our participation in expedited FDA review through FDA clinical inspections conducted independently by third party FDA approved "accredited" persons, directly employed by us. 5 Strategy Our strategy is to commercialize early cancer detection devices based upon our technology, completed and in process, prototypes and expertise in the area of fluorescent imaging. We formed Medi-Photonics Development L.L.C. ("Medi-Photonics") on February 19, 2004 in New York, as a wholly owned subsidiary to commercialize our CD Ratiometer. Medi-Photonics has completed development of our optical biopsy CD Ratiometer, a device to be used for the molecular detection of cervical cancer and physiological change. We are currently in the final stages of testing the CD Ratiometer and have submitted pre-investigational device exemption ("IDE") materials for detecting cervical cancer to the FDA. We currently expect an IDE meeting to take place in January 2005 and thereafter to begin conducting clinical trials with the CD Ratiometer during the first quarter of 2005. We are also continuing our research and development efforts in cancer detection devices for the prostate, colon and esophagus. We are in various stages of fund raising and business development activities with potential distributors, strategic partners and strategic and financial investors. We believe that our technology will be broadly applicable in cancer screening and diagnosis. We are preparing to submit an application for 510k exemption. However presently, each approved labeled indication requires separate pre-marketing approval ("PMA"), which is a time-consuming and costly process. We regard our "516" and other related patents as pioneering, blocking and dominant in the area of cancer diagnosis using fluorescence spectroscopy both in-vivo and in-vitro. We continue to seek additional funding through present and new equity capital from institutional and individual professional investor groups. In early November 2004, we entered into, through our Medi-Photonics subsidiary, a collaborative research and development agreement to jointly develop the "compact phototonic explorer" or pill camera for medical and non-medical applications with Infotonics Technology Center Inc., a not-for profit corporation ("Infotonics") and consortium of participating companies, including Corning, Inc., Eastman Kodak Company and Xerox Corporation. The initial development initiative will be to create an ingestible photonic pill for the detection of early stage cancer of the digestive tract using our intellectual property. We have no revenues from current operations and are funding the development of our products through the sale of our securities and will continue to require financial resources to maintain business momentum and to leverage intellectual property assets through FDA clinicals/approvals into the market place as products. In the absence of the availability of such financing on a timely basis, we could be forced to materially curtail, limit or cease our operations. Because of our significant recurring losses, and the lack of certain sources of capital to fund our operations, our independent registered public accounting firm as stated in their report for the fiscal years ended February 29, 2004, February 28, 2003 and February 28, 2002, included an explanatory paragraph indicating that substantial doubt exists about our ability to continue as a going concern. Our principal offices are located at 101 East 31st Street, New York, New York 10022, and 1235 Folkestone Way, Cherry Hill, New Jersey 08034. The Offering Common Stock Offered by Selling Shareholders 8,075,000 6 Use of Proceeds We will not receive any proceeds from the sale of shares in this offering. We received $37,500 from the exercise of warrants to purchase shares to be sold hereunder. OTC Bulletin Board Symbol MDSC Common Stock Outstanding After Offering 53,346,647 shares, based on 53,346,647 shares outstanding as of November 30, 2004 and excluding shares that, as of the date of this prospectus, are issuable upon the exercise of options, with exercise prices ranging from $0.25 to $1.50 per share, and certain anti-dilutive contractual provisions. FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements (as defined in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). To the extent that any statements made in this prospectus contain information that is not historical, these statements are essentially forward-looking. Forward-looking statements can be identified by the use of words such as "expects," "plans" "will," "may," "anticipates," believes," "should," "intends," "estimates," and other words of similar meaning. These statements are subject to risks and uncertainties that cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, our ability to raise capital to finance the development of our products, the effectiveness, profitability and the marketability of those products, our ability to protect our proprietary information, general economic and business conditions, the impact of technological developments and competition, our expectations and estimates concerning future financial performance and financing plans, our ability to successfully integrate the businesses of our two active subsidiaries, the impact of current, pending or future legislation and regulation on the healthcare industry and other risks detailed from time to time in our filings with the Securities and Exchange Commission ("SEC"). We do not undertake any obligation to publicly update any forward-looking statements. As a result, you should not place undue reliance on these forward-looking statements. RISK FACTORS The following risk factors should be considered carefully in addition to the other information presented herein: WE DO NOT HAVE A LONG OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS. 7 Because limited financial data is available on our operations and products, it may be difficult for you to evaluate our business. Our prospects must be considered in light of the substantial risks, expenses, uncertainties and difficulties encountered by entrants into the medical device industry, which is characterized by intense competition and a high failure rate. WE HAVE A HISTORY OF LOSSES, AND WE EXPECT LOSSES TO CONTINUE. We have never been profitable, and we have had operating losses since our inception. We expect our operating losses to continue as we continue to expend substantial resources to further develop and commercialize our products, obtain regulatory clearances or approvals, build our marketing, sales, manufacturing and finance organizations, and conduct further research and development. To date, we have engaged primarily in research and development efforts. The further development and commercialization of our products will require substantial development, regulatory, sales and marketing, manufacturing and other expenditures. IF WE CANNOT OBTAIN ADDITIONAL FUNDS WHEN NEEDED, WE WILL NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN. We will require substantial additional capital to develop our products, including completing product testing and clinical trials, obtaining all required regulatory approvals and clearances, beginning and scaling up manufacturing and marketing our products. We have historically funded a significant portion of our activities through private placements. We are seeking a collaborative partner for our technology and are seeking targeted funding for our cervical cancer program. Any failure to find collaborative partners to fund our capital expenditures, or our inability to obtain capital through other sources, would limit our ability to grow and operate as planned. Even if we do enter into an agreement with a collaborative partner, we believe that the obligations of a collaborative partner to fund our expenditures will be largely discretionary and depend on a number of factors, including our ability to meet specified milestones in the development and testing of the relevant product. We may not be able to meet these milestones, or our collaborative partner, if we obtain one, may not continue to fund our expenditures. We bear responsibility for all aspects of our product line and our cervical cancer product, which are not being developed with a collaborative partner. We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements. We believe that our existing capital resources will not be sufficient to fund our operations to the point of commercial introduction of our monitoring products and our cervical cancer detection product. Any failure to achieve adequate funding in a timely fashion would delay our development programs and could lead to abandonment of one or more of our development initiatives. Any required additional funding may not be available on terms attractive to us, or at all. To the extent we cannot obtain additional funding, our ability to continue to develop and introduce products to market will be limited. Any additional equity financing may be dilutive to shareholders, and debt financing, if available, may involve restrictive covenants that would limit how we conduct our business or finance our operations. IF WE CANNOT OBTAIN ADDITIONAL FUNDS WHEN NEEDED, OR ACHIEVE PROFITABILITY WE MAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN. Our independent registered public accounting firm has included an explanatory paragraph in their audit report referring to our recurring operating losses and a substantial doubt about our ability to continue as a going concern. Absent additional funding from private or public equity or debt financings, collaborative or other partnering arrangements, or other sources, we will be unable to conduct all of our product development efforts as planned, and we may need to cease operations or sell assets. In addition, the existence of the explanatory paragraph in the audit report may in and of itself cause our stock price to decline as certain investors may be restricted or precluded from investing in companies that have received this notice in an audit report. 8 IF WE FAIL TO MAINTAIN AND IMPROVE OUR SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD, WHICH COULD HARM OUR COMPANY. We are heavily dependent on external legal counsel and an accounting consultant for our financial accounting and reporting functions. The absence of a full time chief financial officer or other individual with the appropriate experience and background to handle financial accounting and reporting matters may result in deficiencies in internal control which could adversely affect our ability to record, process, summarize and report financial data. Effective internal controls are necessary for us to provide reliable and accurate financial reports and effectively prevent fraud. Section 404 under the Sarbanes-Oxley Act of 2002 requires that we assess and our auditors attest to the design and operating effectiveness of our controls over financial reporting. Our compliance with the annual internal control report requirement for our first fiscal year ending on or after July 15, 2005, the requisite SEC compliance date, will depend on the effectiveness of our financial reporting and data systems and controls. We expect these systems and controls to become increasingly complex to the extent that our business grows. To effectively manage this growth, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. We cannot be certain that these measures will ensure that we design, implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation or operation, could harm our operating results or cause us to fail to meet our financial reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock and our access to capital. Once adequate funding is obtained, we intend to hire a full time chief financial officer with requisite skills. However, there can be no assurance that we will be able to attract and retain such an individual. OUR ABILITY TO SELL OUR PRODUCTS IS CONTROLLED BY GOVERNMENT REGULATIONS, AND WE MAY NOT BE ABLE TO OBTAIN ANY NECESSARY CLEARANCES OR APPROVALS. The design, manufacturing, labeling, distribution and marketing of medical device products are subject to extensive and rigorous government regulation, which can be expensive and uncertain and can cause lengthy delays before we can begin selling our products, if at all. IN THE UNITED STATES, FDA'S ACTIONS COULD DELAY OR PREVENT OUR ABILITY TO SELL OUR PRODUCTS, WHICH WOULD ADVERSELY AFFECT OUR GROWTH AND STRATEGIC PLANS. In order for us to market our products in the United States, we must obtain clearance or approval from the FDA. We cannot be sure that we or any collaborative partners will make timely filings with the FDA; that the FDA will act favorably or quickly on these submissions; that we will not be required to submit additional information or perform additional clinical studies; that we would not be required to submit an application for premarket approval, rather than a 510(k) pre-market notification submission as described below; or that other significant difficulties and costs will not be encountered to obtain FDA clearance or approval. The pre-market approval process is more rigorous and lengthier than the 510(k) clearance process for pre-market notifications; it can take several years from initial filing and require the submission of extensive supporting data and clinical information and clinical study data. 9 The FDA may impose strict labeling or other requirements as a condition of its clearance or approval, any of which could limit our ability to market our products. Further, if we wish to modify a product after FDA clearance of a pre-market notification or approval of a pre-market approval application, including changes in indications or other modifications that could affect safety and efficacy, additional clearances or approvals will be required from the FDA. Any request by the FDA for additional data, or any requirement by the FDA that we conduct additional clinical studies or submit to the more rigorous and lengthier pre-market approval process, could result in a significant delay in bringing our products to market and substantial additional research and other expenditures. Similarly, any labeling or other conditions or restrictions imposed by the FDA on the marketing of our products could hinder our ability to effectively market our products. Any of the above actions by the FDA could delay or prevent altogether our ability to market and distribute our products. Further, there may be new FDA policies or changes in FDA policies that could be adverse to us. IN FOREIGN COUNTRIES, INCLUDING EUROPEAN COUNTRIES, WE ARE ALSO SUBJECT TO GOVERNMENT REGULATION, WHICH COULD DELAY OR PREVENT OUR ABILITY TO SELL OUR PRODUCTS IN THOSE JURISDICTIONS. In order for us to market our products in Europe and some other international jurisdictions, we and our distributors and agents must obtain required regulatory registrations or approvals. We must also comply with extensive regulations regarding safety, efficacy and quality in those jurisdictions. We may not be able to obtain the required regulatory registrations or approvals, or we may be required to incur significant costs in obtaining or maintaining any regulatory registrations or approvals we receive. Delays in obtaining any registrations or approvals required to market our products, failure to receive these registrations or approvals, or future loss of previously obtained registrations or approvals would limit our ability to sell our products internationally. For example, international regulatory bodies have adopted various regulations governing product standards, packaging requirements, labeling requirements, import restrictions, tariff regulations, duties and tax requirements. These regulations vary from country to country. In order to sell our products in Europe, we must maintain ISO 9001 certification and CE mark certification, which is an international symbol of quality and compliance with applicable European medical device directives. Failure to receive or maintain ISO 9001 certification or CE mark certification or other international regulatory approvals would prevent us from selling in Europe. EVEN IF WE OBTAIN CLEARANCE OR APPROVAL TO SELL OUR PRODUCTS, WE ARE SUBJECT TO ONGOING REQUIREMENTS AND INSPECTIONS THAT COULD LEAD TO THE RESTRICTION, SUSPENSION OR REVOCATION OF OUR CLEARANCE. We, as well as any collaborative partners, will be required to adhere to applicable FDA regulations regarding good manufacturing practice, which include testing, control and documentation requirements. We are subject to similar regulations in foreign countries. Ongoing compliance with good manufacturing practice and other applicable regulatory requirements will be strictly enforced in the United States through periodic inspections by state and federal agencies, including the FDA, and in international jurisdictions by comparable agencies. Failure to comply with these regulatory requirements could result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure to obtain premarket clearance or premarket approval for devices, withdrawal of approvals previously obtained and criminal prosecution. The restriction, suspension or revocation of regulatory approvals or any other failure to comply with regulatory requirements would limit our ability to operate and could increase our costs. 10 OUR SUCCESS LARGELY DEPENDS ON OUR ABILITY TO OBTAIN AND PROTECT THE PROPRIETARY INFORMATION ON WHICH WE BASE OUR PRODUCTS. Our success depends in large part upon our ability to establish and maintain the proprietary nature of our technology through the patent process, as well as our ability to possibly license from others patents and patent applications necessary to develop products. If any of our patents are successfully challenged, invalidated or circumvented, or our right or ability to manufacture our products were to be limited, our ability to continue to manufacture and market our products could be adversely affected. In addition to patents, we rely on trade secrets and proprietary know-how, which we seek to protect, in part, through confidentiality and proprietary information agreements. The other parties to these agreements may breach these provisions, and we may not have adequate remedies for any breach. Additionally, our trade secrets could otherwise become known to or be independently developed by competitors. We have been issued, or have rights to, 25 U.S. patents (including those under license). In addition, we have filed for, or have rights to, 2 U.S. patents (including those under license, one filed under EU treaty provisions) that are still pending. One or more of the patents we hold directly or license from third parties, may be successfully challenged, invalidated or circumvented, or we may otherwise be unable to rely on these patents. These risks are also present for the process we use or will use for manufacturing our products. In addition, our competitors, many of whom have substantial resources and have made substantial investments in competing technologies, may apply for and obtain patents that prevent, limit or interfere with our ability to make, use and sell our products, either in the United States or in international markets. The medical device industry has been characterized by extensive litigation regarding patents and other intellectual property rights. In addition, the United States Patent and Trademark Office may institute interference proceedings. The defense and prosecution of intellectual property suits, Patent and Trademark Office proceedings and related legal and administrative proceedings are both costly and time consuming. Moreover, we may need to litigate to enforce our patents, to protect our trade secrets or know-how, or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation or interference proceedings involving us may require us to incur substantial legal and other fees and expenses and may require some of our employees to devote all or a substantial portion of their time to the proceedings. An adverse determination in the proceedings could subject us to significant liabilities to third parties, require us to seek licenses from third parties or prevent us from selling our products in some or all markets. We may not be able to reach a satisfactory settlement of any dispute by licensing necessary patents or other intellectual property. Even if we reached a settlement, the settlement process may be expensive and time consuming, and the terms of the settlement may require us to pay substantial royalties. An adverse determination in a judicial or administrative proceeding or the failure to obtain a necessary license could prevent us from manufacturing and selling our products. IF WE ARE UNABLE TO DEVELOP OUR PRODUCTS WITH ANY COLLABORATIVE PARTNERS, WE MAY BE REQUIRED TO ACCESS ADDITIONAL CAPITAL AND TO DEVELOP ADDITIONAL SKILLS TO PRODUCE, MARKET AND DISTRIBUTE OUR PRODUCTS. If we are unable to develop our cervical cancer detection product with any collaborative partner we would need to seek direct funding to develop and commercialize our products. These activities require additional resources and capital that we will need to secure. There is no assurance that we will be able to raise sufficient capital or attract and retain skilled personnel to enable us to finish development, launch and market these products. Thus, there can be no assurance that we will be able to commercialize any such product. 11 BECAUSE OUR PRODUCTS, WHICH USE DIFFERENT TECHNOLOGY OR APPLY TECHNOLOGY IN MORE INNOVATIVE WAYS THAN OTHER MEDICAL DEVICES, ARE OR WILL BE NEW TO THE MARKET, WE MAY NOT BE SUCCESSFUL IN LAUNCHING OUR PRODUCTS AND OUR OPERATIONS AND GROWTH WOULD BE ADVERSELY AFFECTED. Our products are based on new methods of cervical cancer detection. If our products do not achieve significant market acceptance, our sales will be limited and our financial condition may suffer. Physicians and individuals may not recommend or use our products unless they determine that these products are an attractive alternative to current tests that have a long history of safe and effective use. To date, our products have been used by only a limited number of people for investigational and clinical trial purposes as we have not yet obtained FDA approval on our products, and few independent studies regarding our products have been published. The lack of independent studies limits the ability of doctors or consumers to compare our products to conventional products. IF WE ARE UNABLE TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE MEDICAL DEVICE INDUSTRY, OUR FUTURE GROWTH AND OPERATING RESULTS WILL SUFFER. The medical device industry in general and the markets in which we expect to offer products in particular, are intensely competitive. Many of our competitors have substantially greater financial, research, technical, manufacturing, marketing and distribution resources than we do and have greater name recognition and lengthier operating histories in the health care industry. We may not be able to effectively compete against these and other competitors. Further, if our products are not available at competitive prices, health care administrators who are subject to increasing pressures to reduce costs may not elect to purchase them. Accordingly, competition in this area is expected to increase. Furthermore, our competitors may succeed in developing, either before or after the development and commercialization of our products, devices and technologies that permit more efficient, less expensive non-invasive and less invasive monitoring or cancer detection. It is also possible that one or more pharmaceutical or other health care companies will develop therapeutic drugs, treatments or other products that will substantially render our products obsolete. WE DO NOT HAVE MANUFACTURING EXPERIENCE, WHICH COULD LIMIT OUR GROWTH. We do not have manufacturing experience that would enable us to make products in the volumes that would be necessary for us to achieve significant commercial sales, and we rely upon our suppliers. In addition, we may not be able to establish and maintain reliable, efficient, full scale manufacturing at commercially reasonable costs, in a timely fashion. Difficulties we encounter in manufacturing scale-up, or our failure to implement and maintain our manufacturing facilities in accordance with good manufacturing practice regulations, international quality standards or other regulatory requirements, could result in a delay or termination of production. THE AVAILABILITY OF THIRD-PARTY REIMBURSEMENT FOR OUR PRODUCTS IS UNCERTAIN, WHICH MAY LIMIT CONSUMER USE AND THE MARKET FOR OUR PRODUCTS. In the United States and elsewhere, sales of medical products are dependent, in part, on the ability of consumers of these products to obtain reimbursement for all or a portion of their cost from third-party payers, such as government and private insurance plans. Any inability of patients, hospitals, physicians and other users of our products to obtain sufficient reimbursement from third-party payers for our products, or adverse changes in relevant governmental policies or the policies of private third-party payers regarding reimbursement for these products, could limit our ability to sell our products on a competitive basis. We are unable to predict what changes will be made in the reimbursement methods used by third-party health care payers. Moreover, third-party payers are increasingly challenging the prices charged for medical products and services, and some health care providers are gradually adopting a managed care system in which the providers contract to provide comprehensive health care services for a fixed cost per person. Patients, hospitals and physicians may not be able to justify the use of our products by the attendant cost savings and clinical benefits that we believe will be derived from the use of our products, and therefore may not be able to obtain third-party reimbursement. 12 Reimbursement and health care payment systems in international markets vary significantly by country and include both government sponsored health care and private insurance. We may not be able to obtain approvals for reimbursement from these international third-party payers in a timely manner, if at all. Any failure to receive international reimbursement approvals could have an adverse effect on market acceptance of our products in the international markets in which approvals are sought. OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN SCIENTIFIC, TECHNICAL, MANAGERIAL AND FINANCE PERSONNEL. Our ability to operate successfully and manage our future growth depends in significant part upon the continued service of key scientific, technical, managerial and finance personnel, as well as our ability to attract and retain additional highly qualified personnel in these fields. We may not be able to attract and retain key employees when necessary, which would limit our operations and growth. WE HAVE RAISED SUBSTANTIAL AMOUNTS OF CAPITAL IN PRIVATE PLACEMENTS FROM TIME TO TIME. The securities offered in such private placements were not registered under the Securities Act or any state "blue sky" law in reliance upon exemptions from such registration requirements. Such exemptions are highly technical in nature and if we inadvertently failed to comply with the requirements of any of such exemptive provisions, investors would have the right to rescind their purchase of our securities or sue for damages. If one or more investors were to successfully seek such rescission or prevail in any such suit, we could face severe financial demands that could materially and adversely affect our financial position. Financings that may be available to us under current market conditions frequently involve sales at prices below the prices at which our common stock currently is reported on the OTC Bulletin Board as well as the issuance of warrants or convertible securities at a discount to market price. CERTAIN SHAREHOLDERS HAVE ANTI-DILUTION RIGHTS. Our Chairman and Chief Executive Officer and Dr. Robert Alfano, the inventor of much of our technology, have anti-dilution agreements which provide that such shareholders' interests in our Common Stock attributable to shares they owned on April 27, 1981 and August 19, 1999, respectively, will at all times represent approximately 17% and 4%, respectively, of the total issued and outstanding shares of our company. The issuance of our Common Stock in connection with such contractual obligations will substantially dilute the existing holders of our Common Stock. INVESTORS IN OUR SECURITIES MAY SUFFER DILUTION. The issuance of shares of Common Stock, or shares of Common Stock underlying warrants, options or preferred stock or convertible notes or anti-dilution contractual provisions of certain of our shareholders will dilute the equity interest of existing shareholders who do not have anti-dilution rights and could have a significant adverse effect on the market price of our Common Stock. The sale of Common Stock acquired at a discount could have a negative impact on the market price of our Common Stock and could increase the volatility in the market price of our Common Stock. In addition, we may seek additional financing which may result in the issuance of additional shares of our Common Stock and/or rights to acquire additional shares of our Common Stock. The issuance of our Common Stock in connection with such financing may result in substantial dilution to the existing holders of our Common Stock who do not have anti-dilution rights. Those additional issuances of Common Stock would result in a reduction of your percentage interest in our company. 13 HISTORICALLY, OUR COMMON STOCK HAS EXPERIENCED SIGNIFICANT PRICE FLUCTUATIONS. One or more of the following factors have influenced and are expected to influence these fluctuations: o announcements or press releases relating to the healthcare sector or to our own business or prospects; o regulatory, legislative or other developments affecting us or the healthcare industry generally; o conversion of our preferred stock and convertible debt into Common Stock at conversion rates based on then current market prices or discounts to market prices of our Common Stock and exercise of options and warrants at below current market prices; o sales by those financing our company through convertible securities the underlying Common Stock of which have been registered with the SEC and may be sold into the public market immediately upon conversion; and o market conditions specific to medical device companies, the healthcare industry and general market conditions. IN ADDITION, IN RECENT YEARS THE STOCK MARKET HAS EXPERIENCED SIGNIFICANT PRICE AND VOLUME FLUCTUATIONS. These fluctuations, which are often unrelated to the operating performance of specific companies, have had a substantial effect on the market price for many healthcare related technology companies. Factors such as those cited above, as well as other factors that may be unrelated to our operating performance, may adversely affect the price of our Common Stock. WE HAVE NOT HAD EARNINGS, BUT IF EARNINGS WERE AVAILABLE, IT IS OUR GENERAL POLICY TO RETAIN ANY EARNINGS FOR USE IN OUR OPERATIONS. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future despite the recent reduction of the federal income tax rate on dividends. Any payment of cash dividends on our Common Stock in the future will be dependent upon our financial condition, results of operations, current and anticipated cash requirements, preferred rights of holders of preferred stock, restrictive covenants in debt or other instruments or agreements, plans for expansion, as well as other factors that our Board of Directors deems relevant. We anticipate that our future financing agreements may prohibit the payment of common stock dividends without the prior written consent of those investors. 14 WE ARE SIGNIFICANTLY INFLUENCED BY OUR DIRECTORS, EXECUTIVE OFFICERS AND THEIR AFFILIATED ENTITIES. Our directors and executive officers beneficially owned an aggregate of approximately 28.7% of our outstanding Common Stock as of September 30, 2004. These shareholders, acting together, would be able to exert significant influence on substantially all matters requiring approval by our shareholders, including the election of directors and the approval of mergers and other business combination transactions. CERTAIN PROVISIONS OF NEW JERSEY CORPORATE LAWS MAY HAVE CERTAIN ANTI-TAKEOVER EFFECTS. The anti-takeover provisions of the New Jersey Shareholder Protection Act described in the section "Description of Securities", may have the effect of discouraging a future takeover attempt which individual shareholders may deem to be in their best interests or in which shareholders may receive a substantial premium for their shares over then-current market prices. As a result, shareholders who might desire to participate in such a transaction may not have an opportunity to do so. THERE MAY BE A LIMITED PUBLIC MARKET FOR OUR SECURITIES; WE MAY FAIL TO QUALIFY FOR NASDAQ LISTING; AND WE MAY BE SUBJECT TO DISCLOSURE RELATING TO LOW PRICED STOCKS Although the Company, if successful in its funding efforts, intends to apply for listing of the Common Stock on either NASDAQ or a registered exchange, there can be no assurance if and when initial listing criteria could be met or if such application would be granted, or that the trading of the Common Stock will be sustained. In the event that the Common Stock fails to qualify for initial or continued inclusion in the NASDAQ System or for initial or continued listing on a registered stock exchange, trading, if any, in the Common Stock, would then continue to be conducted on the NASD's "Electronic Bulletin Board" in the over-the-counter market in what are commonly referred to as "pink sheets". As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of our Common Stock, and our Common Stock would become substantially less attractive for margin and purpose loans, for investment by financial institutions or as consideration in future capital raising transactions. Trading of our Common Stock may be subject to penny stock rules under the Exchange Act. Unless exempt, for any transaction involving a penny stock, the regulations require broker-dealers making a market in our Common Stock to provide risk disclosure to their customers including regarding the risks associated with our Common Stock, the suitability for the customer of an investment in our Common Stock, the duties of the broker-dealer to the customer, information regarding prices for our Common Stock and any compensation the broker-dealer would receive. The application of these rules may result in fewer market makers in our Common Stock. Our Common Stock is presently subject to the rules on penny stocks, and the liquidity of the Common Stock could be materially adversely affected so long as we remain subject to such rule. USE OF PROCEEDS We will not receive any proceeds from the resale of shares covered by this prospectus. However, we have received an aggregate $37,500 from the exercise of warrants to purchase 150,000 of the shares covered by this prospectus. 15 MARKET FOR OUR COMMON STOCK AND RELATED SHAREHOLDER MATTERS Our Common Stock is quoted on the OTC Bulletin Board under the symbol MDSC. As of November 30, 2004, there were approximately 738 holders of record of our Common Stock. The following table sets forth the high and low bid prices for our Common Stock for the periods indicated as reported by the OTC Bulletin Board. The prices state inter-dealer quotations, which do not include retail mark-ups, mark-downs or commissions. Such prices do not necessarily represent actual transactions. High Low ---- --- Fiscal Year-Ended February 28, 2003 First Quarter $ 0.13 $ 0.10 Second Quarter 0.08 0.08 Third Quarter 0.08 0.07 Fourth Quarter 0.26 0.24 Fiscal Year-Ended February 29, 2004 First Quarter $ 0.30 0.25 Second Quarter 0.31 0.16 Third Quarter 0.38 0.22 Fourth Quarter 0.93 0.25 Fiscal Year-Ending February 28, 2005 First Quarter $ 0.90 $ 0.36 Second Quarter 0.76 0.39 Third Quarter 0.86 0.61 Fourth Quarter (through December 14, 2004) 1.01 0.64 We have not paid any dividends on our Common Stock and do not anticipate declaring or paying any cash dividends in the foreseeable future. We currently expect to retain future earnings, if any, to finance the growth and development of our business. Subject to our obligations to the holders of our Convertible Preferred Stock (See "Description of Securities"), the holders of our Common Stock are entitled to dividends when and if declared by our Board of Directors form legally available funds. At present, we have no shares of our Preferred Stock issued or outstanding. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies & Estimates Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Note 1 to the consolidated financial statements describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. We have identified the policies below as some of the more critical to our business and the understanding of our results of operations. These policies may involve a higher degree of judgment and complexity in their application and represent the critical accounting policies used in the preparation of our financial statements. Although we believe our judgments and estimates are appropriate and correct, actual future results may differ from our estimates. If different assumptions or conditions were to prevail, the results could be materially different from our reported results. The impact and any associated risks related to these policies on our business operations is discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. 16 Use of Estimates The preparation of our consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and equity 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. These estimates have a material impact on our financial statements, and are discussed in detail throughout our analysis of the results of operations. In addition to evaluating estimates relating to the items discussed above, we also consider other estimates, including, but not limited to, patent licenses and their related costs including the maintenance of patent licenses and all costs incurred in connection with acquiring patents, patent licenses and other proprietary rights related to our commercially developed products, income taxes, and financing operations. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions. Additional information regarding risk factors that may impact our estimates is included under "Risk Factors." Income Taxes As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax expense together with assessing temporary differences resulting from differing treatment of items, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. In the event that we determine that we would be able to realize deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Significant management judgment is required in determining the valuation allowance recorded against our net deferred tax assets, which consist of net operating loss carry forwards. We have recorded a valuation allowance of $4.4 million as of February 29, 2004, due to uncertainties related to our ability to utilize our deferred tax assets before they expire. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. Year Ending February 29, 2004 Compared To Year Ending February 28, 2003 Revenues We had no revenues during our fiscal years ending February 29, 2004 ("2004 fiscal year") and February 28, 2003 ("2003 fiscal year"). Our primary focus was our continued development of our light-based technology. General and Administrative Expense General and administrative expenses increased approximately $312,000 or 55% during the 2004 fiscal year as compared to our 2003 fiscal year. This increase was comprised of the net increase and decrease in several key operating expense categories. Salaries and wages increased approximately $247,000 in the 2004 fiscal year when compared to the 2003 fiscal year. This increase is comprised of $102,500 in salary for Michael Engelhart, our new Chief Operating Officer, along with the reversal of salary and fringe benefit accruals in the prior year totaling $74,500 for the former Chief Operating Officer, Sidney Braginsky, who resigned in the prior fiscal year and noncash compensation charges of $70,000 relating to stock options. Travel and entertainment increased approximately $48,000 in the 2004 fiscal year when compared to the 2003 fiscal year. The increase was primarily the result of increased activity pursuing the establishment of co-promotional arrangements for the marketing, distribution and commercial exploitation of our cancer detection technology along with the promotional activities of raising capital to support these objectives. Professional fees increased approximately $27,000 in the 2004 fiscal year when compared to the prior fiscal year. The principal reason for the current increase related to annual professional fee costs, including accounting associated with financial and developmental activities. Other reasons for an increase in general and administrative expenses were the consulting costs of THM Consulting, approximating $10,000, increased transfer fees and printing costs approximating $8,000, along with an increase in occupancy costs of $6,000. The increase in general and administrative expense was offset by a decline in secretarial and financial consulting costs approximating $35,000 during the 2004 fiscal year when compared to the prior fiscal year. This decline was a result of the issuance of Common Stock at fair market value for secretarial services rendered to us during the 2003 fiscal year approximating $15,000 and the issuance of Common Stock at fair market value for financial consulting services rendered to us during the 2003 fiscal year approximating $20,000. 17 Research and Development Expense Our research and development expense was approximately $26,300 for the 2004 fiscal year. This was a decrease of approximately $6,100 or 19% when compared to the prior fiscal year. During the 2004 fiscal year, approximately $11,700 in costs were associated with the Institute for Ultrafast Spectroscopy and Lasers Center for Ultrafast Photonics and Mediphotonics Laboratory of CUNY. In addition, we incurred approximately $14,600 of patent filing fees associated with RFCUNY during the current fiscal year. Other Income (Expense) Other income (expense) was approximately ($16,000) for the 2004 fiscal year as compared to other income of $168,231 for the 2003 fiscal year. In the 2003 fiscal year, we recognized as income $16,000 on the settlement of a $40,000 debt with the issuance of 160,000 shares of common stock at its fair market value of $24,000. In addition, during the 2003 fiscal year, we recognized as income $164,451 on the settlement of $283,484 debt with the issuance of 283,228 shares of common stock with a fair market value of $33,988 along with a payment of $85,045. No gains on the restructuring of payables were recorded in the 2004 fiscal year. Income Tax Benefit In the 2003 fiscal year, we recognized an income tax benefit approximating $217,700 under the State of New Jersey Technology Business Tax Certificate Program ("NJ Tax Program"). The program allows emerging technology and biotechnology companies to sell their unused state net operating losses to corporate taxpayers in New Jersey. The proceeds have been used to pay approximately $31,300 to an officer for prior loans to us with the balance approximating $186,400 to be used for general operations. No income tax benefit under the NJ Tax Program was recorded in the 2004 fiscal year, since we completed the Program in the 2003 fiscal year. Six Months Ending August 31, 2004 Compared to Six Months Ending August 31, 2003 Revenues 18 We had no revenues during the six month periods ending August 31, 2004 and 2003, during which time our primary focus has been the continued development of our light-based technology. General and Administrative Expense General and administrative expenses increased approximately $484,500, or 148%, during the six month period ending August 31, 2004 ("2004 Sixth-Month Period") as compared to the six month period ending August 31, 2003 ("2003 Sixth-Month Period"). This increase was comprised of a net increase in several key operating expense categories. Salaries, wages and payroll related costs increased approximately $75,000 in the 2004 Six-Month Period when compared to the 2003 Sixth-Month Period. This increase is represented by developmental payroll costs associated with our wholly owned subsidiary, Medi-Photonics, approximating $38,500, plus a full six month's salary in 2004 for Michael Englehart, who became our Chief Operating Officer at the end of April 2003, representing a differential in costs between periods of $17,500, along with an increase in payroll related costs, including employment taxes approximating $19,000. Professional fees increased approximately $46,000 during the 2004 Sixth-Month Period when compared to the 2003 Sixth-Month Period. The principal reasons for the current increase related to annual professional fee costs including professional fee costs associated with the registration of our securities and increased accounting activities associated with financial and development activities. Administrative and secretarial costs increased approximately $43,000 during the 2004 Sixth-Month Period compared to the 2003 Sixth-Month Period. This increase is a result of the issuance of Common Stock at fair market value for secretarial services rendered to the Company approximating $33,000, plus accruals of $10,000 incurred during the 2004 Sixth-Month Period. Also included in the increase in general and administrative expenses is an increase in consulting costs of approximately $320,000, during the 2004 Sixth-Month Period when compared to the 2003 Sixth-Month Period, which comprised of approximately $287,000 of deferred costs amortized as an expense plus an increase in other consulting costs expended approximating $33,000 associated with corporate management, marketing opportunities, product development, corporate funding and FDA clinical trials. Advertising, Travel and Marketing Expense Advertising, travel and marketing decreased approximately $12,000, or 24%, in the 2004 Sixth-Month Period when compared to the 2003 Sixth-Month Period. This decrease was primarily the result of decreased activity pursuing the establishment of co-promotional arrangements for the marketing, distribution and commercial exploitation of cancer detection technology, along with the promotional activities of raising capital to support these objectives. Debt Conversion Inducement Expense The Company made an inducement offer to a creditor to convert all of its then outstanding notes. On March 8, 2004 the creditor accepted the offer to convert the principal amount of $150,045 plus related interest of $35,470 to 1,460,000 common shares. In connection with the inducement offer and related conversion, the Company recognized a non-cash expense of $58,555 during the 2004 Sixth-Month Period. Research and Development Expense Research and development expense increased approximately $201,000 during the 2004 Sixth-Month Period when compared to the 2003 Sixth-Month Period, due principally to the increase in research funding provided by us through Medi-Photonics to RFCUNY under a one-year project agreement for research and development in the area of optical biopsy for the development of a commercially viable CD-Ratiometer and adjunctive technology. 19 2004 Liquidity and Capital Resources We had a deficiency in working capital as of February 29, 2004 of approximately $1,924,000 compared to a deficiency of approximately $2,506,000 at February 28, 2003 or a decrease in the deficiency of approximately $582,000 for the 2004 fiscal year. The decrease in the deficiency was primarily comprised of the net proceeds received of $1,500,000 in a private placement, which funded a net operating loss of approximately $924,000 with the remainder applied to a reduction in accrued liabilities. The deficiency is primarily comprised of accruals for professional fees, consulting and general obligations, and salaries and wages. Cash flows from financing activities was $1,571,000 for the year ended February 29, 2004, which primarily related to proceeds from a $1.5 million private placement of convertible preferred stock. The proceeds will be used for the clinical development of certain prototypes, regulatory, medical and scientific affairs, market research, and working capital. The Company had a deficiency in working capital as of August 31, 2004 of approximately $1,960,000 compared to a deficiency of approximately $1,924,000 at February 29, 2004 or an increase in the deficiency of approximately $36,000 for the 2004 Six-Month Period. The increase in the deficiency was primarily comprised of a decrease of approximately $569,000 in current assets primarily comprised of cash and prepaid expenses, as compared to a decrease of $533,000 in current liabilities, which were primarily comprised of accrued liabilities and other loans. The deficiency is primarily comprised of accruals for professional fees, consulting, salaries and wages and general obligations. Cash flows from financing and investing activities was $0 for the six months ended August 31, 2004, whereas cash outflows approximated $1,033,000 for operating activities for the six months ended August 31, 2004. Our ability to continue our operations is largely dependent upon obtaining regulatory approval for the commercialization of our 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, if granted. We intend to defray the costs of obtaining regulatory approval for the commercialization of such technology by the establishment of clinical trial arrangements with medical institutions. We intend 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. Our management anticipates that substantial resources will be committed to a continuation of our research and development efforts and to finance government regulatory applications. While management believes that we will obtain sufficient funds to satisfy our liquidity and capital resources needs for the short term from the private placement of our securities and short term borrowings, 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, if at all. In the absence of the availability of financing on a timely basis, we may be forced to materially curtail or cease our operations. Our 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 our products; (iv) the amount of resources which we devote to clinical evaluation and the establishment of marketing and sales capabilities; and (v) our success in entering into, and cash flows derived from, co-promotion arrangements. 20 BUSINESS Background We were incorporated in the State of New Jersey in March 1971 under the name Cardiac Techniques, Inc. and acquired in September 1971 in exchange for shares of common stock all of the capital stock of Mediscience Technology Corp., a Delaware corporation, to develop a cardiac monitor, catheter and aggregometer. In November 1971, the assets of Mediscience Technology Corp. were transferred in liquidation to us and we changed our name from Cardiac Technologies, Inc. to Mediscience Technology Corp. to develop and manufacture sophisticated medical devices. We are 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. On December 1, 1988, we acquired all the outstanding stock of LDI, which is now a wholly owned subsidiary. The principle asset of LDI was the ownership of a U.S. patent application entitled "Method and Apparatus for Detecting Cancerous Tissue Using Visible Luminescence," which patent (our "516 patent") was subsequently granted in 1990 and 1998 and expanded from 9 to 59 claims in a reexamination of that patent. Our 516 patent expires in 2010. Our research and development activities are centered around the expansion of this patent and other patents either acquired subsequently from RFCUNY by us or for which we are the exclusive licensee from RFCUNY. We acquired two exclusive world-wide licenses for U.S. patent applications filed by RFCUNY: "Stokes-Shift Fluorescence Spectroscopy for Detection of Disease and Physiological State of Specimen" and "Three-Dimensional Radiative Transfer Tomography for Turbid Media, which, when issued, would extend our core technology in the optical biopsy field. Our claim of priority right runs for a twenty year period from February 5, 2003 thus providing our optical biopsy patent protection for that period. We have successfully conducted preclinical and clinical evaluations which continue to support our belief that our 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 off site pathology laboratories. On January 6, 1997, we received approval from the FDA of our Investigational Device Exemption application to initiate human Phase II clinical trials with our CD Ratiometer medical device for early stage detection of cancer. This trial has not been initiated because of the lack of funding. On January 25, 1999 the FDA classified our CD Ratiometer as a non-significant risk device for human trial Phase I clinical investigation of the biological basis of fluorescence as applied to medically significant female OBGYN health issues. This pilot study is being conducted under a research agreement with Yale University and RFCUNY. On December 11, 2003 the FDA, after audit review, qualified us as a small entity allowing reduced or waived FDA fees for our 2004 medical device 510k or other market approval submissions and our participation in expedited FDA review through FDA clinical inspections conducted independently by third party FDA approved "accredited" persons, directly employed by us. 21 Strategy Our strategy is to commercialize early cancer detection devices based upon our technology, completed and in process prototypes and expertise in the area of fluorescent imaging. We formed Medi-Photonics on February 19, 2004 in New York, as a wholly owned subsidiary to commercialize our CD Ratiometer, a device to be used for the molecular detection of cervical cancer and physiological change. We are currently in the final stages of testing the CD Ratiometer and have submitted pre-IDE materials for detecting cervical cancer to the FDA. We currently expect an IDE meeting to take place in January 2005 and thereafter to begin conducting clinical trials with the CD Ratiometer during the first quarter of 2005. We are also continuing our research and development efforts in cancer detection devices for the prostate, colon and esophagus. We are in various stages of fund raising and business development activities with potential distributors, strategic partners and strategic and financial investors. We believe that our technology will be broadly applicable in cancer screening and diagnosis. We are preparing to submit an application for 510k exemption, however presently, each approved labeled indication requires a separate PMA, which is a time-consuming and costly process. We regard our "516" and other related patents as pioneering, blocking and dominant in the area of cancer diagnosis using fluorescence spectroscopy both in-vivo and in-vitro. We continue to seek additional funding through present and new equity capital from institutional and individual professional investor groups. In early November 2004, we entered into, through our Medi-Photonics subsidiary, a collaborative research and development agreement to jointly develop the "compact phototonic explorer" or pill camera for medical and non-medical applications with Infotonics. The initial development initiative would be to create an ingestible photonic pill for the detection of early stage cancer of the digestive tract. Products and Technology Our Technology Optical biopsy is a novel approach based on optical spectroscopy to diagnose the state of a tissue in vivo without removing the tissue from the body, or after the in vitro tissue has been removed from the body. We possess the foundations for optical biopsy by developing technology based on UV-visible fluorescence, excitation, Raman, time-resolved, diffuse reflectance, and most recently, Stokes shift spectroscopies. Using the appropriate wavelengths, at this time, optical biopsy can determine whether a tissue is malignant, dysplastic (pre-cancer) or benign; in addition to whether it is invasive cancer. Seminal patents have been issued over the years for various approaches to optical biopsy. We have characterized the fluorescence signatures from normal and malignant tissue from multiple organ sites and developed algorithms to distinguish malignant tissue from normal tissue. The onset of carcinogenesis causes molecular and structural changes in tissues. These molecular and structural changes can be observed in the differences in the fluorescence spectra between benign, precancerous and cancerous tissues. The important diagnostic fluorophores found in human tissue include several amino acids, proteins and other biomolecules (i.e. tryptophan, collagen, nicotinamide adenine dinucleotide, elastin, flavins and porphyrins). Optical biopsy offers some significant improvements over classical methods. It does not require removal of tissue, results are available in real time, and it is highly sensitive to changes occurring on a sub millimeter size scale. Our instrumentation is lamp-based and does not require the use of lasers. The use of broad band UV-visible lamps as an excitation source extends the capability of the technology by allowing the instrumentation to probe multiple fluorophores. Our instrumentation permits acquisition of emission, excitation, diffuse reflection, and, the recently developed, Stokes shift spectra for enhanced diagnostic accuracy. 22 In vitro studies have been performed on breast, cervical, oral cavity, esophageal, colon and lung tissue in collaboration with Sloan Kettering Memorial Hospital ("Sloan Kettering") (oral cavity, breast); New York Eye and Ear Infirmary (oral cavity); Weill Medicine College of Cornell University, New York Hospital and Columbia Presbyterian Hospital (now New York - Presbyterian Hospital) (esophageal and digestive tract); St. Vincent's Hospital of Staten Island and Hackensack University Medical Center (prostate). In the in vitro studies, the accuracy (sensitivity) of our fluorescence methods varied from 87% to 97% and the specificity varied from 87% to 100%. The results of our research have been confirmed by researchers at other universities, who have employed our type of technology. In an in vitro study of the esophagus, fluorescence measurements were able to differentiate between normal, Barrett's, dysplastic and adenocarcinoma tissue specimens. In similar research, an animal study performed by CUNY and Sloan Kettering, using a rat esophageal model demonstrated that fluorescence could detect precancerous changes in the rat esophagus prior to any visual indication of malignancy. The in vivo oral cancer study at Sloan Kettering was able to discern differences between normal healthy controls and "normal" appearing contra lateral sites in oral cancer patients. A preliminary study performed at CUNY Center for Advanced Technology, which focused on in vitro breast cancer specimens, demonstrated that fluorescence spectroscopy could identify different types of breast cancer. In this study, spectral differences were observed between invasive carcinoma, mixed invasive and in situ carcinoma, fibroadenoma and normal breast tissues. This study showed that diffuse reflectance spectra reflected differences in proteins and DNA from tissues with different disease states. A larger study, involving a greater number of specimens with a more detailed histopathological analysis should be implemented to confirm these results. Currently, we are in the process of completing a final prototype for CD Ratiometer cervical cancer FDA trials. We currently have instrumentation which may probe the following in vivo organ sites: oral cavity, cervix, aerodigestive tract and colon. Use in the aerodigestive tract and colon requires that our instrumentation be coupled to an endoscope. We have already coupled our instrumentation to a GI tract endoscope. Our Products We believe that our CD Ratiometer will be commercially viable in the areas of cervical, full spectrum GI and oral that employ our technology for cancer screening and diagnosis and which are based upon a scanning component ("CD Scan"), and a mapping component ("CD Map"). The CD Ratiometer device uses lamplight 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 fiber optic probe is attached to the CD Ratiometer device to transmit the optical excitation signal and to retrieve the native fluorescence response. We believe that the CD instruments have a great deal of versatility and a broad range of potential alternative applications depending on the preferred configuration of the fiber optic probe. For example, the fiber optic 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 endoscopes for assessment of the upper or lower GI tract, through a cystoscope for study of the urinary tract, a colposcope for gynecological evaluation or a laparoscope's for evaluation of internal organs, and even through a core biopsy needle to optically assess breast tumors or other deep tissue tumors, such as sometimes occur in the pancreas, liver or prostate. The CD Scan product prototype is oriented to medical research. It is designed to provide optical scanning capability over 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 our prototypes product. 23 The CD Ratiometer is designed as a simple, compact instrument with user-friendly features and characteristics to optically assess scanned tissue at pre-established optical wavelengths and to instantaneously report out a "yes" "no" or "maybe" result on a computer screen. We expect that the CD Ratiometer with its 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 designed to optically interrogate an area of tissue rather than selective individual points. Although it is at an earlier stage of design than either the CD Scan or CD Ratiometer, it is expected to report out similar results but in the form of a colored map on a computer screen distinguishing normal areas from abnormal areas via color differentiation. If we are successful in developing the CD 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 in the early 1980s by Professor Robert R. Alfano, Distinguished Professor of Physics and Engineering at CUNY, and a principal shareholder of our Company. Subsequent to our acquisition of LDI from Dr. Alfano in 1988, we entered into a research agreement with RFCUNY to provide us with research and development services. In 1992, we established, together with CUNY and RFCUNY, the Mediphotonics Laboratory at CUNY ("MPL") to provide research and development services in the area of tissue spectroscopy and cancer detection and other biological applications. The staff of MPL, which is supervised by Dr. Alfano, developed and continues to develop our current CD Ratiometer prototype device. 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 fluorescence 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 we either own outright or with respect to which we possess a world wide exclusive license and which we regard as pioneering and blocking in the area of cancer diagnosis using fluorescence. The information derived from this work was also the source for a number of scientific papers published in peer-review 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 our in vivo human clinical studies. In May 2004, Medi-Photonics entered into a one-year project agreement with RFCUNY, pursuant to which RFCUNY will apply its research and development to complete production of an updated CD Ratiometer and related technology to be used in our optical biopsy (for which we will seek FDA approval for marketing in the U.S.), including the testing of the CD Ratiometer on ex vivo human tissue specimens. Under the terms of the Agreement, we are granted an exclusive world-wide license, with the right to grant sublicenses to make, use and sell patented imaging product technology for molecular detection of cancer and physiological change. Clinical Development Our CD Ratiometer product is 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 our prototype CD Ratiometer product for each intended diagnostic application (labeled or intended use). Because of the anticipated clinical utility of our technology and prototype CD Ratiometer product, 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 in the clinical evaluation of our prototype products. These institutions include 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. 24 A Phase I clinical feasibility study of the upper aerodigestive tract was carried out at Sloan Kettering. It was established in this study that our CD Ratiometer 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 when funding is available. 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 one-third of the 85 million people currently alive in the United States will develop cancer during their lifetimes. In 2003, 9.6 million Americans were living with cancer with the medical cost of cancer care and treatment in the United States estimated at $64.2 billion according to the American Cancer Society. Cancer therapy has progressed rapidly in recent years but the axiom that early diagnosis is critical for successful treatment for the majority of cancer types still remains true. According to the Centers for Disease Control and Prevention, cancer screening and early detection could reduce cervical cancer deaths by 60%. Although several cancer screening techniques have been developed for the 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, excision 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 excision biopsy, however, often requires a significant amount of surgical intervention to collect an adequate tissue sample to make a proper diagnosis and staging determinations. The process can sometimes expose the patient to unnecessary risks, lengthy hospital stays, long recovery times, pain and discomfort and significant health care expense. We believe that our technology offers 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 excisional biopsy. The most widely practiced technique for definitive diagnosis of breast cancer, the leading cause of death among American women between the ages of 40 and 55, is open surgical biopsy (a specific type of 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 we can successfully adapt our technology to diagnose and stage breast cancers, we believe use of our technology will save up to half the current cost by reducing and /or eliminating extensive hospital stays and frequency of surgery as well as impacting significantly the amount of patient discomfort for those patients medically 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 the prototype CD Ratiometer product 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 projected 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 PMA application phase. 25 We currently plan to develop our CD Ratiometer product 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 currently plan to co-develop one or more of our prototype CD Ratiometer product 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 our existing CD Ratiometer prototype product 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. 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 which have established reputations with prospective purchasers of diagnostic products and proven selling, marketing and distribution capabilities. We expect the development of such strategic relationships, if any, to add value by leveraging our financial resource base with development and licensing revenues that we can then use to help fund the development of our own products. We also believe that there is a market for our CD Ratiometer product in the European Union and Asia. We currently contemplate making a concerted effort to identify one or more possible licensees to help develop our products or variations thereof for the key markets of the European Union during 2005-2006. We also currently intend to make a preliminary investigation of the potential for our products in Asia and if the findings are positive, will develop a strategy for exploiting our technology in that region as well. Manufacturing Our prototype products have been assembled to date by the staff of the MPL at CUNY 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 find a contract manufacturer. 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 currently plan to outsource the manufacture and assembly of our medical device products to contract manufacturers (when it is no longer feasible for MPL to perform that service) familiar with the regulatory requirements of the FDA for the manufacture of medical devices, which are registered and in good standing with the FDA and employ Good Manufacturing Practices ("GMP") in accordance with FDA guidelines. Additionally, an opportunity for a business arrangement with a marketing co-developer could involve the manufacture or our products as well. 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. We believe in-vivo tissue auto fluorescence spectral analysis is a paradigm shift emerging diagnostic technology with clear potential to favorably impact health care clinical outcomes as well as economics. Despite our belief that we have a seminal and dominant intellectual property position (in the United States), there is intense competitive activity in this area, with at least seven companies to date conducting active research and development programs in this area. Competition in cancer detection is significant. Current screening systems are dominated by the Pap smear and colposcopy, which are well established and pervasive. Improvements and new technologies for cervical cancer detection, include Digene Corporation's Human Papilloma Virus testing and Cytyc Corporation's Thin-Prep. In addition, there are other companies and institutions attempting to develop products using forms of biophotonic technologies in cervical cancer detection including Spectrx Inc, MD Anderson and University of Michigan. We seek to continue to develop devices that are more accurate, easier to use and/or less costly to administer to create and maintain a competitive advantage. 26 We are aware of other approaches to cancer screening based on X-ray, CT, ultrasound, magnetic resonance and radionuclide imaging technologies. However, these technologies 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 us, and more experience in the field of cancer diagnostics. There can be no assurances that our technology, even if developed successfully, will be accepted commercially in the marketplace. Government Regulation On December 11, 2003, the FDA, after audit review, qualified us as a small entity allowing reduced or waived FDA fees for any medical device 510k or other market approval submissions and our participation in expedited FDA review through FDA clinical inspections conducted independently by third party FDA approved "accredited" persons, directly employed by us. 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 "510k" process of marketing pre-notification. Class II devices are those whose safety and effectiveness can reasonably be ensured through implementation of general and special controls, such as performance standards, post market surveillance, patient registries, and FDA guidelines. Class III devices are those devices that must receive 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 the projected clinical indications for our native tissue fluorescence spectroscopy device (CD Scan, CD Ratiometer and CD Map) will cause such devices to be classified as Class I or II devices because they display substantial equivalency to a legally marketed Class I or II device or a pre-1976 Class III device. If we fail to meet Class I or II classifications and do not qualify for the 510k process of regulatory compliance we will be obliged to submit a full PMA to the FDA for its review. FDA review and approval of PMA applications usually takes from 12 to 24 months after such applications are submitted and considered "complete" (meaning that they are sufficiently in compliance with filing requirements that the FDA will substantively review the application) but may 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. 