-----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, ChP5m+2trNfsbG8+zQi5waw0A0e1sKzewWWYZ5F4Zt35JEHmgXAbFRrQwzz3FFxX fmiZOo3VSTjj4mFFsa2C9A== 0000914317-05-003151.txt : 20051018 0000914317-05-003151.hdr.sgml : 20051018 20051018085016 ACCESSION NUMBER: 0000914317-05-003151 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050831 FILED AS OF DATE: 20051018 DATE AS OF CHANGE: 20051018 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-07405 FILM NUMBER: 051142040 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 10QSB 1 form10qsb-71167_medscience.txt FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended August 31, 2005 Commission File Number 0-7405 MEDISCIENCE TECHNOLOGY CORP. ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Certificate of Incorporation) ------------------------------------------------------------------------------- New Jersey (State or other jurisdiction on incorporation or organization) ------------------------------------------------------------------------------- 22-1937826 (I.R.S. Employer Identification Number) ------------------------------------------------------------------------------- 1235 Folkestone Way, Cherry Hill, New Jersey 08034 (Address of principal executive offices) (Registrant's telephone number, including area code) 856-428-7952 ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Registrant has not been involved in bankruptcy proceedings during the preceding five years. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 31, 2005. Title of Class Number of Shares Outstanding -------------- ---------------------------- Common Stock, par value $.01 per share 58,776,354
MEDISCIENCE TECHNOLOGY CORP. ---------------------------- AUGUST 31, 2005 --------------- INDEX ----- PAGE ---- PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheet as of August 31, 2005 (Unaudited) and February 28, 2005 (Audited) 1 Consolidated Statement of Operations for the Six and Three Months Ended August 31, 2005 (Unaudited) and August 31, 2004 (Unaudited) 2 Consolidated Statement of Changes in Stockholders' Deficit for the Six Months Ended August 31, 2005 (Unaudited) 3 Consolidated Statement of Cash Flows for the Six Months Ended August 31, 2005 (Unaudited) and August 31, 2004 (Unaudited) 4 Exhibit to Consolidated Statement of Operations 5 Notes to Financial Statements 6-14 Item 2. Management's Discussion and Analysis and Plan of Operation 15-19 Item 3. Controls and Procedures 20-21 PART II. Other Information 22 Item 1. Legal Proceedings Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures 23 Exhibit Index 24 Exhibit 25-27
MEDISCIENCE TECHNOLOGY CORP. CONSOLIDATED BALANCE SHEET ASSETS August 31, February 28, 2005 2005 (Unaudited) (Audited) ------------ ------------ CURRENT ASSETS - -------------- Cash and Cash Equivalents $ 506,394 $ 934,212 Other Receivables 167 -- Prepaid Expenses 3,785 3,848 ------------ ------------ Total Current Assets 510,346 938,060 PROPERTY, PLANT AND EQUIPMENT - ----------------------------- Net of accumulated depreciation $204,858 - August 31, 2005; $204,6161 - February 28, 2005 2,464 637 OTHER ASSETS - Security Deposit 1,800 1,800 - ------------ - Deferred Costs 1,468,396 1,453,834 ------------ ------------ TOTAL ASSETS $ 1,983,006 $ 2,394,331 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- CURRENT LIABILITIES - ------------------- Current Portion of Officer and Other Loans $ -- $ 31,542 Accounts Payable 29,252 93,504 Accrued Liabilities 2,912,447 2,992,911 ------------ ------------ Total Current Liabilities 2,941,699 3,117,957 ------------ ------------ STOCKHOLDERS' DEFICIT - --------------------- Convertible Preferred Stock, $.01 Par Value, 50,000 Shares Authorized; Issued and Outstanding -0- Shares - August 31, 2005; -0- Shares - February 28, 2005 -- -- Common Stock $.01 Par Value, Authorized 199,950,000 Shares; Issued and Outstanding Shares - 58,776,354 Shares August 31, 2005; 56,124,210 Shares - February 28, 2005 587,764 561,243 Additional Paid-in Capital 24,344,888 23,217,702 Common Stock Subscribed -- 250,000 Accumulated Deficit (25,891,345) (24,752,571) ------------ ------------ Total Stockholders' Deficit (958,693) (723,626) ------------ ------------ TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 1,983,006 $ 2,394,331 - ----------------------------------------- ============ ============
See Notes to Consolidated Financial Statements. - 1 - MEDISCIENCE TECHNOLOGY CORP. ---------------------------- CONSOLIDATED STATEMENT OF OPERATIONS ------------------------------------ FOR THE SIX AND THREE MONTHS ENDED AUGUST 31, 2005 AND 2004 ----------------------------------------------------------- (UNAUDITED) -----------
