SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-KSB


[X]     ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT
        OF 1934

        For the fiscal year ended February 28, 1998

[ ]     TRANSITION  REPORT UNDER SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

For the transition period from _______________to ________________


                          Commission File No. 33-51218

                          MEDISCIENCE TECHNOLOGY CORP.
                 (Name of Small Business Issuer in its Charter)


      New Jersey                                             22-1937826
--------------------------------------------------------------------------------
(State or Other Jurisdiction of                           (I.R.S. Employer
Incorporation or Organization)                           Identification No.)

               1235 Folkestone Way, Cherry Hill, New Jersey 08034
--------------------------------------------------------------------------------
                    (Address of Principal Executive Offices) 

Issuer's Telephone Number, Including Area Code:              (609) 428-7952

       Securities registered under Section 12(b) of the Exchange Act: None


     Securities  registered  pursuant to section 12(g) of the Act: Common Stock,
par value $.01 per share

     Check whether the registrant (1) has filed all reports required to be filed
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceeding  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 [   ]  No  [ X ]

     Check if there is no disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K contained  herein,  and will not be contained,  to the best of
registrant's   knowledge,   in  definitive   proxy  or  information   statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]

     The aggregate market value of the voting stock held by non-afiliates of the
Registrant, as of December 4, 1998 was: $4,924,658.20

     The number of shares  outstanding  of each of the  registrant's  classes of
common stock, as of December 4, 1998 were:

   Title of Each Class                             Number of Shares Outstanding
   -------------------                             ----------------------------
Common Stock, par value $.01 per share                       35,176,130
Preferred Stock, par value $0.1 per share                         2,074
<PAGE>
                      DOCUMENTS INCORPORATED BY REFERENCE:

(1)  8-K Report,  filed 9/23/95  Investment  Banking  Agreement,  Registrant and
     Alle&Company Incorporated, New York, NY.

(2)  8-K Report,  filed  4/16/96,  H Hugill  Employment  Agreement  (see Item 10
     Directors and Officers of the Registrant.)

(3)  8-K Report filed 1/8/97,  Approval by FDA of  Registrant's  Investigational
     Device Amendment.

(4)  8-K Report,  filed 1/28/97, H. Hugill steps down, Peter Katevatis President
     CEO  1/28/97,  John Matheu  joins board see  Directors  and Officers of the
     Registrant infra.

(5)  8-K Report, filed 4/8/98, CUNY  introduction/review  Optical Biopsy-Optical
     Mammography Photonics to detect Cancer, March 11, 1998.

<PAGE>
                                MEDISCIENCE CORP.
                           Annual Report on Form 10-K
                                Table of Contents

                                     PART I

Item 1.   Business
Item 2.   Properties
Item 3.   Legal Proceedings
Item 4.   Submission of Matters to a Vote of Security-Holders

                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Shareholder Matters

Item 6.   Selected Financial Data
Item 7.   Management's Discussion and Analysis of Financial Condition
               and Results of Operations
Item 8.   Financial Statements and Supplemental Data

              Report of Independent Public Accountants  

              Consolidated Balance Sheets- February  28, 1997 and 1996   

              Consolidated Statements of Operations for the years ended
              February  28,1998,1997 and  February 29, 1996  

              Consolidated Statement of Stockholders Equity  for the years
              ended  February 28,1998, 1997 and February 29, 1996  

              Consolidated Statements of Cash Flows for the years ended
              February  28,1998, 1997 and February 29, 1996   

              Consolidated Notes to Financial Statements  

Item 9.  Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosures

                                    PART III

Item 10   Directors and Executive Officers of the Registrant
Item 11   Executive Compensation
Item 12   Security Ownership of certain Benficial Owners of Management
Item 13  Exhibits, List and Reports on Form 8-K
<PAGE>
                                     PART I


Item 1.   Business

Introduction

This annual report on Form 10-KSB contains  certain  forward-looking  statements
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the  Securities Act of 1934.  Actual events or results may differ  materially
from  those  projected  in the  forward-looking  statements  as a result  of the
factors described herein. Such  forward-looking  statements include, but are not
limited  to,   statements   concerning   business   strategy,   development  and
introduction of new products,  research and  development,  marketing,  sales and
distribution,  manufacturing, competition, third-party reimbursement, government
regulation (including, but not limited to, FDA requirements), continued clinical
trial relationships and operating and capital requirements.

Mediscience  Technology  Corp.  ("the  Company") is  principally  engaged in the
design and  development of diagnostic  medical  devices that detect cancer using
light induced native tissue  fluorescence  spectroscopy  (the  "Technology")  to
distinguish  between  malignant and normal or benign tissue,  year 2000 computer
configuration  is not of concern or a problem  to our  design.  Animal and human
tissue  contains  molecules  that  fluoresce  naturally  when exited by light at
certain wavelengths.  Since the molecular makeup of tissue changes as it becomes
cancerous,  the  Company's  medical  devices  are able to  detect a shift in the
resulting native tissue fluorescence spectrum allowing it to distinguish between
normal or benign tissue and cancerous tissue.

Background

On December 1, 1988,  the Company  acquired all the  outstanding  stock of Laser
Diagnostic  Instruments,   Inc.  ("LDI")  which  is  presently  a  wholly  owned
subsidiary of the Company.  The principle  asset of ("LDI") was the ownership of
all rights,  title and  interest in a patent  application  entitled  "Method and
Apparatus for Detecting Cancerous Tissue Using Visible Luminescence",  which was
subsequently  granted as patent number  4,930,516 by the US Patent and Trademark
Office on June 5,  1990,and  whose claims were  expanded  from 9 to 59 on August
8,1998  in  a  re-examination   initiated  by  the  Company.  The  research  and
development  activities  of the Company are the subject of this patent and other
patents  subsequently  applied  for or granted to the  Company,  acquired by the
Company or  exclusively  licensed to the Company.  The Company has  successfully
conducted  laboratory and other  pre-clinical  testing all of which continues to
support the Company's  belief that its proprietary  native tissue  fluorescencee
and Raman spectrum  cancer  detection  technology  ("itsTechnology")  when fully
developed,  will  be  useful  in the  screening  and  or  diagnosis  of  cancer.
Management believes that its Technology,  if successfully  developed,  will have
substantial commercial appeal due to its non-invasive character, its delivery of
immediate,  real time  results,  its  diagnostic  sensitivity  and its appeal to
physicians who can generate  additional office revenues that currently accrue to
an off site pathology  laboratory.  On January 6, 1997, the Company received FDA
approval of its  Investigational  Device Exemption to initiate Phase II clinical
trials with its CD Scan medical device for early stage detection of cancer. (see
"Government   Regulation   (FDA   Matters)"   below).   Additionally   principal
investigator  Stimson P Shantz,  MD continues to receive  significant  financial
support  from  the  National  Cancer  Institute  targeting  the  development  of
Mediscience Technology in our clinical trial stage Phase II and Phase III.
<PAGE>
Strategy

The Company's  strategy is to develop one or more products for the  non-invasive
or minimally-invasive  diagnosis of specific types of cancer which it ultimately
plans to market  worldwide  either  directly  for its own  account or in various
types of  partnering  or licensing  arrangements  with other  firms.  The United
States will be the  principal  direct focus of the Company  while  international
markets are expected to be addressed via  partnering  or licensing  arrangements
with other companies.

The Company believes its Technology will have rather broad  application  utility
in cancer diagnosis,  however,  each approved labeled  indication is expected to
require  separate   premarketing   approval  (a  "PMA"),   which  will  be  both
time-consuming  and costly.  The Company therefore plans to carefully select and
prioritize  its targeted  diagnostic  applications  to insure the best  possible
payback on its product and clinical development investments. The Company regards
its "516" and other related  patents such as 5,131,398 as  pioneering,  blocking
and dominant in the area of cancer  diagnosis using  fluorescence in vivo and in
vitro.

The Company has successfully conducted pre-clinical in vitro investigations with
tissue removed from the upper  aerodigestive  tract, the cervix,  the breast and
the colon. A human clinical in vivo feasibility study was successfully completed
for the upper aerodigestive tract and human clinical in vivo feasibility studies
are  scheduled  for  the  breast  and  esophagus.   Other  possible  application
opportunities  will be evaluated  during  1998-1999  and  pre-clinical  in vitro
evaluations  are expected to be undertaken for the more promising  opportunities
before moving on to human in vivo clinical studies.


The Products


The Company has developed  three  prototype  products that employ its technology
for cancer  diagnosis.  They include Cancer Detection ("CD") Scan, CD Ratiometer
and CD Map.  These  devices use lamp light to provide a broad  spectrum of safe,
scanning  excitation  light  wavelengths to insure that the  appropriate  target
tissue  molecules  are  sufficiently  fluoresced to provide  maximum  diagnostic
sensitivity.  A fiberoptic  probe is atttached to each of the Company's  devices
which is used to transmit the optical exitation signal and to recieve the native
fluorescence  response.  The CD instruments are believed to have a great deal of
versatility and a broad range of potential alternative  application  dependingon
the preferred configuration of the fiberoptic probe. For example, the fiberoptic
probe can be configured as a convenient hand held probe for easy-to-access areas
such as the oral cavity or the skin  surface,  or the  optical  fiber can be fed
down the working channel of a rigid or flexible  endoscope for assessment of the
upper or lower GI tract,  or the optical  fiber can be inserted  into a cytosope
for urinary tract exploration,  or a colposcope for gynecological evauation or a
laparoscope  for evaluation of internal  organs,  and even through a core biopsy
needle,  to optically  assess breast  tumors or for optical  assessment of other
deep tissue tumors, such as sometimes occur in the pancreas, liver or prostate.
<PAGE>
The CD Scan  product  prototype  is  oriented  toward  medical  research.  It is
designed to provide optical  scanning  capability of a broad spectrum of optical
wavelengths  for  evaluation  of tissue,  The Company uses the CD Scan  whenever
possible to help define the critical  scanning and emission  wavelengths for its
two other prototype products.  CD Ratiometer on the other hand is being designed
as a simple, compact instrument with user friendly features and characteristics.
It is designed to optically  assess the scanned  tissue only at  pre-established
optical  wavelengths  and report out  essentially a yes, no or maybe result on a
computer screen, instantaneously.  CD Ratiometer with its anticipated assortment
of disposable probe designs is expected to be the preferred  product for medical
practitioners  to use in the  office  or  clinical  setting.  CD Map is a vision
instrument  that is being designed to optically  assess an area of tissue rather
than selective  individual points.  Although it is at an earlier stage of design
than  either CD Scan or CD  Ratiometer,  it is  expected  to report out  results
similar  to the CD  Ratiometer  but in  pseudocolored  graphics  (a  "MAP") on a
computer screen  distinguishing  the normal areas from cancerous areas via color
differentiation.  CD Map, if it can be successfully developed, is expected to be
especially  useful in assisting cancer surgeons in clearly defining the surgical
margins of tumors, real time, during cancer surgery without the use of extrinsic
dyes, drugs or other invasive agents.

Research and Product Development

The potential  utility of native tissue  fluorescence  spectroscopy  for in vivo
cancer  detection in humans was first  discovered by Professor Robert R. Alfano,
Distinguished  Professor of Physics and  Engineering  at the City College of the
City  University  of New York  ("CUNY") in the early  1980's.  Subsequent to the
acquisition  by the Company of LDI from Dr.  Alfano in 1988,  the  Company  also
developed a research  agreement with the Research  Foundation of CUNY to provide
research and development  services to the Company.  In 1992, the Company,  CUNY,
and the Research  Foundation of CUNY  esablished  the  Mediphotonics  Laboratory
("MPL") at the City College of New York which  currently  provides  research and
development  services to the Company.  (See "Research  Agreements  with the City
University of New York")

The staff of MPL,  which is  supervised by Dr.  Alfano,  developed the Company's
current  prototype  CD  devices.  It has also  conducted  in vitro  pre-clinical
testing of various  human tissue types such as breast,  cervical,  colon and the
upper  aerodigestive  tract,  to develop  the  preferred  optical  scanning  and
emission wavelengths that yield the most definitive information about the native
fluorescent  characteristics of specific scanned tissue. The insight gained from
this work has been the principal source of knowledge for the subsequently issued
and pending  patents for which the Company  either owns  outright or possesses a
world wide  exclusive  licence,  and which the  Company  regards as  pioneering,
blocking.and  dominant in the area of cancer diagnosis using  fluorescence (e.g.
Patents  516--398).  The information  derived from this work was also the source
for a number of scientific  papers published in  peer-reviewed  journals and for
presentations made at scientific  symposia.  This in vitro pre clinical research
and development  work also provided the starting basis for the optical  scanning
parameters for the Company's in vivo human clinical studies.

Clinical Development

The  Company's CD products are designed  primarily to be used  directly on human
patients in vivo.  Part of the process of product  development  and FDA approval
(see  "Government  Regulation  (FDA Matters") is the development of sufficiently
<PAGE>
compelling  clinical evidence to demonstrate  safety and effectiveness of one or
more of the  Company's  prototype  CD  products  for  each  intended  diagnostic
application  (labeled  or intended  use).  Because of the  anticipated  clinical
utility of the Company's  Technology and prototype CD products,  the Company has
been able to develop important collaborative relationships with some of the most
highly regarded cancer center research  hospitals in the United States to assist
it in the clinical  evaluation of its prototype CD products.  These institutions
include Memorial  Sloan-Kettering,  Columbia  Presbyterian  Hospital and the New
York Hospital (Cornell Medical Center),  each of New York, and the Massachusetts
General Hospital (Harvard Medical School) in Boston.

The Phase I  clinical  feasability  study of the upper  aerodigestive  tract was
carried out at Memorial  Sloan-Kettering  under the principle  investigation  of
Stimson P. Schantz,  M.D., Associate Professor of Surgery and Director of Cancer
Prevention.  It was  established  in  this  study  that  the  Company's  CD Scan
prototype product is able to distinguish  between cancerous and normal tissue in
the oral cavity  using its  Technology.  A Phase II clinical  study in the upper
aerodigestive tract is scheduled to begin shortly.