27 We are in the final stage of production of our prototype CD Ratiometer for clinical testing in humans. We are in the process of completing our final protocol and approaching the FDA for a IDE meeting (which we currently anticipate to take place in January 2005) for the CD Ratiometer for cervical cancer testing. We currently expect to commence human clinical trials in the first quarter of 2005. 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 of our products. 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 Ratiometer product. To the extent that we intend to market our CD Ratiometer product 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. Patents and Proprietary Rights On April 14, 2003 we acquired the exclusive world-wide license for U.S. patent application "Stokes-Shift Fluorescence Spectroscopy for Detection of Disease and Physiological State of Specimen." The patent was also filed by us under the Patent Cooperation Treaty for European Union approval on January 23, 2004 which, if and when issued, would extend our core technology in optical biopsy patent protection for an additional 17 years. 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, we or RFCUNY file patent applications to protect technologies that we believe to be significant to the development of our business. We either own or hold exclusive licenses to 27 U.S. patents and 1 patent in Japan, and have 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 our 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 us. We also rely on trade secrets and know-how that we seek to protect in part, through the use of confidentiality agreements. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and know-how will not otherwise become known to or independently developed by competitors. Third Party Reimbursement If we are successful in completing the development of our screening and diagnostic technology, and this technology is subsequently incorporated into medical devices that are used by health care providers for screening and diagnostic testing for which the providers may seek reimbursement from third-party payers, primarily in the United States through federal, state, medicare, medicaid and private health insurance plans, and in 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 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 our business potential. 28 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. Our Patents Medical Diagnostic Optical Technology US Patent Pending "Stokes-Shift Fluorescence spectroscopy for detection of disease and physiological state of specimen". #5,042,494, August 27, 1991, Method and Apparatus for Detecting Cancerous Tissue using Luminescence Excitation Spectra, R. R. Alfano. #5,131,398, July 21, 1992, Method and Apparatus for Distinguishing Cancerous Tissue from Benign Tumor Tissue, Benign Tissue or Normal Tissue using Native Fluorescence, R. R. Alfano, B. Das, G. Tang. #5,261,410, November 16, 1993, Method for determining if a Tissue is a Malignant Tumor Tissue, a Benign Tumor Tissue, or a Normal Benign Tissue using Raman Spectroscopy, R. R. Alfano, C. H. Liu, W. S. Glassman. #5,293,872, March 15, 1994, Method for Distinguishing between Calcified Atherosclerotic Tissue and Fibrous Atherosclerotic Tissue or Normal Cardiovascular Tissue Using Raman Spectroscopy, R. R. Alfano, C. H. Liu #5,348,018, September 20, 1994, Method for determining if Tissue is Malignant as opposed to Non-Malignant using Time-Resolved Fluorescence Spectroscopy, R. R. Alfano, A. Pradhan, G. C. Tang, L. Wang, Y. Budansky, B. B. Das. #5,413,108, May 9, 1995, Method and Apparatus for Mapping a Tissue Sample for and Distinguishing Different Regions thereof based on Luminescence Measurements of Cancer-indicative Native Fluorophor, R. R. Alfano. #5,467,767, November 21, 1995, Method for Determining if Tissue is Malignant as opposed to Non-Malignant using Time-resolved Fluorescence Spectroscopy, R. R. Alfano, Asima Pradhan, G. C. Tang, L. Wang, Y. Budansky, B. B. Das. #5,635,402, June 3, 1997. Technique for Determining whether a Cell is Malignant as opposed to Non-malignant using Extrinsic Fluorescence Spectroscopy, R. R. Alfano, Cheng H. Liu, Wei L. Sha, Yury Budansky. #5,769,081, June 23, 1998, Method for Detecting Cancerous Tissue using Optical Spectroscopy and Fourier Analysis, R. R. Alfano, A. Katz, Y. Yang. 29 #5,849,595, December 15, 1998, Method for Monitoring the Effects of Chemotherapeutic Agents on Neoplasmic Media, R. R. Alfano, G. C. Tang, S. P. Schantz. #5,983,125, November 9, 1999, Method and apparatus for in vivo examination of subcutaneous tissues inside an organ of a body using optical spectroscopy, R. R. Alfano, Y. Budansky. #6,006,001, December 21, 1999, Fiber optic assembly useful in optical spectroscopy, R. R. Alfano, S. Demos, G. Zhang. #6,080,584, June 27, 2000, Method and apparatus for detecting the presence of cancerous and precancerous cells in a smear using native fluorescence spectroscopy, Robert R. Alfano, Singaravelu Ganesan, and Yury Budansky. #6,091,985, July 18, 2000, Detection of cancer and precancerous conditions in tissues and/or cells using native fluorescence excitation spectroscopy, Robert R. Alfano, Singaravelu Ganesan, Alvin Katz, Yang Yuanlong. Optical Imaging for Medical Purposes US Patent Pending "Three-dimensional Radiative Transfer Tomography for Turbid Media." #5,371,368, December 6, 1994, Ultrafast Optical Imaging of Objects in a Scattering Medium, R. R. Alfano, P. P. Ho, L. Wang. #5,625,458, April 29, 1997, Method and System for Imaging Objects in Turbid Media using Diffusive Fermat Photons, R. R. Alfano, A. Y. Polishchuk. #5,644,429, July 1, 1997 (see #5,371,368), 2-Dimensional Imaging of Translucent Objects in Turbid Media, R. R. Alfano, P. P. Ho, X. Liang. #5,710,429, January 20, 1998, Ultrafast Optical Imaging of objects in or Behind Scattering Media, R. R. Alfano, Feng Liu, Q. Z. Wang P. Ho, L. M. Wang, X. Liang. #5,719,399, February 17, 1998, Imaging and Characterization of Tissue based upon the Preservation of Polarized Light transmitted therethrough, R. R. Alfano, S. G. Demos. #5,799,656, September 1, 1998, Optical Imaging of Breast Tissues to enable the Detection therein of Calcification Regions Suggestive of Cancer, R. R. Alfano, P. P. Ho, L. Wang, X. Liang, P. Galland. #5,813,988, September 29, 1998, Time Resolved Diffusion Tomographic Imaging in Highly Scattering Turbid Media, R. R. Alfano, W. Cai, F. Liu, M. Lax, Bidyut B. Das. #5,847,394, December 8, 1998, Imaging of Objects Based upon the Polarization or Depolarization of Light, R. R. Alfano, S. G. Demos. #5,931,789, August 3, 1999, Time-resolved diffusion tomographic 2D and 3D imaging in highly scattering turbid media, Robert R. Alfano, Wei Cai, Feng Liu, Melvin Lax. # 6,208,886 B1, March 27, 2001, Non-linear optical tomography of turbid media, Robert R. Alfano, Yici Guo, Feng Liu, Ping Pei Ho. 30 # 6,215,587, April 10, 2001, Microscope imaging inside highly scattering media, Robert R. Alfano, Gordon Anderson, Feng Liu. The Company and CUNY Research Foundation have been diligent in the payment of maintenance obligations to the US Patent Office during the life of each of the Company's significant patents. Employees As of September 30, 2004, we had two full-time employees and our wholly-owned subsidiary, Medi-Photonics, had one part-time employee. None of our employees are covered by collective bargaining agreements and none are represented by labor unions. We believe that relations with our employees are good. Properties Our corporate headquarters are located in Cherry Hill, New Jersey. We have a month-to-month lease with Mr. Katevatis, our Chairman and Chief Executive Officer, for use of approximately 3,000 square feet of office space, pursuant to which we pay no rent but have assumed the obligation to pay all taxes, maintenance, insurance, utilities and repairs relating to such premises. Medi-Photonics, our wholly-owned subsidiary, leases a corporate research and development office in New York City under a one-year lease agreement with CUNY, dated June 28, 2004, for approximately 300 square feet of office space which lease may be terminated by CUNY for any reason upon 60 days notice. We believe that our current facilities adequately provide for our operations. If and when we expand our operations, we expect to require additional office space for sales, marketing and business development. Legal Proceedings We are not presently a party to any pending litigation, nor, to the knowledge of our management, is any litigation threatened against us which may materially affect our operations or business. MANAGEMENT Directors and Executive Officers Our directors and executive officers are as follows: Name Age Position ---- --- -------- Sidney Braginsky 61 Director Peter Katevatis Esq. 71 Chairman of the Board, Chief Executive Officer John M. Kennedy 67 Director, Vice President, Chief Financial Officer William Armstrong 88 Director 31 Name Age Position ---- --- -------- Michael Engelhart 42 Director, President, Chief Operating Officer Michael N. Kouvatas 77 Director John P. Matheu 82 Director Each director holds office until the next annual meeting of shareholders or until their successors have been duly elected and qualified. Executive officers are appointed and serve at the discretion of the Board of Directors. No compensation has been paid to any individual for services rendered as a director. Sidney Braginsky has served as our President and Chief Operating Officer from July 2001 until April 2003 and as a director since 2001. Mr. Braginsky was with Olympus Optical Ltd., a multi-national corporation which develops medical devices and related drug delivery systems, for 27 years, most recently from 1991 to 2001 as chief executive officer, and from 1999 to July 2001 as president and chief executive officer of Olympus America. Mr. Braginsky serves on the board of Noven Pharmaceuticals, Redox Pharmaceuticals, Electro-Optical Systems, Inc., a medical device developer using light-based computer vision, photonics and statistical pattern recognition, Semrock, Inc., a manufacturer of biomedical optics, Viatronics Inc., a company involved in 3D medical imaging computer technology and Diomed Holdings, Inc., a company involved in minimal and microinvasive medical procedures. Peter Katevatis has served as our Chairman of the Board of Directors and Chief Executive Officer since 1993 and as a director since 1981. Prior thereto from November 1983 until March 1996 Katevatis served as our President and Chief Executive Officer and from 1981 until his election as President and Chief Executive Officer in November 1983, Mr. Katevatis served as a Vice President. Mr. Katevatis was elected Treasurer of the Company in January 1996. Mr. Katevatis has been a practicing attorney in Philadelphia, Pennsylvania and Marlton, New Jersey, and is also licensed as an attorney in the State of New York and in the District of Columbia. Mr. Katevatis was a trustee of the New Jersey State's Police and Fireman Retirement Pension Fund from 1989 to 1996 and served as a member of the State of New Jersey Investment Council from 1990 to December 1992. Mr. Katevatis is a member of the American Arbitration Association, serves as an arbitrator with the National Association of Security Dealers and is a member of the National District Attorney's Association and the New York Academy of Science. John M. Kennedy currently serves as a Vice President, Chief Financial Officer and Secretary of our company, and has been a director of the Company since 1982 and chairman of the audit committee since 2000. Mr. Kennedy served as Vice President since 1983, as Treasurer from 1984 to January 1996 and as Secretary since 1986. Mr. Kennedy is Chief Executive Officer of Pepco Manufacturing Co., a sheet metal fabricator for the electronics industry. Mr. Kennedy also was a director and member of the Audit Committee of First Peoples Bank of New Jersey from 1979 and also 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 since 1978 and as a member of the audit committee since 2000. Mr. Armstrong has been in retirement since 1982 following a 36 year career as a research scientist with Pfizer Inc, a global consumer health care and pharmaceutical company. Since his retirement, Mr. Armstrong has continued to serve as a consultant to Pfizer, currently in the animal health division. Mr. Armstrong has been awarded 14 patents concerning therapeutic agent dosage delivery systems. 32 Michael Engelhart has served as our President and Chief Operating Officer and as a director since April 2003. From 2000 to 2003, Mr. Engelhart was the president and chief executive officer of THM Group, LLC, a firm providing strategic consulting services in the areas of business strategy, development and operations and product branding, launch and development. Prior thereto, Mr. Engelhart was president and chief executive officer of Redwood Capital Advisors Inc., a portfolio management firm and registered investment advisor. John P. Matheu has served as a director since July 1996 and as a member of the audit committee from 2000 to October 2004. Mr. Matheu has been general partner and co-founder of Matco Associates, a consulting firm specializing in providing management consulting services to companies in the pharmaceutical, medical device and health care industries since 1990. Prior thereto, Mr. Matheu was employed by Pfizer Inc. from 1950 to 1984, where Mr. Matheu held a wide range of management positions primarily in distribution, marketing and sales, established and directed Pfizer's generic drug division and directed Pfizer Laboratories' 800 person field sales force, hospital marketing group and training department. Michael N. Kouvatas has served as a director since 1971. For the past 10 years, Mr. Kouvatas has been an attorney with offices in Haddonfield, New Jersey and is a principal in various food operations in the Southern New Jersey area. There are no family relationships between any of our directors or executive officers. Executive Compensation The following sets forth information for the three most recently completed fiscal years concerning the compensation of (i) the Chief Executive Officer and (ii) all other executive officers who earned in excess of $100,000 in salary and bonus in the fiscal year ended February 29, 2004. SUMMARY COMPENSATION TABLE
Long Term Compensation ---------------------------- Annual Compensation Securities --------------------- Underlying All Other Salary Options Compensation Name and Principal Position Year $ (#) ($) - --------------------------- ------ ---------- ------------ -------------- Peter Katevatis 2004 $200,000 -- $60,450(1) Chairman and Chief Executive 2003 $200,000 -- $65,617(1) Officer 2002 $200,000 -- $61,977(1) Michael Engelhart 2004 $105,500 -- -- President and Chief Operating 2003 -- -- -- Officer 2002 -- -- --
- ---------- (1) Includes annual retainer of $50,000 for the provision of legal services, automobile expense of $774.00 and insurance of $9,676 for 2004; automobile expense of $6,779 and health insurance of $8,838 in 2003 and automobile expense of $7,318, automobile insurance of $705.00 and health insurance of $3,954 in 2002. 33 Employment Agreements Peter Katevatis, our Chairman of the Board and Chief Executive Officer, has an employment agreement with us ending March 5, 2007. The Agreement provides that Mr. Katevatis will be compensated at an annual base salary of $200,000 (with an annual cost of living increase of no less than 6%) with a discretionary annual bonus in an amount to be determined in accordance with a formula to be agreed upon by the Board of Directors and Mr. Katevatis. The agreement may be terminated by us for cause upon ninety days notice and by Mr. Katevatis for any reason, and by us without cause, upon sixty days notice. If Mr. Katevatis is terminated by us without cause, he will be entitled to his base salary for the balance of the term of the Agreement and 200% of his annual bonus paid for the most recently ended fiscal year. Michael Engelhart, our President and Chief Operating Officer, has an employment agreement with us ending April 23, 2006. The agreement may be renewed for additional one-year terms unless either party notifies the other at least 30 days prior to the end of the then current term of its desire to terminate the agreement. The agreement provides that Mr. Engelhart will be compensated at an annual base salary of $120,000 with an annual bonus to be awarded, at the discretion of the Board, in cash or our common stock at the election of Mr. Engelhart. The agreement may be terminated by us for cause and by Mr. Engelhart for any reason or by us without cause or in connection with a change of control of our company. If Mr. Engelhart is terminated by us without cause or upon a change of control, he will be entitled to receive compensation through the first anniversary of the date of termination or change of control, or if later, the expiration date of his employment contract. The agreement also provided for the grant to Mr. Engelhart of (i) a three-year incentive stock option to purchase 1,800,000 shares of our Common Stock at $1.00 per share which shall vest in 600,000 share increments upon our raising certain levels of equity investment based on our business plan, 380,000 share increments upon the achievement of certain critical milestones described in the employment agreement, or a combination thereof, provided that in no event shall Mr. Englehart be entitled to purchase in excess of 1,800,000 shares thereunder. Such option will fully vest upon a change of control, as defined in the agreement and (ii) a three-year non-qualified stock option to purchase 200,000 shares of our Common Stock at $0.25 per share. Change of Control Our 1999 Stock Incentive Plan and our 2003 Consultants Stock Option, Stock Warrant and Stock Award Plan provide that all outstanding options, warrants and restricted stock will become vested and immediately exercisable, in the case of options and warrants, or free from all restrictions, in the case of restricted stock, upon the change of control of our company. OPTION GRANTS IN LAST FISCAL YEAR The following tables show the number of shares subject to exercisable and unexercisable stock options held by our executive officers as of February 29, 2004. The table also reflects the values of such options, which represent the positive spread between the exercise price of such options and $0.60 which was the closing price for our common stock on February 29, 2004 as reported by the OTC Bulletin Board.
Number Of Securities Percent of Total Underlying Options Options Granted to Name Granted Employees Exercise Price Expiration Date - ------------------ -------------------- -------------------- ---------------- ----------------- Michael Engelhart 1,800,000 100% $1.00 4/23/06 Michael Engelhart 200,000 100% $0.25 4/23/06
34 Mr. Engelhart was granted a three-year option to purchase 200,000 shares of Common Stock at $0.25 per share pursuant to a stock option agreement dated April 23, 2003. Mr. Engelhart was granted a three-year option to purchase an aggregate of 1,800,000 shares of Common Stock at $1.00 per share which shall vest as to 600,000 shares when we have raised at least $5,000,000, $10,000,000 and $15,000,000, respectively, based upon our business plan, as to 380,000 shares when we have achieved certain critical milestones described in Mr. Englehart's employment agreement, or a combination thereof, pursuant to a stock option agreement dated April 23, 2003. The market price on April 23, 2003, the date of grant of the option was $0.10 per share, which represents the mean between the closing price of our Common Stock on April 21, 2003 and the opening price on April 24, 2003 as reported on the OTC Bulletin Board. Our shares did not trade on April 22, 2003 or April 23, 2003. UNEXERCISED OPTIONS AT FISCAL YEAR-END
Number of Shares Underlying Value of Unexercised In-The- Name Unexercised Options at Year-End Money Options at Year-End - ---------------------- ------------------------------------- -------------------------------- Exercisable / Unexercisable Exercisable / Unexercisable ------------------------------------- -------------------------------- Michael Engelhart 200,000 / 1,800,000 $70,000 /0
We do not have any other form of compensation for officers and directors, including any pension, retirement, stock bonus or other compensation plan. PRINCIPAL SHAREHOLDERS Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information regarding beneficial ownership of our Common Stock as of September 30, 2004 by (i) each person known by us to own beneficially more than 5% of our outstanding Common Stock, (ii) each of our directors and executive officers, and (iii) all directors and executive officers as a group. Except as otherwise indicated, each of the stockholders named below has sole voting and investment power with respect to such shares of Common Stock:
Name and Address of Number of Shares Percentage Beneficial Owner Beneficially Owned Beneficially Owned - ----------------------------- ------------------------ ------------------------ William W. Armstrong P.O. Box 607 Tupper Lake, NY 12986 355,200(1) * Sidney Braginsky 6 Stoney Court Dix Hills, NY 11746 0 0 Michael Engelhart 161 North Franklin Turnpike Ramsey, NJ 07446 2,000,000(2) 3.7% Peter Katevatis 1235 Folkestone Way Cherry Hill, NJ 08034 7,717,292(3) 14.3%
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Name and Address of Number of Shares Percentage Beneficial Owner Beneficially Owned Beneficially Owned - ----------------------------- ------------------------ ------------------------ John M. Kennedy 802 Chestnut Avenue Somerdale, NJ 08083 2,574,599 4.8% Michael N. Kouvatas 27 Kings Highway East Haddonfield, NJ 08033 550,666(4) 1.0% John Matheu 215 Longhill Drive Short Hills, NJ 07078 321,055(5) * All directors and executive officers as a group (7 persons) 13,518,812 24.8%
- ---------- * Represents less than 1% (1) Includes 6,000 shares held by Mr. Armstrong's wife for which Mr. Armstrong disclaims beneficial ownership. (2) Represents shares issuable upon the exercise of a three-year stock option to purchase an aggregate of (i) 1,800,000 shares at $1.00 per share, which vests in 600,000 share increments upon our raising certain levels of equity, 380,000 share increments upon the achievement of certain critical milestones, or a combination thereof, and (ii) 200,000 shares at $0.25 per share. (3) Includes (i) 5,349,794 shares issued pursuant to an anti-dilution agreement between us an Mr. Katevatis, (ii) 1,416,667 shares issued at $0.25 in lieu of salary and fees for legal services rendered to us by Mr. Katevatis, (iii) 552,664 shares issued in connection with a salary reduction required by the terms of a private placement of our stock, and (iv) 398,167 shares received in a cashless exercise of a stock option. (4) Includes (i) 118,000 shares owned by Mr. Kouvatas's wife for which Mr. Kouvatas, disclaims beneficial ownership; and (ii) 40,000 shares currently in the estate of Mr. Kouvatas' son of which Mr. Kouvatas and his wife are beneficiaries. (5) Includes 300,000 shares subject to a stock option. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Katevatis is paid $50,000 for legal services rendered to us during each fiscal year. Mr. Katevatis received $50,000 for each of our fiscal years commencing in 1998 through 2004. In July 2002, we entered into a month-to-month lease agreement with Peter Katevatis, our Chairman and Chief Executive Officer, for approximately 3,000 square feet for our corporate offices for which we pay no rent but have assumed the obligation to pay all taxes, maintenance, insurance, utilities and repairs relating to such premises. 36 Mr. Katevatis has agreed to forbear any and all collection action against us for accrued salary and fees including forgiveness of interest in exchange for the option of converting any such accrued salary and fees into our common stock at $0.25 per share. If we receive financing, Mr. Katevatis may elect to receive all or part of such accrued salary or fees in cash or common stock. As of September 30, 2004, accrued salary and fees amounted to $1,406,333 for Mr. Katevatis. On December 1, 1988, we acquired from Dr. Robert Alfano, a principal shareholder, all of the issued and outstanding stock of LDI including the "Method and Apparatus for Detecting Cancerous Tissue Using Visible Luminescence" patent in exchange for 1,500,000 shares of our Common Stock. LDI is under a continuing 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 such patent to Michelle Alfano, Dr. Alfano's daughter. On August 1, 2004, we entered into a thirteen-month consulting agreement with John Matheu, a director, a former member of the audit committee, pursuant to which Mr. Matheu will provide management consulting services to us. Mr. Matheu will be paid a monthly consulting fee of $4,166 during the term of the agreement, and received an option to purchase 300,000 shares of Common Stock at $1.50 per share. On December 9, 2004, we entered into an Amended and Restated Employment Agreement with Michael Engelhart, a director and our President and Chief Operating Officer, which restated and amended the terms of the Mr. Engelhart's Employment Agreement with us to clarify the original intent of the parties with respect to the nature of the stock options granted to Mr. Engelhart thereunder. DESCRIPTION OF THE TRANSACTIONS On February 1, 2004, we sold 60 shares of our convertible preferred stock at a purchase price of $25,000 per share, for an aggregate purchase price of $1,500,000, to accredited investors in a private placement (the "Private Placement"). In March 2004, each share of convertible preferred stock purchased was converted into 100,000 shares of Common Stock. We agreed to register such shares of Common Stock on a registration statement (of which this prospectus forms a part). On November 15, 2001, we entered into an agreement with Chesterbrook Partners Inc. pursuant to which, among other things, Chesterbrook Partners received five-year warrants to purchase an aggregate of 200,000 shares of Common Stock, at $0.25 per share, as compensation for shareholder support services provided to us during the period February 28, 1999 to November 15, 2001. On each of December 3, 2001 and June 21, 2002, Chesterbrook Partners Inc. assigned all of its right, title and interest in a five-year warrant to purchase 100,000 shares of Common Stock for $0.25 per share to William M. Baker, a non-affiliated accredited investor. Mr. Baker exercised the warrants as to all of the shares of Common Stock on February 18, 2004 for an aggregate purchase price of $25,000. We have agreed to register such 100,000 shares of Common Stock on a registration statement (of which this prospectus forms a part). On December 21, 2001 Chesterbrook Partners Inc. assigned all of its right, title and interest in a five-year warrant to purchase 50,000 shares of Common Stock for $0.25 per share to Lawrence B. Elgart, a non-affiliated accredited investor. Mr. Elgart exercised the warrant as to all of the shares of Common Stock on February 2, 2004 for an aggregate purchase price of $12,500. We have agreed to register such 50,000 shares of Common Stock on a registration statement (of which this prospectus forms a part). On February 1, 2004, we entered into a Consulting agreement with Dr. Jeremy Rosen, under which we agreed to issue 325,000 shares of Common Stock as compensation for Dr. Rosen's medical/ FDA clinical advisory services for a period from February 1, 2004 to February 1, 2008 and to register such shares on a registration statement (of which this prospectus forms a part). The shares were issued to Dr. Rosen on March 8, 2004. 37 On February 1, 2004, we entered into a Consulting agreement with RT Consulting Services Inc., under which we agreed to issue 1,400,000 shares of Common Stock as compensation for RT Consulting Services Inc.'s medical/FDA engineering, manufacturing, and financial advisory services from February, 2004 to February, 2008 and to register the shares on a registration statement (of which this prospectus forms a part). The shares were issued to RT Consulting Services Inc. on March 8, 2004. On April 1, 2004, we entered into a Consulting Agreement with Chesterbrook Partners Inc., under which we agreed to issue 200,000 shares of Common Stock as compensation for Chesterbrook Partners Inc.'s public relations and shareholder advisory services for our 2004 fiscal year through February 28, 2005 and to register the shares on a registration statement (of which this prospectus forms a part). The shares were issued to Chesterbrook Partners Inc. on May 5, 2004. SELLING SHAREHOLDERS The following table sets forth the shares beneficially owned, as of September 30, 2004, by the Selling Shareholders prior to the offering contemplated by this prospectus, the number of shares each selling stockholder is offering by this prospectus and the number of shares which each Selling Shareholder would own beneficially if all such offered shares are sold. The Selling Shareholders acquired their beneficial interests in the shares being offered hereby in transactions described under the heading "Description of the Transactions." Except as expressly set forth below, none of the Selling Shareholders is a registered broker-dealer or an affiliate of a registered broker-dealer. Each of the Selling Shareholders has acquired his, her or its shares solely for investment and not with a view to or for resale or distribution of such securities. Beneficial ownership is determined in accordance with SEC rules and includes voting or investment power with respect to the securities.
Shares of Shares of Shares of Percentage of Common Stock Common Common Stock Common Stock Owned Prior Stock Owned after Owned After Name and Address to Offering to be Sold the Offering the Offering - ---------------- ----------- ---------- ------------ ------------ William Baker 1,610,000 400,000 1,210,000 2.4% P.O. Box 7432 Delray Beach, FL 33482 Marjorie R. Bleiden and 100,000 100,000 -0- -0- Peter P. Ippoliti, Tenants in Common 5250 Windsor Park Drive Boca Raton, FL 33496 Sean G. Burke 100,000 100,000 -0- -0- 208 Sunrise Drive Wyckoff, NJ 07481 Young W. Chang 200,000 200,000 -0- -0- 439 Albany Court West New York, NJ 07093
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Shares of Shares of Shares of Percentage of Common Stock Common Common Stock Common Stock Owned Prior Stock Owned after Owned After Name and Address to Offering to be Sold the Offering the Offering - ---------------- ----------- ---------- ------------ ------------ Chesterbrook Partners Inc. 200,000 200,000 -0- -0- P.O. Box 7432 Delray Beach, FL 33482 Lawrence B. Elgart 150,000 150,000 -0- -0- 254 Park Avenue South, Apt. 5M NY, NY 10010 David Epstein 400,000 400,000 -0- -0- 300 East 85th Street, Apt 1903 NY, NY 10028 Financial Planning Analysts 220,000 200,000 20,000 * 734 Walt Whitman Road, Suite 301 Melville NY 11747 Liselotte Freidman 100,000 100,000 -0- -0- 5856 Vintage Oaks Circle Delray Beach, FL 33484 Peter Friedman 100,000 100,000 -0- -0- 5856 Vintage Oaks Circle Delray Beach, FL 33484 Carl D. Glaeser and Nancy N. Glaeser, 100,000 100,000 -0- -0- Tenants in Common 8 Van Mulen Street Mahwah, NJ 07430 Peter P. Ippoliti Trust and 100,000 100,000 -0- -0- Marjorie R. Bleiden, Tenants in Common 5250 Windsor Park Drive Boca Raton, FL 33496 Larry S. Kasman 120,000 100,000 20,000 * 801 Washington Street, Apt. 4E Hoboken, NJ 07030 Marlene N. Kasman, Phd 250,000 200,000 50,000 * 163 Townline Road East Northport, NY 11731 Dr. Richard Kasman 155,000 100,000 55,000 * 163 Townline Road East Northport, NY 11731 Robert Kaufman 157,623 100,000 57,623 * 200 Atlantic Avenue, Apt. 201 Lynbrook, NY, NY 11653
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Shares of Shares of Shares of Percentage of Common Stock Common Common Stock Common Stock Owned Prior Stock Owned after Owned After Name and Address to Offering to be Sold the Offering the Offering - ---------------- ----------- ---------- ------------ ------------ Dolores F. Kutlow 172,950 100,000 72,950 * 16891 Isle of Palms Drive Delray Beach, FL 33484 Linda L. Lawn 100,000 100,000 -0- -0- 5552 Via DelaPlata Cir Delray Beach, FL 33484 Michael C. Manis 100,000 100,000 -0- -0- 5 Tatem Way Old Westbury, NY 11568 Thomas Mitchell McCann, IRA 100,000 100,000 -0- -0- 1200 Bel Aire Drive West Pembroke Pines, FL 33027 Allen Moses & Neal M. Friedfertig, 224,820 200,000 24,820 * Tenants in Common 665 East 7th Street NY, NY 11218 Mark and Bonnie Newman, 100,000 100,000 -0- -0- Tenants in Common 2 East Putman Green Greenwich, CT 06830 Joseph Penzone 100,000 100,000 -0- -0- 3252 Waterbury Drive Wantagh, NY 11793 R & T Consulting Inc. 1,400,000 1,400,000 -0- -0- 16719 Senterra Drive Delray Beach, FL 33484 Herbert Regenstreif 207,000 100,000 107,000 * 362 Willis Avenue Mineola, NY 11501 Evan D. Rosen 100,000 100,000 -0- -0- 200 West 79th Street NY, NY 10024 Jeffery Rosen DDS 325,000 325,000 -0- -0- 446 East 86th Street, Apt 7G NY, NY 10028 Jeremy S. Rosen DDS 1,200,000 1,200,000 -0- -0- 446 East 86th Street, Apt 7G NY, NY 10028
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Shares of Shares of Shares of Percentage of Common Stock Common Common Stock Common Stock Owned Prior Stock Owned after Owned After Name and Address to Offering to be Sold the Offering the Offering - ---------------- ----------- ---------- ------------ ------------ Jeffrey Rosenfeld 120,000 100,000 20,000 * 1427 Noel Avenue Hewlett, NY, 11557 Barry Schwartz and Judith Schwartz, 100,000 100,000 -0- -0- Tenants in Common 11039 Via Lucca Boynton Beach, FL 33437 Neil B. Tygar and Michele Tygar, 100,000 100,000 -0- -0- Tenants in Common 16384 Via Venetig West Delray Beach, FL 33484 Ronald Tygar 600,000 600,000 -0- -0- 16719 Senterra Drive, Delray Beach, FL 33484 Ronald Tygar and Francine Tygar, 400,000 400,000 -0- -0- Joint Tenants WROS 16719 Senterra Drive, Delray Beach, FL 33484 Michael J. Weiss 100,000 100,000 -0- -0- 14 Doti Court Huntington, NY 11743 Ira M. Wendroff and Diane R. Abdo, 100,000 100,000 -0- -0- Joint Tenants 17205 Newport Club Drive Boca Raton, FL 33496
