SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934 for the fiscal year ended February 29, 2000

[_] 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.
              (Exact name of registrant as specified 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: (856)-428-7952

Securities registered pursuant to section 12(b) of the Act: None

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

     Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days, Yes [ X ] No [ ]

     Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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-KSB or any amendment to
this Form 10-KSB [ X ]

     The issuer's revenues for its most recent fiscal year were: $ none

     The aggregate market value of the voting stock and non-voting common equity
held by non-affiliates computed by the average bid and asked price of such
common equity of the Registrant, as of, May 19, 2000 ($.30 per share) was:
$10,867,839

     The number of shares outstanding of each of the registrant's classes of
common stock, as of May 19, 2000 was: The issuer had no other classes of common
equity outstanding as of that date.

       Title of Each Class                      Number of Shares Outstanding
       -------------------                      ----------------------------

Common Stock, par value $.01 per share                   36,226,130
Preferred Stock, par value $0.1 per share                     2,074


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                      DOCUMENTS INCORPORATED BY REFERENCE:

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

     8-K Report, filed 11/23/99 Employment Agreement with. Frank S. Castellana,
M.D. as President and Chief Operating Officer of Mediscience Technology Corp are
incorporated by reference into Part 1 of this form.

                                MEDISCIENCE CORP.
                           Annual Report on Form 10-KSB
                                Table of Contents

                                     PART I

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

                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Shareholder Matters
Item 6.   Management's Discussion and Analysis of Financial Condition and
                Results of Operations
Item 7.   Financial Statements and Supplemental Data

            Report of Independent Public Accountants

            Consolidated Balance Sheets- February 29, 2000 and February 28, 1999

            Consolidated  Statements of Operations  for the years ended February
            29, 2000, and February 28, 1999 and 1998

            Consolidated Statement of Stockholders Deficit for the years ended
            February 29, 2000, and February 28, 1999 and 1998

            Consolidated  Statements of Cash Flows for the years ended  February
            29, 2000, and February 28, 1999 and 1998

            Consolidated Notes to Financial Statements

Item 8.   Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosures

                                    PART III

Item 9.   Directors and Executive Officers of the Registrant
Item 10.  Executive Compensation
Item 11.  Security Ownership of certain Beneficial Owners of Management
Item 12.  Certain Relationships and related transactions
Item 13.  Exhibits, List and Reports on Form 8-K

                                     PART I

Item 1. Business

Introduction


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This annual report on Form 10-KSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934. Actual events or results may differ materially
from those projected in the forward-looking statements as a result of the
factors described herein. Such forward-looking statements include, but are not
limited to, statements concerning business strategy, development and
introduction of new products, research and development, marketing, sales and
distribution, manufacturing, competition, third-party reimbursement, government
regulation (including, but not limited to, FDA requirements), continued clinical
trial relationships and operating and capital requirements. Y2K computer
configuration is not of concern to our design because it is addressed as a
matter of product development.

Mediscience Technology Corp. ("the Company" "us" or "we")) is principally
engaged in the design and development of diagnostic medical devices that detect
cancer using light induced native tissue fluorescence spectroscopy (the
"Technology") to distinguish between malignant and normal or benign tissue.
Animal and human tissue contains molecules that fluoresce naturally when exited
by light at certain wavelengths. Since the molecular and or structural makeup of
tissue changes as it becomes cancerous, the Company's medical devices are able
to detect a shift in the resulting native tissue fluorescence spectrum allowing
it to distinguish between normal, precancerous and cancerous tissue.

Background

On December 1, 1988, we acquired all the outstanding stock of Laser Diagnostic
Instruments, Inc. ("LDI"), which is now a wholly owned subsidiary of the
Company. The principle asset of LDI was the ownership of a patent application
entitled "Method and Apparatus for Detecting Cancerous Tissue Using Visible
Luminescence," which was subsequently granted as patent number 4,930,516 by the
US Patent and Trademark Office on June 5, 1990. The "516" claims were expanded
from 9 to 59 on August 8,1998 in a reexamination of that patent initiated by the
Company. Our research and development activities are centered around this patent
and other patents either acquired subsequently by Mediscience or for which
Mediscience is the exclusive licensee.

We have successfully conducted preclinical and clinical evaluations which
continue to support our belief that our proprietary technology, when fully
developed, will be useful in the screening and diagnosis of cancer. We also
believe that our technology, if successfully developed, will have substantial
commercial appeal due to its non-invasive character, its delivery of immediate,
real time results, its enhanced diagnostic sensitivity and specificity and its
appeal to physicians who can generate additional office revenues that currently
accrue to an off site pathology laboratory.

On January 6, 1997, the Company received approval from the FDA of its
Investigational Device Exemption application to initiate human Phase II clinical
trials with its CD Scan medical device for early stage detection of cancer. This
trial has not been initiated because of the lack of funding.

On January 25, 1999 the FDA classified our Mediscience CD-Scan as a
non-significant risk device for human trial Phase I clinical investigation of
the biological basis of fluorescence as applied to medically significant female
OBGYN health issues. This pilot study is being conducted under a research
agreement with Yale University and CUNY under the direction of Dr. Frederick
Naftolin, Chairman OBGYN Dept. of Obstetrics and Gynecology.

Strategy

On April 15, 1999 the Company entered into a joint effort with Sarnoff
Corporation of Princeton NJ for the purpose of raising funds to develop a series
of instruments based upon our Technology and the engineering background and
expertise of Sarnoff and City University of New York. On April 15, 1999 the
Company and Sarnoff jointly filed a $2.5 Million funding request with the
National Cancer Institute to support the development over a three-year period of
an "Instrument to Screen, Detect and Treat Human Cervical Cancer Based on
Intrinsic Fluorescence Imaging."

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Significantly, our agreement provided that all Intellectual property which
derives from this project, as well as prototypes and improvements of our patents
are to be our sole property unless we otherwise agree in writing. While the
project was considered to have scientific merit by NCI reviewers, funding was
not made available.

Our strategy is to develop one or more products for the non-invasive or
minimally-invasive diagnosis of specific types of cancer which we ultimately
plan to market worldwide either directly or in various types of partnering or
licensing arrangements with other firms. Our principle focus will be on the
United States; we expect to address international markets via partnering or
licensing arrangements with other companies.