SIX MONTHS THREE MONTHS ---------- ------------ 2005 2004 2005 2004 ---- ---- ---- ---- Net Sales $ -- $ -- $ -- $ -- Cost of Sales -- -- -- -- ------------ ------------ ------------ ------------ Gross Profit -- -- -- -- General and Administrative Expense 904,728 812,308 472,282 472,528 Product Development Expense 207,310 215,585 127,591 99,429 Debt Conversion Inducement Expense -- 58,555 -- -- Advertising, Travel and Marketing 34,843 37,222 13,175 16,272 ------------ ------------ ------------ ------------ Total Expenses 1,146,881 1,123,670 613,048 588,229 ------------ ------------ ------------ ------------ Other Income 8,107 2,500 4,027 1,136 ------------ ------------ ------------ ------------ Net Loss $ (1,138,774) $ (1,121,170) $ (609,021) $ (587,093) ============ ============ ============ ============ Basic and Diluted Loss Per Common Share $ (0.02) $ (0.02) $ (0.01) $ (0.01) ============ ============ ============ ============ Weighted Average Common Shares Outstanding 58,561,687 51,246,242 58,776,354 51,606,480 ============ ============ ============ ============
See Notes to Consolidated Financial Statements. - 2 -
MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARIES --------------------------------------------- CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT ---------------------------------------------------------- FOR THE SIX MONTHS ENDED AUGUST 31, 2005 ---------------------------------------- (UNAUDITED) ----------- Preferred Stock Common Stock Additional Common Accumulated --------------- ------------ ---------- ------ ----------- Shares Amount Shares Amount Paid-In Stock Deficit ------ ------ ------ ------ ------- ----- ------- Capital Subscribed ------- ---------- BALANCE, FEBRUARY 28, 2005 -- $ -- 56,124,210 $ 561,243 $23,217,702 $ 250,000 $(24,752,571) Issuance of Stock for Future Consulting Services 811,000 8,110 516,930 Issuance of Stock - Anti-dilution Rights 583,810 5,838 (5,838) Issuance of Stock - Debt Conversion 7,334 73 3,594 Issuance of Stock for Cash 750,000 7,500 367,500 Issuance of Stock - Previously Subscribed 500,000 5,000 245,000 (250,000) Net Loss (1,138,774) ----------- ----------- ----------- ----------- ----------- ----------- ------------ BALANCE, AUGUST 31, 2005 -- $ -- 58,776,354 $ 587,764 $24,344,888 $ -- $(25,891,345) =========== =========== =========== =========== =========== =========== ============ See Notes to Consolidated Financial Statements. - 3 -
MEDISCIENCE TECHNOLOGY CORP. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED AUGUST 31, 2005 AND 2004 (UNAUDITED)
2005 2004 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES - ------------------------------------ Net Loss $(1,138,774) $(1,121,170) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: Depreciation 243 128 Amortization of Deferred Costs 510,478 286,833 Debt Conversion Inducement Expense -- 58,555 Issuance of Common Stock for Services -- 32,778 ----------- ----------- Subtotal (628,053) (742,876) Changes in Assets and Liabilities: (Increase) in Other Receivables (167) -- Decrease in Prepaid Expenses 63 (363) (Decrease) Increase in Accounts Payable (64,252) (13,107) (Decrease) Increase in Accrued Liabilities (76,797) (276,879) ----------- ----------- Net Cash Used in Operating Activities (769,206) (1,033,225) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------ Acquisition of Equipment (2,070) -- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------ Proceeds From Issuance of Common Stock 375,000 -- Decrease in Officer Loans (31,542) -- ----------- ----------- Net Cash Provided by Financing Activities 343,458 -- ----------- ----------- DECREASE IN CASH AND CASH EQUIVALENTS (427,818) (1,033,225) - ------------------------------------- CASH AND CASH EQUIVALENTS - ------------------------- Beginning Balance 934,212 1,406,371 ----------- ----------- Ending Balance $ 506,394 $ 373,146 =========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING - ------------------------------------------- ACTIVITIES: ---------- Common Stock Issued for Future Services $ 525,040 $ 1,428,250 =========== =========== Common Stock Issued - Anti - Diluting Rights $ 5,838 $ 28,734 =========== =========== Common Stock Issued - Previously Subscribed $ 250,000 $ -- =========== =========== Common Stock Issued - Cancellation of Debt $ 3,667 $ 244,070 =========== ===========
See Notes to Consolidated Financial Statements. - 4 - EXHIBIT TO CONSOLIDATED STATEMENT OF OPERATIONS WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (UNAUDITED) -----------
Six Months Ended August 31, 2005 --------------------------------------- Weighted Net Average Shares Per Share Loss Outstanding Amount ---- ----------- ------ Basic/diluted loss per common share: Net Loss $(1,138,774) 58,561,687 $ (0.02) Effect of dilutive securities -- -- -- ----------- ----------- ----------- Total $(1,138,774) 58,561,687 $ (0.02) =========== =========== =========== 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) =========== =========== =========== Three Months Ended August 31, 2005 --------------------------------------- Basic/diluted loss per common share: Net Loss $ (609,021) 58,776,354 $ (0.01) =========== =========== =========== Effect of dilutive securities -- -- ----------- ----------- ----------- Total $ (609,021) 58,776,354 $ (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) =========== =========== ===========