- ---------- * Represents less than 1% None of the Selling Shareholders are affiliates or controlled by our affiliates. None of the Selling Shareholders are now or were a director or officer or has or had a material relationship with the Company or any of our predecessors or affiliates for the past three years. We have separate contractual obligations to file this registration statement (of which this prospectus forms a part) with each of the Selling Shareholders. DESCRIPTION OF SECURITIES We are authorized to issue 199,950,000 shares of Common Stock, par value $0.01 per share, and 50,000 shares of Preferred Stock, par value $0.01 per share. As of November 30, 2004, there were issued and outstanding (i) 53,346,647 shares of Common Stock held of record by approximately 738 holders and beneficially owned by approximately 1,200 holders and (ii) no shares of Preferred Stock. 41 Common Stock Holders of shares of Common Stock are entitled to cast one vote for each share held at all shareholder's meetings for all purposes, including the election of directors and to share equally on a per share basis in such dividends as may be declared by the Board of Directors out of funds legally available therefor. Upon our liquidation or dissolution, and after satisfaction of all liabilities and preferences of the outstanding Preferred Stock, holders of Common Stock will be entitled to share equally, on a pro rata basis, in the remainder of our assets legally available for distribution to the holders of Common Stock. No holder of Common Stock has a preemptive or preferential right to purchase or subscribe for any additional shares of Common Stock. The Common Stock does not have cumulative voting rights. Preferred Stock We are authorized to issue up to 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 and may include voting rights, preferences with respect to dividends, liquidation, conversion and other rights, but will not have preemptive rights. The issuance of Preferred Stock may reduce the rights of the holders of Common Stock and therefore, the value of the Common Stock. Specific rights granted to future holders or Preferred Stock could be used to restrict our ability to merge with or sell our assets to a third party. The holders of our Convertible Preferred Stock are entitled to receive non-cumulative preferential dividends, if and when declared, before any dividends may be declared in the shares of Common Stock and are entitled to a preference over holders of Common Stock in the event of a liquidation of our assets. Our Series A Preferred Stock has no redemption or dividend rights and votes only with respect to corporate matters affecting their respective rights, preferences or limitations. The holders of Series A Preferred Stock do not vote for the election of directors or on general corporate matters. 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 on liquidation of our assets. All issued and outstanding shares of Series A Preferred Stock were converted into Common Stock in March 2004. Anti-Dilution Our Chairman and Chief Executive Officer and Robert Alfano, the inventor of much of our technology, have anti-dilution agreements which provide that such shareholders' interest in our Common Stock attributable to shares they owned on April 27, 1981 and August 19, 1999, respectively, will at all times represent approximately 17% and 4%, respectively, of our total issued and outstanding shares. The issuance of our Common Stock in connection with such contractual obligations will substantially dilute the share ownership of the existing holders of Common Stock. Anti-Takeover Effect of New Jersey Shareholder Protection Act We are subject to the New Jersey Shareholder Protection Act (the "Protection Act"), which restricts certain business combinations by us with any of our 10% shareholders. Generally, the Protection Act prohibits a publicly held New Jersey corporation with its principal executive offices and significant business operations in New Jersey from engaging in any business combination (defined generally as any merger, consolidation, sale, lease, exchange, mortgage, or pledge, or any stock transfer, securities reclassification, liquidation or dissolution, excluding certain transactions involving assets or securities which have a market value below that specified in the Protection Act) with an "Interested Shareholder" (defined generally as any person who is the beneficial owner of 10% or more of the voting power of the outstanding shares or any affiliate of the corporation who at any time within the five year period immediately prior to the date of the business combination has been the beneficial owner of 10% or more of the voting power of the outstanding shares) for a period of five years from the date the Interested Shareholder became an Interested Shareholder, unless such transaction is approved by the board of directors prior to the date the shareholder became an Interested Shareholder. In addition, the Protection Act prohibits any business combination at any time with an Interested Shareholder other than a transaction that (i) is approved by the board of directors of the applicable corporation prior to the date the Interested Shareholder became the Interested Shareholders; or (ii) is approved by the affirmative vote of the holders of two-thirds of the voting shares not beneficially owned by the Interested Shareholder at a meeting called for that purpose; or (iii) satisfied certain stringent price and terms criteria. 42 Certain shareholders may consider the Protection Act to have disadvantageous effects. Tender offers or other non-open market acquisitions of shares are frequently made at prices above the prevailing market price of a company's shares. In addition, acquisitions of shares by persons attempting to acquire control through market purchases may cause the market price of the shares to reach levels that are higher than would otherwise be the case. The Protection Act may discourage any or all of such acquisitions, particularly those of less than all of our shares, and may thereby deprive certain of our shareholders of an opportunity to sell their shares at a temporarily higher market price. PLAN OF DISTRIBUTION We are registering an aggregate 8,075,000 shares of common stock covered by this prospectus on behalf of the Selling Shareholders. The Selling Shareholders and any of their donees, pledgees, assignees and successors in interest may, from time to time, offer and sell any and all of their shares of Common Stock on any stock exchange, market or trading facility on which such shares are traded. The Selling Shareholders will act independently of us and each other in making decisions with respect to the timing, manner and size of each such sale. Sales may be made at fixed or negotiated prices. We believe that none of the Selling Shareholders have entered into any agreement, understanding or arrangement with any underwriter or broker-dealer for the sale of shares through a block trade, special offering, exchange distribution or secondary distribution of a purchase by a broker-dealer. The shares may be sold by way of any legally available means, including in one or more of the following transactions: o a block trade in which a broker-dealer engaged by a Selling Shareholder attempts to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker-dealer as principal and resale by the broker-dealer for its account pursuant to this prospectus; and o ordinary brokerage transactions and transactions in which a broker-dealer solicits purchasers. o privately negotiated transactions. Transactions under this prospectus may or may not involve brokers or dealers. The Selling Shareholders may sell shares directly to purchasers or to or through broker-dealers, who may act as agents or principals. Broker-dealers engaged by the Selling Shareholders may arrange for other broker-dealers to participate in selling shares. Broker-dealers or agents may receive compensation in the form of commissions, discounts or concessions from the Selling Shareholders in amounts to be negotiated in connection with the sale. Broker-dealers or agents also may receive compensation in the form of discounts, concessions or commissions from the purchasers of shares for whom the broker-dealers may act as agents or to whom they sell as principal, or both. The Selling Shareholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. Selling Shareholders and any broker-dealers and any other participating broker-dealers who execute sales for the Selling Shareholders may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting discounts and commissions under the Securities Act. If the Selling Shareholders are deemed to be underwriters, they may be subject to certain statutory and regulatory liabilities, including liabilities imposed pursuant to Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. 43 To the extent required, the number of shares to be sold, the name of the Selling Shareholder, the purchase price, the name of any agent or broker and any applicable commissions, discounts or other compensation to such agents or brokers and other material facts with respect to a particular offering will be set forth in a prospectus supplement. The Selling Shareholders may also sell shares under Rule 144 under the Securities Act if available, rather than pursuant to this prospectus. In order to comply with the securities laws of certain states, if applicable, the shares will be sold in such jurisdictions, if required, only through registered or licensed brokers or dealers. In addition, in certain states the shares may not be sold unless the shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and complied with. We advised the Selling Shareholders that the anti-manipulative provisions of Regulation M promulgated under the Exchange Act may apply to their sales of the shares offered hereby. We are required to pay all fees and expenses incident to the registration of the shares. Otherwise, all discounts, commissions or fees secured in connection with the sale of Common Stock offered hereby will be paid by the Selling Shareholders. WHERE YOU CAN FIND MORE INFORMATION ABOUT US We file annual, quarterly and current reports, information statements and other information with the SEC. Our filings are available to the public over the internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file at the SEC's Public Reference Room, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Further information on the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. This prospectus is part of a Registration Statement on Form SB-2 filed with the SEC under the Securities Act. This prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information, reference is made to the Registration Statement and the exhibits filed as a part thereof, which may be found at the location and website referenced above. You may also request a copy of our most recent annual report on Form 10-KSB, and any Exchange Act reports filed after the most recent Form 10-KSB, by writing or calling us at: Mediscience Technology Corp. 1235 Folkestone Way Cherry Hill, New Jersey 08034 Attn: Peter Katevatis, Chief Executive Officer Telephone: (856) 428-7952 44 Exhibits to the documents incorporated by reference will not be sent, however, unless these exhibits have been specifically referenced in this prospectus. LEGAL MATTERS The validity of the securities being offered hereby have been passed upon for us by Peter B. Hirshfield, Esq. Mr. Hirshfield owns shares of our common stock. EXPERTS The consolidated financial statements as of February 29, 2004 and February 28, 2003 and for each of the two years in the period ended February 29, 2004 included in this prospectus of Mediscience Technology Corp. have been so included in reliance on the report (which contains an explanatory paragraph relating to the Company's ability to continue as a going concern) of Parente Randolph LLC, independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing. 45 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES ------------------------------- CONSOLIDATED FINANCIAL STATEMENTS TABLE OF CONTENTS PAGE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM......................F-2 AUDITED CONSOLIDATED FINANCIAL STATEMENTS: BALANCE SHEET AS OF FEBRUARY 29, 2004 AND FEBRUARY 28, 2003..................F-3 STATEMENT OF OPERATIONS FOR THE YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003............................................................F-4 STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003......................................F-5 STATEMENT OF CASH FLOWS FOR THE YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003........................................................F-6 NOTES TO FINANCIAL STATEMENTS........................................F-7 to F-21 AUDITED AND UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS: BALANCE SHEET AS OF AUGUST 31, 2004 (UNAUDITED) AND FEBRUARY 29, 2004 (AUDITED).................................................F-22 STATEMENT OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED AUGUST 31, 2004 (UNAUDITED) AND AUGUST 31, 2003 (UNAUDITED).................F-23 STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED AUGUST 31, 2004 (UNAUDITED) AND AUGUST 31, 2003 (UNAUDITED).................................F-24 STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE SIX MONTHS ENDED AUGUST 31, 2004 (UNAUDITED)...........................................F-25 EXHIBIT TO STATEMENT OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED AUGUST 31, 2004 (UNAUDITED) AND AUGUST 31, 2003 (UNAUDITED)...........F-26 NOTES TO FINANCIAL STATEMENTS.......................................F-27 To F-34 F-1 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Mediscience Technology Corp. Cherry Hill, New Jersey: We have audited the accompanying consolidated balance sheet of Mediscience Technology Corp. and subsidiaries (the "Company") as of February 29, 2004 and February 28, 2003, and the related consolidated statements of operations, changes in stockholders' deficit, and cash flows for each of the two years in the period ended February 29, 2004. 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 audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mediscience Technology Corp. and subsidiaries as of February 29, 2004 and February 28, 2003, and the results of their operations and their cash flows for each of the two years in the period ended February 29, 2004 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As disclosed in Note 1 to the financial statements, the Company has no revenues, incurred significant losses from operations, has negative working capital and an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also 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/ Parente Randolph, LLC Philadelphia, Pennsylvania May 4, 2004 F-2 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 - -------------------------------------------------------------------------------------------------------------- 2004 2003 - -------------------------------------------------------------------------------------------------------------- ASSETS ------ CURRENT ASSETS: Cash $ 1,406,371 $ 119,681 Prepaid expenses 3,388 14,853 ------------ ------------ Total current assets 1,409,759 134,534 EQUIPMENT, net of accumulated depreciation of $204,361 in 2004 and $204,106 in 2003 892 1,147 OTHER ASSETS 1,800 1,800 ------------ ------------ TOTAL $ 1,412,451 $ 137,481 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- CURRENT LIABILITIES: Current portion of officer and other loans $ 181,587 $ 47,404 Accounts payable 19,505 43,873 Accrued liabilities 3,132,686 2,549,413 ------------ ------------ Total current liabilities 3,333,778 2,640,690 OFFICER AND OTHER LOANS, net of current portion -- 120,045 ------------ ------------ Total liabilities 3,333,778 2,760,735 ------------ ------------ STOCKHOLDERS' DEFICIT: Convertible preferred stock, $.01 par value, 50,000 shares authorized, 60 and 0 shares issued and outstanding in 2004 and 2003, respectively 1 -- Common stock, $.01 par value, 199,950,000 shares authorized, 39,372,753 and 37,582,139 shares issued and outstanding in 2004 and 2003, respectively 393,727 375,821 Additional paid-in capital 20,076,019 18,467,426 Accumulated deficit (22,391,074) (21,466,501) ------------ ------------ Total stockholders' deficit (1,921,327) (2,623,254) ------------ ------------ TOTAL $ 1,412,451 $ 137,481 ============ ============ - -------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements
F-3 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 - -------------------------------------------------------------------------------- 2004 2003 - -------------------------------------------------------------------------------- NET SALES $ -- $ -- COST OF SALES -- -- ------------ ------------ GROSS PROFIT -- -- ------------ ------------ GENERAL AND ADMINISTRATIVE EXPENSE 882,432 570,598 RESEARCH & DEVELOPMENT EXPENSE 26,265 32,383 ------------ ------------ Total expense 908,697 602,981 ------------ ------------ OTHER (INCOME) EXPENSE: Interest expense, net of interest income of $1,004 in 2004 and $694 in 2003 15,876 12,220 Gain on restructuring of payables -- (180,451) ------------ ------------ Total other (income) expense 15,876 (168,231) ------------ ------------ LOSS BEFORE INCOME TAX BENEFIT (924,573) (434,750) INCOME TAX BENEFIT -- 217,712 ------------ ------------ NET LOSS $ (924,573) $ (217,038) ============ ============ BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.02) $ (0.01) ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 38,660,309 37,242,965 ============ ============ - -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements F-4 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCK COMMON STOCK ADDITIONAL ---------------------- ---------------------- PAID-IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, FEBRUARY 28, 2002 -- -- 36,976,870 369,769 18,400,490 (21,249,463) Issuance of stock for restructuring of payables 283,228 2,832 31,156 Issuance of stock for restructuring of payables 160,000 1,600 22,400 Issuance of stock for services 100,000 1,000 14,000 Issuance of stock related to anti-dilution rights 62,041 620 (620) Net loss (217,038) --------- --------- ----------- --------- ----------- ------------- BALANCE, FEBRUARY 28, 2003 -- -- 37,582,139 375,821 18,467,426 (21,466,501) Issuance of stock 100,000 1,000 18,000 Issuance of preferred stock - private placement 60 1 1,499,999 Issuance of stock related to anti-dilution rights 1,690,614 16,906 (16,906) Cash received for common stock to be issued 37,500 Noncash compensation 70,000 Net loss (924,573) --------- --------- ----------- --------- ----------- ------------- BALANCE, FEBRUARY 29, 2004 60 $ 1 39,372,753 $ 393,727 $20,076,019 $ (22,391,074) ========= ========= =========== ========= =========== ============= - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Consolidated Financial Statements
F-5 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED FEBRUARY 29, 2004 AND FEBRUARY 28, 2003 - --------------------------------------------------------------------------------------- 2004 2003 - --------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (924,573) $ (217,038) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation 255 1,417 Common stock and warrants issued for legal and other services -- 15,000 Gain on restructuring of payables -- (180,451) Noncash compensation 70,000 -- Changes in assets and liabilities: Prepaid expenses 11,465 (14,853) Other assets -- (1,800) Accounts payable (24,368) 30,500 Accrued liabilities 583,273 283,892 ----------- ----------- Net cash (used in) provided by operating activities (283,948) (83,333) ----------- ----------- CASH FLOWS USED IN INVESTING ACTIVITIES, Purchases of equipment -- (1,275) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock - warrants 56,500 -- Issuance of preferred stock - private placement 1,500,000 -- Issuance of common stock - private placement -- -- Proceeds from officer and other loans 14,138 120,045 Repayments of officer and other loans -- (31,307) ----------- ----------- Net cash provided by (used in) financing activities 1,570,638 88,738 ----------- ----------- NET INCREASE IN CASH 1,286,690 4,130 CASH, BEGINNING 119,681 115,551 ----------- ----------- CASH, ENDING $ 1,406,371 $ 119,681 =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: Common stock issued for legal and other services $ -- $ 15,000 =========== =========== Common stock issued for restructuring of payables $ -- $ 57,988 =========== =========== Common stock issued - anti-dilutive rights $ 16,906 $ 620 =========== =========== Noncash compensation - stock options $ 70,000 $ -- =========== =========== - ---------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements F-6 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES NATURE OF OPERATIONS The consolidated financial statements include the accounts of Mediscience Technology Corp. ("Mediscience") and its wholly-owned inactive subsidiaries, Laser Diagnostic Instruments, Inc. ("Laser"), Photonics For Women's Oncology, LLC ("Photonics") and Mediphotonics Development, LLC ("Mediphotonics") (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. Substantial additional financing is needed by the Company. F-7 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The Company has no revenues, incurred significant losses from operations, has an accumulated deficit and a highly leveraged position that raises substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company expects to incur substantial expenditures to further the development and commercialization of its products. To achieve this, management will seek to enter into an agreement with a consulting firm to be an advisor and explore options for the Company to commercialize its technology, 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. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. EQUIPMENT Equipment is stated at cost. Depreciation is computed using the straight-line method over an estimated useful life of five years. Depreciation expense was $255 and $1,417 in 2004 and 2003, respectively. INCOME TAXES The Company follows the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, utilizing 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. RESEARCH AND DEVELOPMENT Research and development costs are charged to operations when incurred. The amounts charged to expense were $26,265 and $32,383 in 2004 and 2003, respectively. F-8 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- ACCOUNTING FOR STOCK-BASED COMPENSATION At February 29, 2004, the Company had one stock-based employee compensation plan, which is described more fully in Note 8. The Company accounts for this plan under the intrinsic value recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. The Company reports stock-based compensation through the disclosure only requirements of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation in Transition and Disclosure. The following table illustrates the effect on net loss and loss per common share if the Company applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation. For purposes of applying SFAS No. 123, the estimated per share fair value of options granted during 2004 and 2003 was $0.05 and $0.06, respectively. The fair value was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions for 2004, 2003 and 2002: dividend yield of 0.0%; volatility ranging between 1.0603 and 1.5625; risk-free interest rate of 3.0%; and expected lives ranging between 3 and 5 years. 2004 2003 ---- ---- Net loss, as reported $ (924,573) $ (217,038) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (87,494) (38,859) ----------- ----------- Pro forma net loss $(1,012,067) $ (255,897) =========== =========== Basic and diluted loss per share: As reported $ (0.02) $ (0.01) =========== =========== Pro forma $ (0.03) $ (0.01) =========== =========== F-9 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 2. RELATED PARTY TRANSACTIONS Legal services rendered by Mr. Peter Katevatis, Chief Executive Officer and Chairman, (Note 8) amounted to $50,000 for each of the two years in the period ended February 29, 2004. These amounts are recorded in general and administrative expense. As part of Mr. Katevatis's employment agreement, the Company pays property taxes and certain operating expenses on the home of Mr. Katevatis in lieu of rent, since the Company's operations are located in Mr. Katevatis's home. Expenses recognized were $19,637 and $9,097 in 2004 and 2003, respectively, and are recorded in general and administrative expense. During 2004, the Company entered into an agreement with THM Group, LLC ("THM") to be the exclusive advisor to explore options for the Company to commercialize its technology. Mr. Michael Engelhart, President and Chief Operating Officer, is the President and Chief Executive Officer of THM. During 2004, the Company incurred $9,000 for services of THM. On April 9, 2004, THM terminated its agreement with the Company. See Note 8 for details regarding the Company's consulting agreement with one of its principal stockholders and Notes 3 and 4 for related party loans and accrued liabilities. 3. OFFICER AND OTHER LOANS In fiscal 2000, the Company entered into two interest-bearing convertible notes. Both notes bear interest at the rate of 8.25% per annum and are convertible into common stock on the basis of $.25 per share. The conversion option is unlimited in duration. Both notes are demand instruments and the holder can demand and receive payment in full including interest. The principal balance of the notes was $30,000 at February 29, 2004 and February 28, 2003. Accrued interest at February 29, 2004 and February 28, 2003 was $10,626 and $8,151, respectively. On March 8, 2004, the notes plus accrued interest were converted into common stock of the Company (Note 10). At times, Mr. Katevatis advances funds to the Company to provide funding to pay operational expenses as they became due. These advances do not accrue interest. At February 29, 2004 and February 28, 2003, officer loans payable to Mr. Katevatis were $31,542 and $17,404, respectively. F-10 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- On June 20, 2002, the Company entered into a $120,045 promissory note with the Olive Cox Sleeper Trust (the "Trust") with interest at 12% per annum. The note was amended on June 13, 2003 to extend the maturity date to March 31, 2004 from February 20, 2004. The principal amount of the note plus accrued interest is due and payable on the maturity date. There is a conversion feature that allows the Trust to convert the principal and accrued interest on the note to common stock of the Company at the rate of one share for each $.12 of principal and accrued interest at date of conversion. Accrued interest at February 29, 2004 and February 28, 2003 was $24,844 and $10,439, respectively. On March 8, 2004, the note plus accrued interest was converted into common stock of the Company (Note 10). 4. ACCRUED LIABILITIES Accrued liabilities consist of the following: 2004 2003 ---- ---- Legal and professional fees $ 365,354 $ 275,000 Consulting and university fees 1,164,915 1,002,915 Salaries and wages 1,508,833 1,206,333 Other 93,584 65,165 ---------- ---------- Total $3,132,686 $2,549,413 ========== ========== Accrued legal and professional fees include services rendered by Mr. Peter Katevatis. The amount of the accrual was $287,500 and $237,500 as of February 29, 2004 and February 28, 2003, respectively (Note 2). Accrued consulting and university fees include costs owed to Dr. Robert R. Alfano, a principal stockholder and chairman of the Company's Scientific Advisory Board (Note 8), with respect to his consulting agreement of $1,121,318 and $959,318 as of February 29, 2004 and February 28, 2003, respectively. Accrued salaries and wages include amounts to Mr. Katevatis of $1,406,333 and $1,206,333 as of February 29, 2004 and February 28, 2003, respectively, and $102,500 to Mr. Engelhart as of February 29, 2004 (Note 8). F-11 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 5. INCOME TAXES Income tax benefit consists of the following: 2004 2003 ---- ---- Current $ -- $217,712 ======= ======== In 2001, the Company became eligible to receive benefits under the State of New Jersey Technology Business Tax Certificate Program. This program allows emerging technology and biotechnology businesses to sell their unused state net operating losses (NOL) to any corporate taxpayer in the State of New Jersey for at least 75% of the tax benefits. The Company is eligible to sell a maximum of $713,987 and the amount sold and realized during the year ended February 28, 2003 was $217,712. Proceeds from the sale of net operating losses are reported as income tax benefit in the consolidated statement of operations. The components of the net deferred income tax asset and liability as of February 29, 2004 and February 28, 2003 are as follows: 2004 2003 ---- ---- Deferred income tax asset: Net operating loss carryforward $ 4,372,289 $ 4,140,665 Valuation allowance (4,372,289) (4,140,665) ----------- ----------- Deferred income tax liability -- -- ----------- ----------- -- -- =========== =========== F-12 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- As of February 29, 2004 and February 28, 2003, the Company had valuation allowances of $4,372,289 and $4,140,665, respectively, which relates to federal and state net operating loss carryforwards. The Company evaluates a variety of factors in determining the amount of the valuation allowance, including the Company's earnings history, the number of years the Company's operating losses can be carried forward, the existence of taxable temporary differences, and near-term earnings expectations. Future reversal of the valuation allowance will be recognized either when the benefit is realized or when it has been determined that it is more likely than not that the benefit will be realized through future earnings. As of February 29, 2004 and February 28, 2003, the Company has net operating loss carryforwards of approximately $12,607,000 and $12,051,000, respectively, for federal purposes and $1,446,000 and $729,000, respectively, for state purposes, which may be used to reduce future income subject to income taxes. The net operating losses are scheduled to expire in the following years: FEDERAL STATE TOTAL 2005 $303,000 $303,000 2006 369,000 369,000 2007 307,000 307,000 2008 370,000 370,000 2009 854,000 854,000 2010 615,000 $129,000 744,000 2011 1,136,000 315,000 1,451,000 2012 1,556,000 216,000 1,772,000 2013 2,636,000 786,000 3,422,000 2014 1,128,000 1,128,000 2019 (*) 808,000 808,000 2020 (*) 943,000 943,000 2021 (*) 298,000 298,000 2022 (*) 316,000 316,000 2023 (*) 182,000 182,000 2024 (*) 786,000 786,000 ------------ ---------- ----------- Total $ 12,607,000 $1,446,000 $14,053,000 ============ ========== =========== (*) Under the Taxpayer Relief Act of 1997, the carryforward period of net operating losses arising after May 1, 1998 was extended from 15 to 20 years. F-13 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 6. RESTRUCTURING OF PAYABLES In June 2002, in connection with the Company's agreement with the Research Foundation of the City University of New York ("RFCUNY"), the Company issued 283,228 shares of common stock at its fair value of $.12 per share at the date of transfer to RFCUNY to settle a $70,807 payable, resulting in a gain on restructuring of payables of $36,820. In accordance with this agreement, the Company also granted warrants to RFCUNY to purchase 600,000 shares of the Company's common stock at a price of $1.00 per share (Note 8) to settle a $127,631 payable, which resulted in a gain on restructuring of payables of $127,631. In January 2003, the Company issued 160,000 shares of common stock at a value of $24,000 for accounting services provided to the Company to settle a $40,000 payable, which resulted in a gain on restructuring of payables of $16,000. These transactions resulted in a gain on restructuring of payables of $180,451 during the year ended February 28, 2003. The effect on basic and diluted earnings per share was $.005. There is no tax effect due to the net operating loss carryforward. 7. LOSS PER COMMON SHARE SFAS No. 128, "Earnings Per Share" 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. F-14 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 8. COMMITMENTS AND CONTINGENCIES DR. ROBERT R. ALFANO The Company has a consulting agreement (the "Agreement") through March 2007 with Dr. Robert R. Alfano, a principal stockholder of the Company and Chairman of its Scientific Advisory Board. Pursuant to the terms of the Agreement, Dr. Alfano is paid a consulting fee of not less than $150,000 per annum in exchange for services to be rendered for approximately fifty 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 (Note 4). 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. Since there has been no activity, no amounts have been paid during the two years ended February 29, 2004. OTHER ROYALTIES The Company obtained worldwide licensing rights for patents from Yale University and has agreed to pay royalties based on net sales of all products generated from the patents and fifty percent of any income received from sublicensing of the patents. The Company has not recorded any revenues since the inception of this agreement and therefore has not recorded or paid any royalties during the two years ended February 29, 2004. EMPLOYMENT AGREEMENTS Mr. Peter Katevatis, the Chief Executive Officer, Chairman and a stockholder of the Company, has an employment agreement. The agreement states that Mr. Katevatis is to be paid $200,000 per year. The agreement also provides for a bonus and fringe benefits in accordance with policies and formulas mutually agreed upon by Mr. Katevatis and the Board of Directors. The contract expires March 5, 2007 (Note 4). On July 9, 2001, the Company entered into a three-year employment agreement with Mr. Sidney Braginsky. Pursuant to the terms of the agreement, Mr. Braginsky became the President and Chief Operating Officer of the Company and was to be paid $100,000 per annum. On April 26, 2003, Mr. Braginsky voluntarily terminated employment as President and Chief Operating Officer of the Company and waived all rights to any accrued compensation owed to him in respect to this agreement (Note 4). F-15 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- On April 23, 2003, the Company entered into a three-year employment agreement with Mr. Michael Engelhart. Pursuant to the terms of the agreement, Mr. Engelhart became the President and Chief Operating Officer of the Company and is to be paid $120,000 per annum (Note 4). 9. STOCKHOLDERS' DEFICIT AUTHORIZED CAPITAL On February 17, 2004, the Company's stockholders approved to increase the authorized common shares of the Company from 40,000,000 to 199,950,000 shares. 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 stockholders. 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 PLACEMENTS Preferred Stock On February 1, 2004, the Company completed a $1.5 million private placement of convertible preferred shares to accredited investors, issuing 60 shares of convertible preferred stock at $25,000 per share. The convertible preferred shares may be converted into 100,000 shares of common stock at the sole discretion of the Company subsequent to February 17, 2004. The securities were sold pursuant to an exemption under the Securities Act of 1933. The Company has agreed to file a registration statement within six months or sooner after February 17, 2004 covering the resale by the investors of the shares purchased. Such shares were converted into common stock of the Company in March 2004 (Note 10). F-16 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- COMMON STOCK ISSUED FOR SERVICES During 2003 the Company issued 100,000 shares of restricted common stock at a value of $15,000 for services provided to the Company. The transaction was recognized based on the fair value of shares issued. This amount was recorded as general and administrative expense in the consolidated statement of operations. 2003 CONSULTANTS STOCK PLAN The Board of Directors previously adopted, subject to stockholder approval, a 2003 Consultants Stock Plan ("Consultants Plan"). The Consultants Plan was subsequently approved by the stockholders' on February 17, 2004. The aggregate number of shares that may be issued under the options shall not exceed 7 million. No options were issued prior to stockholder approval and no options were outstanding under this plan as of February 29, 2004. 