At least two other clinical studies are also scheduled to begin during 1998. One
such clinical study is focused on diagnosis of breast cancer using the Company's
second prototype product,  CD Ratiometer.  This clinical study will be conducted
at Massachusetts General Hospital under the Principle Investigation of Daniel B.
Kopans,  M.D.,  Associate  Professor of Radiology,  Harvard  Medical  School and
Section Head,  Breast  Imaging,  Massachusetts  General  Hospital,  to determine
whether the Company's Technology can optically  distinguish on a real-time basis
between  cancerous  and  benign  breast  tumors in vivo by  passing a  specially
designed  optical  fiber,attached  to the CD  Ratiometer,  through a core biopsy
needle  placed to within  one  millimeter  of the  tumor by  stereotactic  x-ray
guidance.  If the  technique  ultimately  proves  successful,  it will offer the
potential to further  reduce the  frequency of the  highly-invasive  practice of
open surgical  biopsy  currently  employed  while  providing  additional  cancer
staging information to the radiologist when the tumor is cancerous. The clinical
feasability  study will be  sponsored  by the  Company  and is expected to be be
partially funded by the United States Army Medical Research Acquisition Activity
who has provides partial funding to date for the Company's product  development.
If successful,  this Phase I clinical feasability study should provide the basis
for additional clinical  investigation to establish the safety and effectiveness
of CD Ratiometer in providing  minimally-invasive,  real-time, in vivo diagnosis
of breast tumors.  The second,  planned,  Phase I clinical study will be done at
New York Hospital's  Cornell  Medical Center to assess the potential  utility of
the  Company's  CD  Ratiometer  with  fiberoptic  probe  adapted  to a  flexible
endoscope  furnished by Pentax Precision  Instrument  Corporation for monitoring
Barrett's  Esophagus.  The clinical  trial  agreement  was executed on April 24,
1997, with initial funding for the study by the Company.  Barrett's Esophagus is
a malady  that is thought to be a possible  precurser  to  esophageal  cancer in
certain  people.  Barrett's  patients  are  routinely  monitored  because of the
heightened  risk  that a small  porportion  of them is  predisposed  toward  the
development of esophageal  cancer.  The current medical  practice  requires that
multiple  excisional  biopsies be taken  during  regularly  scheduled  follow-up
appointments (typically annually) to monitor the progression of the disease. The
practice is painful,  costly and  probably  unnecessary  in the  majority of the
Barrett's  suffering  population but the current state of medical  practice does
not provide sufficient molecular information to distiguish between the high risk
group and the lower risk group. It is hoped that  endoscopic  application of the
<PAGE>
Company's Technology will provide gastroenterologists with the ability to better
assess the condition of Barrett's  tissue in the esophagus  without the need for
the painful multiple excisional biopsies.  It is also hoped that this additional
molecular  information  will provide the ability to assess the relative  risk of
Barrett's   patients  toward  the  development  of  esophageal  cancer  allowing
gastroenterologists   to  establish  individual  patient  moniitoring  schedules
appropiate to their relative level of perceived risk.

Business Development and Marketing

More than  120,000,000  new cancer  cases are  diagnosed  annually in the United
States  according  to the  American  Cancer  Society.  It is  estimated by Theta
Corporation, a market research firm, that as many as 85 million people currently
alive in the United States,  nearly 1/3 of the  population,  will develop cancer
during  their  lifetimes.  Cancer care and  treatment  is estimated to cost $104
billion annually, $35 billion of which is estimated to be the direct cost of the
disease.  Cancer  therapy has  progressed  rapidly in recent years but the axiom
that early diagnosis is still critical for successful treatment for the majority
of cancer types still remains true.

Although  several  cancer   screening   techniques  have  been  developed  early
indication of various types of cancer in humans, such as, mammography for breast
cancer,  PAP tests for cervical cancer,  PSA tests for prostate cancer and chest
x-rays  for lung  cancer,  excisional  biopsy is still the "gold  standard"  for
making a definitive cancer diagnosis and for cancer staging,  i.e.,  determining
the extent of the  progression  of the  disease  prior to  mapping  out the most
appropriate course of therapy.

The excisional biopsy,  however, often requires a significant amount of surgical
intervention to collect an adequate tissue sample to make a proper diagnosis and
staging  determination.   The  process  can  sometimes  expose  the  patient  to
unnecessary  risks,  lengthy  hospital  stays,  long  recovery  times,  pain and
discomfort  and  significant  health care expense.  The Company's  technology is
believed to offer the potential of a less physically invasive method to diagnose
and stage a variety of  cancers  without  the  excessive  costs and  potentially
debilitating  effects of excisional biopsy. The most widely practiced  technique
for  definitive  diagnosis of breast  cancer,  the leading  cause of death among
American  women  between  the  ages of 40 and 55,  is open  surgical  biopsy  (a
specific type of excisional biopsy) which is done under a general anesthetic and
typically  results in  surgical  excision  of a golf  ball-sized  mass of breast
tissue.  About  800,000 such  procedures  are  performed  annually in the United
States at an estimated annual cost of between $2 billion and $4 billion.  If the
Company can  successfully  adapt its  technology  to diagnose  and stage  breast
cancers,  it  believes  it will save up to half the  current  cost,  eliminate a
significant amount of patient  discomfort for those patients  determined to have
cancer and  eliminate  most of the trauma for the 70% to 80% of the patients who
are found not to have cancer.

The Company  believes  that its  Technology  in one or more of its  prototype CD
products will  potentially be useful in diagnosis and staging for more than half
of the various types of cancers.  In addition to the  pre-clinical  and clinical
evaluations   currently  on  the  docket  or  already  completed,   i.e.,  upper
aerodigestive  tract,  breast  and  esophagus,  the  Company  is in a process of
creating a prioritized  list of other potential  applications  that it will then
evaluate on a pre-clinical basis and, if successful, it contemplates progressing
to the  clinical  evaluation  phase  and on to the  premarket  approval  ("PMA")
application phase.
<PAGE>
The  Company  plans  to  develop  certain  of its  CD  products  for  diagnostic
applications,  (sometimes referred to as "labelled  indications"),  that it will
ultimately  market for its own account in the United  States.  In addition,  the
Company also plans to  co-develop  one or more of its  prototype CD products for
specific  cancer  diagnostic  applications  with  one  or  more  selected  other
companies.  The Company has nurtured relationships with a small number of highly
qualified  companies who have expressed  interest in working with the Company to
co-develop one or more of the Company's  existing prototype products or possible
variations  thereof  in  exchange  for  certain  as yet  undetermined  rights to
commercially exploit a finished approved product in the marketplace.

The  Company  has, in the past,  and  continues  to  presently  encourage  these
possible  collaborations   especially  with  firms  that  have  strong  existing
franchises in certain specialized fields of diagnosis and treatment and who have
established  reputations with prospective  purchasers of diagnostic products and
who have proven  selling,  marketing  and  distribution  capabilities.  A select
number  of  these  kinds of  relationships,  if the  Company  is  successful  in
fostering  them,  are  expected  to add value to the Company by  stretching  and
leveraging  the Company's  financial  resource base with  development  licensing
revenues that the Company can then use to help fund the  development  of its own
products.

The Company also  believes  that a market for its CD products  will exist in the
European Union and possibly Asia.  The Company  contemplates  making a concerted
effort to identify one or more  possible  licensees to help develop its products
or variations  thereof for the key markets of the European Union during 1998. It
will also make a preliminary  investigation  of the potential for utility of its
products in Asia and if the findings are  positive,  will develop a strategy for
exploiting its technology and products in that region as well.

Manufacturing

The Company's prototype products have been assembled to date by the staff of the
MPL at the City College of New York from components  that are generally  readily
available from one or more sources in the marketplace.  The Company contemplates
continuing  with this  approach  until the  quantity of devices  projected to be
required makes it appropriate and necessary to set up a contract manufacturer to
assemble its products.  Although  additional design  improvements will likely be
required to refine the current  prototype  products  for  commercial  use, it is
still  believed  that  the key  components  will be  available  from one or more
suppliers.  The Company executed a lease agreement,  dated January 19, 1997 with
City College  providing for 900 square feet of space as a  "incubator"  in which
prototypes of the products have been designed and assembled by MPL staff working
in  concert  with  personnel  from an  engineering  design  firm  engaged by the
Company.

The Company  plans to  outsource  the  manufacture  and  assembly of its medical
device products to contract  manufacturers when it is no longer feasible for the
MPL to perform that service.  The  Company's  contract  manufacturer(s)  will be
selected  from a list of highly  qualified  companies  who are familiar with the
regulatory  requirements of the FDA for the manufacture of medical devices,  who
are  registered  with and in good standing  with the FDA and who employ  current
Good  Manufacturing  Practices (GMP) in accordance  with FDA  guidelines.  Pepco
Manufacuring  Company  ("Pepco") of  Somerdale,  N.J.,  which is owed by John M.
Kennedy, an officer, director and a principal of the Company, has been granted a
<PAGE>
right of first  refusal  to  manufacture  the  Company's  products  on terms and
conditions  no less  favorable  to the  Company  than  those  offered  by  other
qualified  manufacturers.  It is believed  that Pepco is currently or can become
qualified to manufacture the Company's products.  In the event of an opportunity
for a  business  arrangement  with  a  major  marketing  co-developer  involving
manufacture  as well,  Pepco  has  consented  to  relinquish  its right of first
refusal in the best interest of the Company.

Research Arrangements with the City University of New York

In June 1992, the Company and the Research  Foundation of CUNY  established  the
MPL at the Institute of Ultrafast  Spectroscopy  and Lasers ("IUSL") at the City
of College of New York.  Dr. Robert Alfano,  Distinguished  Professor of Physics
and  Engineering  at  City  College  and  the  Director  of the  IUSL,  is  also
responsible  for  supervising  the  operations  of the MPL.  The  IUSL  includes
approximately  60 scientists of which about 20 hold Ph.D's, 9 hold various other
graduate degrees and about 30 are graduate students from which the MPL draws its
research,  talent and expertise. The Company provides a funding grant to the MPL
annually in accordance with a budget of activities and  expenditures  negotiated
between the Company,  CCNY, and the Research Foundation of CUNY. The arrangement
is renewable  annually and may be terminated  without cause by either party upon
90  days   notice   prior  to  June  1  of  each   year.   The   contract   with
CUNY-"Establishment  of the MediPhotonics  Laboratory" was extended by agreement
July 15, 1998 until June 1999.  The  Company is  reviewing  its present  reseach
needs with Dr. Alfano in order to establish its grant of funds for the 1998/1999
budgetary year. In comparison,  the Company committed to funding of $431,017 for
the 1996/1997  budgetary year and provided  funding of $242,948 and $245,750 for
the budgetary years ending on May 31, 1996 and May 31, 1997 respectively.

The  objective  of the MPL is to research the use of light and  ultrafast  laser
technology for cancer diagnosis and therapeutic purposes.  The major projects of
the MPL have been the development of the Company's prototype products,  CD Scan,
CD Ratiometer and CD Map, including the enhancement of fiberoptic attachments to
enable  devices to be used with  various  types of  endoscopes  and core  biopsy
needles. The MPL has additionally  conducted in vitro preclinical  evaluation of
various  tissues to  determine  the most  appropriate  excitation  and  emission
wavelengths  for use with a device  for  different  types  of human  tissue  and
cancers,  assembled the prototype CD products for use in vivo for human clinical
trials and  created the  algorithms  and  computer  software  necessary  for the
accurate performance of the instruments.

Prior to the current  arrangement,  the Company and the Research  Foundation  of
CUNY on behalf of the City College of New York worked  together under a Research
Agreement pursuant to which the Company and the City College of New York jointly
sponsored the research and  development of a cancer  detection  apparatus  using
visible  luminescence.  The results of such research includes the development of
the proprietary rights that are subjects of several of the Company's patents and
the  development  of some of the  Company's  prototype  products.  The  Research
Agreement  provided  that all patent  rights or any CD  inventions  conceived or
discovered during its term vest in the Company,  subject to a royalty payable to
the Research  Foundation of CUNY of 5% of the sales of products  resulting  from
any of the  inventions.  Beginning in 1992 in concert with the  formation of the
MPL, new  inventions and  patentable  discoveries  were assigned to the Research
Foundation  of CUNY  and the  Company  was (or  will be)  granted  an  exclusive
worldwide  license to exploit the  inventions.  The royalty  rate was reduced to
3.5% of the sales of products  resulting from patented  inventions  conceived or
<PAGE>
discovered subsequent to June 1, 1992. In the event the Company has not made any
lawful sale of any products or  sublicensed  any patents at or above  reasonable
market price within 5 years from the date of patent application, the Company has
agreed to negotiate a minimum  royalty or return all rights with respect thereto
to the Research  Foundation  of CUNY.  The Research  Foundation of CUNY owns all
copyright and publication rights to the results of the research,  subject to the
Company's right to produce,  translate and use all materials  copyrighted by the
Research  Foundation of CUNY for the  Company's own purposes on a  royalty-free,
non-transferable and non-exclusive basis.

In 1994, the Company became a consortium  industrial  partner in the CUNY Center
for Advanced  Technology in Ultrafast  Photonic  Materials and Applications (the
"CAT"). The participation fee paid was $25,000.  The Company's membership in the
CAT has  brought it into  contact  with other  members of the New York State CAT
consortium partners and has facilitated in several SBIR and NIST proposals.  The
Company has a continuing commitment to the CAT.

Competition

Cancer  screening  and  diagnosis is a subject of intense  current  research and
development activity. Medical practitioners, heath care payors, other diagnostic
medical device companies and patients are all searching for less invasive, lower
cost and more effective ways for early stage diagnosis of cancer.  The Company's
native  tissue  fluorescence  spectroscopy  technology  is an emerging  field of
medical diagnostics.

Xillix Corporation, British Columbia, Canada is the only competitor or which the
Company  is  aware  with  a  commercial  light-based  product.  Xillix  received
pre-market   approval  from  the  FDA  in  September   1996  for  its  Life-Lung
Fluorescence  Endoscopy  System  according  to  public  disclosures  made by the
Company.  Xillix,  in  association  with  Olympus  of  Japan,  has  developed  a
laser-induced  fluorescence  spectroscopy device for use with a bronchoscope for
early  detection on lung cancer.  Xillix and Olympus are also seeking to develop
the Life-GI Fluorescence Endoscopy System for the Gastrointestinal Tract.

LifeSpex, Inc., Houston, Texas, is also working in the field using laser-induced
fluorescence  spectroscopy  to  develop an  optical  screening  device for early
detection  of cervical  cancer in vivo.  LifeSpex  has a  relationship  with the
University of Texas and the MD Anderson Cancer  Treatment  Hospital that appears
similar to the relationship that the Company has with the Research Foundation of
CUNY.