We believe that our Technology will be broadly applicable in cancer screening
and diagnosis, however, each approved labeled indication is expected to require
separate pre-marketing approval (a "PMA"), which will be both time-consuming and
costly. We plan to carefully select and prioritize our targeted diagnostic
indications to maximize the return on development and clinical investments. We
regard our "516" and other related patents (such as 5,131,398) as pioneering,
blocking and dominant in the area of cancer diagnosis using fluorescence
spectroscopy both in-vivo and in-vitro.

On November 29, 1999, the Company announced that Frank S. Castellana, M.D.,
Eng.Sc.D. would join its executive team as President and Chief Executive
Officer, effective February 1, 2000. It also announced that it was seeking
investment partners to support the funding of a joint effort between itself,
Sarnoff Corporation, and the Mediphotonics Laboratory of the City University of
New York to develop and commercialize an advanced, second generation version of
its proprietary two-dimensional fluorescence imaging system for early cancer
detection.

The principal issue facing the Company is a critical lack of the financial
resources and liquidity required to maintain business momentum and to properly
leverage our intellectual property assets; the resolution of this issue is the
principle focus and the highest priority of management. In the absence of the
availability of such financing on a timely basis, the Company may be forced to
materially curtail or cease its operations.

Two important and immediate derivative issues relate to the Company's research
and licensing agreements with the City University of New York. The Company has
an outstanding financial obligation to the University for work conducted during
the period August, 1997 through July, 1998. In 1999, an agreement was reached to
extend the time for payment until June 30, 2000. While we are actively working
to meet this deadline, there is no assurance that we will be successful, and if
not, that we will successfully negotiate an additional time extension. In
addition, according to the terms of our research and licensing agreement with
the University, the Company must negotiate a minimum royalty agreement within 5
years of the date of filing for all licensed patents for which product
commercialization has not yet occurred. If we are unsuccessful in our
negotiations, the Company may lose rights to several of its key patents.

Our Products

We have developed three prototype products that employ our technology for cancer
Diagnosis; they include the Cancer Detection ("CD") Scan, CD Ratiometer and CD
Map. These devices use lamp light to provide a broad spectrum of safe, scanning
excitation light wavelengths to insure that the appropriate target tissue
molecules are sufficiently fluoresced to provide maximum diagnostic sensitivity.
A fiberoptic probe is attached to each of our devices to transmit the optical
excitation signal and to retrieve the native fluorescence response. We believe
that the CD instruments have a great deal of versatility and a broad range of
potential alternative applications depending on the preferred configuration of
the 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,
through a cystoscope for study of the urinary tract, a colposcope for
gynecological evaluation or a laparoscope for evaluation of internal organs, and
even through a core biopsy needle to optically assess breast tumors or other
deep tissue tumors, such as sometimes occur in the pancreas, liver or prostate.

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The CD Scan product prototype is oriented to medical research. It is designed to
provide optical scanning capability over a broad spectrum of optical wavelengths
for evaluation of tissue. We use the CD Scan whenever possible to help define
the critical scanning and emission wavelengths for our two other prototype
products. On the other hand we are designing the CD Ratiometer as a simple,
compact instrument with user friendly features and characteristics. It is being
designed to optically assess the scanned tissue only at pre-established optical
wavelengths and to instantaneously report out a "yes "no" or "maybe" result on a
computer screen. We expect that the CD Ratiometer with its anticipated
assortment of disposable probe designs, will be the preferred product for
medical practitioners to use in the office or clinical setting. The CD Map is a
vision instrument that is being designed to optically interrogate an area of
tissue rather than selective individual points. Although it is at an earlier
stage of design than either the CD Scan or CD Ratiometer, it is expected to
report out similar results but in the form of a colored map on a computer screen
distinguishing normal areas from abnormal areas via color differentiation. If we
can successfully develop the CD Map, we expect it to be especially useful in
assisting cancer surgeons in clearly defining the surgical margins of tumors,
real time, during cancer surgery without the use of extrinsic dyes, drugs or
other invasive agents.

Research and Product Development

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

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

Because of lack of funding, Company support of research activities at the MPL is
presently suspended. We plan to resume our support of relevant programs when,
and if, current fund raising efforts are successful.

Clinical Development

Our CD products are designed primarily to be used directly on human patients
in-vivo. Part of the process of product development and FDA approval is the
development of sufficiently compelling clinical evidence to demonstrate safety
and effectiveness of one or more of the Company's prototype CD products for each
intended diagnostic application (labeled or intended use). Because of the
anticipated clinical utility of our technology and prototype CD products, we
have been able to develop important collaborative relationships with some of the
most highly regarded cancer center research hospitals in the United States to
assist in the clinical evaluation of our prototype products. These institutions
include Memorial Sloan-Kettering Cancer Center, 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.

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A Phase I clinical feasibility study of the upper aerodigestive tract was
carried out at Memorial Sloan-Kettering under the principal 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 when funding is available.

Another planned, Phase I clinical study will be conducted at New York Hospital's
Cornell Medical Center to assess the potential utility of the Company's CD
Ratiometer with fiberoptic probe adapted to a flexible endoscope furnished by
Pentax Precision Instrument Corporation for monitoring Barrett's Esophagus. On
April 24, 1997, we entered into a clinical trial agreement and provided initial
funding for this clinical study. However, further progress on this study will
require additional funding which cannot be provided at this time due to resource
constraints. Barrett's Esophagus is a malady that is thought to be a possible
precursor to esophageal cancer in certain people. Barrett's patients are
routinely monitored because of the heightened risk that a small proportion of
them are predisposed to 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 Barrett's patients, but the current state of
medical practice does not provide sufficient molecular information to
distinguish between the high risk group and the lower risk group. It is hoped
that endoscopic application of our technology will provide gastroenterologists
with the ability to better assess the condition of Barrett's tissue without a
need for painful multiple biopsies. It is also hoped that this additional
molecular information will provide the ability to assess the relative risk of
Barrett's patients to the development of esophageal cancer allowing
gastroenterologists to establish individual patient monitoring schedules
appropriate to their relative level of perceived risk. Dr. Basuk has reported
that his work shows that UV emission measurements can effectively distinguish
normal esophageal tissue from Barrett's or adenocarcinoma. Further, preliminary
data also indicates that the combination of UV emission and excitation
measurements can potentially separate Barrett's from dysplasia and cancer as
well as from normal tissues. On March 19, 1999 the New England Journal of
Medicine (Vol.340, No. 11) reported on a study of "Symptomatic Gastrosophageal
Reflux as a risk factor for esophageal Adenocarcinoma," concluding that there is
a strong and probable causal relation between gastrosophageal reflux and
esophageal adenocarcinoma. Esophageal adenocarcinoma is treatable but rarely
curable, mortality is high and successful treatment depends on early detection,
thus screening high risk patients would be appropriate. Mediscience experience
in excitation of important tissue molecules shows improved diagnostic accuracy
in the range of 80 to 90 percent with measurement time of a few seconds
(real-time). The greatest incidence of this decease is seen in males over age
60, with the major risk factors being the use of alcohol and tobacco.