1999 INCENTIVE STOCK OPTION PLAN The Board of Directors previously adopted, subject to stockholder approval, a 1999 Incentive Stock Option Plan (the "Plan") for officers and employees of the Company. The stockholders' subsequently approved the Plan on February 17, 2004. Accordingly, awards issued under the Plan prior to February 17, 2004 were deemed not to be granted until that date. The aggregate number of shares that may be issued under the options shall not exceed 3 million. Mr. Braginsky was granted options to purchase up to 2,000,000 shares of the Company's common stock at an option price of $.25 per share for the first 150,000 shares and at an option price of $1.00 per share for the remaining 1,850,000 shares. Mr. Braginsky's ability to exercise these options is subject to a series of milestones described in his employment agreement. On April 26, 2003, Mr. Braginsky resigned from the Company and forfeited the stock options. Mr. Engelhart was granted options to purchase up to 2,000,000 shares of the Company's common stock at an option price of $.25 per share for the first 200,000 shares and at an option price of $1.00 per share for the remaining 1,800,000 shares. Mr. Engelhart's ability to exercise the 1,800,000 options is subject to a series of milestones described in his employment agreement. Noncash compensation expense related to the grant of 200,000 options amounted to $70,000 in 2004. F-17 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Activity related to stock options during the two-year period ended February 29, 2004 is as follows: WEIGHTED EXERCISE AVERAGE PRICE EXERCISE SHARES RANGE PRICE ------ ----- ----- Outstanding, February 28, 2002 2,000,000 $.25-$1.00 $ .94 Granted - Forfeited (2,000,000) $.25-$1.00 $ .94 ---------- Outstanding, February 28, 2003 - Granted 2,000,000 $.25-$1.00 $ .93 --------- Outstanding, February 29, 2004 2,000,000 $.25-$1.00 $ .94 ========= As of February 29, 2004, 200,000 options at an exercise price of $.25, are exercisable. STOCK WARRANTS Stock warrant activity during the two year period ended February 29, 2004, was as follows: SHARES EXERCISE AVAILABLE PRICE RANGE Outstanding, February 28, 2002 5,397,916 $.25-$1.20 Granted 800,000 $.25-$1.20 Forfeited (2,000,000) ---------- Outstanding, February 28, 2003 4,197,916 $.25-$1.20 Granted - Exercised (100,000) Forfeited (3,297,916) ---------- Outstanding, February 29, 2004 800,000 $.25-$1.00 In connection with private placement offerings during fiscal 1997, 1996 and 1995, the Company granted warrants to purchase 400,000, 1,025,000 and 256,250 shares of common stock, respectively. The warrants expired in April 2003. F-18 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- During fiscal 1999 the Company borrowed funds from Mr. Tami Adelstein and issued a warrant to purchase 100,000 shares of the Company's common stock at $.25 per share. Also during 1999, the Company issued Mr. Adelstein 200,000 warrants to purchase the Company's common stock at an exercise price of $.25 per share for $50,000. The warrants expired during fiscal 2004. Also, during 2000 warrants were issued to purchase 566,666 shares of the Company's common stock at an exercise price of $.25 to $.75 per share for cash and services. The Company also granted the City College of New York a warrant to purchase 500,000 shares of the Company's common stock at an exercise price of $1.00, which expired during fiscal 2004. During 2001 warrants were issued to purchase 50,000 shares of the Company's common stock at an exercise price of $.25 per share for services provided to the Company. The warrants expire in March 2004. Also during 2001, the Company issued 150,000 shares of common stock and warrants to purchase 150,000 shares of the Company's common stock at an exercise price of $.25 per share for $37,500. The warrants expired in April 2003. During fiscal 2002, Mr. Sidney Braginsky in connection with his employment agreement, was issued a warrant to purchase up to 2,000,000 shares of the Company's common stock at an exercise price of $.25 per share for the first 150,000 shares and at an exercise price of $1.00 per share for the remaining 1,850,000 shares. Mr. Braginsky's ability to exercise these options and shares under the warrant is subject to a series of milestones described in his employment agreement. On April 26, 2003, Mr. Braginsky resigned as President and Chief Operating Officer of the Company. As a result of his resignation and the milestones not being attained as of that date, the warrants have been forfeited. Also during 2002, the Company issued 50,000 shares of common stock at a value of $7,000 and warrants to purchase 50,000 shares of the Company's common stock at an exercise price of $.25 per share for secretarial services provided to the Company. The warrants expired in April 2003. In connection with the Company's agreement with RFCUNY (Note 6), the Company granted options to RFCUNY to purchase 600,000 shares of the Company's common stock at an option price of $1.00 per share. In 2003, the Company issued 400,000 shares of common stock at a value of $76,000 and issued warrants to purchase 200,000 shares of the Company's common stock at an exercise price of $.25 per share for financial advisory services. The warrants expire in 2006. F-19 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- During fiscal 2004, Peter J. Katevatis, son of the Chairman and Chief Executive Officer, exercised a warrant acquired through a prior company private placement on May 20, 2000 to purchase 100,000 shares of the company's common stock for $19,000. The original exercise price of these warrant shares was $.25 per share which was modified to $.19 per share on March 5, 2003. The market value of Mediscience shares on March 5, 2003 was $.13 per share. This warrant otherwise expired by its terms on April 6, 2003. ANTI-DILUTION RIGHTS The Company and Mr. Peter Katevatis have an anti-dilution rights agreement which provides that Mr. Katevatis' ownership interest would at all times represent 17% of the issued and outstanding shares of the Company. The anti-dilution rights are exercisable at Mr. Katevatis' sole discretion. During the years ended February 29, 2004 and February 28, 2003, Mr. Katevatis exercised his right and requested the Company issue 1,619,057 and 44,312 common shares, respectively. In connection with the issuance of these shares, the Company has capitalized only the stock's par value from paid in capital because of the Company's accumulated deficit position. The Company and Dr. Robert Alfano have an anti-dilution rights agreement which provides that Dr. Alfano's ownership interest would at all times represent 4% of the issued and outstanding shares of the Company. The anti-dilution rights are exercisable at Dr. Alfano's sole discretion. During the years ended February 29, 2004 and February 28, 2003, Dr. Alfano exercised his right and requested the Company issue 71,557 and 17,729 common shares, respectively. In connection with the issuance of these shares, the Company has capitalized only the stock's par value from paid in capital because of the Company's accumulated deficit position. 10. SUBSEQUENT EVENTS DEBT CONVERTED TO COMMON STOCK On March 8, 2004, the Company converted $185,515 of loans payable and accrued interest into 1,460,000 shares of the Company's common stock (Note 3). STOCK ISSUED FOR CASH During March 2004, Laurence Elgart exercised a warrant to purchase 50,000 shares of the Company's common stock for $12,500. The exercise price of the warrant shares is $.25 per share. During March 2004, William Baker exercised a warrant to purchase 100,000 shares of the Company's common stock for $25,000. The exercise price of the warrant shares is $.25 per share. F-20 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- ANTI-DILUTION RIGHTS In March 2004, the Company issued 1,595,450 shares of common stock to Mr. Katevatis and 375,400 shares of common stock to Mr. Alfano at its par value of $.01 per share, in accordance with their anti-dilution rights agreements with the Company. PREFERRED STOCK CONVERTED TO COMMON SHARES In March 2004, 60 shares of convertible preferred stock were converted into 6,000,000 shares of the Company's common stock (Note 9). COMMON STOCK ISSUED FOR SERVICES During March 2004, the Company issued 1,400,000 shares of restricted common stock at a value of $840,000 for consulting services to be provided to the Company. During March 2004, the Company issued 200,000 shares of restricted common stock at a value of $120,000 for consulting services to be provided to the Company. During March 2004, the Company issued 325,000 shares of restricted common stock at a value of $195,000 for consulting services to be provided to the Company. F-21 MEDISCIENCE TECHNOLOGY CORP. ---------------------------- CONSOLIDATED BALANCE SHEET -------------------------- ASSETS ------
August 31, February 29, 2004 2004 (Unaudited) (Audited) ------------ ------------ CURRENT ASSETS - -------------- Cash and Cash Equivalents $ 373,146 $ 1,406,371 Prepaid Expenses 3,751 3,388 Deferred Costs - Current Portion 463,625 -- ------------ ------------ Total Current Assets 840,522 1,409,759 PROPERTY, PLANT AND EQUIPMENT - ----------------------------- Net of accumulated depreciation $204,489 - 764 892 August 31, 2004; $204,361 - February 29, 2004 OTHER ASSETS - Security Deposit 1,800 1,800 - ------------ - Deferred Costs 620,476 -- ------------ ------------ TOTAL ASSETS $ 1,463,562 $ 1,412,451 - ------------ ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- CURRENT LIABILITIES - ------------------- Current Portion of Officer and Other Loans $ 31,542 $ 181,587 Accounts Payable 6,398 19,505 Accrued Liabilities 2,763,021 3,132,686 ------------ ------------ Total Current Liabilities 2,800,961 3,333,778 ------------ ------------ STOCKHOLDERS' DEFICIT - --------------------- Convertible Preferred Stock, $.01 Par Value, 50,000 Shares -- 1 Authorized; Issued and Outstanding -0- Shares - August 31, 2004; 60 Shares - February 29, 2004 Common Stock $.01 Par Value, Authorized 199,950,000 Shares; Issued and Outstanding 52,136,647 Shares - 521,367 393,727 August 31, 2004; 39,372,753 Shares - February 29, 2004 Additional Paid-in Capital 21,653,478 20,076,019 Accumulated Deficit (23,512,244) (22,391,074) ------------ ------------ Total Stockholders' Deficit (1,337,399) (1,921,327) ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 1,463,562 $ 1,412,451 - ----------------------------------------- ============ ============
F-22 MEDISCIENCE TECHNOLOGY CORP. ---------------------------- CONSOLIDATED STATEMENT OF OPERATIONS ------------------------------------ FOR THE SIX AND THREE MONTHS ENDED AUGUST 31, 2004 AND 2003 ----------------------------------------------------------- (UNAUDITED) -----------
SIX MONTHS THREE MONTHS ---------- ------------ 2004 2003 2004 2003 ---- ---- ---- ---- Net Sales $ -- $ -- $ -- $ -- Cost of Sales -- -- -- -- ------------ ------------ ------------ ------------ Gross Profit -- -- -- -- General and Administrative Expense 812,308 327,827 472,528 177,395 Product Development Expense 215,585 14,132 99,429 4,474 Debt Conversion Inducement Expense 58,555 -- -- -- Advertising, Travel and Marketing 37,222 49,145 16,272 23,755 ------------ ------------ ------------ ------------ Total Expenses 1,123,670 391,104 588,229 205,624 Other Income 2,500 366 1,136 131 ------------ ------------ ------------ ------------ Net Loss $ (1,121,170) $ (390,738) $ (587,093) $ (205,493) ============ ============ ============ ============ Net Loss Per Common Share, Basic and Diluted $ (0.02) $ (0.01) $ (0.01) $ (0.005) ============ ============ ============ ============ Weighted Average Number of Shares of Common Stock Outstanding 51,246,242 37,963,908 51,606,480 38,245,677 ============ ============ ============ ============
"See Accompanying Notes to Consolidated Financial Statements." F-23 MEDISCIENCE TECHNOLOGY CORP. ---------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ FOR THE SIX MONTHS ENDED AUGUST 31, 2004 AND 2003 ------------------------------------------------- (UNAUDITED) -----------
2004 2003 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES - ------------------------------------ Net Loss $(1,121,170) $ (390,738) Adjustment to Reconcile Net Loss to Net Cash Flows Used for Operating Activities: Depreciation 128 128 Amortization - Deferred Costs 286,833 -- Debt Conversion Inducement Expense 58,555 -- Issuance of Stock for Services 32,778 -- ----------- ----------- Subtotal (742,876) (390,610) Changes in Assets and Liabilities: (Increase) Decrease in Prepaid Expenses (363) 13,992 Decrease in Accounts Payable (13,107) (19,858) (Decrease) Increase in Accrued Liabilities (276,879) 287,660 ----------- ----------- Net Cash Flows (Used for) Operating Activities (1,033,225) (108,816) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES -- -- - ------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------ Net Change in Officer and Other Loans -- (1,113) Proceeds From Exercise of Common Stock Warrants -- 19,000 ----------- ----------- Net Cash Flows Provided by Financing Activities -- 17,887 DECREASE IN CASH AND CASH EQUIVALENTS (1,033,225) (90,929) - ----------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS - ------------------------- Beginning Balance 1,406,371 119,681 ----------- ----------- Ending Balance $ 373,146 $ 28,752 =========== ===========
"See Accompanying Notes to Consolidated Financial Statements." F-24 MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES --------------------------------------------- CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT ---------------------------------------------------------- FOR THE SIX MONTHS ENDED AUGUST 31, 2004 ---------------------------------------- (UNAUDITED) -----------
Preferred Stock Common Stock Additional Accumulated --------------- ------------ ---------- ----------- Shares Amount Shares Amount Paid-In Deficit ------ ------ ------ ------ ------- ------- Capital ------- BALANCE, FEBRUARY 29, 2004 60 $ 1 39,372,753 $ 393,727 $ 20,076,019 $(22,391,074) Conversion of Preferred Stock (60) (1) 6,000,000 60,000 (59,999) Issuance of Stock - Exercise of Warrants 150,000 1,500 (1,500) Issuance of Stock for Future Consulting Services 1,925,000 19,250 1,232,000 Issuance of Stock - Anti-dilution Rights 2,873,338 28,734 (28,734) Issuance of Stock - Debt Conversion 1,460,000 14,600 229,470 Issuance of Stock - Debt Conversion and Future Consulting Services 200,000 2,000 116,000 Issuance of Stock for Secretarial and 155,556 1,556 90,222 Consulting Services Net Loss (1,121,170) ----------- ----------- ---------- ----------- ------------ ------------ BALANCE, AUGUST 31, 2004 -- $ -- 52,136,647 $ 521,367 $ 21,653,478 $(23,512,244) =========== =========== ========== =========== ============ ============
"See Accompanying Notes to Consolidated Financial Statements." F-25 EXHIBIT TO CONSOLIDATED STATEMENT OF OPERATIONS WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (UNAUDITED) ----------- Six Months Ended August 31, 2004 -------------------------------- Weighted Net Average Shares Per Share Loss Outstanding Amount ----------- ----------- ---------- Basic/diluted loss per common share: Net Loss $(1,121,170) 51,246,242 $ (0.02) Effect of dilutive securities -- -- -- ----------- ----------- ---------- Total $(1,121,170) 51,246,242 $ (0.02) =========== =========== ========== Six Months Ended August 31, 2003 -------------------------------- Weighted Net Average Shares Per Share Loss Outstanding Amount ----------- ----------- ---------- Basic/diluted loss per common share: Net Loss $ (390,738) 37,963,908 $ (0.01) Effect of dilutive securities -- -- -- ---------- ---------- ---------- Total $ (390,738) 37,963,908 $ (0.01) ========== ========== ========== Three Months Ended August 31, 2004 ---------------------------------- Basic/diluted loss per common share: Net Loss $ (587,093) 51,606,480 $ (0.01) Effect of dilutive securities -- -- -- ---------- ---------- ---------- Total $ (587,093) 51,606,480 $ (0.01) ========== ========== ========== Three Months Ended August 31, 2003 ---------------------------------- Basic/diluted loss per common share: Net Loss $ (205,493) 38,245,677 $ (0.005) Effect of dilutive securities -- -- -- ---------- ---------- ---------- Total $ (205,493) 38,245,677 $ (0.005) ========== ========== ========== "See Accompanying Notes to Consolidated Financial Statements." F-26 Notes to Consolidated Financial Statements (Unaudited) ----------- 1. Management Plans and Going Concern Matters Mediscience Technology Corp. (the "Company") has no revenues, incurred significant losses from operations, has an accumulated deficit and a highly leveraged position that raises substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company expects to incur substantial expenditures to further the development and commercialization of its products. The Company currently intends to seek additional financing through private placements or other financing alternatives, and may 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. Nature of Operations and Basis of Presentation 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 consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Laser Diagnostics Instruments, Inc. ("LASER"), Photonics for Women's Oncology, LLC ("PHOTONICS"), Proscreen, LLC ("PROSCREEN") and Medi-Photonics Development, LLC (MEDI). MEDI is the only active subsidiary of the Company at this time. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements as of and for the six and three month periods ended August 31, 2004 and 2003 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's 2004 Annual Report on Form 10-KSB. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (which are of a normal recurring nature) necessary for a fair statement of the results for the interim periods, but are not necessarily indicative of the results of operations for a full fiscal year. "See Accompanying Notes to Consolidated Financial Statements." F-27 3. Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. LOSS PER COMMON SHARE Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" 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 period. Diluted loss per share is the same as basic loss per share, as the inclusion of common stock equivalents, such as options, would be antidilutive. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company follows the disclosure provisions of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." Since the Company does not plan to adopt the fair value method of accounting of SFAS No. 123, the Company does not expect any impact on consolidated results of operations or financial condition in fiscal 2005. At August 31, 2004, the Company had an incentive stock option plan for officers and employees and a consultants stock option plan. The Company accounts for these plans under the intrinsic value recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. The following table illustrates the effect on net loss and loss per share if the Company applied the fair value recognition provisions of SFAS No. 123 to all awards. The fair value was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend yield of 0.0%; volatility ranging between 1.07 and 1.38; risk-free interest rate of 3.0%; and expected lives of 5 years. F-28
Six Months Ended Three Months Ended August 31, August 31, ---------------------------------- -------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Net loss, as reported $ (1,121,170) $ (390,738) $ (587,093) $ (205,493) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (16,408) (16,408) (8,204) (8,204) -------------- ------------ ------------ ------------ Pro forma net loss $ (1,137,578) $ (407,146) $ (595,297) $ (213,697) ============== ============ ============ ============ Loss per share: Basic - as reported $ (0.022) $ (0.010) $ (0.011) $ (0.005) ============== ============ ============ ============ ============== ============ ============ ============ Basic - pro forma $ (0.022) $ (0.011) $ (0.012) $ (0.006) ============== ============ ============ ============ Diluted - as reported $ (0.022) $ (0.010) $ (0.011) $ (0.005) ============== ============ ============ ============ Diluted - pro forma $ (0.022) $ (0.011) $ (0.012) $ (0.006) ============== ============ ============ ============
4. Deferred Costs During the six months ended August 31, 2004, the Company issued 2,225,000 fully vested restricted shares of its common stock to five consulting groups in exchange for services to be rendered, over a period of 12 - 48 months, for matters such as corporate management, marketing opportunities, product development, corporate funding, internal accounting and FDA clinical trials. These costs, which are non-cash charges, have been capitalized and will be recognized ratably over the terms of the agreements. Expected future amortization of these costs is as follows: Six Months Ending February 28, 2005 $ 317,125 Year Ending February 28, 2006 293,000 Year Ending February 28, 2007 246,476 Year Ending February 29, 2008 227,500 5. Other Loans In fiscal 2000, the Company entered into two interest-bearing convertible notes with the Olive Cox Sleeper Trust (the "Trust") totaling $30,000. Both notes bear interest at the rate of 8.25% per annum and are convertible into common stock on the basis of $.25 per share. The conversion option is unlimited in duration. Both notes are demand instruments and the holder can demand and receive payment in full including interest. The principal balance of the notes was $ -0- at August 31, 2004 and $30,000 at February 29, 2004. Accrued interest at August 31, 2004 and February 29, 2004 totaled $ -0- and $10,626, respectively. On June 20, 2002, the Company entered into an additional $120,045 promissory note with the Trust with interest at 12% per annum. The note was amended on June 13, 2003 to extend the maturity date to March 31, 2004 from February 20, 2003. The principal amount of the note plus accrued interest is due and payable on the maturity date. There is a conversion feature that allows the Trust to convert the principal and accrued interest on the note on March 31, 2004 to common stock of the Company at the rate of one share for each $.12 of principal and accrued interest at date of conversion. Accrued interest at August 31, 2004 and February 29, 2004 was $ -0- and $24,844, respectively. F-29 The Company made an inducement offer to the Trust to convert all of its then outstanding notes. On March 8, 2004 the Trust accepted the offer to convert the principal amount of $150,045 plus related interest of $35,470 to 1,460,000 common shares. In connection with the inducement offer and related conversion, the Company recognized a non-cash expense of $58,555 during the six-month period ending August 31, 2004. 6. Related Party Transactions From time to time, Mr. Katevatis, Chairman/CEO, advances funds to the Company to provide funding to pay operational expenses as they become due. These advances do not accrue interest. At August 31, 2004 and February 29, 2004, officer loans payable to Mr. Katevatis were, $31,542 and $31,542 respectively. Legal services rendered by Mr. Katevatis amounted to $25,000 for the six months ended August 31, 2004 and August 31, 2003. These amounts are recorded in general and administrative expense. As part of Mr. Katevatis' employment agreement, the Company pays property taxes and certain operating expenses on the home of Mr. Katevatis in lieu of rent, since the Company's operations are located in Mr. Katevatis' home. Expenses recognized were $6,891 and $9,430 for the six months ended August 31, 2004 and 2003, respectively. The Company entered into an agreement with THM Group, LLC ("THM") to be the exclusive advisor to explore options for the Company to commercialize its technology. Mr. Engelhart was the President and Chief Executive Officer of THM from 2000 to 2003. The agreement was terminated on April 12, 2004. On April 23, 2003, Mr. Engelhart was elected President and Chief Operating Officer of the Company and shortly thereafter entered into an employment agreement with the Company (Note 8). Expense reimbursements of $20,128 and $3,000 were accrued or paid to Mr. Engelhart for the six months ended August 31, 2004 and 2003, respectively, with respect to his role as President and Chief Operating Officer of the Company. On August 1, 2004, the Company entered into a thirteen month consulting agreement with John Matheu, a Director and member of the audit committee, pursuant to which Mr. Matheu will provide management services to the Company. Mr. Matheu will be paid a monthly consulting fee of $4,166 during the term of the agreement and received an option to purchase 300,000 shares of common stock at $1.50 per share. 7. Accrued Liabilities Accrued liabilities consist of the following: August 31, February 29, ---------- ------------ 2004 2004 ---- ---- Legal and professional fees $ 96,438 $ 365,354 Consulting and university fees 1,183,915 1,164,915 Salaries and wages 1,408,833 1,508,833 Other 73,835 93,584 ---------- ---------- $2,763,021 $3,132,686 ========== ========== Included in legal and professional fees as of August 31, 2004 and February 29, 2004 is $47,500 and $287,500, respectively, for legal services rendered by Mr. Katevatis (Note 6). Included in Consulting and University Fees as of August 31, 2004 and February 29, 2004 is $1,140,318 and $1,121,318, respectively, owed to Dr. Alfano (Note 8) with respect to his consulting agreement. Included in salaries and wages as of August 31, 2004 and February 29, 2004 is $1,406,333 and $1,406,333, respectively, owed to Mr. Katevatis with respect to his employment agreement (Note 8). F-30 8. Commitments and Contingencies Dr. Robert R. Alfano In April 1992, the Company had entered into a five-year consulting agreement with Dr. Robert R. Alfano, a principal stockholder of the Company and Chairman of its Scientific Advisory Board which term was subsequently extended in 1995 to March 2002 and in 1999 to March 2007. Pursuant to the terms of the agreement, Dr. Alfano is paid a consulting fee of not less than $150,000 per annum in exchange for services to be rendered for approximately fifty days per year in connection with the Company's medical photonics business and bonus and fringe benefits in accordance with policies and formulas applicable to key executives of the Company. 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 1% of the gross sales derived from any equipment made, leased or sold which utilizes the concepts described in the Company's cancer detection patent. Since there has been no activity, no amounts have been paid during the six month periods ended August 31, 2004 and 2003. Other Royalties The Company entered into an agreement for worldwide licensing rights for patents from Yale University and has agreed to pay royalties based on net sales of all products generated from the patents and 50% of any income received from sublicensing of the patents. The Company has not recorded any revenues since the inception of this agreement and therefore has not recorded or paid any royalties during the six month periods ended August 31, 2004 and 2003. Research Foundation of the City University of New York The Company and the Research Foundation of the City University of New York ("RFCUNY") entered into a Research Agreement in June 1992, which has been amended from time to time. The agreement called for the Company to commercialize certain technology owned by "RFCUNY" and granted an exclusive, worldwide license to the technology. In respect to the licensing, the Company is liable to pay royalties based on net sales of products and any income received from sublicensing. The Company has not recorded or paid any royalties during the six months period ended August 31, 2004 and 2003. In May 2004, MEDI, a wholly-owned subsidiary of the Company, and RFCUNY, entered into a one-year project agreement for research and development by RFCUNY and MEDI, primarily, but not exclusively, in the area of optical biopsy for the assembly of a commercially viable CD-Ratiometer and adjunctive technology. Under the terms of this agreement, the Company is granted an exclusive world-wide license, with the right to grant sublicenses, to make, use or sell patented imaging product technology for the molecular detection of cancer and physiological change. Employment Agreements Mr. Peter Katevatis, Chief Executive Officer and Chairman of the Company, has an employment agreement with the Company. The agreement states that Mr. Katevatis is to be paid $200,000 per year. The agreement also provides for a bonus and fringe benefits in accordance with policies and formulas mutually agreed upon by Mr. Katevatis and the Board of Directors. The contract expires March 5, 2007. On July 9, 2001, the Company entered into a three-year employment agreement with Sidney Braginsky, a Director. Pursuant to the terms of the agreement, Mr. Braginsky became the President and Chief Operating Officer of the Company and was to be paid $100,000 per annum. On April 26, 2003, Mr. Braginsky voluntarily terminated employment as President and Chief Operating Officer of the Company and waived all rights to any accrued compensation owed to him in respect to this agreement, which was recorded as of February 28, 2003. F-31 On April 23, 2003, the Company entered into a three-year employment agreement with Mr. Michael Engelhart. Pursuant to the terms of the agreement, Mr. Engelhart became the President and Chief Operating Officer of the Company and is to be paid $120,000 per annum. The agreement also provides for an annual bonus to be awarded, at the discretion of the Board, in cash or common stock at the election of Mr. Englehart, and for the grant of a warrant to purchase an aggregate of 1,800,000 shares of common stock (Note 10). Consulting Agreement In August 2004, the Company entered into a thirteen month consulting agreement with John Matheu, a Director and member of the audit committee. Pursuant to the terms of the agreement, Mr. Matheu is to assist in the final development of the CD-Ratiometer for which he will receive $4,166 per month. Mr. Matheu was also granted an option to purchase 300,000 shares of the Company's common stock for $1.50 per share. On May 15, 2004, MEDI entered into a six month consulting agreement with Dr. Stan Wiener, M.D. pursuant to which Dr. Wiener will provide consulting services for the final development and FDA submission of the CD Ratiometer, including identification of sites for clinical trials, software development, development of calibration standards and operational manuals and training of medical personnel. Dr. Weiner will be paid $7,000 per month over the term of the agreement. 9. Stockholders' Deficit Anti-Dilution Rights The Company has granted certain anti-dilution rights to Mr. Peter Katevatis and Dr. Robert Alfano. Mr. Katevatis was granted anti-dilution rights on certain shares ("Katevatis Shares"), which at the time represented 17% ("Katevatis Anti-Dilution Percentage") of the then issued and outstanding shares of common stock of the Company. The anti-dilution rights require the Company from time to time to issue additional shares of common stock of the Company to Mr. Katevatis so that the Katevatis Shares represent 17% of the issued and outstanding shares of common stock of the Company. If Mr. Katevatis were to sell a portion or all of the Katevatis Shares, the Katevatis Anti-Dilution Percentage would be adjusted proportionately. During the six-months ended August 31, 2004, the Company issued 2,326,036 of common stock of the Company to Mr. Katevatis in connection with the anti-dilution rights and as of August 31, 2004, the Company is obligated to issue an additional 9,444 shares to Mr. Katevatis in connection with the anti-dilution rights. Dr. Alfano was granted anti-dilution rights on certain shares ("Alfano Shares"), which at the time represented 4% ("Alfano Anti-Dilution Percentage") of the then issued and outstanding shares of common stock of the Company. The anti-dilution rights require the Company from time to time to issue additional shares of common stock of the Company to Dr. Alfano so that the Alfano Shares represent 4% of the issued and outstanding shares of common stock of the Company. If Dr. Alfano were to sell a portion or all of the Alfano Shares, the Alfano Anti-Dilution Percentage would be adjusted proportionately. During the six-months ended August 31, 2004, the Company issued 547,302 of common stock of the Company to Dr. Alfano in connection with the anti-dilution rights and as of August 31, 2004, the Company is obligated to issue an additional 2,222 shares to Dr. Alfano in connection with the anti-dilution rights. Debt Conversion On March 8, 2004, the Trust converted $185,515 of promissory notes and related interest into 1,460,000 shares of the Company's common stock (Note 5). Preferred Stock Conversion On March 8, 2004, the Company converted 60 shares of its preferred stock into 6,000,000 shares of its common stock, under the terms of a preferred stock private placement offering dated February 1, 2004. Under the terms of the offering, the Company agreed to file a registration statement covering resale of the converted common shares, which it did on July 30, 2004. F-32 Stock Issued for Future Services During March and April 2004, the Company issued 1,925,000 restricted shares of its common stock to three consulting groups in exchange for consulting services to be rendered over a 12-48 month period (Note 4). During August 2004, the Company issued 300,000 restricted shares of its common stock to two consulting groups in exchange for past services and services to be rendered over approximately a two year period (Note 4). Stock Issued for Services During August 2004, the Company issued 55,556 shares of its common stock at a value of $32,878 for secretarial services provided to the Company. The transaction was recognized based on the fair value of shares issued. This non-cash expense was recorded as general and administrative expense in the consolidated statement of operations. 