The  Company is also aware of other  technologies  that may  compete  for cancer
diagnostic business.  In breast cancer diagnosis alone, there are at least three
other  technologies  vying for clinical  and  commercial  superiority.  Advanced
Technology Laboratories,  Bothell, Washington recently received FDA approval for
the use of one of its ultrasound medical devices for diagnosis of certain breast
lesions. Biofield,  Roswell, GA, a development stage company, is researching and
developing  products that measure the cellular electrical charge distribution to
defect epithelial cancers and is currently  conducting  clinical trials targeted
to diagnose breast cancers using its new  technology.  Biopsys,  Irvine,  CA has
developed  and  recently  received  FDA approval for a new core biopsy gun as an
improvement to the original core needle for less invasive breast cancer biopsy.

The established  competitor  technology to both the Company and its existing and
potential new technology  competitors,  however,  is the traditional  excisional
biopsy. It is entrenched,  trusted and effective.  However, it suffers from many
deficiencies  that the  Company's  Technology  and  prototype  CD  products  are
<PAGE>
designed  to  address.  These  deficiencies  include,  among  others;  {1} it is
physically invasive,  {2} there is generally a lapse of one or more days between
taking the excisional sample and receiving the pathology  results,  {3} there is
risk of human error in accurately  reading the pathology slides and {4} there is
risk of mislabeling or mishandling the samples as they are transferred  from the
physician's office to the external pathology  laboratory.  Excisional biopsy can
also be extremely  costly,  especially if an operating  room setting and general
anesthesia  is  required  and the  Company's  patient  recovery  time  is  often
prolonged due to the healing process related to the excisional biopsy.

The Company  believes its technology has certain  advantages  over that of other
developers of fluorescence  techniques  described above.  Broad band xenon lamp,
not laser,  is used as the excitation  source.  Laser energy,  which is far more
expensive, is not needed. More importantly,  a laser can only interrogate tissue
at a single  wavelength.  To improve both the Sensitivity and Specificity of the
method it is necessary to use several  wavelengths  to derive  information  from
several key fluorescent  molecules.  In the Company method,  scans or ratios are
taken,  both by holding the  excitation  wavelength  constant  with the emission
wavelength as the variable and by reversing the constant and variable. With this
techinique,  the Company  believes its  Technology is further  advanced than its
direct  competitors'  and that  its  proprietary  rights  are  protected  by its
patents.  However,  the competition  from both new firms offering  potential new
methods of cancer diagnosis and from  established  firms already in the business
is expected to be intense.  Many of the competing  firms have greater  resources
that the Company including financial resources, more employees,  larger research
staffs  and more  experience  in the  cancer  diagnosis  field.  There can be no
assurances that the company's Technology,  even if successfully developed,  will
be commercially accepted in the maket place.

Government Regulation (FDA) Matters

The FDA classifies  medical  devices into one of three classes,  Class I, II, or
III. This classification is based on the controls deemed necessary by the FDA to
reasonably  insure the safety and  effectiveness of the device.  Class I devices
are those whose safety and effectiveness  can be reasonably  ensured through the
use of general controls, such as labeling, adherence to GMP requirements and the
"510-(k)"  process of  marketing  pre-notification.  Class II devices  are those
whose safety and effectiveness can reasonably be ensured through implemention of
general  and  special  controls,  such as  performance  standards,  post  market
surveillance,  patient  registries,  and FDA  quidelines.  Class III devices are
those  devices  that must  receive  premarket  approval  ("PMA") to insure their
safety and effectiveness.  They are generally life-sustaining,  life-supporting,
or  implantable  devices,  and also include  devices that are not  substantially
equivalant to a legally  marketed  Class I or II device or to a Class III device
first  marketed prior to May 28, 1976 for which a PMA has not yet been requested
by the FDA.

The  Company   believes  that  clinical   applications   of  its  native  tissue
fluorescence  spectroscopy devices (CD Scan, CD Ratiometer and CD Map) are Class
III medical  devices  because  they lack  substantial  equivalancy  to a legally
marketed  Class I or II device or a pre-1976  Class III device.  Because of this
classifiation,  the Company  does not qualify  for the 510-(k)  process  (market
pre-notification)  of regulatory  compliance  but instead is obliged to submit a
full PMA to the FDA for its careful review and,  hopeful,  approval.  Laboratory
versions of its native tissue florescence  spectroscopy devices for non-clinical
in vitro applications may face a less lengthy approval process.
<PAGE>
FDA review and approval of PMA  applications  usually takes from 12 to 24 months
after  they are  submitted  and  considered  "complete"  (meaning  that they are
sufficiently  in  compliance  with  filing   requirements   that  the  FDA  will
substantively  review the application) but sometimes can take longer and on rare
occasions can take less time.  Additional delay often results from  insufficient
clinical data to satisfactorily  prove safety and effectiveness for the proposed
intended use of the device and it is not unusual for an applicant to be required
to produce  additional  data to satisfy  an  objection  raised by the FDA in its
review process prior to granting a PMA.

Although  management of the Company believes that its cancer diagnostic products
will ultimately be approved, there is no assurance the FDA will act favorably or
quickly in making such reviews and  approving  its products for sale.  Delays or
unanticipated  costs may be  encountered by the Company in its efforts to secure
governmental  approvals or licenses,  which could delay or possibly preclude the
Company from marketing its CD products.

To the extent the Company intends to market its CD products in foreign  markets,
it will be subject  to  foreign  governmental  regulations  with  respect to the
manufacture  and  sale  of its  medical  device  products.  The  Company  cannot
accurately  estimate  the cost and time that will be required in order to comply
with such regulations.

Patents and Proprietary Rights

The medical device industry places  considerable  importance on obtaining patent
protection  and protecting  trade secrets for new  technologies,  products,  and
processes because of the substantial  length of time and expense associated with
bringing  new  products  through  development  and  regulatory  approval  to the
marketplace.  Accordingly,  the Company or the Research Foundation of CUNY files
patent  applications  to protect  technologies  that the  Company  believes  are
significant  to the  development of the Company's  business.  The Company either
owns or holds  exclusive  licenses to 22 U.S.  patents,  plus 1 in Japan,  for a
total of 23 and has rights to exclusively  license an additional 20 U.S. pending
patents.   There  can  be  no  assurance,   however,  that  the  pending  patent
applications will ultimately issue as patents,  or if patents do issue, that the
claims will be sufficiently broad to protect what the Company believes to be its
proprietary  rights. In addition,  there can be no assurance that issued patents
or  pending  patent  applications  will not be  challenged  or  circumvented  by
competitors,  or that the rights  granted  thereunder  will provide  competitive
advantage to the Company.

The Company also relies on trade  secrets and know-how  that it seeks to protect
in  part,  through  the  use  of  confidentiality  agreements.  There  can be no
assurance that these agreements will not be breached, that the Company will have
adequate  remedies  for any  breach,  or that the  Company's  trade  secrets and
know-how  will not  otherwise  become  known to or  independently  developed  by
competitors.

Third Party Reimbursement

If the Company is successful in developing its cancer diagnostic technology, and
one or more medical devices that are used by healthcare providers for diagnostic
testing for which the providers may seek reimbursement from third-party  payors,
principally,  in the  United  States,  medicare,  medicaid  and  private  health
insurance  plans,  and in many other countries,  typically  national  government
sponsored health and welfare plans,  such  reimbursement  will be subject to the
<PAGE>
regulations and policies of governmental  agencies and other third-party payors.
Reduced  governmental  expenditures  in the  United  States  and in  many  other
countries continue to put pressure on diagnostic  procedure  reimbursement.  The
Company  cannot  predict  what,  if any  changes,  may be  forthcoming  in these
policies  and  procedures,  nor the  effect  of such  changes  on the  Company's
business potential.

Other Technologies and othe applications

The  Company,  in addition to its  developments  in native  tissue  fluorescence
spectroscopy  has also  invented  certain  other  potetially  useful  diagnostic
optical imaging  technology.  The optical imaging technology uses laser light to
image dense  tissues by capturing  the early  photons of light shown through the
imaged tissue and gating off the scattered,  later arriving light, which reduces
the interference and results in clearer images than can be traditionally be seen
using  currently  available  optical  imaging  technologies,  such as,  computed
tomography  scanning  or x-rays or  mammograms.  In 1994 the Company and General
Electric  Company  ("GE")  acting  on  behalf  of  its  Corporate  research  and
Development  component signed a five year non-exclusive  Collaborative  Research
Agreement to explore potential uses of the Company's optical imaging technology.
(see "Subsequent Events" below)

Subsequent Events

There were five  patents  issued  during the  fiscal  reporting  period and four
subsequently:

1 U.S. Patent No. 5,635,402 issued June 3,1997 TECHNIQUE FOR DETERMINING WHETHER
A CELL IS MALIGNANT AS OPPOSED TO  NON-MALIGNANT  USING  EXTRINSIC  FLUORESCENCE
SPECTROSCOPY.

2 U.S.  Patent  No.  5,636,050  issued  June 3,  1997  APPARATUS  USING  OPTICAL
DEFLECTION.

3 U.S Patent  No.5,656,810  issued  August 12, 1997  ,METHOD AND  APPARATUS  FOR
EVALUATING THE COMPOSITION OF AN OIL SAMPLE.

4 U.S Patent No.  5,625,458  issued  April,29  1997 IMAGING OF OBJECTS IN TURPID
MEDIA USING DIFFUSIVE FERMAT PHOTONS.

5 U.S.  Patent  No.  5,644,429  issued  July 1, 1997  2-DIMENSIONAL  IMAGING  OF
TRANSLUCENT OBJECTS IN TURBID MEDIA.

6 U.S.Patent No. 5,710,429 issued January 20, 1998 ULTRAFAST  OPTICAL IMAGING OF
OBJECTS IN OR BEHIND SCATTERING MEDIA.

7 U.S.Patent No. 5,719,399 issued February 17, 1998 IMAGING AND CHARACTERIZATION
OF  TISSUE  BASED  UPON  THE   PRESERVATION  OF  POLARIZED   LIGHT   TRANSMITTED
THERETHROUGH.

8 U.S. Patent No. 5,769,081 issued March 18, 1998 METHOD FOR DETECTING CANCEROUS
TISSUE USING OPTICAL SPECTROSCOPY AND FOURIER ANALYSIS.

9 U.S.Patent No.  5,799,656  issued  September 1, 1998 OPTICAL IMAGING OF BREAST
TISSUES TO ENABLE THE DETECTION THEREIN OF CALCIFICATION  REGIONS  SUGGESTIVE OF
CANCER.
<PAGE>
Scientific/Medical Advisory Board

The Company established a Scientific  Advisory Board in January,  1993 under the
chairmanship  of  Professor  Robert R.  Alfano to  provide  critical  review and
analysis  of its  research  and  product  development  programs  in the  area of
photonics  (lasers and optics)  and to serve as a source of  information  on new
product ideas, new technologies  and current research  activities.  Its function
served the Company well during the formative stages of its research.  Currently,
the Board  consisting of Dr. Alfano and one other  continuing  member,  is being
expanded to include increased  representation  from the medical arts,  including
pathology,  and will be staffed with medical  specialists who are skilled in the
medical fields of primary interest to the Company.  The Company believes that it
will be able to  attract  accomplished  clinicians  who  will  help  guide it in
clinical study design aimed at gaining  regulatory  approval for applications of
theCompany's diagnostic technology.  They will also be called upon to advise the
Company about priorities and unmet needs in their  respective  disiplines and in
matters such as physician's  habits and  preferences  that would bear on product
design and cofiguration. (see "Management")

Employees

As of Febuary  28,  1998,  the Company had one  full-time  employee  and several
retained consultants who dedicate a substantial portion of their time toward the
affairs of the Company and the full-time  equivalent of a number of  scientists,
most of whom  hold  Ph.D.'s  in  physics  or  electrical  engineering  or lesser
advanced degrees in similar  disciplines from the MPL at the City College of New
York (see "Research Arrangements with the City University of New York"). None of
the employees,  retained  consultants or contract researchers is governed by any
collective  bargaining  agreement and the relations  between the Company and its
employees,  retained  consultants  and  contract  researchers  is believed to be
satisfactory to the present time.

ITEM 2. DESCRIPTION OF PROPERTIES

The Company's  headquarters are located at 1235 Folkestone Way, Cherry Hill, New
Jersey, which is owned by Peter Katevatis,  who is Chairman of the Company. Such
offices are occupied in accordance with an oral  arrangement  with Mr. Katevatis
pursuant  to which the Company is  required  to pay its  porportionate  share of
maintanance,  utilities and taxes.  The New York Office is located at the leased
"incubator" site at CCNY.

ITEM 3. LEGAL PROCEEDINGS

The Company is not presently a party to any litigation,  nor to the knowledge of
management  is  any  litigation  threatened  against  the  Company,   which  may
materially affect the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During its fiscal year ending  Febuary  28,1998,  no matters were submitted to a
vote of the Company's security holde
<PAGE>
                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     (a)  Market  Information.  The  Company's  Common  Stock is  traded  on the
over-the-counter  market under the  symbol."MDSC" The following table sets forth
the range of high and low bid  quotations of the Company's  Common Stock for the
periods set forth  below,as  reported by the National  Association of Securities
Dealers  , Inc.  Such  quotations  represent  inter-dealer  quotations,  without
adjustment for retail markets, markdowns or commissions,  and do not necessarily
represent actual ransactions.

<TABLE>
<CAPTION>
Fiscal Period                                        Common Stock
-------------                            ----------------------------------
                                         High Bid                   Low Bid
1998

<S>                   <C>                  <C>                        <C> 
1st  Quarter           5/31/97             0.28                       0.28
2nd Quarter            8/31/97             0.68                       0.43
3rd  Quarter          11/30/97             0.73                       0.52
4th  Quarter           2/28/98             0 9/16                     0.40


1997

1st  Quarter           5/31/96              1-31/32                   1-9/32
2nd Quarter            8/31/96              1-19/32                   15/16
3rd  Quarter          11/30/96              1                         5/8
4th  Quarter           2/28/97              1                         1/2
</TABLE>

     (b) Holders.  The  approximate  number of holders of record of the Companys
Common Stock and Series A Preferred  Stock as of December 4, 1998 were 889 and 8
respectively .

     (c)  Dividends.  The Company has not paid or declared any  dividends on its
Common Stock since its inception,  and intends to reinvest earnings,  if any, in
the  Company  to  accelerate  its  growth.  Accordingly,  the  Company  does not
contemplate  or  anticipate  paying any  dividends  upon its Common Stock in the
foreseeable future.
Talk to Frank B about this..doen to item8  is this all done by aa to go to r&t

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS

Results of Operations:

Year ending February 28, 1998 compared to year ended February 28, 1997.