Business Development and Marketing

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

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

The excision biopsy, however, often requires a significant amount of surgical

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intervention to collect an adequate tissue sample to make a proper diagnosis and
staging determinations. The process can sometimes expose the patient to
unnecessary risks, lengthy hospital stays, long recovery times, pain and
discomfort and significant health care expense. 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 biopsy. The most widely practiced technique for
definitive diagnosis of breast cancer, the leading cause of death among American
women between the ages of 40 and 55, is open surgical biopsy (a specific type of
biopsy) which is done under a general anesthetic and typically results in
surgical excision of a golf ball-sized mass of breast tissue. About 800,000 such
procedures are performed annually in the United States at an estimated annual
cost of between $2 billion and $4 billion. If the Company can successfully adapt
its technology to diagnose and stage breast cancers, it believes it will save up
to half the current cost, eliminate a significant amount of patient discomfort
for those patients determined to have cancer, and eliminate most of the trauma
for the 70% to 80% of the patients who are found not to have cancer.

We believe that our technology incorporated into one or more of our prototype CD
products will be useful in diagnosing and staging for more than half of the
various types of cancers. In addition to the pre-clinical and clinical
evaluations currently projected or already completed, i.e., upper aerodigestive
tract, breast and esophagus, we are in the process of creating a prioritized
list of other potential applications to evaluate on a pre-clinical basis. If
successful, on a pre-clinical basis, we contemplate progressing to the clinical
evaluation phase and pre-market approval ("PMA") application phase.

We plan to develop certain of our CD products for diagnostic applications,
(sometimes referred to as "labeled indications"), that we will ultimately market
for our own account in the United States. In addition, we plan to co-develop one
or more of our prototype CD products for specific cancer diagnostic applications
with one or more selected other companies. We have nurtured relationships with a
small number of highly qualified companies which have expressed interest in
working with us to co-develop one or more of our existing CD prototype products
or possible variations thereof in exchange for certain as yet undetermined
rights to commercially exploit a finished approved product in the marketplace or
a geographic segment thereof.

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

We also believe that a market for our CD products will exist in the European
Union and possibly Asia. We contemplate making a concerted effort to identify
one or more possible licensees to help develop our products or variations
thereof for the key markets of the European Union during 2001. We will also make
a preliminary investigation of the potential for our products in Asia and if the
findings are positive, will develop a strategy for exploiting our technology in
that region as well.

Manufacturing

Our prototype products have been assembled to date by the staff of the MPL at
the City College of New York from components that are generally readily
available from one or more sources in the marketplace. We contemplate continuing
with this approach until the quantity of devices projected to be required makes
it appropriate and necessary to find a contract manufacturer. Although
additional design improvements will likely be required to refine the current
prototype products for commercial use, we still believe that the key components
will be available from one or more suppliers. We executed a lease agreement,
dated January 19, 1997 with City College providing for 900 square feet of space
as an "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.

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We plan to outsource the manufacture and assembly of our medical device products
to contract manufacturers when it is no longer feasible for the MPL to perform
that service. Our contract manufacturer(s) will be selected from a list of
highly qualified companies who are familiar with the regulatory requirements of
the FDA for the manufacture of medical devices, who are registered with and in
good standing with the FDA and who employ current Good Manufacturing Practices
(GMP) in accordance with FDA guidelines. Pepco Manufacturing Company ("Pepco")
of Somerdale, N.J., is owned by John M. Kennedy, an officer, director and a
principal of the Company. It is believed that Pepco is currently or can become
qualified to manufacture our products. Additionally, an opportunity for a
business arrangement with a major marketing co-developer could involve
manufacture as well.

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
College of New York. Dr. Robert Alfano, Distinguished Professor of Physics and
Engineering at City College and 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.

Until July, 1998, the Company provided annual funding grants to the MPL
accordance with a budget of activities and expenditures negotiated between the
Company, CCNY, and the Research Foundation of CUNY. The arrangement was
renewable annually and could be terminated without cause by either party upon 90
days notice prior to June 1st of each year. The contract with CUNY
"Establishment of the MediPhotonics Laboratory" was extended by agreement at no
cost until October 1, 1998. Because of funding limitations, the Company was
unable to renew its contract following expiration of the October, 1998
extension. We plan to resume our support of relevant programs when, and if,
current fund raising efforts are successful. For reference, the Company
committed to funding of $406,353 for the 1997/1998 budgetary year, $431,017 for
the 1996/1997 budgetary year, and $242,948 and $245,750 for the budgetary years
ending on May 31, 1996 and May 31, 1997, respectively. The Company currently has
an outstanding financial obligation to the University for work conducted during
the 1997/1998 contract period. In 1999, an agreement was reached to extend the
time for payment until June 30, 2000. While we are actively working to meet this
deadline, there is no assurance that we will be successful, and if not, that we
will successfully negotiate an additional time extension.

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

Prior to the current arrangement, the Company and the Research Foundation of
CUNY on behalf of the City College of New York worked together under a Research
Agreement pursuant to which the Company and the City College of New York jointly
sponsored the research and development of a cancer detection apparatus using
visible luminescence. The results of such research includes the development of
the proprietary rights that are subjects of several of the Company's patents and
the development of some of the Company's prototype products. The Research
Agreement provided that all patent rights on any CD inventions conceived or
discovered during its term vest in the Company, subject to a royalty payable to
the Research Foundation of CUNY of 5% of the sales of products resulting from
any of the inventions. Beginning in 1992 in concert with the formation of the
MPL, new inventions and patentable discoveries were assigned to the Research
Foundation of CUNY and the Company was (or will be) granted an exclusive
worldwide license to exploit the inventions. The royalty rate was reduced to
3.5% of the sales of products resulting from patented inventions conceived or
discovered subsequent to June 1, 1992. 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

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basis. In the event the Company has not made any lawful sale of any products or
sublicensed any patents at or above reasonable market price within 5 years from
the date of patent application, the Company has agreed to negotiate a minimum
royalty or return all rights with respect thereto to the Research Foundation of
CUNY. As of the date of this filing, nine patents for which the Company has an
exclusive license from the Research Foundation have passed the five year
commercialization window. The Company is presently negotiating with the Research
Foundation to extend the period of exclusivity for this intellectual property.
If the Company is unsuccessful in its negotiations, it may lose rights to
several of its key patents.