See Notes to Consolidated Financial Statements. - 5 - Notes to Consolidated Financial Statements (Unaudited) ----------- 1. Management Plans and Going Concern Matters Mediscience Technology Corp. and Subsidiaries (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 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 Mediscience Technology Corp. ("Mediscience") 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. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements as of and for the six month periods ended August 31, 2005 and 2004 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission. Certain financial information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. 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 - 6 - 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 2006. At August 31, 2005, the Company had an incentive stock option plan for officers and employees. 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. There were no options granted during the quarter ended August 31, 2005. 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.
Six Months Ended Three Months Ended August 31, August 31, -------------------------- -------------------------- 2005 2004 2005 2004 ---- ---- ---- ---- Net loss, as reported $(1,138,774) $(1,121,170) $ (609,021) $ (587,093) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects -- -- -- -- ----------- ----------- ----------- ----------- Pro forma net loss $(1,138,774) $(1,121,170) $ (609,021) $ (587,093) =========== =========== =========== =========== Basic and Diluted Loss per share: As reported $ (0.02) $ (0.02) $ (0.01) $ (0.01) =========== =========== =========== =========== Pro forma $ (0.02) $ (0.02) $ (0.01) $ (0.01) =========== =========== =========== ===========
Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R)), "Share- Based Payment," which requires companies to measure and recognize compensation expense for all stock- based payments at fair value. SFAS 123(R)) is effective at the beginning of their next fiscal year after December 15, 2005 for a small business issuer and, thus, will be effective for the Company beginning with the first quarter of fiscal 2007. - 7 - The Company is currently evaluating the impact of adopting SFAS 123(R)) but does not expect to have a material impact on its results of operations or its financial condition. 4. Deferred Costs During the six months ended August 31, 2005, the Company issued 811,000 fully vested restricted shares of its common stock at a value between $.55 to $.68 per share (the closing price of the Company's common stock on the date of issuance) amounting to $525,040 to three consulting groups in exchange for services to be rendered, over a period of 6 - 12 months, for matters such as public relations, marketing opportunities, product development and research and corporate funding. These costs have been capitalized and will be recognized on a straight- line basis over the life of the agreements. Expected future amortization of all deferred costs is as follows: Six Months Ending February 28, 2006 $ 448,097 Year Ending February 28, 2007 390,612 Year Ending February 29, 2008 378,320 Year Ending February 28, 2009 150,820 Year Ending February 28, 2010 100,547 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. 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. 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 (Note 8). In connection with the inducement offer and related conversion, the Company recognized an expense of $58,555 during the six-month period ended August 31, 2004. In November 2004, the Company entered into a $200,000 promissory note agreement with the Trust. The agreement provides for interest at 11% and a maturity date of November 18, 2006. Accrued interest is due and payable on January 15, 2005, January 15, 2006 and the maturity date. After the maturity date, unpaid principal and accrued interest on the promissory note bear interest at 15%. In November and December 2004, the Company entered into promissory note agreements totaling $150,000 with two individuals. The agreement provides for interest at 5% and a maturity date of November 18, 2006. Accrued interest is due and payable on January 15, 2005, January 15, 2006 and the maturity date. After the maturity date, unpaid principal and accrued interest on the promissory note bear interest at 7%. In January 2005, the Trust and two individuals converted a total of $350,000 of promissory notes into 700,000 shares of the Company's common - 8 - stock. In March 2005, related accrued interest of $3,667 was converted into 7,334 shares of the Company's common stock. 