     The Company had no revenues during its fiscal years ended February 28, 1998
(its "1998  Fiscal  Year") and Feruary 28, 1997 (its "1997  Fiscal  Year").  The
Company's  primary focus was the development of its  light-based  technology.The
Company's technology imbedded in its design and computer related format confirms
to year 2000 requirements.
<PAGE>
General and  administrative  expenses  decreased approximately 57% or $1,133,000
during its 1998 fiscal year as compared to its 1997 fiscal year.  The  principle
reason for the decrease was in fiscal 1997,  various  directors and shareholders
of the Company,  collectively  excercised  options for  2,763,166  shares of the
Company's  common stock at no cost in cosideration  for the  cancellation of the
remaining  452,582  options held by these  individuals.  The exercise  price for
these  options  was  $0.25  per  share   and,accordingly  the  Company  recorded
approximately $691,000 as additional  compensation expense. An additional reason
for the  decrease  was in 1997 the  Company  incurred a  compensation  change in
connection  with the  amendment of an employment  agreement  with a key officer,
wherby annual  compensation  was fixed at $100,000 per year. As a result,  stock
was issued to an officer as additional  compensation  for the  amendment,  which
increased  compensation  in the prior  year by  $353,000  when  compared  to the
current year.

The  Company's  product  development  expense  decreased  approximately  22%  or
$145,600  during the 1998 fiscal year when compared to the 1997 fiscal year. The
Company conducts a number of R&D projects with the City College of CUNY,  During
the 1998 fiscal year, the Company advanced or accrued approximately  $384,000 to
CUNY for reimbursment of development costs which  approximated the ame amount in
1997.  During 1998 the Company  decreased its outside  consulting  approximately
$77,000 for costs associated with its Food and Drug Administration applications.
There was also a decline in other expenditures  approximating $70,000 for cancer
research  conducted  at   Sloan-Kettering   Institute   ($81,000),   for  patent
applications  filings and  fees($23,000)  and an increase in other  research and
development costs totaling $34,000.

The  Company   decreased  its   advertising,   travel  and   marketing   expense
approximately 13% or $13,700 during its 1998 fiscal year as compared to its 1997
fiscal  year.  This  decreased  activity  with  prospective  corporate  business
"partners"  and fund  raising  efforts is  primarily  the result of a decline in
available funds to conduct these activities.

During  fiscal  year  1998 The  Company  concluded  that its  intangible  assets
including  goodwill and patents should be written-off.  As a result, The Company
recorded a non-cash charge of $274,675,  which represents the difference between
the  carrying  value of these  assets and their fair  value  based on  estimated
discounted future cash flows.

Other  income increased by approximately $152,000 in the 1998 fiscal year when
compared to the 1997 fiscal  year.  The increase  was  primarily  comprised of a
$200,000  receipt from Spectrx,  Inc.,  which  entered into a no-shop  agreement
while it studied possible merger,  joint venture  licensing or other substantial
collaboration  with the Company by accessing  the  Company's  United  States and
Japanese patent  portfolio  and research  capabilities  for both  corporate  and
world-wide  synergy.  The no-shop  agreement  expired on January 18,  1998.  The
increase was offset by a decline of approximately $48,000 of interest income due
to decreased cash balances previously invested in money market funds.
<PAGE>
Liquidity and Capital Resources:

     The Company has a deficiency in working  capital as of February 28, 1998 of
approximately  ($890,000) representing a decrease of approximately  ($1,080,000)
during the 1998 fiscal year. The  deficiency is primarily  comprised of accruals
for professional  fees,  research and development  costs and salaries and wages.
The Company's abilty to maintain its operations  throughout its history has been
dependent  upon the  periodic  infusion  of capital and the  willingness  of its
creditors to accept payment beyond normal terms.

The ability of the Company to generate  significant  revenues from operations is
largely dependent upon obtaining  regulatory approval for the  commercialization
of its cancer detection  technology.  There can be no assurance as to whether or
when the various requisite government approvals will be obtained or the terms or
scope of these  approvals.  The Company intends to defray the costs of obtaining
regulatory  approval  for  the  commercialization  of  such  technology  by  the
establishment of clinical trial arrangements with medical institutions,  similar
to its agreement with Sloan Kettering Memorial Hospital.  The Company intends to
continue to pursue the  establishment  of  co-promotional  arrangements  for the
marketing,  distribution  and commercial  exploitation  of its cancer  detection
technology.  Such  arrangements,  if established,  may include up-front payments
sharing of sales revenues after  deduction of certain  expenses,  and/or product
development funding.

Management  of the  Company  anticipates  that  substantial  resources  will  be
committed  to a  continuation  of its research  and  development  efforts and to
finance government regulatory  applications.  While management believes that the
Company  will  obtain  sufficient  funds to satisfy  its  liquidity  and capital
resources  needs for the short term, no assurances can be given that  additional
funding, or capital from other sources, such as co-promotion arrangements,  will
be obtained on a  satisfactory  basis.  In the  absence of the  availability  of
financing on a timely basis, the Company may be forced to materially  curtail or
cease its  operations.  The  Company's  operating and capital  requirements,  as
described  above,  may change  depending upon several  factors,  including:  (i)
results  of  research  and   development   activities;   (ii)   competitive  and
technological  developments;  (iii) the  timing and cost of  obtaining  required
regulatory  approvals for its products;  (iv) the amount of resources  which the
Company devotes to clinical  evaluation and the  establishment  of marketing and
sales  capabilities;  and (v) the Company's  success in entering  into, and cash
flows derived from, co-promotion arrangements.

Year ended February 28, 1997 Compared to Year ended February 29, 1996

     The Company had no revenues during its fiscal years ended February 28, 1997
(its 1997 fiscal  year") and February  129,1996  (its "1996 fiscal  year").  The
Company's primary focus was the development of its light-based technology.

General and  administrative  expenses  increased  approximately  70% or $820,000
during its 1997 fiscal year as compared to its 1996 fiscal year.  The  principle
reason for the increase was in April 1996 various  directors and shareholders of
the  Company,  collectively  excercised  options  for  2,763,166  shares  of the
Company's  common stock at no cost in  consideration  for the cancelation of the
remaining  452,582  options held by these  individuals.  The exercise  price for
these  options  was $0.25 per  share  and,  accordingly,  the  Company  recorded
approximately $691,000 as additional  compensation expense. An additional reason
<PAGE>
for the increase was in March 1996 the Company incurred a compensation charge in
connection  with the  amendment of an  employment  agreement  wth a key officer,
whereby  annual  compensation  was fixed at  $100,000  per year for a three year
period. As a result,  stock was issued to an officer as additional  compensation
for the amendment which increased compensation approximately $181,000 during the
current year when  compared to the prior year.  The Company also  increased  its
outside consulting approximately $119,000 for costs associated with its Food and
Drug Administration applications.

The  increases  for fiscal  1997 were  partially  offset by  decreases  in other
consulting  fees,  professional  fees,  salaries and license fee income credited
against  general and  administrative  expense of $32,000,  $54,000,  $50,000 and
$25,000 respectivily, when compared to the prior year.

The Company's product development expense increased aproximately 80% or $300,400
during the 1997 fiscal year when  compared to the 1996 fiscal year.  The Company
conducts a number of R&D projects  with the City College of the City  University
of New York.  During  the 1997  fiscal  year the  Company  advanced  or  accrued
aproximately  $384,000  to CUNY  for  reimbursement  of  development  costs.  In
addition,  increases  were also  attributable  to  research  conducted  at Sloan
Kettering  Institute for cancer  research and to patent  appication  filings and
fees.

The  Company   increased  its   advertising,   travel  and   marketing   expense
approximately 34% or $24,700 during its 1997 fiscal year as compared to its 1996
fiscal  year.  This  reflects  increased  activity  with  prospective  corporate
business "partners" and increased fund-raising efforts.

The  improvement  in net  interest  income of $62,000 to income of $9,000 in the
1996 fiscal year is due to  increased  cash  balances  invested in money  market
funds, derived from a prior private placement.

Liquidity and Capital Rsources:

     The  Company's  working  capital  as of  February  28,  1997 was a positive
($189,000")  representing an increase of approximately  $580,000 during the 1997
fiscal year.  During fiscal 1997, the Company  successfully  completed a private
placement  offering of  2,666,667  shares of its comon stock for proceeds to the
Company of  approximately  $2,000,000.  The  Company's  ability to maintain  its
operations  throughout its hstory has been dependent upon the periodic  infusion
of capital and the  willingness of its creditors to accept payment beyond normal
terms.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Mediscience Technology Corp.:

We have audited the  accompanying  consolidated  balance  sheets of  Mediscience
Technology  Corp. (a New Jersey  corporation)  and subsidiary as of February 28,
1998  and  1997,  and  the  related   consolidated   statements  of  operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period  ended   February  28,  1998.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material  respects,  the  financial  position  of  Mediscience
Technology  Corp.  and  subsidiary  as of February  28,  1998 and 1997,  and the
results of their  operations and their cash flows for each of the three years in
the period  ended  February  28,  1998 in  conformity  with  generally  accepted
accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  The Company has no revenues,
has incurred significant losses from operations,  has an accumulated deficit and
requires  substantial  additional capital to fund its operations.  These factors
raise  substantial doubt about the ability of the Company to continue as a going
concern.  Management's plans in regard to these matters are described in Note 1.
The  financial  statements  do  not  include  any  adjustments  relating  to the
recoverability  and  classification  of asset carrying amounts or the amount and
classification  of liabilities that might result should the Company be unable to
continue as a going concern.





Roseland, New Jersey
November 5, 1998
<PAGE>
<TABLE>
<CAPTION>
                               MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

                        CONSOLIDATED BALANCE SHEETS -- FEBRUARY 28, 1998 AND 1997


                  ASSETS                                                      1998             1997
                                                                         ------------      ------------
<S>                                                                      <C>               <C>         
CURRENT ASSETS:
   Cash and cash equivalents (Note 2) ..............................     $     21,240      $    678,397
   Other assets ....................................................           17,123            31,664
                                                                         ------------      ------------

                Total current assets ...............................           38,363           710,061

EQUIPMENT, net of accumulated depreciation of $177,574 and
   $150,820 in 1998 and 1997, respectively (Note 2) ................           26,404            40,275

INTANGIBLES, net of amortization of $198,725 in 1997 (Note 10) .....                0           300,283
                                                                         ------------      ------------

                Total assets .......................................     $     64,767      $  1,050,619
                                                                         ============      ============

                   LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
   Accounts payable ................................................     $     30,860      $    101,313
   Accrued liabilities (Note 4) ....................................          897,926           419,549
                                                                         ------------      ------------

                Total current liabilities ..........................          928,786           520,862
                                                                         ------------      ------------

COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)

STOCKHOLDERS' EQUITY (DEFICIT) (Notes 2, 3, and 8):
   Preferred stock, $.01 par value; authorized 50,000 shares-
     Series A preferred stock; issued and outstanding 2,074 shares
       (preference on liquidation $20,740) .........................               21                21
   Common stock, $.01 par value; authorized 39,950,000 shares;
     issued and outstanding 34,943,618 and 34,691,952 shares in 1998
     and 1997, respectively ........................................          349,436           346,920
   Additional paid-in capital ......................................       17,573,096        17,430,196
   Accumulated deficit .............................................      (18,786,572)      (17,247,380)
                                                                         ------------      ------------

                Total stockholders' equity (deficit) ...............         (864,019)          529,757
                                                                         ------------      ------------

                Total liabilities and stockholders' equity (deficit)     $     64,767      $  1,050,619
                                                                         ============      ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
<PAGE>
<TABLE>
<CAPTION>
                               MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

                                  CONSOLIDATED STATEMENTS OF OPERATIONS

                               FOR THE YEARS ENDED FEBRUARY 28, 1998, 1997

                                          AND FEBRUARY 29, 1996


                                                            1998              1997              1996
                                                        ------------      ------------      ------------
<S>                                                     <C>               <C>               <C>         
NET SALES .........................................     $          0      $          0      $          0

COST OF SALES .....................................                0                 0                 0
                                                        ------------      ------------      ------------

                Gross profit ......................                0                 0                 0
                                                        ------------      ------------      ------------

GENERAL AND ADMINISTRATIVE EXPENSE
   (Notes 2, 3 and 4) .............................          864,485         1,997,422         1,177,006

PRODUCT DEVELOPMENT EXPENSE .......................          529,551           675,178           374,781

ADVERTISING, TRAVEL AND MARKETING
   EXPENSE ........................................           84,625            98,331            73,599

WRITE-OFF OF INTANGIBLES (Note 10) ................          274,675                 0                 0
                                                        ------------      ------------      ------------

                Total expenses ....................        1,753,336         2,770,931         1,625,386
                                                        ------------      ------------      ------------
OTHER INCOME:
   Interest income, net ...........................          (14,144)          (62,475)           (9,042)
   Other income (Note 9) ..........................         (200,000)                0                 0
                                                        ------------      ------------      ------------

                Total other income ................         (214,144)          (62,475)           (9,042)
                                                        ------------      ------------      ------------

                Net loss ..........................     $  1,539,192      $  2,708,456      $  1,616,344
                                                        ============      ============      ============

BASIC LOSS PER COMMON SHARE (Note 6) ..............     ($       .04)     ($       .08)     ($       .06)
                                                        ============      ============      ============

DILUTED LOSS PER COMMON SHARE (Note 6) ............     ($       .04)     ($       .08)     ($       .06)
                                                        ============      ============      ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 6)
                                                          34,893,011        33,908,028        26,261,301
                                                        ============      ============      ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
                                             MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

                                      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                                  FOR THE YEARS ENDED FEBRUARY 28, 1998, 1997 AND FEBRUARY 29, 1996



                                                                                 Preferred                           Common     
                                                                                   Stock                              Stock     
                                                                                 Number of        Preferred         Number of   
                                                                                   Shares           Stock            Shares 
                                                                                ------------     ------------     ------------
<S>                                                                             <C>              <C>              <C>       
BALANCE, February 28, 1995 ................................................            2,074     $         21       23,540,625

   Issuance of common stock for cash ......................................                0                0        3,393,000
   Exercise of options and warrants for common stock ......................                0                0          323,750
   Issuance of common stock for legal and consulting services rendered ....                0                0          392,500
   Stock issued to officer as additional compensation .....................                0                0          824,580
   Cash received in advance for stock issuance in March 1996 ..............                0                0                0
   Net loss for the year ended February 29, 1996 ..........................                0                0                0
                                                                                ------------     ------------     ------------

BALANCE, February 29, 1996 ................................................            2,074               21       28,474,455