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

Competition

The development of minimally diagnostics for cancer detection is driven by a
critical need for more cost effective screening procedures with increased
sensitivity and specificity. In-vivo tissue autofluorescence spectral analysis,
as pioneered by Mediscience Technology is a paradigm shift emerging diagnostic
technology with clear potential to favorably impact health care clinical
outcomes as well as economics. In spite of what we believe is a seminal and
dominant Mediscience intellectual property position (in the United States),
there is intense competitive activity in this area, with at least seven
companies conducting active research and development programs. Specifically:
Xillix Technology Corporation, (Richmond, B.C. Canada) is currently the only
competitor with a commercial product (LIFE-Lung System). The Xillix system,
until recently, marketed by Olympus Corporation (Japan) at a cost of
approximately $200,000 uses visible light based auto-fluorescence spectroscopy
to detect and localize lung cancer. In association with Olympus, Xillix is also
working actively to extend application of the technology to the GI tract and
cervix. On July 22, 1999, Xillix announced that it was launching legal action
against Olympus for "secretly filing and prosecuting patents potentially
competitive to those of Xillix." On August 19, 1999, Xillix announced that it
had suspended all development and distribution of its products and had
terminated almost 80% of its professional and support staff in order to conserve
capital for the prosecution of its legal claims.

LifeSpex, Inc., (Kirkland, WA) is developing two products based on tissue
auto-fluorescence - Cerviscan(tm) for the detection of cervical cancer, and
Dermascan(tm) for skin cancer. Lifespex recently reported success in a 100
patient cervical cancer clinical trial in Canada, claiming 98% sensitivity and
95% specificity. LifeSpex is a privately held company with venture funding from
J&J Development Corporation, The Centennial Funds and Vanguard Venture Partners.
During the 2nd quarter of 1999, it was reported that the Hoya Corporation made
an equity investment in LifeSpex to fund Cerviscan(tm) development and clinical
trials.

Polartechnics, Inc (Sidney, Australia) is developing the TruScan(tm) tissue
auto-fluorescence probe for cervical cancer detection. The company anticipates
initiating clinical trials in Europe in 1999 and in the U.S. in 2000+ (favorable
data is referenced from a previous pilot study in the U.K. using an early
version of the TruScan(tm) device). Polartechnics currently has a strategic
marketing alliance with J&J Ethicon. In 1998, Polartechnics raised $8MM through
a rights issue; they also received a $0.75MM milestone payment from J&J and a
$0.9mm grant from the Australian government. The company projects a 2000
European launch for TruScan(tm).

MediSpectra, Inc. (Lexington, MA) is developing an optical biopsy system for the
detection of cervical cancer based on tissue fluorescence. In 1998 MediSpectra
raised $9.0MM in a private placement through Euclid Partners (Lexington, MA).

SpectrRx, Inc. (Norcross, Ga) is developing a biophotonics technology for the
detection of both cervical and skin (melanoma) cancers. In August, 1999, SpectRx
reported favorable results in cervical scans of 53 patients at three sites using
colposcopy and pathology as reference standards; diagnostic sensitivity and
specificity were not reported; the study is ongoing. In February, 1999, SpectRx
entered into an agreement with Welsh Allyn to develop biophotonics products for
the

                                     Page 9
<PAGE>

diagnosis of cervical cancer. SpectRx also has strategic alliances with
Respironics and Abbott for the development of unrelated diagnostic products.

Spectra Science, Inc. (Minneapolis, NM) is focused on the development of an
Optical Biopsy Forceps for polyp evaluation in the lower GI tract. In 1998,
Spectra Science completed a multi-center trial for colorectal cancer in 306
patients; a diagnostic sensitivity of 96.5% vs 86% from visual observation was
claimed; specificity, however, was reported to have decreased from 46% to 43%.
In 1999, the company filed a PMA submission with the U.S. FDA for this
indication. In February, 1999, the company raised an additional $2.2MM in
funding from venture capital sources.

Karl Storz Gmbh & Co. (Tuttlingen, Germany) is known to be pursuing the
development of a fiberoptic lung imaging system based on visible auto
fluorescence.

We are aware of other approaches to cancer screening based on X-ray, CT,
ultrasound, magnetic resonance and radionuclide imaging technologies; these,
however, are based on the detection of intra-tissue structural abnormalities and
are not ideally suited to the evaluation of tissue surface lesions. Our
proprietary approach based on imaging and analysis of autofluorescence native
spectra represents a new diagnostic paradigm. It offers the promise of providing
a more cost effective and user friendly screening procedure with increased
sensitivity and specificity, and ultimately, of replacing excision biopsy as the
diagnostic standard.

While we believe that we have a dominant intellectual property position that
will ultimately permit us to achieve leadership in this important new area,
competition from both new and established firms will continue to be intense.
Many of these firms have greater resources than the Company, and more experience
in the field of cancer diagnostics. Finally, there can be no assurances that the
Mediscience Technology, even if developed successfully, will be accepted
commercially in the marketplace.

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 implementation
of general and special controls, such as performance standards, post market
surveillance, patient registries, and FDA guidelines. Class III devices are
those devices that must receive pre-market approval ("PMA") to insure their
safety and effectiveness. They are generally life-sustaining, life-supporting,
or implantable devices, and also include devices that are not substantially
equivalent to a legally marketed Class I or II device or to a Class III device
first marketed prior to May 28, 1976 for which a PMA has not yet been requested
by the FDA.

We believe that the projected clinical indications for our native tissue
fluorescence spectroscopy devices (CD Scan, CD Ratiometer and CD Map) will cause
them to be classified as Class III medical devices because they lack substantial
equivalency to a legally marketed Class I or II device or a pre-1976 Class III
device. Because of this classification, we do not qualify for the 510-(k)
process (market pre-notification) of regulatory compliance. Instead we are
obliged to submit a full PMA to the FDA for its careful review and, hopeful,
approval. Laboratory versions of our native tissue fluorescence spectroscopy
devices for non-clinical in vitro applications may face a less lengthy approval
process.