10. Stock Options and Warrants The Company maintains two stock options plans - the 1999 Incentive Stock Option Plan (The "1999 Plan") and the 2003 Consultants Plan (the "2003 Plan"), which were approved by the Company's stockholders on February 17, 2004. The maximum number of shares issuable under the 1999 Plan and the 2003 Plan are 3,000,000 and 7,000,000, respectively. In connection with his employment agreement, Mr. Braginsky was granted options to purchase up to 2,000,000 shares of the Company's common stock at an option price of $.25 per share for the first 150,000 shares and at an option price of $1.00 per share for the remaining 1,850,000 shares. Mr. Braginsky's ability to exercise these options is subject to a series of milestones described in his employment agreement. On April 26, 2003, Mr. Braginsky resigned from the Company and forfeited these stock options. Mr. Engelhart was granted options to purchase 200,000 shares of the Company's common stock at an option price of $.25 per share, in which he was immediately vested. This grant resulted in a non-cash compensation charge of $70,000 during the year ended February 29, 2004. Mr. Engelhart was also granted options to purchase up to 1,800,000 shares of the Company's common stock at an option price of $1.00 per share. Vesting and exercisability of these shares are contingent upon the attainment of certain milestones described in Mr. Engelhart's employment agreement. In connection with the Company's agreement with the RFCUNY, the Company granted a warrant to RFCUNY to purchase 600,000 shares of the Company's common stock at a price of $1.00 per share. The warrant can be exercised within a five year period ending June 2007. Peter J. Katevatis, son of the Chairman and Chief Executive Officer, exercised a warrant acquired through a prior company private placement on May 20, 2000 to purchase 100,000 shares of the company's common stock for $19,000. The original exercise price of these warrant shares was $.25 per share which was modified to $.19 per share on March 5, 2003. The market value of Mediscience shares on March 5, 2003 was $0.13 per share. F-33 During March 2004, the Company issued 50,000 shares of its restricted common stock to Laurence Elgart to satisfy his exercise of the warrant in February 2004 for $12,500. During March 2004, the Company issued 100,000 shares of its restricted common stock to William Baker to satisfy his exercise of the warrant in February 2004 for $25,000. During August 2004, Allan Moses was issued a warrant to purchase up to 100,000 shares of the Company's restricted common stock at a price of $2 per share. The warrant shall be exercisable from August 8, 2004 to August 8, 2006. During August 2004, John Matheu, a Director of the Company, was granted options to purchase up to 300,000 shares of the Company's restricted common stock at an option price of $1.50 per share. Mr. Matheu's ability to exercise these options is subject to a series of milestones described in his consulting agreement. F-34 Part II ------- INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers. Section 14A:3-5 of the Business Corporation Act of New Jersey provides, in general, that a corporation incorporated under the laws of the State of New Jersey, such as the registrant, may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another enterprise, against expenses (including attorneys' fees), judgments, fines, penalties and amounts paid in settlement incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. Our Certificate of Incorporation and Bylaws provide that we shall indemnify our directors, officers, employees and agents to the extent and in the manner permitted by the provisions of the laws of the State of New Jersey as amended from time to time, subject to any permissible expansion or limitation of such indemnification, as may be set forth in any shareholders' or directors' resolution or by contract. Item 25. Other Expenses of Issuance and Distribution The expenses payable by the Registrant in connection with this Registration Statement are estimated as follows: SEC Registration Fee $ 511.55 Accounting Fees and Expenses 38,320 Legal Fees and Expenses 150,000 Transfer Agent Fees and Expenses 2,000 Printing Fees and Expenses 3,500 Miscellaneous Expenses 500 Total $ 194,831.55 Item 26. Recent Sales of Unregistered Securities During the last three years, we have issued the following unregistered securities. None of these transactions involved any underwriters, underwriting discounts or commissions, except as specified below, or any public offering, and we believe that each transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder. All recipients had adequate access, through their relationships with us, to information about us. On June 10, 2002, we entered into an agreement with RFCUNY which amended a prior agreement between us, and pursuant to which, among other things, we issued 283,228 shares of Common Stock at $0.25 per share as a partial repayment of royalty payments owned to RFCUNY, and a warrant to purchase 600,000 shares of Common Stock at $1.00 per share. II-1 On June 20, 2002, we issued a promissory note to the Olive Cox Sleeper Trust in the principal amount of $120,282 with interest payable at 12% per annum, which in March 2004, together with two additional promissory notes issued in 2002, were converted into an aggregate of 1,460,000 shares of Common Stock. Sidney Braginsky, our director and former president and chief operating officer, was granted options to purchase up to 2,000,000 shares of Common Stock at $0.25 per share as to 150,000 shares and $1.00 per share as to the remaining 1,850,000 shares, pursuant to his employment agreement, dated July 9, 2001, with us, which agreement terminated and such options were forfeited upon his resignation as an officer on April 26, 2003. On January 28, 2003, August 7, 2003, March 8, 2004, April 12, 2004, July 19, 2004, August 18, 2004 and August 23, 2004, we issued 44,312 shares, 1,000,000 shares, 1,595,450 shares, 69,700 shares, 609,886 shares, 624,580 shares and 51,000 shares of Common Stock, respectively, to Peter Katevatis pursuant to an antidilution agreement between us and Mr. Katevatis. On January 28, 2003, August 27, 2003, March 8, 2004, April 12, 2004, July 19, 2004 and August 23, 2004, we issued 17,729 shares, 71,557 shares, 375,400 shares, 16,400 shares, 143,502 shares and 12,000 shares of Common Stock, respectively, to Dr. Alfano pursuant to an antidilution agreement between us and Dr. Alfano. In February 2004, we issued and sold to accredited investors in a private placement 60 shares of our convertible preferred stock which were converted into an aggregate of 6,000,000 shares of Common Stock on March 8, 2004, for an aggregate of $1,500,000 or $25,000 per share of our preferred stock. On November 15, 2001, we entered into an agreement with Chesterbrook Partners Inc. pursuant to which, among other things, Chesterbrook Partners received five-year warrants to purchase an aggregate of 200,000 shares of Common Stock, at $0.25 per share, as compensation for shareholder support services provided to us during the period February 28, 1999 to November 15, 2001. On each of December 3, 2001 and June 21, 2002, Chesterbrook Partners Inc. assigned all of its right, title and interest in a five-year warrant to purchase 100,000 shares of Common Stock for $0.25 per share to William M. Baker, a non-affiliated accredited investor. Mr. Baker exercised the warrants as to all of the 100,000 shares of Common Stock on February 18, 2004 for an aggregate purchase price of $25,000. On December 21, 2001, Chesterbrook Partners Inc. assigned all of its right, title and interest in a five-year warrant to purchase 50,000 shares of Common Stock for $0.25 per share to Lawrence B. Elgart, a non-affiliated accredited investor. Mr. Elgart exercised the warrant as to all of the 50,000 shares of Common Stock on February 2, 2004 for an aggregate purchase price of $12,500. On April 23, 2004, we granted an option to purchase (i) 1,800,000 shares of our Common Stock at $1.00 per share which vest in 600,000 share increments upon our raising certain levels of equity based on our business plan, 380,000 share increments upon the achievement of certain critical milestones, or a combination thereof, and (ii) an option to purchase 200,000 shares of our Common Stock at $0.25 per share to Michael Engelhart, a director and our President and Chief Operating Officer. On March 8, 2004, we issued 325,000 shares of Common Stock to Dr. Jeremy Rosen as compensation for Dr. Rosen's medical/ FDA clinical advisory services for a period from February 1, 2004 to February 1, 2005. II-2 On March 8, 2004, we issued 1,400,000 shares of Common Stock to RT Consulting Services Inc. as compensation for RT Consulting Services Inc.'s medical/FDA engineering, manufacturing, and financial advisory services from February, 2004 to February, 2008. On May 5, 2004, we issued 200,000 shares of Common Stock to Chesterbrook Partners Inc. as compensation for Chesterbrook Partners Inc.'s public relation and shareholder advisory services for our 2004 fiscal year through February 28, 2005. In August 2004, we (i) issued 100,000 shares of our Common Stock at $0.59 per share, and (ii) granted a warrant to purchase 100,000 shares of Common Stock at $2.00 per share, to Alan Moses under a consulting agreement pursuant to which Mr. Moses provided us with website management and design services. In August 2004, we issued 200,000 shares of Common Stock at $0.59 per share for accounting services provided to us. In August 2004, we issued 55,556 shares of Common Stock at $0.59 per share for secretarial services provided to us. In November 2004, we issued (i) 1,000,000 shares of Common Stock at $0.75 per share, and (ii) a six-year warrant to purchase 1,000,000 shares of Common Stock at an exercise price of $3.00 per share to Infotonics, in connection with a collaborative research and development agreement between Infotonics and us. On August 1, 2004, we granted an option to purchase 300,000 share of Common Stock at $1.50 per share to Mr. Matheu pursuant to a consulting agreement with us. Item 27. Exhibits. Exhibit Number Description - ------ ----------- 3.1 Restated Certificate of Incorporation, dated December 9, 2004. 3.2 By-laws 4.1 Letter Agreement, dated November 15, 2001 between us and Chesterbrook Partners Inc. (incorporated herein by reference to Exhibit 4.1 to our Registration Statement on Form S-3, dated July 30, 2004 ("Form S-3")). 4.2 Stock Purchase Warrant, dated November 15 2001, issued by us to Chesterbrook Partners Inc. to purchase 100,000 shares at an exercise price of $0.25 (incorporated herein by reference to Exhibit 4.2 to the Form S-3) 4.3 Stock Purchase Warrant, dated November 15, 2001, issued by us to Chesterbrook Partners Inc. to purchase 50,000 shares at an exercise price of $0.25 (incorporated herein by reference to Exhibit 4.3 to the Form S-3) 4.4 Stock Purchase Warrant, dated November 15 2001, issued by us to Chesterbrook Partners Inc. to purchase 50,000 shares at an exercise price of $0.25 (incorporated herein by reference to Exhibit 4.4 to the Form S-3) II-3 4.5 Assignment of Stock Purchase Warrant, dated December 3, 2001 and June 21, 2002, to purchase 100,000 shares at an exercise price of $0.25 from Chesterbrook Partners Inc. to William Baker (incorporated herein by reference to Exhibit 4.5 to the Form S-3) 4.6 Assignment of Stock Purchase Warrant dated December 21, 2001, to purchase 50,000 shares at an exercise price of $0.25 from Chesterbrook Partners Inc. to Lawrence B. Elgart (incorporated herein by reference to Exhibit 4.6 to the Form S-3) 4.7 Consulting Agreement, dated April 1, 2004, between us and Chesterbrook Partners Inc. (incorporated herein by reference to Exhibit 4.7 to the Form S-3) 4.8 Consulting Agreement, dated February 1, 2004, between us and Jeremy Rosen (incorporated herein by reference to Exhibit 4.8 to the Form S-3) 4.9 Consulting Agreement, dated February 1, 2004, between us and RT Consulting Services Inc. (incorporated herein by reference to Exhibit 4.9 to the Form S-3) 4.10 Form of Subscription Agreement between us an each of the Selling Shareholders which participated in the Private Placement (incorporated herein by reference to Exhibit 4.10 to the Form S-3) 5 Opinion of Peter B. Hirshfield, Esq. 10.1 Agreement, dated as of June 10, 2002, between us and RFCUNY 10.2 Project Agreement, dated as of May 1, 2004, between Medi-Photonics and RFCUNY (incorporated herein by reference to Exhibit 10.3 to our Quarterly Report for the quarter ended May 31, 2004 on Form 10-QSB/A ("Form 10-QSB/A")) 10.3 Consulting Agreement between us and John Matheu, dated August 1, 2004 10.4 Consulting Agreement between us and Robert Alfano, dated April 21, 1992, (incorporated herein by reference to Exhibit 10.2 to our Annual Report on Form 10-K for the year ended February 28, 1993) 10.5 Employment Agreement between us and Peter Katevatis, dated March 5, 1992 10.6 Amended and Restated Employment Agreement between us and Michael Engelhart, dated December 9, 2004 (incorporated herein by reference to Exhibit 99.1 to our Current Report on Form 8-K, dated December 10, 2004 ("December 2004 Form 8-K")) 10.7 Nonqualified Stock Option Agreement, dated as of April 23, 2003, between us and Michael Engelhart (incorporated herein by reference to Exhibit 99.1 to our December 2004 Form 8-K) 10.8 Incentive Stock Option Agreement, dated December 9, 2004, between us and Michael Engelhart (incorporated herein by reference to Exhibit 99.1 to our December 2004 Form 8-K) II-4 10.9 Anti-Dilution Agreement between us and Peter Katevatis, dated July 19, 2004 (incorporated herein by reference to Exhibit 10.1 to Form 10-QSB/A) 10.10 Anti-Dilution Agreement between us and Robert Alfano, dated July 19, 2004 (incorporated herein by reference to Exhibit 10.2 to Form 10-QSB/A) 10.11 Agreement between us and Peter Katevatis, dated October 1, 2004 (incorporated herein by reference to Exhibit 10.2 to our Quarterly Report for the quarter ended August 31, 2004 on Form 10-QSB ("Form 10-QSB")) 10.12 Agreement between us and Robert Alfano, dated October 1, 2004 (incorporated herein by reference to Exhibit 10.1 to Form 10-QSB) 10.13 Lease Agreement between us and Peter Katevatis, dated July 25, 2002 10.14 1999 Incentive Stock Option Plan (incorporated herein by reference to Appendix B-1 to our Definitive Proxy Statement on Schedule 14C as filed with the SEC on January 23, 2004 ("Schedule 14C")) 10.15 2003 Consultants Stock Option, Stock Warrant and Stock Award Plan (incorporated herein by reference to Appendix B-1 to the Schedule 14C) 10.16 Collaborative Research and Development Agreement, dated November 11, 2004, by and between Infotonics Technology Center Inc., Medi-Photonics and us (incorporated herein by reference to Exhibit 99.1 to our Current Report on Form 8-K, dated November 12, 2004) 15 Parente Randolph, LLC review letter regarding interim unaudited financial statements 21 List of Subsidiaries 23.1 Consent of Parente Randolph, LLC 23.2 Consent of Peter B. Hirshfield, Esq. (included in Exhibit 5.1) 24 Power of Attorney (included on signature page) Item 28. Undertakings. The undersigned Registrant hereby undertakes: (1) To file, during any period in which it offers or sells securities, a post-effective amendment to this Registration Statement to: (i) Include any prospectus required by Section 10(a) (3) of the Securities Act of 1933; (ii) Reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; II-5 (iii) Include any additional or changed information on the plan of distribution. (2) For determining liability under the Securities Act, the Registrant will treat each such post-effective amendment as a new registration statement of the securities offered, and the offering of such securities at that time to be the initial bona fide offering. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 24 above, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-6 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this Registration Statement on Form SB-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cherry Hill, State of New Jersey, on December 21, 2004. Mediscience Technology Corp. By: /s/ Peter Katevatis ---------------------------- Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below in so signing also makes, constitutes and appoints Peter Katevatis and Michael Engelhart his true and lawful attorney-in-fact and agent, with full power of substitution and reconstitution, for him and in his name, place, and stead, in any and all capacities, to sign and file Registration Statement(s) and any and all pre-or post-effective amendments to such Registration Statement(s), with all exhibits thereto and hereto, and other documents with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof.
Signatures Title Date - ---------- ----- ---- /s/ Peter Katevatis Chairman, Chief Executive Officer and December 21, 2004 - ------------------- Director Peter Katevatis /s/ Michael Engelhart President, Chief Operating Officer and December 21, 2004 - --------------------- Director Michael Engelhart /s/ John Kennedy Chief Financial Officer and Director December 21, 2004 - ---------------- John Kennedy /s/ John Matheu Director December 21, 2004 - --------------- John Matheu /s/ William Armstrong Director December 21, 2004 - --------------------- William Armstrong /s/ Sidney Braginsky Director December 21, 2004 - -------------------- Sidney Braginsky /s/ Michael Kouvatas Director December 21, 2004 - -------------------- Michael Kouvatas
II-7 EX-3.1 2 ex3-1.txt Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF MEDISCIENCE TECHNOLOGY CORP. Pursuant to Section 14A:9-5 of the New Jersey Business Corporation Act, Mediscience Technology Corp., a corporation duly organized under the laws of the State of New Jersey (the "Corporation"), does hereby execute this Restated Certificate of Incorporation and certify that: 1. The name of the Corporation is Mediscience Technology Corp. 2. The purposes of the Corporation is to engage in any activity within the purposes for which corporations may be organized under the New Jersey Business Corporation Act. 3. The aggregate number of shares which the Corporation shall have authority to issue is 200,000,000, 199,950,000 of which shall be Common Stock, $.01 par value per share, and 50,000 of which shall be Preferred Stock, $.01 par value per share. (a) 2,074 shares of Preferred Stock are designated Series A Preferred Stock, having the following relative rights, preferences and limitations: (i) Dividends. The holders of Series A Preferred Stock shall --------- not be entitled to receive any preferential dividend, whether in cash, stock or otherwise with respect to shares of Series A Preferred Stock; (ii) Liquidation. In the event of any liquidation, dissolution ----------- or winding-up of the Corporation, whether voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive out of the assets of the Corporation available therefor, after payment or provision for payment of all debts and obligations of the Corporation, before any distribution of assets shall be made upon any other class of capital stock of the Corporation, the sum of Ten Dollars ($10.00) for every share of their holdings of Series A Preferred Stock. If upon any liquidation, dissolution or winding-up of the Corporation, the amounts payable on or with respect to the Series A Preferred Stock are not paid in full, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of assets in proportion to the respective amounts which would be payable in respect to the shares held by them upon such distribution if all amounts payable on or with respect to the Series A Preferred Stock were paid in full. For any and all purposes of this Certificate of Incorporation, neither the merger or consolidation of the Corporation into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Corporation, nor the sale, transfer or lease of all or substantially all of the assets of the Corporation, nor any other transaction or series of transactions having the effect of a reorganization shall be deemed to be a liquidation, dissolution or winding-up of the Corporation; (iii) The shares of Series A Preferred Stock shall not entitle the holder thereof to have any right to vote or to receive any notice of any meeting of the holders of the Corporation's stock or to exercise any voting power. (b) 25,000 shares of Preferred Stock are designated Convertible Preferred Stock, having the following relative rights, preferences and limitations: (1) Dividends. The holders of Convertible Preferred Stock shall be --------- entitled to receive, if and when declared, out of any surplus or net profits, non-cumulative preferential dividends at the rate of $.01 per share per annum, payable quarterly before any dividends may be declared on the shares of the Common Stock in any fiscal year. After the aforementioned dividends on the Convertible Preferred Stock shall have been paid or declared and, set apart for that purpose, the Board of Directors may declare and pay from any surplus additional dividends for such fiscal year which shall be paid to the holders of Convertible Preferred Stock and Common Stock. (2) Liquidation. The holders of Convertible Preferred Stock shall be ----------- entitled to a preference over holders of Common Stock with regard to distribution of assets in the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary. (3) Preemptive Right. No Convertible Preferred Shareholder of ----------------- Convertible shares shall have any preemptive rights to subscribe for or to purchase or to acquire any issue of shares or other securities of the Corporation. (4) Voting. The holders of Convertible Preferred Stock shall not be ------ entitled to notice of Shareholders Meeting, or to vote upon the election of directors or upon any questions affecting the management or the affairs of the Corporation. (5) (i) Conversion. The Convertible Preferred Stock may, at any time ---------- after issuance, at the option of the holders thereof, be converted into Common Stock at the rate of one (1) share of Preferred for one hundred (100) shares of Common. (ii) Method of Conversion. In order to exercise the conversion --------------------- privilege, the holder of any shares of Convertible Preferred Stock shall surrender the certificate or certificates for such shares of Convertible Preferred Stock accompanied by proper instruments of surrender to the Corporation at its principal office. The certificate or certificates for such shares of Convertible Preferred Stock shall also be accompanied by a written notice to the effect that the holder elects to convert such shares of Convertible Preferred Stock and stating the name or names in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued. As promptly as practicable after the receipt of such notice and the surrender of such shares of Convertible Preferred Stock, the Corporation shall issue and deliver to such holder or to the written order of such holder a certificate or certificates for the number of shares of Common Stock issuable upon conversion of such shares of Convertible Preferred Stock. Such conversion shall be deemed to have been effected on the date on which such notice shall have been received by the Corporation and such Convertible Preferred Stock shall have been surrendered as hereinabove provided. The shares of Convertible Preferred Stock so converted shall not be reissued and shall be retired and canceled as provided by law. All shares of Common Stock which may be issued upon conversion of the Convertible Preferred Stock shall, upon issuance, be validly issued, fully paid, and nonassessable by the Corporation. 2 (iii) Reservation of Common Shares. The Corporation shall at all ---------------------------- times reserve and keep available out of its authorized but unissued Common Shares the full number of Common Shares deliverable upon the conversion of all the then outstanding Convertible Preferred Stock and shall take such action to obtain all such permits or orders as may be necessary to enable the Corporation lawfully to issue such Common Shares upon the conversion of Convertible Preferred Stock. 4. The registered office of the Corporation is 1235 Folkestone Way, Cherry Hill, New Jersey 08034. The name of the Corporation's registered agent at that office is Peter Katevatis. The following seven persons constitute the current Board of Directors of the Corporation: William W. Armstrong P.O. Box 607 Tupper Lake, NY 12986 Sidney Braginsky 6 Stoney Court Dix Hills, NY 11746 Michael Engelhart 161 North Franklin Turnpike Ramsey, NJ 07446 Peter Katevatis 1235 Folkestone Way Cherry Hill, NJ 08034 John M. Kennedy 802 Chestnut Avenue Somerdale, NJ 08083 Michael N. Kouvatas 27 Kings Highway East Haddonfield, NJ 08033 3 John Matheu 215 Longhill Drive Short Hills, NJ 07078 5. To the extent permitted by law, any action otherwise required or permitted to be taken at a meeting of shareholders may be taken without a meeting upon the written consent of less than all the shareholders entitled to vote thereon if the shareholders who so consent would be entitled to cast at least the minimum number of votes which would be required to take such action at a meeting at which all shareholders entitled to vote thereon are present. 6. Without otherwise limiting the right of the Board of Directors to otherwise fill vacancies in the Board of Directors, any directorship to be filled by reason of an increase in the number of directors may be filled by the Board. A director so elected shall hold office until the next succeeding annual meeting of shareholders or until his successor shall have been elected and qualified. 7. The Board of Directors shall have the power to remove directors for cause and to suspend directors pending a final determination that cause exists for removal. 8. The Board of Directors is hereby authorized to provide for the issuance of such of the Preferred Stock as the Board sees fit. The Board may, by amending the Certificate of Incorporation without shareholder approval, divide the Preferred Stock into classes and into series within any class or classes. The Board may determine the relative rights, preferences, and limitations of any class or series, change the designation or number of shares or the relative rights, preferences and limitations of the shares, shares of any theretofore established class or series, no shares of which have been issued. Classes or series of shares of Preferred Stock may be designated, in whole or in part, as redeemable at the option of Corporation in cash, its bonds or other property and a sinking fund may be created for the redemption of any class or classes of redeemable shares. Subject to the limitations of law such classes or series may also be made redeemable at the option of the shareholder. The Board of Directors may provide that such classes or series of stock be convertible, at the option of the holder or of the Corporation, or both, into shares of any other class of the capital stock of the Corporation. 9. To the extent permitted by law, any action otherwise required or permitted to be taken at a meeting of shareholders may be taken without a meeting upon the written consent of less than all the shareholders entitled to vote thereon if the shareholders who so consent would be entitled to cast at least the minimum number of votes which would be required to take such action at a meeting at which all shareholders entitled to vote thereon are present. 4 IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the 9th day of December, 2004. MEDISCIENCE TECHNOLOGY CORP. By:/s/ Peter Katevatis ------------------------------ Name: Peter Katevatis Title: Chief Executive Officer 5 EX-3.2 3 ex3-2.txt Exhibit 3.2 BY-LAWS OF MEDISCIENCE TECHNOLOGY CORP, ARTICLE I OFFICES 1. Registered Office and Agent. -- The registered office of --------------------------- the Corporation in the Stale of New Jersey is at 1235 Folkestone Way, Cherry Hill, New Jersey. The registered agent of the Corporation at such office is Peter Katevatis, 2. Principle Place of Business. -- The principal place of business of the Corporation is 1235 Folkestone Way, Cherry Hill, New Jersey 08034, 3. Other places of Business. -- Branch or subordinate places ------------------------ of business or offices may be established at any time by the Board at any place or places where the Corporation is qualified to do business. ARTICLE II SHAREHOLDERS 14A:5-2 1. Annual Meeting. -- The annual meeting of shareholders shall 14A: -------------- 5-4(1) be held upon, not Jess than ten nor more than sixty days written notice of the tune, place, and purposes of the meeting at 10:00 o'clock am, on the first Monday in June of each year at the registered office of the 34A:5-1 Corporation or at such other time and place as shall be specified in the notice of meeting, in order to elect directors and transact such other business as shall come before the meeting. If that date is a legal holiday, the meeting shall be held at the same hour on the next succeeding business day, 14A:5-3 2. Special Meetings. -- A special meeting of shareholders maybe ----------------- called for any purpose by the President, the Chairman of the Board or l4A:5-4 the Board. A special meeting shall be held upon not less than ten not more than sixty days written notice of the time, place, and purposes of the meeting. 14A:5-6 3. Action Without Meeting. - The shareholders may act without a meeting by written consent in accordance with N.LS.A. 14A:5-6. Such consents may be executed together, or in counterparts, and shall be filed in the Minute; Book. Special rules apply to the annual election of directors, mergers, consolidations, acquisitions of shares or the sales of assets. 14A:5-9(1) 4. Quorum -- The presence at a meeting in person or by proxy of the holders of shares entitled to cast a majority of the votes shall constitute a quorum! ARTICLE IN BOARD OF DIRECTORS 14A:6-2 1. Number and Term of Office. The Board shall consist of MO ------------------------- more than 15 and no leas than 7 members. The precise number shall ] 4A; 6-3 be set from time to time by the Board. Bach director shall be elected by the shareholders and shall hold office until the next annual meeting of shareholders and until that director's successor shall have been decided and qualified. 14A:6-10(2) 2. Regular Meetings. -- A regular meeting of the Board shall be held ---------------- without notice immediately following and at the same place as the annual shareholders' meeting for the purposes of electing officers and conducting such other business as may come before the meeting. The Board, by resolution, may provide tor additional regular meetings which may be held without notice, except to members not present at the time of the adoption of the resolution. 14A:6-10(2) 3. Special Meeting. - A special meeting of the Board may be called ---------------- at any time by the President, the Chairman of the Board or by directors for any purpose. Such meetings shall be held up on one day's notice if given orally (either by telephone or in person) or by facsimile, or by five days' notice if given by depositing the notice in the United States mails, postage prepaid. Such notice shall specify the time and place of the meeting. 14A:6-7.1(5)4. Action Without Meeting. -- The Board may act without a meeting ------------------------ if, prior or subsequent to such action, each member of the Board shall consent in writing to such action. Such written consent or consents shall be filed in the Minute Book. 14A:6-7.1(3)5. Quorum, -- A majority of the entire Board shall constitute a ------ quorum for the transaction of business. 14A:6-S 6. Vacancies in BOARD OF DIRECTORS. -- Any vacancy in the Board and ------------------------------- newly created directorships resulting from an increase in the authorized number of directors may be filled by the affirmative vote of a majority of the remaining directors, even though less than a quorum of the Board, or by a sole remaining director. 14A:6-6 7. Removal of Directors -- Any director may be removed for cause, or -------------------- without cause unless otherwise provided in the Certificate of Incorporation of the Corporation, as it maybe amended from time to time (the "Certificate of Incorporation"),by a majority vote of shareholders. 14A:6-10(3) 8. Presence at Meetings. -- Where appropriate communication ---------------------- facilities are reasonably available, any or all directors shall have the right; to participate in all or any part of a meeting of the Board or a committee of the Board by means of conference telephone or any means of communication by which all persons participating in the meeting are able to hear each other. ARTICLE IV WAIVERS OF NOTICE 14A:5-5 1. Any notice required by these By-Laws, by the Certificate of Incorporation, or by the New Jersey Business Corporation Act may be waived in writing by any person entitled to notice. The waiver or waivers may be executed either before or after the event with respect to which notice is waived. Bach director or shareholder attending a meeting without protesting, prior to its conclusion, the lack of proper notice shall be deemed conclusively to have waived notice of the meeting. ARTICLE V OFFICERS 14; 6-1.5(1) 1. election. -- At its regular meeting following the -------- annual meeting of shareholders, the Board shall elect a Chairman of the Board, a President, a Treasurer, a Secretary, and it may elect such other 14A:6-1S (2) officers, including one or more vice presidents, assistant treasurers or assistant secretaries, as it shall deem necessary. One person may hold two or more offices. 14:6*-15(4) 2. Duties and Authority of Chairman of the Board. --o The Chairman ---------------------------------------------- of the Board shall preside at all meetings of the shareholders and the Board and shall have such other duties and authorities as the Board shall from time to time delegate to Mm. In the absence of the President of in the event of his death, inability or refusal to act, the Chairman of the Board shall perform the duties and be vested with the authority of the President. 14:6-15(4) 3. Duties and Authority of President. -- The President shall be ----------------------------------- chief executive officer of the Corporation, Subject only to the authority of the Board; he shall have general charge and supervision over, and responsibility for, the business and affairs of the Corporation. Unless otherwise directed by the Board, all other officers shall be subject to the authority and supervision of the President. The President may enter into and execute in the name of the Corporation contracts or other instruments in the regular course of business or contracts or other instruments not in the regular course of business which are authorized, either generally or specifically by the Board. He shall have the general powers and duties of management usually vested in the chief executive officer of a corporation. In the absence of the Chairman of the Board or in the event of his death inability or refusal to act, the President shall perform the duties and be vested with the authority of the Chairman of the Board. 14A:6rl5<4) 4. Duties and Authority of Vice President. -- The Vice President or -------------------------------------- Vice Presidents shall perform such duties and have such authority as from time to time may be delegated to him or them by the President, by the Chairman of the Board or by the Board. 14A:6-15(4) 5. Duties and Authority of Treasurer. -- The Treasurer shall have ---------------------------------- the custody of the funds and securities of the Corporation and shall keep or cause to be kept regular books of account for the Corporation. The Treasurer and any Assistant Treasurers shall per form such other duties and possess such other powers as are incident to that office or as shall be assigned by the President, by the Chairman of the Board or by the Board. 14A:6-15(4) 6. Duties and Authority of Secretary. -- The Secretary shall cause --------------------------------- notices of all meetings to be served as prescribed in these By-Laws and shall keep or cause to be kept the minutes of all meetings of the shareholders and the Board, The Secretary shall have charge of the seal of the Corporation. The Secretary and any Assistant Secretaries shall perform such other duties and possess such other powers as are incident to that office or as are assigned by the President, by the Chairman of the Board. Removal and Resignation of Officers: Filling of Vacancies --------------------------------------------------------- A. Any officer elected by the Board may be removed by the Board with or without cause. An officer elected by the shareholders may be removed, with or without cause, only by vote of the shareholders but his authority to act as an officer may be suspended by the Board for cause. The removal of an officer shall be without prejudice to his contract rights, if any. Election of an officer shall not of itself create contract rights. B. An officer may resign by written notice to the Corporation. The resignation shall be effective upon receipt thereof by the Corporation or at such subsequent time as shaft be specified in the. notice of resignation. C. Any vacancy occurring among the officers, however caused, shall be filled by the Board. ARTICLE VI AMENDMENTS TO AND EFFECT OF BY-LAWS; FISCAL YEAR 1. Force and Effect of Bylaws. - These By-Laws are subject to ------------------------- the provisions of the New Jersey Business Corporation Act (the "Act") and the Certificate of Incorporation, If any provision in these By-Laws i<< inconsistent with a provision in the Act or the Certificate of Incorporation, the provision of that Act or the Certificate of Incorporation shall govern. 2. Wherever in these By-Laws references are made to more than one incorporator, director, or shareholder, they shall, if this is a sole ^corporate, director, shareholder corporation, be construed to mean the solitary person; and all provisions dealing with the quantum of majorities or quorums shall be deemed to mean the action by the one person constituting the corporation. 