   Collection of stock subscription receivable ............................                0                0                0
   Issuance of common stock for cash in connection with a private placement                0                0        2,666,667
   Stock issued upon exercise of stock options at no cost .................                0                0        2,843,166
   Stock issued to officer as additional compensation .....................                0                0          602,664
   Exercise of warrants for common stock ..................................                0                0          100,000
   Issuance of common stock for consulting services .......................                0                0            5,000
   Net loss for the year ended February 28, 1997 ..........................                0                0                0
                                                                                ------------     ------------     ------------

BALANCE, February 28, 1997 ................................................            2,074               21       34,691,952

   Issuance of common stock for services ..................................                0                0           85,000
   Stock issued to a director at no cost ..................................                0                0          166,666
   Net loss for the year ended February 28, 1998 ..........................                0                0                0
                                                                                ------------     ------------     ------------

BALANCE, February 28, 1998 ................................................            2,074     $         21       34,943,618
                                                                                ============     ============     ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                             MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

                                      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                                  FOR THE YEARS ENDED FEBRUARY 28, 1998, 1997 AND FEBRUARY 29, 1996
                                                            (continued)



                                                                                                                     Common         
                                                                                                   Additional         Stock 
                                                                                    Common           Paid-in      Subscriptions   
                                                                                    Stock            Capital        Receivables 
                                                                                ------------     ------------     -------------   
<S>                                                                             <C>              <C>              <C>             
BALANCE, February 28, 1995 ................................................     $    235,406     $ 12,725,891     $          0    

   Issuance of common stock for cash ......................................           33,930          839,320                0    
   Exercise of options and warrants for common stock ......................            3,238          113,638          (18,750)   
   Issuance of common stock for legal and consulting services rendered ....            3,925          276,075                0    
   Stock issued to officer as additional compensation .....................            8,246          300,972                0    
   Cash received in advance for stock issuance in March 1996 ..............                0           20,000                0    
   Net loss for the year ended February 29, 1996 ..........................                0                0                0    
                                                                                ------------     ------------     ------------    

BALANCE, February 29, 1996 ................................................          284,745       14,275,896          (18,750)   

   Collection of stock subscription receivable ............................                0                0           18,750    
   Issuance of common stock for cash in connection with a private placement           26,666        1,953,333                0    
   Stock issued upon exercise of stock options at no cost .................           28,432          662,360                0    
   Stock issued to officer as additional compensation .....................            6,027          484,657                0    
   Exercise of warrants for common stock ..................................            1,000           49,000                0    
   Issuance of common stock for consulting services .......................               50            4,950                0    
   Net loss for the year ended February 28, 1997 ..........................                0                0                0    
                                                                                ------------     ------------     ------------    

BALANCE, February 28, 1997 ................................................          346,920       17,430,196                0    

   Issuance of common stock for services ..................................              850          102,900                0    
   Stock issued to a director at no cost ..................................            1,666           40,000                0    
   Net loss for the year ended February 28, 1998 ..........................                0                0                0    
                                                                                ------------     ------------     ------------    

BALANCE, February 28, 1998 ................................................     $    349,436     $ 17,573,096     $          0    
                                                                                ============     ============     ============    
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                           MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                FOR THE YEARS ENDED FEBRUARY 28, 1998, 1997 AND FEBRUARY 29, 1996
                                           (continued)


                                                                                  Accumulated 
                                                                                    Deficit
                                                                                  ------------       
<S>                                                                             <C>
BALANCE, February 28, 1995 ................................................       ($12,922,580)      
                                                                                                     
   Issuance of common stock for cash ......................................                  0       
   Exercise of options and warrants for common stock ......................                  0       
   Issuance of common stock for legal and consulting services rendered ....                  0       
   Stock issued to officer as additional compensation .....................                  0       
   Cash received in advance for stock issuance in March 1996 ..............                  0       
   Net loss for the year ended February 29, 1996 ..........................         (1,616,344)      
                                                                                  ------------       
                                                                                                     
BALANCE, February 29, 1996 ................................................        (14,538,924)      
                                                                                                     
   Collection of stock subscription receivable ............................                  0       
   Issuance of common stock for cash in connection with a private placement                  0       
   Stock issued upon exercise of stock options at no cost .................                  0       
   Stock issued to officer as additional compensation .....................                  0       
   Exercise of warrants for common stock ..................................                  0       
   Issuance of common stock for consulting services .......................                  0       
   Net loss for the year ended February 28, 1997 ..........................         (2,708,456)      
                                                                                  ------------       
                                                                                                     
BALANCE, February 28, 1997 ................................................        (17,247,380)      
                                                                                                     
   Issuance of common stock for services ..................................                  0       
   Stock issued to a director at no cost ..................................                  0       
   Net loss for the year ended February 28, 1998 ..........................         (1,539,192)      
                                                                                  ------------       
                                                                                                     
BALANCE, February 28, 1998 ................................................       ($18,786,572)      
                                                                                  ============       
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
                               MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               FOR THE YEARS ENDED FEBRUARY 28, 1998, 1997

                                          AND FEBRUARY 29, 1996

                                                              1998             1997             1996
                                                          -----------      -----------      -----------
<S>                                                       <C>              <C>              <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss .........................................     ($1,539,192)     ($2,708,456)     ($1,616,344)
                                                          -----------      -----------      -----------
   Adjustments to reconcile net loss to net
     cash used in operating activities-
       Depreciation .................................          26,754           32,215           33,522
       Amortization .................................          25,608           25,600           25,600
       Write-off of intangibles .....................         274,675                0                0
       Stock issued for consulting services and
         interest ...................................         103,750            5,000          280,000
       Stock issued upon exercise of stock options
         at no cost .................................               0          690,792                0
       Stock issued to a director at no cost ........          41,666                0                0
       Stock issued to officer as additional
         compensation ...............................               0          490,684          309,218
       Changes in assets and liabilities-
         Decrease (increase) in other assets ........          14,541          (31,664)           4,564
         (Decrease) increase in accounts payable ....         (70,453)          84,528           12,790
         Increase (decrease) in accrued liabilities .         478,377          (64,203)          20,248
                                                          -----------      -----------      -----------

                Total adjustments ...................         894,918        1,232,952          685,942
                                                          -----------      -----------      -----------

                Net cash used in operating activities        (644,274)      (1,475,504)        (930,402)
                                                          -----------      -----------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES --
   Purchase of fixed assets .........................         (12,883)          (5,009)          (6,426)
                                                          -----------      -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Decrease in stock subscription receivable ........               0           18,750                0
   Proceeds from issuance of common stock, net of
     costs ..........................................               0        2,029,999          991,376
                                                          -----------      -----------      -----------

                                                                    0        2,048,749          991,376
                                                          -----------      -----------      -----------

                Net (decrease) increase in cash .....        (657,157)         568,236           54,548

CASH AND CASH EQUIVALENTS, beginning of
   year .............................................         678,397          110,161           55,613
                                                          -----------      -----------      -----------

CASH AND CASH EQUIVALENTS, end of year ..............     $    21,240      $   678,397      $   110,161
                                                          ===========      ===========      ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                               MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                               FOR THE YEARS ENDED FEBRUARY 28, 1998, 1997

                                          AND FEBRUARY 29, 1996
                                               continued)




                                                                   1998            1997            1996
                                                                 --------        --------        --------
<S>                                                              <C>             <C>             <C>     
SUPPLEMENTAL SCHEDULE OF NONCASH
   INVESTING AND FINANCING ACTIVITIES:
     Common stock was issued for the following-
       Legal and consulting services rendered ...........        $103,750        $  5,000        $280,000
       To officer as additional compensation ............          41,666         490,684         309,218
                                                                 --------        --------        --------

                                                                 $145,416        $495,684        $589,218
                                                                 ========        ========        ========

</TABLE>

           The accompanying notes to consolidated financial statements
                    are an integral part of these statements.
<PAGE>
                   MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  ORGANIZATION OF THE COMPANY:

       The consolidated financial statements include the accounts of Mediscience
       Technology Corp.  ("Mediscience") and its wholly-owned subsidiary,  Laser
       Diagnostic Instruments, Inc. ("Laser") (collectively the "Company").

       The  Company is  principally  engaged in the  design and  development  of
       medical  diagnostic  instruments  that detect cancer in vivo in humans by
       using light to excite the molecules contained in tissue and measuring the
       differences in the resulting natural  fluorescence  between cancerous and
       normal tissue.

       The Company is subject  but not  limited to a number of risks  similar to
       those  of  other  companies  at  this  stage  of  development,  including
       dependence on key  individuals,  the development of  commercially  usable
       products  and  processes,   competition   from  substitute   products  or
       alternative  processes,  the impact of research  and product  development
       activity, competitors of the Company, many of whom have greater financial
       or other resources than those of the Company,  the uncertainties  related
       to  technological  improvements  and  advances,  the  ability  to  obtain
       adequate additional financing necessary to fund continuing operations and
       product  development and the uncertainties of future  profitability.  The
       Company expects to incur substantial additional costs before beginning to
       generate  income from product sales,  including  costs related to ongoing
       research and development  activities,  preclinical studies and regulatory
       compliance.  Although the Company was able to obtain additional financing
       in April 1996 (Note 8), substantial additional financing is needed by the
       Company.

       On April 21, 1997, the Company announced a joint collaboration  agreement
       with General Electric  Company ("GE") and the Research  Foundation of the
       City  University  of New York  ("CUNY")  to develop  proprietary  imaging
       technology for medical purposes. The development and commercialization of
       non x-ray based optical  mammography and optical tomography products with
       greater   effectiveness,   decreased   side  effects  and  improved  cost
       efficiencies are the objective of this  collaboration.  The collaboration
       will  focus on  noninvasive  methods  to image  subsurface  tumors in the
       breast,  brain, etc. CUNY, through a NSASA Institutional  Research Award,
       through a Navy  grant,  and  through  the New York  State  HEAT  program,
       anticipates  more than  $3,800,000  of funding over a five year period to
       support this collaboration  agreement.  GE did not disclose the amount it
       intends  to  spend  on  the  development  and  commercialization  of  the
       Company's  proprietary  technology.  To date no funding has been received
       pursuant to this collaboration agreement.

       The Company's financial  statements have been prepared on a going concern
       basis which  contemplates  the  realization  of assets,  liabilities  and
       commitments  in  the  normal  course  of  business.  The  Company  has no
       revenues,  incurred substantial net losses and has an accumulated deficit
       through  February  28,  1998.  The Company  expects to incur  substantial
       expenditures  to further the  development  and  commercialization  of its
       products.  To achieve this,  management  will seek  additional  financing
       through  private  placements or other financing  alternatives,  and might
       also  seek  to  sell  the  Company  or its  technology.  There  can be no
       assurance that continued  financings  will be available to the Company or
       that, if available, the amounts will be sufficient or that the terms will
       be acceptable to the Company.
<PAGE>
(2)  SIGNIFICANT ACCOUNTING POLICIES:

       Use of Estimates-

         The  preparation of financial  statements in conformity  with generally
         accepted  accounting  principles  requires management to make estimates
         and  assumptions  that  affect  the  reported  amounts  of  assets  and
         liabilities and disclosure of contingent  assets and liabilities at the
         date of the financial  statements and the reported  amounts of revenues
         and expenses during the reporting  period.  Actual results could differ
         from those estimates.

       Cash and Cash Equivalents-

         Cash and cash  equivalents  include cash held in banks and mutual funds
         and is stated at cost, which  approximates  market. For purposes of the
         statement  of cash  flows,  the  Company  considers  all highly  liquid
         financial  instruments  purchased  with an  initial  maturity  of three
         months or less to be cash equivalents.

       Equipment-

         Equipment  is  stated  at cost.  Depreciation  is  computed  using  the
         straight-line method over an estimated useful life of five years.

       Long-Lived Assets-

         The Company  has  adopted the  provisions  of  Statement  of  Financial
         Accounting  Standards  No.  121,  "Accounting  for  the  Impairment  of
         Long-Lived Assets" ("SFAS 121"). SFAS 121 requires, among other things,
         that an  entity  review  its  long-lived  assets  and  certain  related
         intangibles for impairment  whenever changes in circumstances  indicate
         that the carrying amount of an asset may not be fully recoverable. (see
         Note 11 for write-off of intangibles)

       Income Taxes-

         The Company accounts for income taxes under the provisions of Statement
         of  Financial  Accounting  Standards  No. 109,  "Accounting  for Income
         Taxes"  ("SFAS  109").  SFAS 109 utilizes  the  liability  method,  and
         deferred taxes are determined based on the estimated future tax effects
         of differences  between the financial statement and tax bases of assets
         and liabilities at currently enacted tax laws and rates.

       Accounting for Stock-Based Compensation-

         The  Financial  Accounting  Standards  Board has  issued  Statement  of
         Financial  Accounting  Standards No. 123,  "Accounting  for Stock-Based
         Compensation"  ("SFAS 123").  SFAS 123 requires that an entity  account
         for  employee  stock  compensation  under  a fair  value-based  method.
         However,  SFAS 123  also  allows  an  entity  to  continue  to  measure
         compensation cost for employee stock-based compensation plans using the
         intrinsic  value-based  method of accounting  prescribed by APB Opinion
         No. 25,  "Accounting  for Stock Issued to  Employees"  ("APB 25").  The
         Company has elected the  disclosure  requirements  of SFAS 123 and will
         continue to account for employee stock-based compensation under APB 25.
<PAGE>
 (3) RELATED PARTY TRANSACTIONS:

       In May 1992, the Company  entered into a five year  employment  agreement
       with  Peter  Katevatis,  then  Chief  Executive  Officer,  President  and
       Stockholder of the Company.  Pursuant to the terms of such agreement, Mr.
       Katevatis was to be paid $190,000 per year,  plus annual  increases based
       on the consumer price index.  The employment  agreement  further provided
       for a bonus and fringe  benefits in accordance with policies and formulas
       mutually agreed upon by Mr. Katevatis and the Board of Directors.

       In January 1996, the Company  elected a new President and Chief Executive
       Officer,  Herbert L. Hugill. Mr. Katevatis remains Chairman and Treasurer
       of the Company.  Accordingly, the employment agreement with Mr. Katevatis
       was amended  effective  March 1, 1996  providing  for an annual salary of
       $100,000  per year for the next  three  years.  In  connection  with this
       amendment, in March, 1996 the Company issued 552,664 restricted shares of
       the  Company's  common  stock to Mr.  Katevatis,  which was  recorded  as
       additional  compensation  expense in fiscal 1997 of  $453,184.  All other
       provisions of the agreement remained the same.