FDA review and approval of PMA applications usually takes from 12 to 24 months
after they are submitted and considered "complete" (meaning that they are
sufficiently in compliance with filing requirements that the FDA will
substantively review the application) but sometimes can take longer and on rare
occasions can take less time. Additional delay often results from insufficient
clinical data to satisfactorily prove safety and effectiveness for the proposed
intended use of the device and it is not unusual for an applicant to be required
to produce additional data to satisfy an objection raised by the FDA in its
review process prior to granting a PMA.

                                    Page 10
<PAGE>

Although we believe that our cancer diagnostic products will ultimately be
approved, there is no assurance the FDA will act favorably or quickly in making
such reviews and approving our products for sale. We may encounter delays or
unanticipated costs in our efforts to secure governmental approvals or licenses,
which could delay or possibly preclude us from marketing our CD products.

To the extent that we intend to market our CD products in foreign markets, we
will be subject to foreign governmental regulations with respect to the
manufacture and sale of our medical device products. We cannot accurately
estimate the cost and time that will be required in order to comply with such
regulations.

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 27 U.S. patents, plus 1 in Japan, for a
total of 28, and has rights to exclusively license an additional 10 U.S. patents
pending. There can be no assurance, however, that the pending patent
applications will ultimately issue as patents, or if patents do issue, that the
claims will be sufficiently broad to protect what the Company believes to be its
proprietary rights. In addition, there can be no assurance that issued patents
or pending patent applications will not be challenged or circumvented by
competitors, or that the rights granted thereunder will provide competitive
advantage to the Company. Of the 21 patents owned by the City University and for
which the Company is the exclusive licensee, nine have passed the five year
period (from date of filing) for commercialization. According to the terms of
our research and licensing agreement with the University, the Company must
negotiate a minimum royalty agreement for these patents to maintain its
exclusive licensee position. If the Company is unsuccessful in its negotiations,
it may lose rights to several of its key patents.

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

Third Party Reimbursement

If we are successful in developing our cancer diagnostic technology, and our
technology is incorporated into medical devices that are used by health care
providers for diagnostic testing for which the providers may seek reimbursement
from third-party payers, principally, in the United States, Medicare, Medicaid
and private health insurance plans, and in many other countries, typically
national government sponsored health and welfare plans, such reimbursement will
be subject to the regulations and policies of governmental agencies and other
third-party payers. Reduced governmental expenditures in the United States and
in many other countries continue to put pressure on diagnostic procedure
reimbursement. We cannot predict what, if any changes, may be forthcoming in
these policies and procedures, nor the effect of such changes on our business
potential.

Other Technologies and other applications

In addition to our developments in native tissue fluorescence spectroscopy we
have also invented certain other potentially useful diagnostic optical imaging
technology. The optical imaging technology uses laser light to image dense
tissues by capturing the early photons of light shown through the imaged tissue
and gating off the scattered, later arriving light, which reduces the
interference and results in clearer images than can be traditionally be seen
using currently available optical imaging technologies, such as, computed
tomography scanning or x-rays or mammograms. In 1997 the Company and General
Electric Company ("GE") acting on behalf of its Corporate Research and
Development component signed a five year non-exclusive Collaborative Research
Agreement to explore potential uses of our optical imaging technology. To this
date, no material activity has occurred under this contract.

Recent Patents Issued

                                    Page 11
<PAGE>

     U.S. Patent No. 5,769,081 issued June 23, 1998 METHOD FOR DETECTING
CANCEROUS TISSUE USING OPTICAL SPECTROSCOPY AND FOURIER ANALYSIS.

     U.S.Patent No. 5,799,656 issued September 1, 1998 OPTICAL IMAGING OF BREAST
TISSUES TO ENABLE THE DETECTION THEREIN OF CALCIFICATION REGIONS SUGGESTIVE OF
CANCER.

     U.S. Patent No. 5,813,988 issued September 29, 1998 TIME-RESOLVED DIFFUSION
TOMOGRAPHIC IMAGING IN HIGHLY SCATTERING TURBID MEDIA.

     U.S. Patent No. 5,847,394 issued December 8,1998 IMAGING OF OBJECTS BASED
UPON THE POLARIZATION OR DEPOLARIZATION OF LIGHT.

     U.S. Patent No. 5,849,595 issued September 29, 1998 METHOD FOR MONITORING
THE EFFECTS OF CHEMOTHERAPEUTIC AGENTS ON NEOPLASTIC MEDIA.

     U S Patent No. 5,929,443 issued July 27, 1999 IMAGING OF OBJECTS BASED UPON
THE POLARIZATION OR DEPOLARIZATION OF LIGHT.

     U S Patent No. 5,931,789 issued August 3, 1999 TIME-RESOLVED DIFFUSION
TOMOGRAPHIC 2D AND 3D IMAGING IN RICHLY SCATTERING TURBID MEDIA.

     U.S. Patent No. 5,949,077 issued September 7, 1999 TECHNIQUE FOR IMAGING AN
OBJECT IN OR BEHIND A SCATTERED MEDIUM.

     U.S. Patent No. 5,983,125 issued November 9, 1999 METHOD AND APPARATUS FOR
IN-VIVO EXAMINATION OF SUBCUTANEOUS TISSUES INSIDE AN ORGAN OF A BODY USING
OPTICAL SPECTROSCOPY.

     U.S. Patent No. 6,006,001 issued December 21, 1999 FIBEROPTIC ASSEMBLY
USEFUL IN OPTICAL SPECTROSCOPY.

Scientific/Medical Advisory Board

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

Employees

As of February 29, 2000, the Company had two full-time employees, and one
retained consultant. Neither the employees nor the retained consultant is
governed by any collective bargaining agreement; the relations between the
Company and its employees and retained consultant are believed to be
satisfactory at the present time.

ITEM 2. DESCRIPTION OF PROPERTIES

The Company's headquarters are located at 1235 Folkestone Way, Cherry Hill, New
Jersey, which is owned by Peter Katevatis, who is Chairman of the Company.
Seventy-five percent of such office space is occupied in accordance with an oral
arrangement with Mr. Katevatis pursuant to which the Company is required to pay
its proportionate share of total occupancy costs, maintenance, utilities and
taxes.

                                    Page 12
<PAGE>

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 its operation.

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

During its fiscal year ending February 29, 2000, no matters were submitted to a
vote of the Company's security holders.