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, 2005 and February 28, 2005, officer loans payable to Mr. Katevatis were, $-0- and $31,542 respectively. Legal services rendered by Mr. Katevatis amounted to $25,000 for the six months ended August 31, 2005 and August 31, 2004. 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 $11,579 and $6,944 for the six months ended August 31, 2005 and 2004, 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 $13,122 and $20,128 were accrued or paid to Mr. Engelhart for the six months ended August 31, 2005 and 2004, 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 28, ---------- ------------ 2005 2005 ---- ---- Legal and professional fees $ 210,424 $ 257,924 Consulting and university fees 1,207,915 1,220,415 Salaries and wages 1,408,833 1,412,333 Other 85,275 102,239 ---------- ---------- Total $2,912,447 $2,992,911 ========== ========== Included in legal and professional fees as of August 31, 2005 and February 28, 2005 is $62,500 and $57,500, respectively, for legal services rendered by Mr. Katevatis (Note 6). - 9 - Included in Consulting and University Fees as of August 31, 2005 and February 28, 2005 is $1,164,318 and $1,170,818, respectively, owed to Dr. Alfano (Note 8) with respect to his consulting agreement. Included in salaries and wages as of August 31, 2005 and February 28, 2005 is $1,406,333 and $1,406,333, respectively, owed to Mr. Katevatis with respect to his employment agreement. Included in salaries and wages as of August 31, 2005 and February 28, 2005 is $2,500 and $2,500, respectively, owed to Mr. Engelhart with respect to his employment agreement. - 10 - 8. Stockholders' Deficit Anti-Dilution Rights The Company 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 - 11 - 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, 2005, the Company issued 469,370 of common stock of the Company to Mr. Katevatis in connection with the anti-dilution rights and as of August 31, 2005. The Company is obligated to issue an additional 1,246 shares to Mr. Katevatis in connection with the anti-dilution rights. In connection with the issuance of these shares, the Company capitalized only the stock's par value from additional paid-in- capital because of the Company's accumulated deficit. 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, 2005, the Company issued 114,440 shares of common stock of the Company to Dr. Alfano in connection with the anti-dilution rights and as of August 31, 2005. It was subsequently discovered that 3,707 shares were issued in error and will be returned during the next fiscal quarter ended November 30, 2005. In connection with the issuance of these shares, the Company capitalized only the stock's par value from additional paid-in-capital because of the Company's accumulated deficit. Debt Conversion In March, 2005, related accrued interest of $3,667 was converted into 7,334 shares of the Company's common stock. 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 December 20, 2004. Common Stock Issued for Future Services - 12 - During March 2005, the Company issued 711,000 restricted shares of its common stock with a value of $470,040 to two consulting groups in exchange for services to be rendered over a period of 12 months. The transaction was recognized based on the fair value of the shares issued (Note 4). During April 2005, the Company issued 100,000 restricted shares of its common stock with a value of $55,000 to a consulting group in exchange for services to be rendered over a period of 6 months. The transaction was recognized based on the fair market value of the shares issued (Note 4). Common Stock Issued for Cash In connection with its private placement offering during the six months ended August 31, 2005, the Company issued 750,000 restricted shares of its common stock for cash proceeds of $375,000. In addition, the Company issued 500,000 restricted shares of its common stock that had been previously subscribed. In connection with the above issuances, the Company granted warrants to purchase 1,250,000 shares of common stock at $1.00 per share. The warrants expire in August 2007. Other In June 2005, 600,000 shares were issued in error to a consultant for future services along with 126,000 shares - 13 - issued as per the Company's anti-dilution agreement. The recipients acknowledge the error and are in the process of returning the shares to the Company. Outstanding shares as reported in the financial statements do not reflect these shares, which had been issued in error. 9. Stock Options and Warrants Stock Options ------------- Activity related to stock options during the six months ended August 31, 2005 is as follows:
Exercise Weighted -------- -------- Price Average ----- ------- Shares Range Exercise Price ------ ----- -------------- Outstanding, February 28, 2005 2,400,000 $ .25 - $ 2.00 $ 1.04 Granted -- Exercised -- Fortified -- ---------- Outstanding, August 31, 2005 2,400,000 $ .25 - $ 2.00 $ 1.04 ==========
Stock Warrants -------------- Activity related to stock warrants during the six months ended August 31, 2005 is as follows: Exercise -------- Shares Price ------ ----- Available Range --------- ----- Outstanding, February 28, 2005 3,500,000 $ .25 - $ 3.00 Granted 1,250,000 $ 1.00 Exercised -- Fortified -- --------- Outstanding, August 31, 2005 4,750,000 $ .25 - $ 3.00 ========= In connection with its private placement offering during the six months ended August 31, 2005, the Company granted warrants to purchase 1,250,000 shares of common stock at $1.00 per share. The warrants expire in August 2007. - 14 - Managements Discussion and Analysis ----------------------------------- Six Months Ending August 31, 2005 Compared to Six Months Ending August 31, 2004 ------------------------------------------------------------------------------- Revenues - -------- We had no revenues during our six months ending August 31, 2005 ("2006" fiscal year) and August 31, 2004 ("2005" fiscal year). Our primary focus was our continued development of our light-based technology. General and Administrative Expenses - ----------------------------------- General and administrative expenses increased approximately $92,000 or 11% during the current six month period ended August 31, 2005 as compared to our prior six month period ended August 31, 2004. This increase is net of both increases and decreases in key general and administrative expense categories. Included in the increase in general and administrative expenses is an increase in consulting costs approximating $164,000 during the current six month period when compared to the prior six month period. The above increase was partly comprised of approximately $409,000 of deferred costs amortized as an expense, as compared to approximately $286,000 of deferred costs amortized as an expense in the prior six month period, resulting in a net increase of $123,000. The increase in consulting costs was also comprised of approximately $41,000 in other consulting costs expended, all associated with corporate management, investor relations, marketing opportunities, product development and corporate funding. With the exception of consulting costs, all other general and administrative costs increased approximately $1,000 with very little variance between line items during the current six month period when compared to the prior year earlier period. Included in the decrease in general and administrative expenses is a decrease in professional fees approximating $24,000 during the current six month period when compared to the prior six month period. In the prior period, the Company had incurred additional professional fee costs as it was preparing for a Securities and Exchange Commission filing. Also included in the decrease in general and administrative expenses is a decrease in salaries, wages, secretarial assistance and fringe benefits approximating $46,000, during the current six month period when compared to the prior six month period. In the prior period, the Company had increased office and administrative activities approximating $21,000 and increased temporary salaries, wages and fringe benefits approximating $25,000. Debt Conversion Inducement Expense - ---------------------------------- The Company made an inducement offer to a creditor to convert all of its then outstanding notes. In March, 2004, the creditor accepted the offer to convert the principal amount of $150,045 plus related accrued 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 months ended August 31, 2004. No debt conversion inducement expense was recognized during the six months ended August 31, 2005. Advertising, Travel and Marketing - --------------------------------- Advertising, travel and marketing decreased approximately $2,400 or 6%. The Company continues to pursue 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. - 15 - Research and Development Expense - -------------------------------- Research and development expense decreased approximately $8,000 or 4% during the current six month period ended August 31, 2005 when compared to the prior six month period ended August 31, 2004. This decrease was comprised of the net decrease and increase in several key research and development expense categories. The principal reason for the decline in research costs was a decrease in funding to the Research Foundation City University of New York, approximating $116,000 in the current six month period when compared to the prior year six month period. In the prior year the Company committed to research funding approximating $300,000 through Medi-Photonics, the Company's wholly owned subsidiary to the Research Foundation City University of New York 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. Included as an increase in research and development expense is approximately $33,000 in outside consulting and patent related costs during the current six month period when compared to the year earlier period. Also included as an increase in research and development is approximately $75,000 of deferred costs amortized as an expense. The Company though its subsidiary Medi-Photonics entered into a collaborative research and development agreement with Infotonics Technology Center Inc., a consortium of founding participants such as Corning Inc., Eastman Kodak Company and Xerox Corporation. Infotonics and the Company will collaborate with one another in the conduct of a research program involving the development of commercially viable, miniature devices for the Company that will make use of ultraviolet light to diagnose the health of living tissue, remotely monitoring the health/status of various medical environments, e.g. the detection of various types of cancer and the monitoring of body functions. The period of research under this agreement will terminate upon completion of the research, currently estimated to be five years. As consideration for Infotonics to carry out the research, the Company issued to Infotonics 1,000,000 shares of its common stock, having a fair market value of $754,100. Liquidity and Capital Resources - ------------------------------- We had a deficiency in working capital as of August 31, 2005 of approximately $2,432,000 compared to a deficiency of approximately $2,180,000 at February 28, 2005 or an increase in the deficiency of approximately $252,000 for the current six month period ended August 31, 2005. The increase in the deficiency was comprised of a decrease of approximately $428,000 in current assets primarily composed of cash, as compared to a decrease of approximately $176,000 in current liabilities which was primarily composed of accrued liabilities and accounts payable. The deficiency in working capital is primarily represented by accruals for professional fees, consulting, salaries and wages and other general obligations. Cash flows from financing activities was a net increase approximating $343,000 for the six months ended August 31, 2005, which is primarily related to the proceeds from an ongoing private placement of common stock. The proceeds from the private placement will be primarily used for the clinical development of certain prototypes, regulatory, medical and scientific affairs, market research, and working capital. During the six months ended August 31, 2005, the Company refunded approximately $31,500 to an officer, who advanced it to the Company in a prior period. 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 assurances 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 - 16 - of sales revenues after detection 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 technology 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, - 17 - MANAGEMENT'S PLAN OF OPERATION ------------------------------ The Company is principally engaged in the design, development, marketing, and licensing of medical diagnostic instruments that detect cancer in humans through the utilization of ultra violet light. The Company uses UV light to excite molecules contained in human tissue. Once excited, the Company's device measures the differences in the resulting natural fluorescence between cancerous and normal tissue. The Company has successfully conducted certain preclinical and clinical evaluations, which support the belief that its proprietary technology, when fully developed, will have substantial commercial appeal due to its non-invasive character, point of care - real time results, and diagnostic sensitivity and specificity. The Company's strategy is to commercialize early developing technologies utilizing optical biopsy (fluorescent imaging) into medical devices for early detection and diagnostic in the areas of cervical, ex-vivo breast lumpectomy, esophagus, oral, colon and breast cancers. Mediscience Technology Corp. formed Mediphotonics Development Company, LLC, a New York limited liability company), to engage in the development, design and assembly of optical biopsy medical devices. Mediphotonics has proven engineering expertise and successful experience in the technical and business processes needed to develop and augment existing scientific approaches and technology into commercially viable medical devices. On September 8, 2004, Mediphotonics Development Company, LLC, our wholly owned subsidiary, entered into an agreement of intent to agree to jointly develop the "Compact Photonic Explorer" (CPE) or "pill camera", for medical and non-medical