       Pursuant to the terms of an employment  agreement,  Mr. Hugill, was to be
       paid $50,000 per annum,  was issued options to purchase 200,000 shares of
       the  Company's  stock  (Note 8), and was to receive  warrants to purchase
       shares equal to 5% of the number of common shares  outstanding on January
       18, 1996 (or up to 10% as of such date at the  discretion of the Board of
       Directors) at an option price of $1.00 per share,  upon the attainment of
       certain  milestones  in the  future.  On January  31,  1997,  Mr.  Hugill
       resigned as President and Chief Executive  Officer of the Company and the
       200,000  options were  cancelled.  The warrant  agreement was amended and
       effective  January 31, 1997, Mr. Hugill was granted a warrant to purchase
       up to 473,220  shares of the  Company's  common stock at a price of $1.00
       per share.  This warrant is  exercisable  at any time through July,  2003
       except for 315,480 shares which is  exercisable  only upon the attainment
       of certain  milestones.  Compensation  expense will be recognized for the
       difference  between  the warrant  price and the fair market  value of the
       stock at the date that the  milestones  are  attained.  In addition,  the
       Company  issued  50,000  shares of common  stock to Mr.  Hugill  upon his
       termination. The Company recorded $37,500 as compensation expense for the
       fair value of the shares issued.

       In February 1997, Mr.  Katevatis  resumed the role as President and Chief
       Executive  Officer.   Accordingly,  the  employment  Agreement  with  Mr.
       Katevatis  was amended for an annual  salary of $200,000 per year for the
       next three years.

       Legal services rendered by Mr. Katevatis  amounted to $50,000 for each of
       the three years ended February 28, 1998.  These amounts have been charged
       to operations.
<PAGE>
(4)  ACCRUED LIABILITIES:

       Accrued liabilities consist of the following-

                                                         1998             1997
                                                      --------          --------

         Legal and professional fees                  $240,350          $194,700
         Research and development (see Note 7)         485,141           224,849
         Salaries and wages                            172,435                 0
                                                      --------          --------

                                                      $897,926          $419,549
                                                      ========          ========

(5)  INCOME TAXES:

       The Company  accounts for income taxes in accordance with SFAS 109. Under
       SFAS 109,  deferred tax assets and  liabilities are computed based on the
       differences  between  the  financial  statement  and  income tax bases of
       assets and  liabilities  as  measured by  currently  enacted tax laws and
       rates.   As  of  February  28,  1998,  the  Company  has  operating  loss
       carryforwards  of approximately  $11,000,000  which may be used to reduce
       future income subject to income taxes and expire in various  amounts from
       1999 to 2013. As of February 28, 1998 and February 28, 1997,  the Company
       had a deferred  tax asset of  approximately  $3,800,000  and  $3,600,000,
       respectively,  for which valuation allowances for the entire amounts were
       provided.

(6)  LOSS PER COMMON SHARE:

       Effective  for the year ended  February  28,  1998,  the Company  adopted
       Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
       ("SFAS 128"). SFAS 128 requires the presentation of basic earnings (loss)
       per share and diluted earnings (loss) per share.  Basic loss per share is
       based on the  average  number  of  shares  outstanding  during  the year.
       Diluted  loss  per  share is the same as  basic  loss per  share,  as the
       inclusion of common stock equivalents would be antidilutive.

(7)  COMMITMENTS AND CONTINGENCIES:

       In April 1992, the Company entered into a five year consulting  agreement
       (the "Agreement")  with Dr. Robert R. Alfano, a principal  shareholder of
       the Company and Chairman of its Scientific  Advisory  Board.  Pursuant to
       the terms of such Agreement, Dr. Alfano is to be paid a consulting fee of
       not less than  $150,000 per annum in exchange for services to be rendered
       for  approximately  fifty  (50)  days per  annum in  connection  with the
       Company's medical photonics business. The Agreement further provides that
       Dr. Alfano is to be paid a bonus and fringe  benefits in accordance  with
       policies  and formulas  provided to key  executives  of the  Company.  In
       August  1995,  the  contract  was  extended  to  March  2002.  All  other
       provisions of the agreement remained the same.

       The  Company  has  committed  to  fund  approximately   $295,000  over  a
       twelve-month  period beginning June 1, 1995 for Mediphotonics  Laboratory
       research at the City College of the City  University of New York ("CCNY")
       under a contract which is renewed  annually.  The Company has funded CCNY
       approximately   $402,000,   $384,000   and   $220,000  for  each  of  the
       twelve-month periods ending May 31, 1998, 1997 and 1996.
<PAGE>
       On July 1, 1994,  the  Company  entered  into a Research  Agreement  with
       Sloan-Kettering  Institute for Cancer Research and the Company has agreed
       to fund $100,000  towards such efforts.  The Company  funded  $80,000 and
       $20,000 in fiscal 1996 and 1995, respectively.

       In  connection  with the  acquisition  of  patent  rights  to its  cancer
       detection  technology,  the Company  assumed an  obligation to pay to Dr.
       Alfano's  daughter a royalty of one  percent of the gross  sales  derived
       from any  equipment  made,  leased or sold which  utilizes  the  concepts
       described in the Company's cancer  detection  patent.  Additionally,  the
       Company  is to pay a royalty  equal to three and one half  percent of the
       gross sales of any invention from the Company's existing patents or newly
       obtained  patents,  respectively.  No amounts  have been paid  during the
       three year period ended February 28, 1998.

       In addition to the above  royalties,  the Company has obtained  worldwide
       licensing  rights for patents from two universities and has agreed to pay
       royalties of four percent of the net sales of all products generated from
       the patents and fifty percent of any income received from sublicensing of
       the patents. No amounts have been paid during the three year period ended
       February 28, 1998.

(8)  STOCKHOLDERS' EQUITY:

       Preferred Stock-

         The Company is authorized  to issue 50,000  shares of preferred  stock,
         $.01 par value per share,  which may be issued from time-to-time in one
         or more series,  the terms of which may be  designated  by the Board of
         Directors  without  further  action  by  shareholders.   The  Board  of
         Directors has  designated  2,074 shares of preferred  stock as series A
         preferred  stock,  all of which series is issued and  outstanding as of
         February 28, 1998.  Any  preferred  stock issued will have  preferences
         with respect to dividends,  liquidation and other rights,  but will not
         have preemptive rights.

         Holders of series A preferred stock are entitled to a preference of $10
         per share  before any  payment  is made to  holders of common  stock in
         liquidation  of the  assets of the  Company.  Additionally,  holders of
         series A preferred stock have no redemption or dividend rights and vote
         only with  respect to  corporate  matters  affecting  their  respective
         rights, preferences or limitations, but do not vote for the election of
         directors or on general corporate matters.

       Common Stock Compensation Award-

         In December 1995, the Board approved the issuance of 824,580 restricted
         shares  of the  Company's  common  stock  to  Mr.  Katevatis  for  past
         performance and services rendered to the Company. The restricted shares
         were recorded based on their deemed fair market value and  accordingly,
         the  Company  recorded  a  compensation   charge  of  $309,218  in  the
         accompanying consolidated statement of operations.

       Private Placement Offerings-

         During fiscal 1996, the Company closed on a private placement  offering
         ("Offering")  with Allen & Company  ("Allen"),  whereby Allen purchased
         2,000,000  restricted  shares of the Company's common stock at $.25 per
         share.  In connection  with the Offering,  Allen  received  warrants to
<PAGE>
         purchase  975,000  shares of the  Company's  common  stock and  another
         individual, instrumental to the Offering, received warrants to purchase
         50,000  shares of the Company's  common  stock.  The warrants are fully
         vested and are exercisable at $1.00 per share.

       In addition, during fiscal 1996 the Company also sold 1,393,000 shares of
       common stock for aggregate proceeds of $373,250.

         During  fiscal  1997,  the  Company  successfully  completed  a private
         placement  offering  (the "97  Offering")  of  2,666,667  shares of its
         common stock for proceeds to the Company of  approximately  $2,000,000.
         In  connection  with the 97 Offering,  the Company  issued  warrants to
         purchase  400,000  shares of the Company's  common stock at an exercise
         price of $1.00 per share. The warrants are  exercisable,  at the option
         of the holder, at any time through March 27, 2003.

       Common Stock Issued for Service-

         During fiscal 1998,  1997 and 1996,  respectively,  the Company  issued
         85,000,  5,000 and 392,500 shares,  respectively,  of restricted common
         stock  for  various  legal  and  consulting  services  provided  to the
         Company.  The number of shares issued were determined based on the fair
         market value of the services provided.

       Stock Options-

         Prior to fiscal 1996,  all stock options were issued at the  discretion
         of management.  In fiscal 1996, the Company  adopted the 1996 incentive
         stock option plan (the "Plan") which provides for granting of incentive
         stock  options  ("ISO's") to  employees.  Options vest over a period of
         time as determined by the Board of Directors  upon the granting of such
         options, except that no option shall be exercisable in whole or in part
         prior to the first  anniversary of the date of granting of such option.
         Options  are  exercisable  10 years from the grant date.  The  exercise
         price of ISO's granted under the Plan will not be less than 100% of the
         fair market value on the date of grant (110% for ISO's  granted to more
         than 10% stockholders).
 
         In April 1996,  Messrs.  Katevatis,  Kouvatis,  Kennedy and  Armstrong,
         directors  and  stockholders  of the  Company,  collectively  exercised
         options for 2,763,166  shares of the Company's  common stock at no cost
         in consideration  for the cancellation of the remaining 452,582 options
         held by these  individuals.  The exercise  price for these  options was
         $0.25 per share and,  accordingly,  the  Company  recorded  $690,792 as
         additional compensation expense.

         In May 1997, Mr. Kraum, a director and stockholder of the Company,  was
         issued  166,666  shares  of the  Company's  common  stock at no cost in
         consideration  for the cancellation of the remaining 200,000 options he
         held. The Company recorded $41,666 as additional  compensation  expense
         in connection with the issuance of the stock.
<PAGE>
         Stock option  activity  during the three year period ended February 28,
         1998, was as follows-
<TABLE>
<CAPTION>
                                                                       Weighted
                                                                        Average
                                                      Exercise          Exercise  
                                       Shares        Price Range          Price
                                     ----------      -----------        --------
<S>                                  <C>            <C>                 <C>     
  Outstanding, February 28, 1995      3,910,748      $0.25-$2.00        $   0.36

  Granted ......................        200,000      $      1.00        $   1.00
  Exercised ....................       (180,000)     $      0.25        $   0.25
                                     ----------      -----------        --------

  Outstanding, February 29, 1996      3,930,748      $0.25-$2.00        $   0.40

  Exercised ....................     (2,843,166)     $      0.25        $   0.25
  Cancelled ....................       (652,582)     $0.25-$1.00        $   0.48
                                     ----------      -----------        --------

  Outstanding, February 28, 1997        435,000      $1.00-$2.00        $   1.25

  Cancelled ....................       (200,000)     $      1.00        $   1.00
                                     ----------      -----------        --------

  Outstanding, February 28, 1998        235,000      $1.00-$2.00        $   0.95
                                     ==========      ===========        ========
</TABLE>

       Stock Warrants-

         Stock warrant  activity during the three year period ended February 28,
1998, was as follows-
<TABLE>
<CAPTION>
                                              Shares         Exercise
                                            Available       Price Range
                                            ---------      ------------- 
<S>                                        <C>             <C>  
        Outstanding, February 28, 1995        392,162      $.50 - $1.20

        Granted ......................      1,025,000
        Exercised ....................       (143,750)     $        .50
                                           ----------      ------------ 

        Outstanding, February 29, 1996      1,273,412      $.50 - $1.20

        Granted ......................        873,220      $       1.00
        Exercised ....................       (100,000)     $        .50
                                           ----------      ------------ 

        Outstanding, February 28, 1997      2,046,632      $.50 - $1.20
                                           ----------      ------------

        Outstanding, February 28, 1998      2,046,632      $.50 - $1.20
                                           ==========      ============
</TABLE>
<PAGE>
(9)    OTHER INCOME:

         On  October  20,  1997  the  Company  entered  into a 90 day "no  shop"
         agreement with SpectRx,  Inc. Norcross Ga., a developer of products for
         less  invasive  and  painless  alternatives  to blood tests for glucose
         monitoring,   diabetic   screening,   and  infant   jaundice  based  on
         proprietary  technology for the consideration of $200,000.  This was to
         enable  discussions  toward a merger,  joint venture licensing or other
         substantial  collaboration  with the Company by accessing the Company's
         United States and Japanese patent  portfolio and research  capabilities
         for both corporate and world-wide  synergy.  On January 18, 1998 the no
         shop agreement expired.  The Company has recorded the $200,000 as other
         income in the accompanying statement of operations.

(10) WRITE-OFF OF INTANGIBLES:

         Applying the criteria  established by Statement of Financial Accounting
         Standards No. 121,  Accounting for the Impairments of Long-Lived Assets
         and for Long-Lived Assets to Be Disposed Of, the Company concluded that
         certain intangible assets including goodwill and patents were impaired.
         Goodwill of $460,000  represented the excess of the purchase price over
         the net  assets  acquired  in the  acquisition  of Laser  and was being
         amortized over twenty years, using straight-line method. As a result of
         the  impairment,  the Company  recorded a non-cash  charge of $274,675,
         which  represents  the  difference  between the carrying value of these
         assets and their fair value based on estimated  discounted  future cash
         flows. The  circumstances  that led to this impairment relate primarily
         from the Company's inability to generate revenue.




ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
               FINANCIAL DISCLOSURE----None
<PAGE>
                                    PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
               WITH SECTION 16 (A) OF THE EXCHANGE ACT

                             Officers and Directors

The directors, executive officers and significant employees of the Company are:

Name                          Age                     Position
----                          ---                     --------

Peter Katevatis                64        Chairman of the Board, Chief Executive
                                         and Treasurer

John M. Kennedy                61        Vice President and Secretary

William Armstrong              81        Director

Mathew Culligan                78        Director

Michael N. Kouvatas            71        Director

John P. Matheu                 76        Director

Clarence Z. Wurts              57        Director


Directors hold office until the next annual sharholders'  meeting or until their
successors  have  been  duly  elected  and  qualified.  Executive  officers  are
appointed and serve at the pleasure of the Board of Directors

     Peter  Katevatis  has served as  Chairman of the Board of  Directors  since
1993.  He served as President  and Chief  Executive  Officer of the Company from
November, 1983 until the appointment of Herbert L. Hugill and served as director
of the Company  since 1981.  From 1981 until his election as President and Chief
Executive  Officer,  Mr.  Katevatis  was a Vice  President of the  Company.  Mr.
Katevatis was elected  Treasurer of the Company in January,  1996. Mr. Katevatis
has been a practicing  attorney in Philadelphia  Penna.  and Marlton New Jersey,
and is also licensed as an attorney in the State of New York and in the District
of Columbia.  Mr.  Katevatis was a trustee of the New Jersy  State's  Police and
Firemans  Retirement  Pension  Fund and  served  as a member of the State of New
Jersey  Investment  Council from 1990 until December , 1992. He is also a member
of the American  Arbitration  Association and a member of the National  District
Attorney's Association.