                                     PART II


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

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

Fiscal Period                               Common Stock
-------------                         -----------------------
                                      High Bid        Low Bid
                                      --------        -------
2000

1st Quarter       05/31/99              0.34           0.11
2nd Quarter       08/31/99              0.34           0.14
3rd Quarter       11/30/99              0.45           0.20
4th Quarter       02/29/00              1.78           0.19

1999

1st Quarter       05/31/98              0.33           0.27
2nd Quarter       08/31/98              0.18           0.13
3rd Quarter       11/30/98              0.18           0.10
4th Quarter       02/28/99              0.16           0.10


     (a) Holders. The approximate number of holders of record of the Company's
Common Stock and Series A Preferred Stock as of February 29, 2000 were 880 and 8
respectively .

     (b) 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.

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

Results of Operations:

Year ending February 29, 2000 compared to year ended February 28, 1999.

The Company had no revenues during its fiscal years ended February 29, 2000
("its 2000 Fiscal Year") and February 28, 1999 ("its 1999 fiscal year"). The
Company's primary focus was the development of its light-based technology. The
Company's technology embedded in its design and computer related format conforms
to year 2000 requirements.

                                    Page 13
<PAGE>

General and Administrative Expenses increased approximately $274,600 or 43%
during its 2000 fiscal year as compared to its 1999 fiscal year. A principle
reason for the increase was the recognition of approximately $259,000 in costs
associated with the issuance of warrants to purchase stock of the Company in
exchange for services and employment costs. This amount included a warrant with
an estimated value of $110,000 to the City College of New York to defer the
payment of the Company's accrued research and development costs.

The increase in fiscal year 2000 was also attributable to an increase in travel
and entertainment expenses of $14,000, salaries and wage accruals for a new
corporate officer of $13,000 and professional fees of $73,000.

The principle reason for the increase in professional fees for fiscal year 2000
when compared to fiscal 1999, was in 1999, the Company reversed approximately
$145,000 of accrued professional fees in 1999 which were no longer required.

The increase in general and administrative expenses for fiscal year 2000 were
partially offset by a decrease in certain consulting of $25,000, administrative
secretarial of $25,000, fringe benefit accruals of $20,000 and general
administrative expenses of $16,000.

The Company's product development expense decreased approximately 70% or
$132,600 during the 2000 fiscal year when compared to the 1999 fiscal year.
During the 2000 fiscal year, the Company advanced $50,000 to CUNY for
reimbursement of patent costs. This represented a decline of approximately
$121,000 of development reimbursement costs to the City College of CUNY. The
balance of the decline in product development expense primarily represented a
decline in general research and monitoring costs.

Other expense (income) net decreased by approximately $12,000 in the 2000 fiscal
year when compared to the 1999 fiscal year. The decrease primarily represented a
decline of $11,000 of interest expense incurred in relation to a warrant issued
to a creditor in exchange for a loan in the 1999 fiscal year.

Year ending February 28, 1999 compared to year ended February 28, 1998

The Company had no revenues during its fiscal year ending February 28, 1999 (its
1999 fiscal year) and February 28, 1998 (its 1998 fiscal year). The Company's
primary focus was the development of its light-based technology. The Company's
technology embedded in its design and computer related format confirms to year
2000 requirements.

General and administrative expenses decreased approximately $313,700 or 33%
during its 1999 fiscal year as compared to its 1998 fiscal year. The principle
reason for the decline was a reversal of accrued professional fees of
approximately $145,000 which were no longer required. The Company also reduced
approximately $61,000 of its consulting costs associated with its general and
financial management. As a result of writing off its patent costs and goodwill
in the prior fiscal year (1998), the current year's depreciation and
amortization also declined $40,000. The balance in the decline of general and
administrative expenses primarily represented a decrease in advertising, travel
and marketing expense approximating 59% or $50,000 during its 1999 fiscal year.
This was directly related to a decrease in activity with prospective corporate
business partners which was the result of a decline in available funds to
conduct these activities.

The Company's product development expense decreased approximately 64% or
$340,000 during the 1999 fiscal year when compared to the 1998 fiscal year. The
Company conducts a number of R&D projects with the City College of CUNY. During
the 1999 fiscal year, the Company advanced or accrued approximately $171,000 to
CUNY for reimbursement of development costs. This represented a decline of
approximately $197,000 to the City College of CUNY. There was also a decline in
patent application and filing fees approximating $35,000 during the fiscal year
1999. The primary balance of the decline in product development expense
represented a decline in Food and Drug Administration (FDA) monitoring costs
approximating $58,000 and a decrease in product or equipment design costs of
$34,000.

During fiscal year 1998 The Company concluded that its intangible assets
including goodwill and patents should be written-off. As a result, the Company
recorded a non-cash charge of $274,675, which represents the difference between
the carrying

                                    Page 14
<PAGE>

value of these assets and their fair value based on estimated discounted future
cash flows.

Other income decreased by approximately $225,000 in the 1999 fiscal year when
compared to the 1998 fiscal year. The decrease was primarily comprised of a 1998
receipt of $200,000 from SpectRx, Inc., which entered into a no-shop agreement
while it studied possible merger, joint venture, licensing or other substantial
collaboration with the Company by accessing the Company's United States and
Japanese patent portfolio and research capabilities for both corporate and
world-wide synergy. The no-shop agreement expired on January 18, 1998. The
balance represented a decline of approximately $14,000 of interest income due to
decreased cash balances previously invested in money market funds and the
recognition of approximately $11,000 interest expense as related to a warrant
issued to a creditor in exchange for a loan.

Liquidity and Capital Resources:

The Company has a deficiency in working capital as of February 29, 2000 of
approximately ($2,021,500) representing an increase in the deficiency
approximating ($535,000) during the 2000 fiscal year. The Company's ability to
maintain its operations throughout its history has been dependent upon the
periodic infusion of capital and the willingness of its creditors to accept
payment beyond normal terms.

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

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

                                    Page 15
<PAGE>

Mediscience Technology Corp. and Subsidiary

Consolidated Financial Statements
as of February 29, 2000 And FEBRUARY 28, 1999
TOGETHER WITH AUDITORS' REPORT

                                    Page 16
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Mediscience Technology Corp.:


We have audited the accompanying consolidated balance sheets of Mediscience
Technology Corp. (a New Jersey corporation) and subsidiary as of February 29,
2000 and February 28, 1999, and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the three
years in the period ended February 29, 2000. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mediscience Technology Corp.
and subsidiary as of February 29, 2000 and February 28, 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended February 29, 2000 in conformity with accounting principles generally
accepted in the United States.