14A; 2-9(1) 3. Amendments to By-Laws. -- These By-Laws may be altered, ---------------------- amended, or repealed by the shareholders or the Board. Any By-Law adopted, amended, or repealed by the shareholders may be amended or n repealed by the Board, unless the resolution of the shareholders, adopting such By-Law expressly reserves to the shareholders the right to amend or repeal it. 4. Fiscal Year. - The fiscal year of die Corporation shall ------------ begin on the first day of March of each year. 5. By-laws. - Indemnification of Officers and Directors The By-laws of the Company provide that the Company shall indemnify, and advance expenses to, any director, officer, employee or agent of the Company to the fullest extent permitted by law more fully described in the following. The Business Corporation Act of the State of New Jersey (the "BCA") provides for indemnification of any person (the "Indemnities"), under certain circumstances, against reasonable expenses, including attorneys' fees, incurred in connection with the defense of a civil or criminal proceeding to which such a person has been or has been threatened to have been made a party by reason of the fact that he is or was serving as a director, officer, employee or agent of the Company or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Pursuant to the BCA, an indemnity may be provided for if the Indemnities acted in good faith (and with respect to a criminal action or proceeding, had no reasonable cause to we've his conduct was unlawful) and in a manner reasonably believed to be in or not opposed to the best interests of the Company. With respect to any threatened, pending or completed action or suit by or in the right of the Company, the BCA provides that the Company may indemnify against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement if the Indemnities acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification may be made if the Indemnities shall have been adjudged to be liable to the Company unless specific court approval is obtained. The BCA further provides that the indemnification provided pursuant to it shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any law, agreement, and vote of shareholders or disinterested directors or otherwise. EX-5 4 ex5.txt Exhibit 5 Peter B. Hirshfield, Esq. 1035 Park Avenue Suite 7B New York, New York 10028 Telephone (646) 827-9362 Facsimile (646) 349-1665 December 20, 2004 Mediscience Technology Corp. 1235 Folkstone Way Cherry Hill, NJ 08034 Re: Mediscience Technology Corp. ---------------------------- Gentlemen: I have acted as counsel to Mediscience Technology Corp., a New Jersey Corporation (the "Company"), in connection with its registration statement on Form SB-2 (the "Registration Statement") being filed with the Securities and Exchange Commission under the Securities Act of 1933 (the "Act") for the registration for resale by the selling shareholders listed therein (the "Selling Shareholders") of 8,075,000 shares of the Company's common stock ("Common Stock") par value $.01 per share (the "Shares"). In connection with the foregoing, I have examined originals or copies, satisfactory to me, of (i) the Company's Certificate of Incorporation and By-laws, each as amended to date, and (ii) resolutions adopted by the Company's Board of Directors authorizing the issuance of 8,075,000 Shares. I have also reviewed such other matters of laws and examined and relied upon all such corporate documents, certificates, agreements, instruments and records, as I have deemed necessary for the purpose of expressing an opinion as set forth below. My opinion with respect to the valid issuance of an aggregate of 8,075,000 Shares owned by the Selling Shareholders which are being registered by the Company pursuant to the Registration Statement is made solely in reliance on the Company's transfer agent's records and a certificate from an authorized officer of the Company. In my examinations I have assumed the genuineness of all signatures, the authenticity of all documents and instruments submitted to me as originals or copies, and the conformity of any copies to the originals. Based upon and subject to the foregoing, I am of the opinion that the 8,075,000 Shares have been validly issued and are fully paid and non-assessable. I consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference made to me under the caption "Legal Matters" in the Prospectus. I advise you that I am a shareholder of the Company. Very truly yours, /s/ Peter B. Hirshfield ----------------------- Peter B. Hirshfield EX-10.1 5 ex10-1.txt Exhibit 10.1 AGREEMENT BETWEEN THE RESEARCH FOUNDATION OF THE CITY UNIVERSITY OF NEW YORK AND MEDISCIENCE TECHNOLOGY CORPORATION This Agreement is made and entered into as of June 10 ,2002 (the "Effective Date"), between The Research Foundation of The City University of New York, a New York non-profit corporation having its central office at 555 W. 57th St. New York, NY 10019 U.SA ("FOUNDATION") and Medisience Technology Corporation having its principal office at 1235 Folkstone Way, Cherry Hill, NJ 08034 MEDISCENCE"). WITNESSETH WHEREAS, FOUNDATION owns certain technology and wishes to enter into an agreement for the commercialization of this technology with Mediscience, and; WHEREAS, FOUNDATION and MEDISCIENCE previously entered into a Research Agreement ("Research Agreement") for the development and commercialization of said technology dated June 1, 1992 and amended said agreement from time to time, the last amendment being August of 2001 and; WHEREAS. FOUNDATION and MEDISCIENCE again wish to amend terms and conditions of Research Agreement, Now therefore, the parties agree to the following terms and conditions. ARTICLE 1 DEFINITIONS For the purposes of this Agreement, the following words and phrases shall havethe following meanings; 1.1 FIELD OF USE shall mean all medical applications of the foundation -------------------------- technology embodied in patent applications and/or the foundation technology defined and detailed in "Attachment A" exclusively, provided that said technology was not in the public domain at the time ft was disclosed to MEDISCIENCE. 1.2 LICENSED PRODUCT shall mean any product, which embodies, or the manufacture, use or sale of which employs, any of the RFCUNY patents/ patent applications in "Attachment A" exclusively. 1.3 NET SALES shall mean MEDISCIENCE'S gross revenues from the sale or license of products to independent third parties less either; A- Discounts allowed in amounts customary in the trade for direct sales B- Sales taxes, tariff duties and/or use taxes directly imposed and with reference to particular sales C- Outbound transportation prepaid or allowed D- Amounts allowed or credited on returns or 10% of gross revenues whichever is greater E- Licensed products shall be deemed to have been sold when paid for F- For the purpose of calculating net sales the invoice cost of the entire system shall be ulillzed to the extent the system incorporates any of the technology represented in Attachment A 1.4 "Patent Application" shall mean ail Patent Applications and issued ------------------- Patents listed in "Attachment A", (see 1.1 and 1.2} 1-5 " Royalties" shall mean royalties paid or payable by MEDISCIENCE --------- to FOUNDATION as described in Article 4, 1.6 "Territory" shall mean world-wide --------- ARTICLE 2 GRANT 2.1 The FOUNDATION agrees to extend MEDISCIENCE'S right to exclusive, transferable worldwide, irrevocable licenses in foundation technology listed in "Attachment A". Terms and conditions of said licenses are set forth in the agreement entered into in 1992, attached hereto. Paragraph 5.G is amended to allow MEDISCIENCE a period of five (5) years from The Effective Date of this Amended agreement to offer for sale Licensed Products, embodying the technology referred to in Attachment A and subject to Article 4, herein. 2.2 FOUNDATION retains the right to use the Technology listed in "Attachment A" for research, teaching and other educationally related purposes. 2.3 MEDISCIENCE may grant sublicenses consistent with the terms of this Amended Agreement and the 1992 Agreement MEDISCIENCE must deliver to FOUNDATION a true and correct copy of each sublicense granted by MEDISClENCE, and any modification or termination thereof, within thirty (30) days of execution, modification, or termination, if -this Agreement is terminated, all existing sublicenses granted by MEDISCIENCE must be assigned to FOUNDATION BEST EFFORTS 3.1 MEDISCIENCE represents to FOUNDATION that it will continue to use its best efforts to commercialize the Technology through the sale of licensed Products in the Territory. MEDISCIENCE will report its efforts to the FOUNDATION once a year. 3.2 In the event that MEDISCIENCE fails to commercialize the Technology in "Attachment A" within five (5) years from the Effective Date as this Amended Agreement, FOUNDATION will have the right to terminate this Agreement and all FOUNDATION rights to the Technology in "Attachment A" will revert to the FOUNDATION. ARTICLE 4 PAYMENTS, ROYALTIES & PATENT COST REIMBURSEMENT 4.1 in consideration of the rights granted under this Agreement, MEDISCIENCE will pay Royalties to FOUNDATION in the manner shown below: (a) A royalty equal to 3 1/4 % of the Net Sates of Licensed Product; without differentiation as to which patents represent what percentage of the final product. (b) A royalty equal to 40% of any payments received by MEDISCIENCE from a sub-licensee in connection with sates and/or licenses of licensed Product; and (c) SINGLE Annual License fee for all foundation patent/patent applications of "Attachment A" according to the following schedule: i. $5,000 on the second anniversary of Ms Agreement, or one year after the receipt of funding for product development and commercialization, whichever is sooner; ii $ 10,000 on the th W and fourth anniversaries of this Agreement; and iii. $20,000 on the fifth and subsequent anniversaries of this agreement, unless royalties due under (a) and (b) above exceed $20,000 in which case there shall be no license fee. 4.2 MEDISCIENCE shad pay to FOUNDATION the royalties due and payable under this Agreement quarterly, no later than sixty (60) days after December 31st and June 30* of each year. If no royalties are due, it shall be so reported. 4.3 Amounts payable hereunder by MEDISCIENCE shall be payable irt United States funds without deductions for taxes, assessments, fees, or charges of any kind. 4.4 MEDISCIENCE 's obligation to pay royalties to FOUNDATION shall continue for each LICENSED PRODUCT, until the expiration of the test to expire valid claim of a patent relating to such LICENSED PRODUCT. 4.5 MEDISCIENCE shall pay all costs and maintenance fees associated with all patent applications and issued patents both foreign and domestic. MEDISCIENCE shall reimburse FOUNDATION for any and all reasonable expenses incurred by FOUNDATION in connection with the Patent Applications and Patents costs or fees that are incurred in the event of default of payment by MEDISCIENCE. ARTICLE 5 OUTSTANDING DEBT 5.1 MEDISCIENCE agrees to the following financial terms and conditions; A) MEDISCIENCE will issue MEDISCIENCE Common Shares on the basis of $.25 per share as payment of 25% ($70,807.00) of the outstanding debt owed to FOUNDATION. Two Hundred and Eighty Three Thousand Two Hundred and Twenty Eight (283,228) shares will be issued in the name of the Research Foundation of City University of New York. B) MEDISCIENCE will make a cash payment of $85,045.00 representing 30% of the outstanding amount of $283,483.00 owed to the Research Foundation. Payment will be made by MEDISC1ENCE upon execution of this agreement. Failure to make this payment will render this agreement null and void. C) MEDISCIENCE will grant a 5-year option to FOUNDATION or nominee to purchase 600,000 shares of MEDISCIENCE Common at $1.00 per share in exchange for cancellation of the remaining 45% of debt The parties agree that at anytime during this five year period MEDISCIENCE retains the right to tender the balance due FOUNDATION in cash as full payment canceling and voiding this option, FOUNDATION may exercise this option at anytime within the five year period beginning on the Effective Date of this Amended Agreement If FOUNDATION exercises its option, MEDISCIENCE 's right to tender the balance due is limited to the amount of the option unexercised by FOUNDATION. D) The financial obligations established herein represent the full and entire understanding of the parties for all patents, patent applications, licenses and payments owed by virtue of any prior agreement or amendment thereto. ARTICLE 6 REPORTS AND RECORDS 6.1 MEDISCIENCE, on March 1 and September 1 of each year, shall deliver to FOUNDATION a true and accurate report of the business conducted by MEDISCIENCE and any sub-licensee MEDISCIENCE executes during the preceding six (6) month period under this Agreement Such report shall include at least the following: (a) Total number of unite of Licensed Product sold or licensed, and price per unit; (b) Discounts as defined in the definition of Net Sales in paragraph 1,3; and (c) Total Royalties and payments due, 6.2 Simultaneously with the delivery of the report described in 6.1, MEDISCIENCE shall pay to FOUNDATION the Royalties, if any, due for the period covered by such report. If no Royalties are due, it shall be so reported. 6.3 MEDISCIENCE shall keep full, true and accurate books of account containing all particulars, which may be necessary for the purpose of computing and verifying the amount payable to FOUNDATION by way of Royalty as aforesaid. Said books of accounts shall be kept at MEDISCIENCE'S principal place of business or the principal place of business of a division of MEDISCIENCE which is marketing the Licensed Products. Said books and the supporting data shall be open at all reasonable times, for five (5) years following the end of the calendar year to which they pertain, to the inspection of FOUNDATION'S Internal Audit Division and/or of an independent certified public accountant retained by FOUNDATION and/or a certified public accountant employed by FOUNDATION, for the purpose of verifying MEDISCIENCE's report required in 6.1 or compliance in other respects with this license. executes during the preceding six ($) month period under this Agreement Such report shall include at least the following: (d) Total number of unite of Licensed Product sold or licensed, and price per unit; (e) Discounts a$ defined in the definition of Net Sales in paragraph 1,3; and (f) Total Royalties and payments due, 6.4 Past due royalty amounts owed to Foundation by Mediscience pursuant to this Section 6 shall bear interest at the rate of 1% per month. If any audit pursuant to section 6.3 reveals an underpayment to Foundation of greater than ten percent 10% of the amount due then MEDISCIENCE shall further pay the reasonable and documented cost of such audit ARTICLE 7 PATENTS 7.1 MEDISCIENCE shall, with counsel selected by MEDISCIENCE and reasonably acceptable to FOUNDATION, prepare, apply for, seek prompt issuance of, and maintain during the term of this Agreement the patents/patent applications listed in Attachment A in the United States The preparation, and to provide comments to FOUNDATION with respect to the preparation, filing and prosecution of tie patents which comments shall be given due consideration by FOUNDATION in connection with the foregoing, MEDISC1ENCE shall keep FOUNDATION fully informed as to the Status of patent matters described in this Article, including without limitation, by providing FOUNDATION the opportunity, as far in advance of filing dates as possible, to fully review extensions. comment on any documents which will be tilted in any patent office, and providing FOUNDATION copies of any substantive documents that MEDISCIENCE receives from such patent offices promptly after receipt, including notice of all interferences, reissues, re-examination, oppositions or requests for patent term prosecution, filing, fifing jurisdiction and maintenance of the Patents/patent applications in "Attachment A" shall be the primary responsibility of MED1SC1ENCE. 7.2 MEDISCIENCE, with Foundation's assistance will secure and maintain a copy file of ail the Patents and Patents Pending reflected in "Attachment A" from the patent attorney of record including but not limited to documents of preparation, prosecution, filing, and all amendments and ail other necessary patent maintenance documents whatsoever filed with the Patent office. Such copy file shall be available to FOUNDATION in the ordinary course of business. MEDISCIENCE shall supplement such file with necessary material as requested. ARTICLE 8 UNLICENSED ACTIVITY AND NFRINGEMENT 8.1 FOUNDATION and MEDISCIENCE shall promptly inform the other in writing of any infringement of the patents/ patent application or other proprietary technology by a third party and provide available legal evidence of infringement 8.2 If within thirty (30) days after notification of alleged infringement MEDISCIENCE has not been successful in persuading the alleged infringer to desist and is not diligently prosecuting an infringement action or if MEDISCIENCE notifies FOUNDATION of its intent not to bring action against the alleged infringer. FOUNDATION may, but is not obligated to, bring action at its own expense and may us(C) the name of MEDISCIENCE as party plaintiff. 8.3 In any suit involving the enforcement or defense of the rights relating to the technology or the patents, the other party hereto agrees, at the request and expense of the party initiating such suit, to cooperate in all respects and to have its employees and/or its patent attorney with all necessary records, patent office memorandum and law office work product testify when requested and to make available relevant records, papers, information, samples, specimens and the like, 8.4 No settlement or consent Judgment or other voluntary final disposition of an enforcement and/or defense suit initiated by either party to the Agreement-may be entered into without the consent of the other, which consent WHS not be unreasonably withheld. 8.5 In the event a declaratory judgment action alleging invalidity or non-infringement of the technology or patents is brought against MEDISCIENCE, MEDISCIENCE Shall have the right to defend itself with counsel of its choosing, but FOUNDATION reserves the right to retain its own counsel, at its own expense, to work with MEDISCIENCE and FOUNDATION'S counsel in the joint defense of such action, and MEDISCIENCE shall cooperate with FOUNDATION and FOUNDATION'S counsel in such effort. FOUNDATION shall not be liable for any losses incurred as the result of an jetton alleging invalidity or infringement brought against MEDISCIENCE as the result of any right granted under this Agreement. 8.6 The cost of any infringement action commenced or defended solely by FOUNDATION shall be borne by FOUNDATION. Recoveries or reimbursements from such action shall first be applied to reimburse FOUNDATION for its actual costs incurred in connection with such action. Any remaining recoveries shall be allocated in accordance with 4.1 (a) and (b) with the exception that punitive damage recovery shall be allocated between MEDISCIENCE and FOUNDATION, equally. 8.7 The cost of any infringement action commenced or defended by MEDISCIENCE shall be borne by MEDISCIENCE. MEDISCIENCE, however, may withhold royalties in any given calendar year and apply the same towards reimbursement of its expenses and any recovery of damages by MEDISCIENCE from any such suit shall be applied first in satisfaction of any un-reimbursed expenses and legal fees of MEDISCIENCE relating to the suit or settlement thereof, and the balance of such recovery shall be allocated in accordance with 4.1 (a) and (b) with the exception that punitive damage recovery shall be allocated between Foundation and MEDISCIENCE, equally. ARTICLES CONFIDENTIALITY 9.1 MEDISCIENCE hereby acknowledges and agrees that the Technology "Attachment A" constitutes and contains valuable proprietary information of FOUNDATION, embodying substantial creative efforts and confidential information, ideas, and expressions. Accordingly, MEDISCIENCE agrees to treat (and take precautions to ensure that its employees treat) the Technology as confidential in the same manner it protects the confidentiality of similar information and data of its own (at all times exercising at least a reasonable degree of care in the protection of confidential information), FOUNDATION hereby acknowledges and agrees that the FOUNDATION Technology (see 1.4 (G) and (H) above) constitutes and contains valuable proprietary information of FOUNDATION embodying substantial creative efforts and confidential information, ideas, grid expressions. Accordingly, FOUNDATION agrees to treat (and take precautions to ensure (hat its employees treat) the Technology as confidential in the same manner it protects the confidentiality of similar information and data of its own (at all times exercising at least a reasonable degree of care in the protection Of confidential information 9.2 FOUNDATION acknowledges that the unauthorized use, transfer or disclosure of the technology or copies thereof will (i) substantially diminish the value to MEDISCIENCE of the proprietary interests that are the subject of this Agreement; (ii) renders remedy at law for such unauthorized use, disclosure or transfer inadequate; and (iii) cause irreparable injury in a short period of time, if MEDISCIENCE breaches any of its obligations with respect to the use or confidentiality of the , _ Technology, MEDISCIENCE shall be entitled to equitable relief to protect its interests therein, including, but not limited to, preliminary and permanent injunctive relief. MEDlSCiENCE acknowledges that the un-authorized use, transfer or disclosure of the FOUNDATION Technology or copies thereof (see 4.1 (G) and (H) above) will (I) substantially diminish the value to FOUNDATION of the proprietary interests that are the subject of this Agreement; (ii) render FOUNDATION'S remedy at law for such unauthorized use, disclosure or transfer inadequate; and (iii) cause irreparable injury in a short period of time. If FOUNDATION breaches any of its obligations with respect to the use or confidentiality of the Technology, FOUNDATION shall be entitled to equitable relief to protect its interests therein, including, but not limited to, preliminary and permanent injunctive relief. 9.3 FOUNDATION'S and MEDISCIENCE's obligations under this Article 9 will survive the termination of this Agreement or of any license granted under this Agreement for whatever reason. ARTICLE 10 GOVERNMENT RIGHTS 10.1 MEDISCIENCE understands that part, some or all the technology reflected in "Attachment A" may have been developed under a funding agreement with the Government of the United States of America and, if so, that the Government may have certain rights relatives thereto. This Agreement Is explicitly made subject to the Government's rights under any such agreement and any applicable law or regulation, if any. To the extent that there Is a conflict between any such agreement, applicable law or regulation and this Agreement, the terms of such Government agreement applicable law or regulation shall prevail. Distribution of the Technology to any government agency by MEDISCIENCE shall not be subject to the Royalty set forth herein. ARTICLE 11 NO LICENSOR WARRANTY; LIMITATION OF LIABILITY 11.1 IT IS SPECIFICALLY UNDERSTOOD AND AGREED THAT THE TOTAL TECHNOLOGY IN Attachment A" IS FURNISHED BY FOUNDATION "AS IS" WITHOUT REPRESENTATION OR WARRANTY AS TO ACCURACY, APPLICABILITY, FREEDOM FROM INFRINGEMENT OF ANY PATENT RIGHTS, COPYRIGHT OR OTHER PROPRIETARY RIGHTS, OR THE RIGHTS OF THIRD PARTIES OR ANY OTHER WARRANTY OR REPRESENTATION. FOUNDATION HEREBY EXPRESSLY WAIVES ALL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS OR FREEDOM FROM INFRINGEMENT WITH RESPECT TO THE TECHNOLOGY. IN NO EVENT WHATSOEVER SHALL FOUNDATION BE LIABLE FOR ANY CONSEQUENTIAL OR SPECIAL DAMAGES OR CLAIMS FOR LOST PROFITS. ARTICLE 12 FOUNDATION WARRANTY AND INDEMNITY; INSURANCE 12.1 MEDISCIENCE shall be solely responsible for all warranties, express or implied, with respect to the Licensed Products utilizing "Attachment A" technology, and shall indemnify and hold harmless FOUNDATION, The City University of New York, City College, and each of their trustees, directors, officers, agents and employees from and against any dams, demands, or causes of action caused by, or arising out of, or resulting from, the exercise or practice of the license granted hereunder to MEDISCIENCE by FOUNDATION, MEDISCIENCE 's sub-licensees, if any, its subsidiaries or their officers, employees, agents or representatives, including without limitation any claims, demands, or causes of action arising on account of MEDISCIENCE's modification or enhancement of the Technology, and shall assurme and pay all damages, liabilities, or costs {including reasonable attorneys' fees) resulting from, based upon or arising in connection therewith, unless it can be shown that such claims resulted fnorn the lack of full disclosure by, and/or negligence on the part of the FOUNDATION, The City University of New York, its officers, directors, agents or employees. 12.2 Without limitation on FOUNDATION'S obligations as aforesaid, prior to the initiation of marketing activity by MEDISCIENCE MEDISCIENCE, at its own cost and expense, shall maintain comprehensive products liability insurance with an insurer of recognized responsibility protecting FOUNDATION against any and all claims and liabilities for injury or damage to persons or property or for loss of life or of property caused by or resulting from the Licensed Products with a policy limit of no less than one million dollars (U.S. $1,000,000) per occurrence and shall provide FOUNDATION promptly with evidence thereof prior to initiation of such activity. MEDISCIENCE shall have FOUNDATION, The City University of New York, protected as additional named insured under such policy and shall provide FOUNDATION with copy of such policy. ARTICLE 13 ASSIGNMENT 13.1 MEDISCIENCE may not assign or otherwise transfer this Agreement and the rights granted herein relative to Foundation patents and patent applications reflected in "Attachment A" without the prior written consent of the FOUNDATION, such consent not to be un-reasonably withheld 13.2 MEDISCIENCE may assign or otherwise transfer this Agreement and the license granted hereby and the rights acquired by it hereunder per "Attachment A* so long as such a sale or other transfer is accompanied by a. a sale or other transfer of MEDISClENCE's ENTIRE BUSINESS or b. Sate or other transfer of that part of MEDISClENCE's business to which the license of "Attachment A". patents and patent applications granted hereby relates. c. MEDISClENCE' may assign or otherwise transfer this Agreement and the license granted hereby and the rights acquired by it hereunder if such assignment or transfer is accompanied by the transfer of the rights to manufacture, use, make, have made, offer for sate, and/or market the "Attachment A" technology as a LICENSED PRODUCT, and such assignee or transferee has agreed in writing to be bound by the terms and provisions of this Agreement, in which event, MEDISClENCE' shall be released of liability hereunder.. d. MEDISCIENCE shall give FOUNDATION sixty (60) days prior written notice of such proposed assignment and transfer. Upon such assignment or transfer of Agreement by such assignee or transferee, the term MEDISCIENCE as used herein shall include such assignee or transferee. ARTICLE 14 TERM AND TERMINATION 14.1 The term of this Agreement shall commence on the Effective Date and continue until the expiration of the last to issue patent "Attachment A" and any allowable extensions under the law, whichever is longer, unless earlier terminated in accordance with paragraph 14.2 below. 14.2 Either party hereto shall have the right to terminate this Agreement, immediately by written notice to the other party in any of the following events: (a) If the other party becomes insolvent, is adjudged a bankrupt or becomes the subject of dissolution, liquidation or bankruptcy proceedings, whether voluntarily or involuntarily. or applies for judicial or extra-judicial settlement with creditors, makes an assignment for the benefit of creditors, or otherwise discontinues business; or (b) If the other party is in breach of any of the terms, conditions or representations of this Agreement and the breaching party shall fall to remedy such breach to the satisfaction of the breaching party within thirty (30) days from the date of written notice by the party claiming the breach. 14.3 Termination of this Agreement by either party shall be without prejudice to any other rights or remedies that either party may have by virtue of any breach of the terms of this Agreement In the event of termination of this Agreement for any reason, MEDISCIENCE shall promptly account for and pay Royalties accrued up to the date of such termination, Within ten (10) days after termination of this Agreement, MEDISCIENCE shall cease and desist all use of the Foundation "Attachment A" Technology and shall either (a) return ail Licensed Products in MEDISCIENCE 's possession or under its control or (b) provide evidence of the disposal of si such products. ARTICLE 15 USE OF NAME 15.1 MEDISCIENCE shall not use the name or any logo, seal. Trademark, trade name or other proprietary mark of FOUNDATION, The City University of New York, or City College, nor any adaptation thereof, for advertising, promotion or sales, without prior written consent obtained from FOUNDATION in each case, except that MEDISCIENCE may state that it is licensed by FOUNDATION as is provided by this Agreement MEDISCIENCE shall not Issue any press release with respect to this Agreement without the prior approval of FOUNDATION, such approval not to be unreasonably withheld the terms of Article 15 shall not apply to or in any way limit required SEC 8-K, 10-K and related required disclosures of Material Event filings by MEDISCIENCE- 15.2 Where FOUNDATION or CUNY issue press releases that refer to patent material reflected in "Attachment A* MEDISCIENGE shall be "identified appropriately. ARTICLE 16 UNITED STATES GOVERNMENT EXPORT CONTROL REGULATIONS 16.1 FOUNDATION warrants and represents that it does not intend to, nor will, directly or indirectly, export or transmit the Technology or Licensed Products, in whole or in part, or any related technical information or materials, to any country in which such export or transmission is restricted by any applicable U.S. regulation or statute, without prior written approval, if required, of the Bureau of Export Administration of the U.S. Department of Commerce, or other such governmental entity as may have jurisdiction over such export or transmission. ARTICLE 17 MISCELLANEOUS PROVISIONS 17.1 Governing Law. This Agreement shall be construed, governed, -------------- interpreted and applied in accordance with the laws of (fie State of New York, except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted, 17.2 Entire Agreement. This Agreement constitutes the entire agreement ----------------- between tie parties and where conflicting, supercedes any and alt prior agreements relative to the premises contained herein concerning the subject matter hereof and cannot be changed or terminated orally. No modification or waiver of any of the provisions hereof shall be effective unless in writing and signed by the parties hereto. There are no representations or warranties other than as expressly stated herein. 17.3 No Waiver. The failure of either party hereto at any time to require --------- performance by the other party of any provision of this Agreement shall not affect the right of such party to require performance of that provision. Any waiver by either party of any breach of any provision of this Agreement shall not constitute a waiver of any continuing or succeeding breach of such provision, a waiver of the provision itself, or a waiver of any right under this Agreement 17.4 Arbitration. All disputes arising out of or related to this ----------- Agreement that cannot be settled amicably shall be settled by final and binding arbitration under the Commercial Arbitration Rules (the "Rules") of the American Arbitration Association by three (3} qualified arbitrators one of which shall come from the investment banking community, unless the parties otherwise agree to have a single arbitrator, appointed in accordance with the Rules. The place of such arbitration shall be New York, New York, and the arbitrators shall apply Federal and the law of the State of New York. The arbitration proceedings, results and any award shall be maintained by the parties as confidential, 17.5 Severability. The provisions of this Agreement are severable, and in ------------ the event that any provisions of this Agreement are determined to be Invalid or unenforceable under any controlling body of law, such invalidity or unenforceability shall not in any way affect the validity or enforcability of the remaining provisions hereof. 17.6 No Partnership. This Agreement 'does not constitute and shall not be -------------- construed as constituting a partnership or joint venture between MSDISCIENCE and FOUNDATION, Neither party shall have any right to obligate or bind the other party in any manner whatsoever. 17.7 Payment Notice. Any payment, notice or other communication pursuant -------------- to this license shall be sufficiently made or given on the date of mailing if sent to such party by U.S. mail, postage prepaid, Certified or registered, return receipt requested, or by overnight courier, addressed to it at its address below or as it shall designate by written notice given to the other party; To FOUNDATION: Mr. Frederick Chin Director of Grants & Contracts The Research Foundation of CUNY 555 West 57th Street New York, N,Y. 10019 To MEDISCIENCE: Peter Katevatis Esq. Chairman Mediscience Technology Corporation 1235 Folkstone Way Cherry Hill, NJ 08034 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals and duly executed this Agreement the date first above written. THE RESEARCH FOUNDATION OF THE CITY UNIVERSITY OF NEW YORK BY: /s/ Edward Kile --------------- Edward Kile TITLE: Chairman MEDSCIENCE BY:/s/ Peter Katevatis, June 10, 2002 ---------------------------------- Peter Katevatis ATTACHMENT A Medical Diagnostic Optical technology 1. #5,042,494, August 27, 1991, Method and Apparatus for Detecting Cancerous Tissue using Luminescence Excitation Spectra, R. R. Alfano. 2. #5,131,398, July 21, 1992, Method and Apparatus for Distinguishing Cancerous Tissue from Benign Tumor Tissue, Benign Tissue or Normal Tissue using Native Fluorescence, R. R. Alfano, B. Das, G. Tang. 3. #5,261,410, November 16, 1993, Method for determining if a Tissue is a Malignant Tumor Tissue, a Benign Tumor Tissue, or a Normal Benign Tissue using Raman Spectroscopy, R. R. Alfano, C.-H. Liu, W. S. Glassman. 4. #5,293,872, March 15, 1994, Method for Distinguishing between Calcified Atherosclerotic Tissue and Fibrous Atherosclerotic Tissue or Normal Cardiovascular Tissue Using Raman Spectroscopy, R. R. Alfano, C. H. Liu 5. #5,348,018, September 20, 1994, Method for determining if Tissue is Malignant as opposed to Non-Malignant using Time-Resolved Fluorescence Spectroscopy, R. R. Alfano, A. Pradhan, G. C. Tang, L. Wang, Y. Budansky, B. B. Das. 6. #5,413,108, May 9, 1995, Method and Apparatus for Mapping a Tissue Sample for and Distinguishing Different Regions thereof based on Luminescence Measurements of Cancer-indicative Native Fluorophor, R. R. Alfano. 7. #5,467,767, November 21, 1995, Method for Determining if Tissue is Malignant as opposed to Non-Malignant using Time-resolved Fluorescence Spectroscopy, R. R. Alfano, Asima Pradhan, G. C. Tang, L. Wang, Y. Budansky, B. B. Das. 8. #5,635,402, June 3, 1997. Technique for Determining whether a Cell is Malignant as opposed to Non-malignant using Extrinsic Fluorescence Spectroscopy, R. R. Alfano, Cheng H. Liu, Wei L. Sha, Yury Budansky. 9. #5,769,081, June 23, 1998, Method for Detecting Cancerous Tissue using Optical Spectroscopy and Fourier Analysis, R. R. Alfano, A. Katz, Y. Yang. 10. #5,849,595, December 15, 1998, Method for Monitoring the Effects of Chemotherapeutic Agents on Neoplasmic Media, R. R. Alfano, G. C. Tang, S. P. Schantz. 