     John M. Kennedy  currently  serves a Vice  President  and  Secretary of the
Company,  as well as being a director of the Company since 1982. Mr. Kennedy has
served the Company as Vice  President  since  1983,  as  Treasurer  from 1984 to
January, 1996 and as secretary since 1986. Mr. Kennedy is Chairman of the Board,
Secretary-Treasurer  and General Manager,  of Pepco  Manufacturing  Co., a sheet
metal fabricator for the elctronics  industry located in Somerdale,  New Jersey.
Mr. Kennedy also was a director of First Peoples Bank of New Jersy from 1979 and
served as a member of its  executive  board  until  1994 when  Core-States  Bank
purchased First Peoples Bank.
 
     William W. Armstrong has served as a director of the Company since 1978. He
has been in  retirement  since  1982  following  a 36 year  career as a research
<PAGE>
scientist with Pfizer Inc, a world wide health care, personal care and specialty
chemicals manufacturer headquartered in New York City. Since his retirement, Mr.
Armstrong has continued to serve as a consultant to Pfizer  concerning  programs
involved with disperse  systems and complex  liquids his field of expertise.  He
has been awarded 14 patents  concerned in general with therapeutic  agent dosage
delivery systems.

     Mathew Culligan has served as a director of the Company since March,  1990.
Since  1988,  Mr.  Culligan  has  served  as  Chairman  and Chief  Executive  of
Culligan/Kahn  Associates,  a broadcast  production company located in New York,
New York. Mr.  Culligan,  in 1984 founded  Enviornmental  Monitor,  a non-profit
organization  dedicated to  providing a  computerized  service of  enviornmental
conditions  and currently  serves as its Chairman.  Mr.  Culligan has at various
times during his career,  served as Presdent of the NBC Radio Network;  Exective
Vice President of NBC Television;  Chairman of the Mutual Broadcasting  Company;
and as Chairman and President of Curtis  Publishing Inc., the publisher of among
other periodicals,  Saturday Evening Post, Ladies Home Journal and Holiday.  Mr.
Culligan has also been the author of twelve  published books and was the creator
of two television shows.

     John P. Matheu has served as a director  of the Company  since July , 1996.
Mr Matheu is currently  general partner and co-founder of MATCO & Associates,  a
firm speciaizing in providing  managment  consulting services to decision makers
in biopharmaceutical,  medical devices and health care firms. Previously, he was
employed  by Pfizer  Inc.  during  which time he held a wide range of  managemnt
positions primarily in distribution,  marketing and sales. As Vice President, he
established  and  directed  Pfizer's  generic  drug  division.   Prior  to  that
assignment he directed  Pfizer  Laboratories  800 person field sales force,  its
hospital marketing group and its training department. He left Pfizer in 1984 and
founded Matheu Associates, a management consulting firm.

     Michael N. Kouvatas has served as a Director of the Company since 1971. For
 the past 10 years Mr.  Kouvatas has been an attorney with offices in Haddonfied
New Jersey and  additionally  is a pricipal in various  food  operations  in the
Southern New Jersey area.

     Clarence Z. Wurts has served as a Director of the Company since July ,1996.
Mr. Wurts is founder,  President and CEO of Philadelphia  Investors Ltd., a full
service regional investment bank.  Previously,  he was President and director of
Edard C. Rorer &o., Inc. and a Partner of Alex Brown & Sons.

There are no family  relationships  among directors and, to the knowledge of the
Company,  there have been no legal proceedings or judgments during the past five
years which would be material to the  evaluation of the ability and integrity of
any director.

     Scientific Advisory Board

The Scientific  Advisory Board's Chairman is Dr. Robert R. Alfano  distinguished
Professor  of Science and  Engineering  and the Director of the IUSL at the City
College of CUNY. He is co-author of a number of patents concerning the Company's
photonic  technology and a principal  stockholder of the Company.  He supervises
the research and development of the Company's cancer  diagnostic  technology and
is principal  investigator at CCNY.  Since 1972, he has been affiliated with the
Physics  Department  of CCNY.  He presently  directs the institute for Ultrafast
Spectroscopy  and  Lasers and the  Photonics  Engineering  Laboratories  at City
College.  From 1964 to 1972, he was a member of the  technical  staff of General
Telephone & Electronics  Laboratories.  Dr.  Alfano  received an Alfred P. Sloan
<PAGE>
Fellowship  Research  corporation  Award and was made a Fellow  of the  American
Physical  Society in 1976. In 1983 he received the Outstanding  Italian-American
Award for Science.  In May, 1989, Dr. Alfano was elected a Fellow of the Optical
Society  of  America  for his  studies  of  ultrafast  phenomena.  He has been a
consultant to several major corporations including GTE, Clairol, Phillips Dental
and  Hamamatsu  Photonics.  Dr.  Alfano is on the  advisory  board of  Photonics
Spectra Magazine. He is a reviewer for prestigeous  professional journals in the
fields of physics,  optics,  photobiology,  photochemistry  and  biophysics.  He
received  his  B.S.  and  M.S.  degrees  in  Physics  from  Fairleigh  Dickinson
University in 1963 and 1964, respectively.  He received his Ph.D in Physics from
New york University in 1972.

Stimson P. Schantz, M.D. is Director of Cancer Prevention, Department of Surgery
Cornell University Memorial Sloan-Kettering Cancer Center, New York. Dr. Schantz
has been appointed as the principle  investigator  under the Company's  Clinical
Trial  Agreement  with Memorial  Hospital for Cancer and Allied  Diseases and in
such capacity,  overesees the pilot study of tissue autofluorescence pursuant to
such  agreement.  Between 1984 and 1991, Dr.  Schantz served in various  faculty
positions at the M.D.  Anderson Cancer Center in the Department of Head and Neck
Surgery.  Dr. Schantz is presently a member of the Society of Surgical Oncology,
American  Society  for Head  and Neck  Surgeons,  the  Society  of Head and Neck
Surgery,  and has served as the Director of research programs and as a member of
the research  committee at the University of Texas,  M.D Anderson Cancer Center.
He has been the  recipient  of several  honors and awards,  including  the First
Independent Investigator Award of the National Cancer Institute awarded in March
1988 and an NCI contract to study biomarkers awarded in 1995. Dr. Schantz serves
as reviewer and editor of a number of professional  medical  publications and is
the author of numerous articles.  papers, books and chapters,  and abtracts.  He
was awarded a Bathelor of Arts Degree from Harvard  College in 1970 and his M.D.
from the  University  of  Cincinnati  in 1975.  In April  ,1998 Dr.  Schantz was
recruited  to  lead  a   multi-institutional   effort  revolving  around  cancer
prevention  clinical research programs and constituting a consortium effort with
hospitals  in the  metrolpolitan  New York City area  supported  by the National
Cancer  Institute  approval and high  priority  rating on a $1.6 million  dollar
grant  to  carry  out  collaborative  clinical  trials  which  will be  targeted
specifically  at developing  Mediscience  Technology  and  positioned to conduct
phase II and phase III trials on a multi-organ  basis involving  diseases of the
breast, upper and lower aerodigestive tract, and gynecologic tissues.

Each member of the  Scientific  Advisory  Board is paid a fee of $1,000 for each
meeting  attended.  Additionally,  certain  members  past and present  have been
granted an option of  unlimited  duration  to  purchase  10,000  shares from the
Company's Common Stock at a price of $2.00 per share.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

     The followinfg sets forth a summary of  compensation  paid or accued to the
executive  officers  of the Company or fiscal  years  ending  Febuary,  28,1998,
Febuary 28, 1997 and Febuary 28, 1996 whose compensation exceeded $100,000.

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

Name and                 Year ended                            Other Annual
Principle Position      Feb. 28 (29)       Salary              Compensation
------------------      ------------       ------              ------------
<S>                          <C>          <C>                   <C>      <C>  
Peter Katevatis              1998         $200,000              $ 64,865 (2)  
Chairman and Chief           1997         $100,000 (1)          $523,231 (2)    
Executive Officer            1996         $208,578 (1)          $ 64,176 (2)    
</TABLE>                                                                  
--------------------

(1)  See Note 3 of Notes to Consolidated Financial Statements.

(2)  Includes  payment to Mr.  Katevatis of $50,000 for legal services  rendered
     during each of the fiscal years ending  Febuary  28,1998  Febuary  28,1997,
     Febuary  28,1996  (fiscal years  1998,1997,1996  respectively).  and fringe
     benefits under his employment  agreement for automobile expense of $6,000 ,
     automobile  insurance of $2,856 and health insurance of $ 4,800 paid during
     1998. Contract benefits paid in 1997 automobile expense $12,721, automobile
     insurance  $2,155 and health  insurance  $4,470.  Conract  benefits paid in
     1996,  automobile  expense  $4,928,  automobile  insurance  $2,155,  health
     insurance $7,093. Also inclused $453,184 of stock compensation expense. See
     Note 3 to Notes to Consolidated Statements.


Option Excercises and Holdings

In April 1996, Messrs. Katevatis, Kouvatas, Kennedy and Armstrong, directors and
shareholders  of the  Company,  collectively  excercised  options for  2,763,166
shares  ofthe  Company's  common  stock  at no  cost  in  cosideration  for  the
cancellation  of the remaining  452,582 options held by these  individuals.  The
excersise  price for these  options  was  $0.25 per share and  accordingly,  the
Company recorded $690,792 as additional compenation expense.
<PAGE>
The folowing table provides  information  regarding the number of shares covered
by both  exercisable  and  non-execisable  stock  options held by the  Company's
executive  officers at Febuary 28, 1998 (ses Notes to Consolidated  Statements).
In  addition  the  following  table sets  forth the  values  for  "in-the-money"
options,  which  represent the positive spread between the exercise price of the
existing  options  and  $________________  which was the  closing  price for the
Company's Common Stock in the over-the-counter market on Febuary 28, 1998.
<TABLE>
<CAPTION>
                     UNEXERCISED OPTIONS AT FISCAL YEAR-END

Number of shares underlying                      Value of unexercised
unexercised options at year end             in-the-money options at year end
-------------------------------             --------------------------------
  Exercisable       Unexercisable          Exercisabe             Unexercisable
  -----------       -------------          ----------             -------------
<S>                       <C>                  <C>                      <C>
      0                   0                    0                        0
</TABLE>

The Company does not have any other contigent forms of compensation for officers
and  directors,   including  any   pension,retirement,   stock  bonus  or  other
compensation  plan. No compensation has been paid to any individual for services
rendered as a director.

<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT

     The following table sets forth certain information at December 4, 1998 with
respect to (i) those  persons known by the Company to be the owners of more than
5% of the  Company's  Common Stock,  (ii) the ownership of the Company's  Common
Stock by each  director  and  (iii) the  ownership  of the  Common  Stock by all
exective  officers and directors of  theCompany as a group.  Except as otherwise
indicated,  each of the  stokholders  named below has sole voting and investment
power with respect to the Shares of Common Stock beneficially owned by him:
<TABLE>
<CAPTION>
                                            Amount of Beneficial         Percentage of
Name and Address                                 Ownership                  Class
----------------                                 ---------                  -----
<S>                                      <C>                                <C>  
Peter Katevatis
P.O. Box 598
Woodcrest Cherry Hill NJ,  08003         4,725,595 (1)(2)(3)(4)(5)(12)       13.4%

John M. Kennedy
c/o Pepco Mfg.  Co.
100 Somerdale, NJ 08083                  2,677,933 (5)(6)(12)                 7.6

William W.Armtsrong
P.O Box 607
Tupper Lake, NY 2986                       355,200 (5)(7)(12)                 1.0

Michael Kouvatas
27 Kings Highhway
East Haddonfield NJ 08033                  684,666 (5)(8)(12)                 1.9

Mathew Culligan
410 East 65 Street
New York, NY 10021                          20,000 (10)                     0.006

Robert C. Miller
c/o Allen &Company, Inc
711 Fifth Avenue
New York, NY 10022                               0 (14)                      0.00

Dr. Robert R. Alfano
c/o City College of CUNY
Convent Avenue @ 138th Street
New York, NY 10031                       1,414,000 (11)                      4.02

All directors and officers as a group
7 persons                                8,770,894 (13)                      24.9
</TABLE>
---------------------

(1)  Includes the issuance of a net of 398,167 restricted shares acquired by Mr.
     Katevatis  pursuant to the exercise of stock options described in footnotes
     (5) and (12) below.

(2)  Includes 824,500 restricted shares issued for past performance and services
     rendered  to the  Company.  see Note 8 of Notes to  Consolidated  Financial
     Statements.
<PAGE>
(3)  Includes 552,664  restricted shares issued in consideration for contractual
     reduction in salary described in Note 3 of Notes to Consolidated  Financial
     Statements.

(4)  Excludes 50,000 shares owned by Mr.  Katevatis's  daughter as custodian for
     his  grandchildren,  and a total of 500,000 shares owned by his sons, as to
     all of which he disclaims beneficial ownership.

(5)  On December 13, 1985 the Company granted stock options at an exercise price
     of $0.25 per share to the following  Officers and Directors in exchange for
     cancellation  of  certain of the  Company's  accrued  indebtedness  to such
     persons, portions of which were assigned as follows: Mr. Katevatis received
     options to purchase  4,400,000 shares  (2,200,000 of which were assigned by
     Mr. Katevatis to Mr. Kennedy);  Winston Frost, a former Director,  received
     options to purchase  476,000 shares,  238,000 of which were assigned by Mr.
     Frost to Mr.  Armstrong;  and Mr.  Kouvatas  received  options to  purchase
     560,000 shares.

(6)  Includes the issuance of a net of 1,833,333  restricted  shares acquired by
     Mr.  Kennedy  pursuant  to the  excercise  of stock  options  described  in
     footnots (5) and (12). Also includes 100,000 shares  registered in the name
     of Mr. Kennedys wife

(7)  Includes the issuance of a net of 65,000  restricted shares acquired by Mr.
     Armstrong pursuant to the excercise of stock options described in footnotes
     (5) and

(12) Also  included  are 6,000 shares  regisered in the name of Mr.  Armstrong's
     wife.