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


                                        ARTHUR ANDERSEN LLP


Roseland, New Jersey
May 19, 2000


                                    Page 17
<PAGE>



MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 29, 2000 AND FEBRUARY 28, 1999

<TABLE>
<CAPTION>


                                      ASSETS                                                 2000             1999
                                      ------                                          ---------------   --------------

<S>                                                                                   <C>               <C>
CURRENT ASSETS:
    Cash and cash equivalents (Note 2)                                                $        17,066   $       24,940
    Other assets                                                                               20,191           20,191
                                                                                      ---------------   --------------
                 Total current assets                                                          37,257           45,131


EQUIPMENT, net of accumulated depreciation of $195,390 and $189,570 in 2000 and
    1999, respectively (Note 2)                                                                 8,588           14,408
                                                                                      ---------------   --------------
                 Total assets                                                         $        45,845   $       59,539
                                                                                      ===============   ==============

                       LIABILITIES AND STOCKHOLDERS' DEFICIT
                       -------------------------------------

CURRENT LIABILITIES:
    Accounts payable                                                                  $        39,396   $       47,108
    Accrued liabilities (Note 4)                                                            1,877,456        1,421,207
    Officer and other loans (Note 3)                                                          141,955           64,109
                                                                                      ---------------   --------------
                 Total current liabilities                                                  2,058,807        1,532,424
                                                                                      ---------------   --------------

COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)

STOCKHOLDERS'  DEFICIT  (Notes 2, 3, and 8):  Preferred  stock,  $.01 par value;
    authorized  50,000 shares- Series A preferred stock;  issued and outstanding
    2,074 shares (preference on liquidation $20,740)                                               21               21
    Common stock,  $.01 par value;  authorized  100,000,000  shares;  issued and
       outstanding   35,976,130  and   35,276,130   shares  in  2000  and  1999,
       respectively                                                                           359,761          352,761
    Additional paid-in capital                                                             18,215,977       17,796,811
    Accumulated deficit                                                                   (20,588,721)     (19,622,478)
                                                                                      ---------------   --------------
                 Total stockholders' deficit                                               (2,012,962)      (1,472,885)
                                                                                      ---------------   --------------
                 Total liabilities and stockholders' deficit                          $        45,845   $       59,539
                                                                                      ===============   ==============
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.

                                    Page 18
<PAGE>

MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 29, 2000, FEBRUARY 28, 1999 AND 1998

<TABLE>
<CAPTION>


                                                               2000               1999                1998
                                                        ---------------    ---------------     ---------------
<S>                                                     <C>                <C>                 <C>

NET SALES                                               $            -     $            -      $            -

COST OF SALES                                                        -                  -                   -
                 Gross profit                                        -                  -                   -

GENERAL AND ADMINISTRATIVE EXPENSE                             910,043            635,406             949,110

PRODUCT DEVELOPMENT EXPENSE                                     56,540            189,168             529,551

WRITE-OFF OF INTANGIBLES (Note 10)                                   -                  -             274,675
                                                        ---------------    ---------------     ---------------
                 Total expenses                                966,583            824,574           1,753,336

OTHER:
    Interest (income) expense, net                                (340)            11,332             (14,144)
    Other income (Note 9)                                            -                  -            (200,000)
                 Total other (income)/expense                     (340)            11,332            (214,144)
                                                        ---------------    ---------------     ---------------
                 Net loss                               $     (966,243)    $     (835,906)     $   (1,539,192)
                                                        ===============    ===============     ===============


BASIC AND DILUTED LOSS PER COMMON SHARE
     (Note 6)                                           $         (.03)    $         (.02)     $         (.04)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 6)         35,559,418         35,046,594          34,893,011
                                                        ===============    ===============     ===============

</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                    Page 19
<PAGE>

MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED FEBRUARY 29, 2000, FEBRUARY 28, 1999 AND 1998


<TABLE>
<CAPTION>


                                                             Preferred
                                                               Stock                               Common
                                                             Number of         Preferred            Stock           Common
                                                               Shares            Stock        Number of Shares      Stock
                                                          ----------------    -----------    -----------------  ---------------

<S>                                                             <C>             <C>                 <C>         <C>
BALANCE, February 28, 1997                                      2,074           $     21            34,691,952  $     346,920

    Issuance of common stock for services                           -                  -                85,000            850
    Stock issued to a director at no cost                           -                  -               166,666          1,666
    Net loss for the year ended February 28, 1998                   -                  -                     -              -
                                                          ----------------    -----------    -----------------  ---------------

BALANCE, February 28, 1998                                      2,074                 21            34,943,618        349,436

    Issuance of common stock and warrants for cash                  -                  -               200,000          2,000
    Issuance of common stock for legal services                     -                  -               132,512          1,325
    Issuance of warrants                                            -                  -                     -              -
    Net loss for the year ended February 28, 1999                   -                  -                     -              -
                                                          ----------------    -----------    -----------------  ---------------

BALANCE, February 28, 1999                                      2,074                 21            35,276,130        352,761

    Issuance of stock for cash and services                         -                  -               150,000          1,500
    Issuance of stock for services                                  -                  -               150,000          1,500
    Issuance of warrants for cash and services                      -                  -                     -              -
    Issuance of warrants for services                               -                  -                     -              -
    Issuance of stock and warrants for cash                         -                  -               300,000          3,000
    Exercise of warrant                                             -                  -               100,000          1,000
    Issuance of warrant for services                                -                  -                     -              -
    Net loss for the year ended February 29, 2000                   -                  -                     -              -
                                                          ----------------    -----------    -----------------  ---------------

BALANCE, February 29, 2000                                      2,074           $     21            35,976,130  $     359,761
                                                          ================    ===========    =================  ===============

<CAPTION>


                                                                Additional
                                                                  Paid-in            Accumulated
                                                                  Capital              Deficit
                                                            ----------------    --------------------

<S>                                                         <C>                 <C>
BALANCE, February 28, 1997                                  $    17,430,196     $     (17,247,380)

    Issuance of common stock for services                           102,900                     -
    Stock issued to a director at no cost                            40,000                     -
    Net loss for the year ended February 28, 1998                         -            (1,539,192)
                                                            ----------------    --------------------

BALANCE, February 28, 1998                                       17,573,096           (18,786,572)

    Issuance of common stock and warrants for cash                   48,000                     -
    Issuance of common stock for legal services                     164,315                     -
    Issuance of warrants                                             11,400                     -
    Net loss for the year ended February 28, 1999                         -              (835,906)
                                                            ----------------    --------------------

BALANCE, February 28, 1999                                       17,796,811           (19,622,478)