11. #5,983,125, November 9, 1999, Method and apparatus for in vivo examination of subcutaneous tissues inside an organ of a body using optical spectroscopy, R. R. Alfano, Y. Budansky. 12. #6,006,001, December 21, 1999, Fiber optic assembly useful in optical spectroscopy, R. R. Alfano, S. Demos, G. Zhang. 13. #6,080,584, June 27, 2000, Method and apparatus for detecting the presence of cancerous and precancerous cells in a smear using native fluorescence spectroscopy, Robert R. Alfano, Singaravelu Ganesan, and Yury Budansky. 14. #6,091,985, July 18, 2000, Detection of cancer and precancerous conditions in tissues and/or cells using native fluorescence excitation spectroscopy, Robert R. Alfano, Singaravelu Ganesan, Alvin Katz, Yang Yuanlong. Optical Imaging for Medical Purposes 1. #5,371,368, December 6, 1994, Ultrafast Optical Imaging of Objects in a Scattering Medium, R. R. Alfano, P. P. Ho, L. Wang. 2. #5,625,458, April 29, 1997, Method and System for Imaging Objects in Turbid Media using Diffusive Fermat Photons, R. R. Alfano, A. Y. Polishchuk. 3. #5,644,429, July 1, 1997 (see #5,371,368), 2-Dimensional Imaging of Translucent Objects in Turbid Media, R. R. Alfano, P. P. Ho, X. Liang. 4. #5,710,429, January 20, 1998, Ultrafast Optical Imaging of objects in or Behind Scattering Media, R. R. Alfano, Feng Liu, Q. Z. Wang P. Ho, L. M. Wang, X. Liang. 5. #5,719,399, February 17, 1998, Imaging and Characterization of Tissue based upon the Preservation of Polarized Light transmitted therethrough, R. R. Alfano, S. G. Demos. 6. #5,799,656, September 1, 1998, Optical Imaging of Breast Tissues to enable the Detection therein of Calcification Regions Suggestive of Cancer, R. R. Alfano, P. P. Ho, L. Wang, X. Liang, P. Galland. 7. #5,813,988, September 29, 1998, Time Resolved Diffusion Tomographic Imaging in Highly Scattering Turbid Media, R. R. Alfano, W. Cai, F. Liu, M. Lax, Bidyut B. Das. 8. #5,847,394, December 8, 1998, Imaging of Objects Based upon the Polarization or Depolarization of Light, R. R. Alfano, S. G. Demos. 9. #5,931,789, August 3, 1999, Time-resolved diffusion tomographic 2D and 3D imaging in highly scattering turbid media, Robert R. Alfano, Wei Cai, Feng Liu, Melvin Lax. 10. # 6,208,886 B1, March 27, 2001, Non-linear optical tomography of turbid media, Robert R. Alfano, Yici Guo, Feng Liu, Ping Pei Ho. 11. # 6,215,587, April 10, 2001, Microscope imaging inside highly scattering media, Robert R. Alfano, Gordon Anderson, Feng Liu. EX-10.3 6 ex10-3.txt Exhibit 10.3 AGREEMENT --------- THIS AGREEMENT (the "Agreement") is EFFECTIVE as of the 1st day of August, 2004 by and between consultant John Matheu ("JM" or "Consultant"), with his principal address at 215 Long Hill Drive, Short Hills, New Jersey 07078 and Mediscience Technology Corp. ("MDSC" or "Company") with its principal address at 1235 Folkstone Way, Cherry Hill, New Jersey 08034. (Collectively the "Parties") WITNESSETH: WHEREAS, JM provides a wide spectrum of management consulting and ancillary services on behalf of MDSC in the biopharmaceutical, medical devise and healthcare industry with particular expertise in corporate, financial and PRESENT project management at CUNY; and; WHEREAS, MDSC is a medical device R&D company with an expressed interest in retaining the services of JM. NOW, THEREFORE, in consideration of the foregoing premises and the terms and conditions set forth below, the adequacy of which is acknowledged by the parties, the parties hereby agree as follows: DEFINITIONS AS USED HEREIN: "Extension" shall mean that period following the end of the initial Term. "Products" shall mean those products that are owned by or in any way embody the Technology or Intellectual Property Rights of MDSC "Services" shall mean those services JM shall perform under the direction/supervision of Michael Engelhart President COO of Mediscience Technology hereunder during the Term. relating to the successful accomplishment of the following: Exhibit A Exhibit A --------- MEDICAL PROJECT MANAGEMENT GUIDE FOR CD-RATIOMETER -------------------------------------------------- 1. May Initiate and Evaluate Design of CD GYN Ratiometer o Review CD ratiometer layout and optical-mechanical drawings. o Determine physician requirements for GYN data collection. o Finalize selection of optical probe for use in cervical cancer testing device o Determine electronic control board and interface for physician work station. o Design a study protocol for cervical cancer detection 2. June Final Designs and FDA Approach o Work with management in o FDA approach o Clinical development planning o Attend pre-IDE meeting o Identify and qualify potential study sites for clinical trials o Interface with front end software interface team. o Work with design trifurcated optical fiber probe, and disposable ferrule for fiber probe. o Develop calibration standards and test procedures for CD Ratiometer 1 3. July Operational Manual, IDE and Approach for CD GYN Ratiometer o Continued work in developing user-friendly software. o Work with management to create the operational manual o Work with management to create approach to physicians - adoption equation o Work with management in preparing IDE o Attend FDA IDE meeting o Secure IRB's for 4. Aug. - Sept. - Oct. Test prototype CD GYN Ratiometer for Clinical Testing and 510 (k) Development and Submission o Test operation of prototype unit. o Test operation of physician interface. o Test CD-Ratiometer on ex vivo tissue specimens. o Train Mediphotonics and medical personnel. o Complete operational guide o Quality control clinical sites "Technology" shall mean all present and future patented, proprietary technology and intellectual know-how, and shop knowledge relating to products for the screening, diagnosis, and treatment of patients with tumor types (e.g., including, but not limited to colon, lung, cervix, pancreas, prostate, esophageal, oral and breast). "Term" shall mean an initial minimum period of 13 Months and the extension of the minimum period as described under the section "The Term" below commencing on the date hereof. "Territory" shall mean CUNY, RELATED LOCATIONS AND the world. 1 Services. JM shall provide such strategic, management, and financial services to MDSC as may be mutually agreed, which can include advising and assisting MDSC in developing budgets, business and operating plans, staffing requirements, clinical protocols, relationships with clinical test sites and contract research organization, regulatory process, analysis of competing technologies and potential technology, acquisitions, marketing strategies, strategic alliances, including the negotiation process, with potential Licensees, Assignees and Transferees and other strategic transactions; present MDSC's technology/products to venture groups, individual investors, investment bankers, VCs and others, as required. Unless mutually agreed to otherwise, JM will be dedicated to fulfilling these responsibilities on a full-time basis 2 The Term: The initial Term to be effective on August 1, 2004 and conclude on September 31, 2005 unless otherwise extended by Board of Director approval. upon review of JM performance hereunder. and recommendation by COO Michael Engelhart. 3 Compensation. In full and complete consideration of the Services by JM, MDSC agrees to pay JM a monthly fee (executed on the 15th day of each month) of $4,166 effective August 1, 2004 subject to a good faith re-appraisal upon 1. a successful next round financing and 2. the accomplishment of the CUNY project EXHIBIT A Additionally, MDSC herein grants JM a n option, effective August1, 2004, to purchase three hundred thousand (300,000) shares of MDSC restricted per SEC rule 14 common stock at one dollar fifty cents($.1.50) per share. 2 4. Expenses. MDSC shall reimburse JM, when billed, for any out-of pocket expenses that JM might incur in the performance of services hereunder. 5. Indemnification. MDSC agrees to indemnify and hold harmless JM from and against any claims, liabilities, judgements, penalties and costs incurred as a party to any litigation or other proceeding, which may arise relating to or as a result of this Agreement. 5 Independent Contractor. Each party is an independent contractor of the other and shall not be deemed to be an employee, partner, agent or joint venturer of the other for any purpose. 4 Taxes: It is understood that payments to for services rendered will be made in - ------- full at the rate agreed, without any deductions for taxes of any kind whatsoever, this being in conformity with your non-employee status. It is understood that any taxes that may be due and payable as a result of payments herein specified by MDSC to you will be entirely your responsibility. It is understood that, as part of this Agreement, you undertake to pay all taxes to which you may be liable on such payments when due. 5 Patent Rights/ Intellectual property: You will promptly disclose to MDSC any - --------------------------------------- invention arising from your work under this agreement. MDSC will be the exclusive owner of any such invention and you will execute such documents and take such appropriate action (at MDC's expense) as may be necessary or appropriate to establish such ownership and to Assist MDC in obtaining patents thereon in the United States and/or foreign countries 6 Publication: You must obtain MDSC's prior approval for any publication - -------------- relating to your work under this Agreement, or to information disclosed to you by MDSC in connection with this Agreement, both as to the content and time of publication. 7 Confidentiality: You will not use, other than in the course of your - ------------------ consultatntship or disclose to third parties, any confidential information of MDSC which is furnished or acquired by you in the course of work under this Agreement. All reports, documents and any other materials or data loaned to you for purposes of performing your work are the property of MDSC, and must be retuned at the earlier of the expiration of this Agreement or upon MDSC's request. 8 Modification: No term or provision of this Agreement may be changed or - --------------- modified except in writing signed by both parties. Oral changes or modifications will not be binding, 10 Termination. The parties agree that this Agreement may be terminated by Mediscience Technology at its sole discretion subject to 30 days written notice to JM to his principal address at 215 Long Hill Drive, Short Hills, New Jersey 07078 11 Miscellaneous. 1 This Agreement shall be governed and construed in accordance with the laws of the State of New York and the parties hereto agree to submit any dispute whatsoever to the New York City office of the American Arbitration association for full, final and bind9ing resolution any dispute hereunder. 3 2 This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument 3. This Agreement constitutes the entire agreement between the parties, and supersedes all prior oral and written proposals or agreements . 4 Any provision of this Agreement which is held to be void or unenforceable shall be deemed severable from the remainder of the Agreement and shall not affect, in any manner, the validity or the enforceability of the other provisions hereof 5 This Agreement can not be assigned by a party without the written consent of the other party. 6. A failure of either party to assert any rights under this Agreement shall not constitute a waiver of such rights, at that time or in the future. 7. This Agreement may be amended, supplemented, or modified only by a writing signed by both parties 8. The individuals signing on behalf of their respective companies represent that they are duly authorized to do so. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. This agreement is entered into pursuant to Board of Director authority wherein John Matheu recused as a present member Mediscience Technology Corp. John Matheu By: /s/ Peter Katevatis By: /s/John Matheu ---------------------------- -------------- Peter Katevatis Chairman/CEO John Matheu Date: Date: --------------------------- -------------------------- 4 EX-10.5 7 ex10-5.txt Exhibit 10.5 EMPLOYMENT AGREEMENT -------------------- This is an Employment Agreement ("Agreement") between Mediscience Technology Corp., a New Jersey corporation (the "Company"), and Peter Katevatis (the "Employee") dated on this 15th day of March1992. RECITALS -------- WHEREAS, the Company and its Board of Directors have determined that it is to the advantage and interest of the Company to avail itself of the services and expertise of the Employee; and WHEREAS, the parties hereto desire by this Agreement to provide for the employment of the Employee by the Company as its Chief Executive Officer and President; NOW, THEREFORE, in consideration of the mutual covenants contained herein, and intending to be legally bound hereby, the Company and the Employee agree as follows; 1. Employment; Duties: Authority. Effective the date first above written, ------------------------------ the Company shall employ the Employee, and the Employee shall serve in the position of Chief Executive Officer and President of the Company, subject to the provisions of this Agreement. In such capacities, the Employee shall generally administer the business of the Company. In the performance of his duties hereunder, the Employee shall have the authority to enter into contracts and incur obligations on behalf of the Company, to order the disbursement of funds in payment thereof, and to take such other actions as may be in furtherance of the administration of the Company's business. In addition, the Employee shall have the authority to make any and all decisions, relating to the hiring or dismissing of any or all employees of the Company and to make any and all decisions relating to the engaging or terminating of any and all outside consultants and professional advisors, such as, but not limited to, accountants, lawyers and investment counsel. 2. Term. Subject to the provisions for termination as hereinafter ---- provided, the term of this Agreement shall be five (5) years, commencing on the date hereof and terminating on the fifth anniversary date of the date hereof. 3. Extent of Services. The Employee shall devote substantially all of his ------------------ time and energies to the Company's business, but it is understood that the Employee's duties shall not require him to render his entire business time and attention to the performance of his duties hereunder, and the Employee may engage in other business activities, including, but not limited to, services that may be rendered to third parties' in his capacity as an attorney, or in other consulting capacities, provided that the pursuit of such other business activities does not materially impair the performance by the Employee of his duties as Chief Executive Officer and President of the Company. With the exception of those obligations to which the Employee is subject as of the date of this Agreement, the Employee shall not, during the term of his employment by the Company hereunder, directly or indirectly, either as principal, agent, stockholder, or in any other capacity, engage in any enterprise or business which is in competition with the business of the Company as now or hereafter conducted. For purposes hereof, a business will be deemed in competition if it involves the rendering of medical services or the research, development, marketing and/or manufacture of medical devices or equipment or such other activities that may be the same as, or substantially similar to those, pursued by the Company. The Employee expressly agrees that upon a breach or violation of this paragraph, the Company, in addition to all other remedies, shall have the right to injunctive relief. Any fees or honorarium received by the Employee for his professional services, or other business activities engaged in by the Employee outside the scope of his duties herein, shall constitute the sole property of the Employee. 4. Compensation. ------------ (a) As compensation for services rendered by the Employee under this Agreement, from and after the date hereof the Company shall pay the Employee a base salary of not less than One Hundred and Ninety Thousand ($190,000) Dollars per annum, payable in such installments, not less frequently than monthly, as may be determined by the Board of Directors of the Company. (b) The Employee's base salary shall be increased annually. Such increase shall be based upon such criteria as increases in the Consumer Price Index and the Employee's contribution to the successful operation of the Company, but in no case shall any annual increase be less than six (6%) percent of the Employee's base salary for the year immediately preceding such increase. Any such increase shall become effective on January 15 of each respective year of employment. (c) In addition to his base salary hereunder, the Employee shall be paid annually a bonus ("Annual Bonus") in an amount to be determined in accordance with a formula to be mutually agreed upon by the Employee and the Board of Directors of the Company. Any payments required under this paragraph shall be made within sixty (60) days of January 15 of each respective year of employment. Advances against the bonus may be paid periodically during the year at the discretion of the Board of Directors of the Company. (c) The Company believes that it is necessary for the proper performance of the Employee's responsibilities that he have use of an automobile and shall, at its own option, either lease or purchase an automobile for the Employee's use at an annual cost to the Company of Twelve Thousand ($12,000) Dollars per year plus any deposits necessary to initiate such a lease or consummate such a purchase. In addition, the Company shall either pay for or reimburse the Employee for the cost of parking, insurance, maintenance and repair on said automobile and the costs of operating the automobile in the performance of his duties herein. (d) The Company believes that it is necessary for the proper performance of the Employee's responsibilities that he retain membership in an appropriate club to be used by him for business purposes and shall reimburse the Employee for the annual membership dues in such a club. (e) Should the Employee in his discretion employ personal legal counsel in connection with the drafting or subsequent interpretation and/or implementation of this Agreement, the Company shall reimburse him the reasonable fees and expenses incurred by him. (f) Should the Employee in his discretion require personal legal counsel in connection with the performance of his duties hereunder, the Company shall provide the Employee with the services of the Company's counsel at the Company's expense or, if desired by the Employee, the Company employ outside counsel of the Employee's choice, and the Company shall reimburse the Employee for the reasonable fees and expenses incurred by him to employ outside counsel of his choice. 6. Vacations: Holidays. The Employee shall be entitled to an annual paid -------------------- vacation of six (6) weeks during each fiscal year of the Company. In addition, the Employee shall receive those holidays which have been traditionally observed by other executive officers of the Company. Further, the Employee shall be entitled to such number of days absence each year due to sickness or personal reasons as provided in the Company's benefits plan as may be in effect for executive officers. 8. Termination. ----------- (a) Termination with Cause. The Company may terminate the Employee's employment hereunder with cause, provided that the Company must deliver to the Employee at least ninety (90) days' advance written notice of its intention to so terminate this Agreement, specifying in reasonable detail the cause for termination and the intended termination date. For purposes hereof, the term "with cause" shall mean: (ii) chronic alcoholism or drug addition and which does, in fact, adversely and directly affect the business of the Company and which remains uncured for a period of ninety (90) days after written notice to the Employee of actions detrimental to the Company; (ii) conviction of a felony involving moral turpitude relating to the business of the Company and which does, in fact, adversely and directly affect the business of the Company; (iii) the adjudication by a court of competent jurisdiction that the Employee has committed any acts of fraud or dishonesty resulting or intended to result directly or indirectly in personal enrichment at the expense of the Company. Upon the termination of the Employee's employment as provided herein, he shall have no further obligations under this Agreement and the Company's sole obligation under this Agreement shall be to pay to the Employee the full amounts of his base salary, accrued bonus, and unreimbursed expenses, if any, for the period through and including the date of termination only. Any payments required by this paragraph shall be made within sixty (60) days of the date of termination. (b) Termination without Cause, (i) The Company may terminate the ---------------------------- Employee's employment at any time upon sixty (60) days written notice to the Employee specifying the intended date of termination. For the purposes of this subparagraph 8(b)(i) "termination" shall not include non-renewal of this Agreement upon the expiration of the term herein; (ii) in the event of the termination of the Employee's employment pursuant to subparagraphs 8(b)(i) above, the Employee shall have no further obligations to the Company under this Agreement and the Company shall have no further obligations to the Employee, except to pay to the Employee all unreimbursed expenses for the period up to the termination date; one hundred (100%) percent of his base salary for the balance of the term of this Agreement, as if this Agreement had not been terminated; and two hundred (200%) percent of his annual bonus as paid for the most recently ended fiscal year. For example, if the Employee's employment was terminated without cause pursuant to this Section 8(b) effective on the second anniversary of this Agreement, the Company would be required to pay to the Employee an amount equal to his unreimbursed expenses through the termination date, ^Jas his base salary for the third, fourth and fifth years of the term of this Agreement, plus 200% of his bonus from the most recently ended fiscal year. In determining the Employee's base salary for purposes of this subparagraph 8(b)(ii), the Employee's base salary shall be that base salary in effect on the date before his termination of employment. All payments required by this paragraph shall be made within sixty (60) days of the date of termination. (c) Termination by the Employee. This Agreement may be terminated at any --------------------------- time by the Employee upon sixty (60) days written notice to this Company. In the event os such termination neither the Employee nor the Company shall have any further obligations under this Agreement, except the Company shall pay to the Employee the full amounts of his base salary and unreimbursed expenses, if any, for the period up to the date of termination. Any payments required by this paragraph shall be made within sixty (60) days of the date of termination. 9. Death. In the event of the death of the Employee during the term of ----- this Agreement, this Agreement shall terminate effective as of the date of the Employee's death and the Company shall pay the Employee's personal representative or nominee the unpaid compensation, including base salary and accrued, but unreimbursed expenses due the Employee through the last day of the month following the month in which his death shall have occurred. All payments pursuant to this paragraph shall be made by the Company within sixty (60) days of the date of Employee's death. 10. Sickness; Accident. In the event that the employee is unable to ------------------- perform the full-time duties of his employment by reason of accident or sickness, and has used all of his accumulated sick days and personal days, the Company shall continue to pay the Employee his full compensation herein during such period of his disability, not to exceed, however, one hundred eighty (180) days from the commencement of such disability. Successive periods of disability of the Employee's failure to perform his full-time duties on account of accident or sickness shall be considered separate periods. Notwithstanding anything in this paragraph to the contrary, the Company shall deduct from the amount otherwise payable hereunder that amount which becomes payable to the Employee pursuant to any disability income insurance contract, the premiums for which have been paid by the Company. 11. Indemnification. The Company shall indemnify and hold harmless the --------------- Employee against expenses, judgments, fines and amounts paid in settlement (collectively "Losses") incurred in connection with the performance of his duties hereunder. Any payments required by this paragraph shall be made within sixty (60) days of the date on which the Employee shall have incurred the underlying Losses giving rise to such obligation. 12. Conversion of Unpaid Obligations. In the event that the Company is ---------------------------------- unable to make payment in full to the Employee of any of its obligations hereunder as they become due, including particularly but without limiting thereto, any obligation upon termination of the Employee's employment or to indemnify the Employee, such obligations shall be converted to a note bearing interest at the prime rate of Chase Manhattan Bank as published in the Wall Street Journal on the day such obligations becomes due. Such note shall require equal quarterly payments of interest and principal such that the obligations is paid in full one (1) year from its original due date. 13. Notices. Any notice or other communication required or permitted ------- hereunder shall be in writing and shall be delivered personally, or telegraphed, telexed, sent by facsimile transmission, sent by certified, registered or express mail, postage prepaid, or by reputable air courier. Any such notice shall be deemed given when so delivered personally, telegraphed, telexed or sent by facsimile transmission or, if mailed, two days after the date of deposit in the United States mail or, if sent by courier, one day after the date of deposit with such courier, addressed as follows: If to the Company, addressed to: Mediscience Technology Corp. 1235 Folkestone Way Cherry Hill, New Jersey 08034 with a copy to: Kaufmann Gildin & Carlin 777 Third Avenue New York, New York 10017 If to Employee, addressed to: Mr. Peter Katevatis 1235 Folkestone Way Cherry Hill, New Jersey 08034 Any party may change its address for notice hereunder by notice to the other party hereto. 14. Assignability. This Agreement shall not be assignable by either party ------------- hereto without the prior written consent of the other party, and any such purported assignment shall be void at initio: provided, however, that Executive ------ may not unreasonably withhold his consent to such assignment by the Company. 15. Arbitration. At the option of the Employee, any disputes arising under ----------- or related to this Agreement shall be determined exclusively by arbitration before the American Arbitration Association ("AAA") in Philadelphia, Pennsylvania, or another location mutually agreed upon, and shall be conducted in accordance with the Commercial Rules of the AAA then in effect. 16. Governing Law. The parties agree that this Agreement shall be -------------- construed and governed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such state. 17. Binding Effect. This Agreement shall be binding upon and inure to the -------------- benefit of the parties hereto and their respective heirs, legal representatives, executors, administrators, successors and assigns, subject to the limitations on assignment referred to in Section 6.2 hereof. 18. Counterparts. This Agreement may be executed simultaneously in one or ------------ more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 19. Entire Agreement. This Agreement represents the entire agreement and ---------------- understanding of the parties hereto with respect to the matters set forth herein, this Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties, written or oral, relating to the subject matter of this Agreement This Agreement may be amended, superseded, canceled, renewed, or extended and the terms hereof may be waived, only by a written instrument signed by the parties hereto or, in the case of a waiver, by the party waiving compliance. 20. Waivers. No delay on the part of any party in exercising any right, ------- power or privilege hereunder shall operate as a waiver thereof. Nor shall any waiver on the part of any party of any such right, power or privilege hereunder, nor any single pr partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 21. Headings. The headings in this Agreement are inserted for convenience -------- only and are not to be considered in the interpretation or construction of the provisions hereof. IN WITNESS WHEREOF, the Company and Employee have signed this Agreement as of the day and year written above. MEDISCIENCE TECHNOLOGY CORP. /s/ Winston Frost ------------------------------- Winston Frost /s/ Peter Katevatis ------------------- Peter Katevatis EX-10.13 8 ex10-13.txt Exhibit 10.13 THIS LEASE AGREEMENT (hereinafter referred to as the "Agreement") made and entered into this 25th day of July 2002, by and between Peter Katevatis of 1235 Folkstone Way, Cherry Hill NJ_(Lessor)_and MediscienceTechnoIogyCorp. (Lessee), a New Jersey Publicly trading Corporation (MDSC-BB) WITNESSETH: WHEREAS, Lessor is the fee owner of certain real property being, lying and situate in Camden County, such real property having a streetaddressoi235FolkstoneWay Cherry Hill New Jersey. WHEREAS, Lessor is desirous of leasing the Premises to Lessee upon the terms and conditions as contained herein; and WHEREAS, Lessee is desirous of leasing the Premises from Lessor on the terms and conditions as contained herein; and WHEREAS, the parties acknowledge this document as an confirmation of the past and present existing lease understanding that is and has been in place between the parties for the last 10 years, properly audited and reported as such in each of lessees, (Mediscience Technology Corp.) SEC corporate 10-K filings-- incorporated herein by reference (see EDGAR SEC filings) NOW, THEREFORE, for and in consideration of the covenants and obligations contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto intending to be bound under New Jersey Law hereby agree as follows: 1. TERM. Lessor leases to Lessee and Lessee leases from Lessor the above described Premises together with any and all appurtenances thereto, for a term: MONTH TO MONTH. 2. RENT. The total rent for the term hereof is the total unqualified assumption by Lessee Mediscience Technology Corp. of all Taxes, Maintenance, Insurance, Utilities and required repairs of whatsoever nature to the property 1235 Foikstone Way Cherry Hill NJ. 4. USE OF PREMISES. The Premises has been, is and shall continue to be used and occupied by Lessee as its corporate offices, reported as such in all Mediscience Corporate SEC filings, including New Jersey NOL program documentation, (funding source) 5. CONDITION OF PREMISES. Lessee stipulates, represents and warrants that Lessee has examined the Premises, and that they are at the time of this Lease in good order, repair, and in a safe, clean and tenantable condition. 6 UTILITIES. Lessee shall be responsible for arranging for and paying for all utility sen/ices required on the Premises. 7 MAINTENANCE AND REPAIR; RULES. Lessee will, at its sole expense, keep and maintain the Premises and appurtenances in good and sanitary condition and repair during the term of this Agreement and any renewal thereof. Without limiting the generality of the foregoing, Lessee shall: (b) Keep all windows, glass, window coverings, doors, locks and hardware in good, clean order and repair; (g) Keep and maintain all air conditioning operational (h) Keep all lavatories, sinks, toilets, and all other water, sewage and plumbing apparatus in good order and repair. Any damage to any such apparatus and the cost of repairing and maintaining plumbing capability shall be borne by Lessee; 8. DAMAGE TO PREMISES, in the event the Premises are destroyed or rendered wholly un-tenantable by fire, storm, earthquake, or other casualty not caused by the negligence of Lessee, this Agreement shall terminate from such time except for the purpose of enforcing rights that may have then accrued hereunder. The rental obligations provided for herein shall then be accounted for by and between Lessor and Lessee up to the time of such injury or destruction of the Premises 9. SURRENDER OF PREMISES. Upon the expiration of the term hereof, Lessee shall surrender the Premises in as good a state and condition as they were at the commencement of this Agreement, reasonable use and wear and tear thereof and damages by the elements excepted 10. DEFAULT. If Lessee fails to comply with any of the material provisions of this Agreement and the default continues for seven (7) days thereafter, Lessor may, at Lessor's option, exercise any and all rights and remedies available to Lessor at law or in equity or may immediately terminate this Agreement, 11. GOVERNING LAW. This Agreement shall be governed, construed and interpreted by, through and under the Laws of the State of New Jersey. 12. SEVERABILITY. If any provision of this Agreement or the application thereof shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Agreement nor the application of the provision to other persons, entities or circumstances shall be affected thereby, but instead shal! be enforced to the maximum extent permitted by law. 13 BINDING EFFECT. The covenants, obligations and conditions herein contained shall be binding on and inure to the benefit of the heirs, legal representatives, and assigns of the parties hereto. 25. 13 CONSTRUCTION. The pronouns used herein shall include, where appropriate, either gender or both, singular and plural. 14 NON-WAIVER. No indulgence, waiver, election or non-election by Lessor under this Agreement shall affect Lessee's duties and liabilities hereunder. 15 MODIFICATION, The parties hereby agree that this document contains be modified, changed, altered or amended tn any way except through a written amendment signed by all of the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement on and as of the date first above written. July 25, 2002 PETER KATEVATIS ESQ.CHAIRMAN/CEO Lessor /s/ Peter Katevatis --------------- Peter Katevatis JOHN M. KENNEDY VICE Pres. DIRECTOR for Mediscience Technology Corp. Lessee /s/ John Kennedy ------------ John Kennedy JOHN MATHEU, DIRECTOR for Mediscience Technology Corp. Lessee /s/ John Matheu ----------- John Matheu WILLIAM ARMSTRONG, DIRECTOR for Mediscience Technology Cop. Lessee /s/ William Armstrong ----------------- William Armstrong for /s/ Sidney Braginsky ---------------- Sidney Braginsky SIDNEY BRAGINSKY, PRlES/COO, DIRECTOR Mediscience Technology Corp. Lessee EX-21 9 ex21.txt Exhibit 21 Subsidiaries
Name State of Incorporation or Formation ---- ----------------------------------- Phototonics for Woman's Oncology LLC (inactive) Delaware Pro-screen, LLC (inactive) Delaware Medi-Photonics Development L.L.C. New York Laser Diagnostics Instruments, Inc. New York
EX-23.1 10 ex23-1.txt Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We hereby consent to the use in this Registration Statement on Pre-Effective Amendment No. 1 to Form S-3 on Form SB-2 of our report dated May 4, 2004 relating to the consolidated financial statements of Mediscience Technology Corp., which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ Parente Randolph, LLC Philadelphia, Pennsylvania December 21, 2004 -----END PRIVACY-ENHANCED MESSAGE-----