(8)  Includes the issuance of a net of $466,666  restricted  shares  acquired by
     Mr.  Kouvatas  pursuant  to the  exercise  of  stock  options  describe  in
     footnotes (5) and (12).

Also included are; 14,000 shares owned by Mr.  Kouvatas's  wife; 6000 shares for
which Mr.  Kouvatas is custodian for three (3) of his children and 36,000 shares
for which Mr.  Kouvatas's  daughter is custodian for her two children  under the
New Jersey Uniform Gift to Minors Act; and 30,000 shares registered in the names
of each his children.

(9)  Includes  the  issuance  of a net of 166,666  shares  acquired  by Mr Krumm
     pursuant to the  excercise of stock  options on May 1, 1997;  also includes
     6,000 shares registered in the name of his wife's IRA.

(10) Includes  20,000 shares which may be acquired by Mr.  Culligan at $2.00 per
     share pursuant to immediately excercisable stock options.

(11) Includes  44,000  shares owned by Dr.  Alfano's  daughter and 44,000 shares
     held by Dr. Alfano's wife in trust for their minor son.

(12) In  April  1996,  Messrs.  Katevatis,   Kouvatas,  Kennedy  and  Armstrong,
     directors and shareholders of the Company,  collectively  exercised options
     for  2,763,166  shares  of  the  Company's  common  stock  at  no  cost  in
     consideration  for the cancelation of the remaining 452,582 options held by
     these individuals. The exercise price for these options was $0.25 per share
     and  accordingly,the  Company recorded $690,792 as additional  compensation
     expense.
<PAGE>
(13) Includes the shares  described in notes (1),  (6),  (7),  (8), (9) and (10)
     above.

(14) Excludes   3,041,500  shares   beneficially   owned  by  Allen  &  Company,
     Incorporated, (8.5%- includes 1,041,500 warrants) as reflected in Amendment
     No. 4 to their  Schedule 13G filed  Febuary 11, 1998.  Mr. Miller is a vice
     president and a director of Allen & Company, Incorporated.

(15) See Note 3 of Notes to Consolidated Financial Statements.

The foregoing table does not include options granted to former  placement agents
of the Company's securities to purchase 111,912 shares of Cmmon Stock.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the fiscal  year ending  Febuary  28,  1989,  the  Company  ratified  and
confirmed a prior letter agreement  granting Pepco  Manufacturing Co. a right of
first  refusal for any and all  manufacturing  either for or through the Company
for a ten year period ending  October 29, 1997. The terms and provisions of such
arrangements  will be at least as favorable to the company as would otherwise be
available from  unaffiliated  third parties.  The Chairman of the Board of Pepco
Manufacturing  Co. is John M. Kennedy,  who serves as an officer and director of
the Cmpany.  In the event of an opportunity  for a business  arrangement  with a
major marketing  co-developer involving manufacture as well. Pepco has consented
to relinguish its right of first refusal in the best interests of the Company.

On December 1, 1988, the Company  acquired from Dr. Robert  Alfano,  a principle
stockholder of the Company and Chairman of the Scientific Advisory Board, all of
the issued and outstanding  stock of Laser  Diagnostic  Instruments,  Inc. whose
only  asset was US patent  number  4,930,516  (previously  defined  as "LDI") in
exchange for 1,500,000 shares of the Company's Common Stock. Additionaly, LDI is
under an  obligation  to pay a royalty  in the  aggregate  amount of 1% of gross
sales from any  equipment  made,  leased or sold  which  embodies  the  concepts
described in patent number 4,930,516 to Michelle Alfano,  Dr. Alfano's daughter.
In April,  1992 the Company  entered into a five (5) year  Consulting  Agreement
with Dr. Alfano. By letter Agreement, dated August 5, 1995, the Company extended
his Employment  Agreement to March 5, 2002 under the same terms and  conditions.
Pursuant to the terms of such Consulting  Agreement,  Dr. Alfano is to be paid a
consulting fee of no less that $150,000 per annum in exchange for services to be
rendered  for  approximately  fifty (50) days per annum in  connection  with the
Company's medical photonics business.. The Consulting Agreement further provides
that Dr.  Alfano is to paid a bonus  and  fringe  benefits  in  accordance  with
policies and formulas applied to the key executives of the Company.

Ronald Krumm,  resigned from the Board of Directors  effective  August 18, 1998.
Herbert L. Hugill  terminated  his tenure as  President  /CEO  January 31, 1998,
whereupon  Mr.  Katevatis  re-assumed  those  responsibilities,  and Mr.  Hugill
resigned from the Board of Directors effective March 6, 1998.

Peter Katevatis Pres/CEO and Dr. Alfano principle scientific advisor have agreed
to forbear any and all collection action against  Mediscience for accrued salary
and related  contractually  entitled items including  forgiveness of interest in
exchange for the option of coverting such accrued debts into MTC common stock on
the basis of (0.25  cents),  which is above the average High Bid price on June 9
through the 12th 1998,  which was 0.15 cents.  Said  option to be  unlimited  in
duration.  Should MTC receive funding  Katevatis and Alfano may elect to receive
all or part of such accrued debt in cash/shares.  This right shall be assignable
in whole or in part without  condition to any assignee or heirs and in no way is
intended to negate the  corporate  debt  accrued and owing to  Katevatis/Alfano.
This  offer  by  Katevatis/Alfano  was  unanimously  accepted  by the  Board  of
Directors December 4, 1998.
<PAGE>
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits.

10.01  Employment  Agreement  dated May 1, 1992 between the registrant and Peter
Katevatis. (1)

10.02  Consulting  Agreement dated April 21, 1992 between the Registrant and Dr.
Robert R. Alfano (2)

10.03 Extension Agreement between the Registrant and City College of the City of
New York (3)

10.04 Research  Proposal to Registrant  submitted jointly by the City Colloge of
the  City  University  of New  York  and the  Research  Foundation  of the  City
University of New York (4)

10.07  Agreement  dated  December  1, 1988 by and among  the  Registrant,  Laser
Diagnosis and Robert Alfano, as amended and modified on October 24, 1988 (7)

10.08 Research Agreement between the Research  Foundation of the City University
of New York and the Registrant dated as of June 1, 1992 (9)

10.10  License  Agreement  between  Virginia  Commenwealth  University  and  the
Registrant (10)

10.11 Letter Agreement  between Memorial Hospital for Cancer and Allied Diseases
and the Registrant dated March 30,  1993amending  Clinical Trial Agreement dated
June 1, 1992 (11)

10.12  Amendment No. 3 to Agreement  between the  Registrant and City College of
the

City University of New York

10.13  Research  Agreement  effective  July 1, 1994 between the  Registrant  and
Sloan-Kettering Institute for Cancer Research (12)

10.14 License  Agreement between Yale University and the Registrant dated May 4,
1993

10.15  License  Agreement  between  Yale  University  and the  Registrant  dated
November 30, 1993

10.16  Research  Agreement  effective July 1,1994 between thr Registrant and the
Trustees of Columbia University in the City of New York (13)

10.17 Research Agreement  effective July 1, 1994 between Registrant and the Free
University, Amsterdam N.V. (14)

10.18  Microbial  Detection  protocal  dated  August  15,1994  between  and  the
Registrant and Merck & Co. (15)

10.19  Collaborative  Research Agreement effective September 23, 1994 btween the
Registrant and General Electric Company (16)

10.20 SBIR  Grant  Award  effective  September  September  30,1994  between  the
Registrant and the National Institutes of Health (17)
<PAGE>
10.21 Award/Contract effective September 30, 1994 between the Registrant and the
U.S. Army Medical Research Acquisition Activity (18)

10.22 Clinical Trial Agreement effective December 1, 1994 between the Registrant
and the General Hospital Corporation, d.b.a.Massachusetts General Hospital (19)

10.23  Investment  Banking  Agreement  effective  August  8,  1995  between  the
Registrant and Allen & Company Incorporated (20)

10.24  Employment  Agreement  between the  Registrant  and H.L Hugill  effective
January 18, 1996 (21)

10.25  Collaborative  Research  Agreement  effective  June 15, 1996  between the
Registrant, Mallinckrodt Medical Inc. and the Research Foundation of the City

University of New York (22)

10.26  Investigational  Device  Exemption ganted January 3, 1997 by the U.S Food
and Drug Administration (FDA) (23)

10.27  Employment  Agreement  Extension  efective  January 17, 1997  between the
Regisrant and H.L.Hugill (24)

10.28 Research Agreement effective April 21, 1997 among the Registrant,  General
Electric Co, and the Research Foundation of the City University of New York (25)

(b) Reports on Form 8-K

See Exhibit 10.25
Collaborative Research Agreement effective June 15, 1996 between the Registrant,
Mallinckrodt  Medical Inc. and the Research Foundation of the City University of
New York. (22)

See Exhibit 10.26
Investigational  Device  Exemption  granted January 6, 1997 by the U.S. Food and
Drug Administration (FDA) (23)

See Exhibit 10.27
Employment  Agreement effective January 17, 1997 between the Registrant and H.L.
Hugill (24)

See Exhibit 10.28

Research  Agreement  effective April 21, 1997 with General  Electric Company and
the Research Foundation ofthe City University of New York (25)
------------------

(1) Filed as  Exhibit  10.1 to  Registrant's  Annual  Reort on Form 10-K for the
fiscal year ended February 28, 1993
(2) Filed as Exhibit  10.2 to  Registrant's  Annual  Report on Form 10-K for the
fiscal year ended February 28, 1993
(3) Filed as Exhibit  10.3 to  Registrant's  Annual  Report on Form 10-K for the
fiscal year ended February 28,1993
(4) Filed as Exhibit 10.1 to registrant's Annual Report 10-K for the fiscal year
ended February 28, 1989 and incorporated by reference thereto.
(5) Filed as Exhibit  10.3 to  Registrant's  registration  Statement on Form S-1
filed on July 5, 1991 and incorporated herein by reference thereto.
<PAGE>
(6) Filed as Exhibit  10.3 to  Registrant's  Annual  Reporton  Form 10-K for the
fiscal year ended February 28, 1987 and incorporated by reference thereto.
(7) Filed as Exhibit  10.5 to  Registrant's  Registration  Statement on Form S-1
filed on July 5,1991 and incorporated herein by reference thereto.
(8) Filed as Exhibit  10.8 to  Registrant's  Registration  Statement on Form S-1
filed on August 24,1992 and incorporated by reference hereto.
(9) Filed as Exhibit  10.9 to  Registrant's  Registration  Statement on Form S-1
filed on August 24, 1992 and incorporated herein by reference hereto.
(10) Filed as Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 1993.
(11) Filed as exhibit 10.11 to  Registrant's  Annual Report on Form 10-K for the
fiscal year ended February 28, 1993.
(12) Filed as Exhibit  10.13 to  Registrant's Annual Report on Form 10-K for the
fiscal year ended February 28, 195.
(13) Filed as Exhibit 10.16 to  Registrant's  Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
(14) Filed as Exhbit 10.17 to  Registrant's  Annual  Report on Form 10-K for the
fiscal year ended February 28, 1995.
(15) Filed as Exhibit 10.18 to  Registrant's  Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
(16) Filed as Exhibit 10.19 to  Registrant's  Annual Report on Form 10-K for the
fiscal yearended February 28, 1995.
(17) Filed as Exhibit 10.20 to  Registrant's  Annual Report on Form 10-K for the
fiscal year ended February 28, 1995.
(18) Filed as Exhibit 10.21 to  Registrant's  Annual Report on Form 10-K for the
fiscal year February 28, 1995.
(19) Filed as Exhibit  10.22 to  Registrants  Annual Report on Form 10-K for the
fiscal year February 28, 1995.
(20)  Filed as  Exhibit A to  Registrant's  current  report  on Form 10-K  dated
September 23, 1995.
(21) Filed as Exhibit A to Registrant's  current report on Form 10-K dated April
23, 1996.
(22) Filed as Exibit A to Registrant's  curent report on Form 8-K dated June 15,
1996.
(23) Filed as Exhibit A to Registrant's current report on Form 8-K dated January
6, 1997.
(24) Filed as Exhibit A to Registrant's current report on Form 8-K dated Jan 13,
1997
(25) Filed as Exhibit A to Registrants  current report on Form 8-K dated January
28, 1997
(26) Filed as Exhibit A to  Registrant's  current report on Form 8-K dated April
21, 1997.
(27) Filed as  Exhibit A to  Registrant's  current  report on Form 8-K dated May
16.1997
(28) Filed as Exhibit A to Registrant's current report on Form 8-K dated Oct 21,
1997
(29) Filed as Exhibit A to  Registrant's  current report on Form SC13G dated Feb
12, 1998
(30) Filed as Exhibit A to  Registrant's  current report on Form 8-K dated April
8, 1998
(31) Filed as Exhibit A to Registrant's current report on Form 8-K dated May 29,
1998
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                         Mediscience Technology Corp.
Date: December      1998             By: Peter Katevatis, Chairman of the Board
                                         and Chief Executive Officer

                           POWER OF ATTORNEY AND SIGNATURES

We, the  undersigned  officers and  directors of  Mediscience  Technology  Corp.
hereby  severally  constitute and appoint Peter  Katevatis,  our true and lawful
attorney,  with  full  power to sign for us and in our  names in the  capacities
indicated below, any amendments to this report on form 10-KSB,  and generally to
do all  things  in our  names and on our  behalf  in such  capacities  to enable
Mediscience  Technology  Corp. to comply with the  provisions of the  Securities
Exchange Act of 1934, as amended, and all the requirements of the Securities and
Exchange Commission.

   Pursuant to the  requirements  of section 13 or 15(d) of the  Securities  and
Exchange Act of 1934, this report has been signed below by the following persons
on bealf of the Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>

Signature                                       Title                                     Date
---------                                       -----                                     ----
<S>                       <C>                                                      <C>
/s/Peter Katevatis        Chairman of the Board,Principle Officer
Peter Katevatis, Esq.         and Financial Officer                                December 10, 1998

/s/William Armstrong
William Armstrong                       Director                                   December 10,  1998

/s/Mathew J. Culligan
Mathew J. Culligan                      Director                                   December 10, 1998

/s/John M. Kennedy
John M. Kennedy                         Director                                   December 10, 1998

/s/ Michael N. Kouvatas
Michael N. Kouvatas, Esq.               Director                                   December 10, 1998

/s/John P, Matheu
John P.Matheu                           Director                                   December 10, 1998

/s/Clarence Z. Wurts
Clarence Z. Wurts                       Director                                   December     1998

</TABLE>