applications with Infotonics Technology Center, (a consortium of Corning, Inc., Eastman Kodak Company and Xerox Corporation). The parties' initial focus of the project is developing a Compact Photonic Explorer (CPE) or "smart pill". The CPE has a photonic sensor that uses ultraviolet (UV) light to remotely monitor the health of human tissue in various environments. The product is being designed to potentially take a biopsy of various areas through spectroscopy. The initial target of the CPE is to develop a "smart pill" that targets the diagnosis of various forms of cancer throughout the GI tract. During the first quarter of 2005, Mediphotonics commenced work in the detection of breast cancer in human milk ducts and detecting acceptable clear margins (no cancer) in lumps that are excised from human breast cavities. In December 2004, Mediphotonics and Research Foundation of City College of New York (RF-CUNY) have completed a prototype CD-GYN (Cancer Detection Gynecological) Ratiometer suitable for clinical trials. Mediscience Technology, with its FDA consulting firms, Schiff & Company has submitted documentation necessary to begin clinical trials and will be meeting with the FDA in mid-August. Critical Accounting Policies The preparation of financial statements requires management to make estimates and assumptions that affect amounts reported therein. The most significant of these involve the use of estimates. In each situation, management is required to make estimates about the effects of matters or future events that are inherently uncertain. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and, as such, include amounts based on informed estimates and judgements of management, such as: o Determining accruals and contingencies; - 18 - o Valuing options and other equity instruments; o Reviewing the realization/recoverability of deferred costs resulting from the issuance of common stock to acquire certain consulting services to be rendered in future periods. o Deferred tax valuation allowance. The Company used what it believes are reasonable assumptions where applicable, established valuation techniques in making its estimates. Actual results could differ from those estimates. - 19 - Item 3. Controls and Procedures ----------------------- Evaluation of disclosure controls and procedures Our chief executive officer and our chief financial officer, after evaluating the effectiveness of the Company's "disclosure controls and procedures" (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report (the "Evaluation Date"), have concluded that as of the Evaluation Date, our disclosure controls and procedures were not adequate and ineffective to ensure that material information relating to us and our consolidated subsidiaries would be made known to us by others within those entities. Internal controls over financial reporting In connection with their review of the Company's August 31, 2005 interim financial statements, the Company's independent registered public accounting firm identified certain material weaknesses and other deficiencies in our internal control. The Public Company Accounting Oversight Board, Standard No. 2 states a material weakness is "a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented of detected." The Company's independent registered public accounting firm identified the following material weaknesses in the Company's internal controls: 1. The Company does not have sufficient resources and therefore: a. is heavily dependent on external legal counsel and an accounting consultant for financial accounting and reporting functions and, b. lacks proper segregation of duties over the authorization and approval of transactions. 2. Insufficient analysis, documentation and review of the selection and application of generally accepted accounting principles of significant non-routine transactions, including the preparation of financial statement disclosures relating thereto. 3. The Company does not have sufficient internal control policies and procedures over reviewing formal vendor and other agreements. 4. The Company does not have a formal budgeting process and does not prepare written BOD and committee meeting minutes on a timely basis. 5. The Company has informal policies and procedures. In connection with the material control weaknesses discussed above, we have or expect to take the following actions: 1. The Company has and will continue to consult with external legal counsel prior to execution of material contracts and filings with the Securities and Exchange Commission. - 20 - 2. The Company has and will continue to consult with an accounting consultant and improve its analysis, documentation and review of the selection and application of generally accepted accounting principles to significant non-routine transactions, including the preparation of financing statement disclosures relating thereto. 3. Once adequate funding is obtained, the Company intends to hire a full time chief financial officer with requisite skills. At that point the Company will further remediate all of the above material control weaknesses. There were no significant changes in our internal controls or in other factors that could significantly affect the Company's disclosure controls and procedures, nor any significant deficiencies or material weaknesses in such disclosure controls and procedures requiring corrective actions other than the material control weaknesses discussed above. A control system, no matter how well-designed and operated, cannot provide absolute assurance that the objectives of the control systems are met, and no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. - 21 - PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings ----------------- None Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ----------------------------------------------------------- In June 2005, the Company issued 200,000 restricted shares of its common stock in continuance of its on-going private placement. Item 3. Defaults Upon Senior Securities ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- (A) Exhibits 10.1 On August 16, 2005, in accordance with contract terms, the Company announced it successfully closed its regulation D private placement in the amount of $1,525,000. The Company choose to allocate and close this offering on a smaller number of units subscribed avoiding addition dilution to its shares. 31.1 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 202 - 22 - SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-QSB to be signed on its behalf by the undersigned thereunto duly authorized. MEDISCIENCE TECHNOLOGY CORP. (Registrant) /s/ Peter Katevatis ---------------------------- Peter Katevatis Chairman of the Board and Chief Executive Officer October 20, 2005 - 23 - EXHIBIT INDEX ------------- EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.1 On August 16, 2005, in accordance with contract terms, the Company announced it successfully closed its regulation D private placement in the amount of $1,525,000. The Company choose to allocate and close this offering on a smaller number of units subscribed avoiding addition dilution to its shares. 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - 24 - EX-31.1 2 ex31-1.txt EXHIBIT 31.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Peter Katevatis, Chief Executive Officer of Mediscience Technology Corp., certify that: (1) I have reviewed this quarterly report on Form 10-QSB of Mediscience Technology Corp.; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; (4) The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and (5) The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: October 20, 2005 /s/ Peter Katevatis - ----------------------- Peter Katevatis Chief Executive Officer - 25 - EX-31.2 3 ex31-2.txt EXHIBIT 31.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John Kennedy, Chief Financial Officer of Mediscience Technology Corp., certify that: (1) I have reviewed this quarterly report on Form 10-QSB of Mediscience Technology Corp.; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; (4) The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and (5) The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: October 20, 2005 /s/ John Kennedy - ----------------------- John Kennedy Chief Financial Officer - 26 - EX-32 4 ex32.txt EXHIBIT 32 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND THE CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S. C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Mediscience Technology Corp., (the "Company") on Form 10-QSB for the quarter ended August 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter Katevatis, Chairman of the Board and Chief Executive Officer of the Company, and I, John Kennedy, Chief Financial Officer of the Company, certify, pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of Section 13 (a) of 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Peter Katevatis October 20, 2005 ------------------------------------------------- Peter Katevatis Chairman of the Board and Chief Executive Officer /s/ John Kennedy October 20, 2005 ------------------------------------------------- John Kennedy Chief Financial Officer A signed original of the written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within this electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. The foregoing certification is being furnished in accordance with Securities and Exchange Commission Release Nos. 34-47551 and 34-47986 and shall not be considered "filed" as part of this 10-QSB. This certification is made solely for purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. - 27 - -----END PRIVACY-ENHANCED MESSAGE-----