    Issuance of stock for cash and services                          31,320                     -
    Issuance of stock for services                                   29,755                     -
    Issuance of warrants for cash and services                       33,419                     -
    Issuance of warrants for services                                20,449                     -
    Issuance of stock and warrants for cash                          72,000                     -
    Exercise of warrant                                              24,000                     -
    Issuance of warrant for services                                208,223                     -
    Net loss for the year ended February 29, 2000                         -              (966,243)
                                                            ----------------    --------------------

BALANCE, February 29, 2000                                  $    18,215,977     $     (20,588,721)
                                                            ----------------    --------------------
</TABLE>


The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                    Page 20
<PAGE>

MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998


<TABLE>
<CAPTION>


                                                                               2000             1999           1998
                                                                           -----------    -------------  --------------
<S>                                                                         <C>            <C>            <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                               $ (966,243)    $   (835,906)  $  (1,539,192)
                                                                           -----------    -------------  --------------

    Adjustments to reconcile net loss to net cash used in operating
       activities-
          Depreciation and warrant amortization                               214,043           23,396          52,362
          Write-off of intangibles                                                  -                -         274,675
          Stock issued for consulting services and interest                         -                -         103,750
          Stock issued to a director at no cost                                     -                -          41,666
          Stock and warrants issued for legal/other services                   56,543          165,640               -
    Changes in assets and liabilities-
       (Increase) decrease in other assets                                          -           (3,068)         14,541
       (Decrease) increase in accounts payable                                 (7,712)          16,248         (70,453)
       Increase in accrued liabilities                                        506,249          523,281         478,377
                                                                           -----------    -------------  --------------
                 Total adjustments                                            769,123          725,497         894,918
                                                                           -----------    -------------  --------------
                 Net cash used in operating activities                       (197,120)        (110,409)       (644,274)
                                                                           -----------    -------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES --
    Purchase of fixed assets                                                        -                -         (12,883)
                                                                           -----------    -------------  --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of common stock and warrants                       111,400           50,000               -
    Proceeds from officer and other loans                                      77,846           64,109               -
                                                                           -----------    -------------  --------------
                 Net cash provided by financing activities                    189,296          114,109               -
                 Net (decrease) increase in cash                               (7,874)           3,700        (657,157)
                                                                           -----------    -------------  --------------

CASH AND CASH EQUIVALENTS, beginning of year                                   24,940           21,240         678,397
                                                                           -----------    -------------  --------------

CASH AND CASH EQUIVALENTS, end of year                                     $   17,066     $     24,940   $      21,240
                                                                           ===========    =============  ==============

SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
       Common stock was issued for the following-
          Legal and other services rendered                                $   56,543     $    165,640   $     103,750
          To officer as additional compensation                                     -                -          41,666
                                                                           -----------    -------------  --------------
                                                                           $   56,543     $    165,640   $     145,416
                                                                           ===========    =============  ==============
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                    Page 21
<PAGE>

MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999


1.   ORGANIZATION OF THE COMPANY
     ---------------------------

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

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

The Company is subject but not limited to a number of risks similar to those of
other companies at this stage of development, including dependence on key
individuals, the development of commercially usable products and processes,
competition from substitute products or alternative processes, the impact of
research and product development activity, competitors of the Company, many of
whom have greater financial or other resources than those of the Company, the
uncertainties related to technological improvements and advances, the ability to
obtain adequate additional financing necessary to fund continuing operations and
product development and the uncertainties of future profitability. The Company
expects to incur substantial additional costs before beginning to generate
income from product sales, including costs related to ongoing research and
development activities, preclinical studies and regulatory compliance. Although
the Company was able to obtain additional financing in 1997 and 1996 (Note 8),
substantial additional financing is needed by the Company.

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

The Company's financial statements have been prepared on a going concern basis
which contemplates the realization of assets, liabilities and commitments in the
normal course of business. The Company has no revenues, has incurred substantial
net losses and has an accumulated deficit through February 29, 2000. 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 22
<PAGE>

MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999


2.   SIGNIFICANT ACCOUNTING POLICIES
     -------------------------------

Use of Estimates
----------------

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

Cash and Cash Equivalents
-------------------------

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

Other Assets
------------

Included in other assets at February 29, 2000 is a receivable from the U.S. Army
in the amount of $20,191. The Company is due the money for reimbursement of
research and development charges.

Equipment
---------

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

Long-Lived Assets
-----------------

The provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets" ("SFAS 121") requires,
among other things, that an entity review its long-lived assets and certain
related intangibles for impairment whenever changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable (see Note 10).

Income Taxes
------------

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

Accounting for Stock-Based Compensation
---------------------------------------

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

                                    Page 23
<PAGE>

MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999


3.   RELATED PARTY TRANSACTIONS
     --------------------------

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

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

Pursuant to the terms of an employment agreement, Mr. Hugill, was to be paid
$50,000 per annum, was issued options to purchase 200,000 shares of the
Company's stock (Note 8), and was to receive warrants to purchase shares equal
to 5% of the number of common shares outstanding on January 18, 1996 (or up to
10% as of such date at the discretion of the Board of Directors) at an option
price of $1.00 per share, upon the attainment of certain milestones in the
future. On January 31, 1997, Mr. Hugill resigned as President and Chief
Executive Officer of the Company and the 200,000 options were cancelled. The
warrant agreement was amended and effective January 31, 1997, Mr. Hugill was
granted a warrant to purchase up to 473,220 shares of the Company's common stock
at a price of $1.00 per share. This warrant is exercisable at any time through
July, 2003 except for 315,480 shares which is exercisable only upon the
attainment of certain milestones. Compensation expense will be recognized for
the difference between the warrant price and the fair market value of the stock
at the date that the milestones are attained. As of February 29, 2000, no
milestones have been achieved.

In addition, the Company issued 50,000 shares of common stock to Mr. Hugill upon
his termination. The Company recorded $37,500 as compensation expense for the
fair value of the shares issued.

In February 1997, Mr. Katevatis resumed the role as President and Chief
Executive Officer. Accordingly, the employment Agreement with Mr. Katevatis was
amended for an annual salary of $200,000 per year. In August 1999, the Board of
Directors approved the extension of Mr. Katevatis's existing contract from March
5, 2002 to March 5, 2007, maintaining all other original contract terms and
conditions.

Legal services rendered by Mr. Katevatis amounted to $50,000 for each of the
four years ended February 29, 2000. These amounts have been charged to
operations.

In 1999 and 2000, Mr. Katevatis advanced funds to the Company in order to
provide the Company with the funding to pay operational expenses as they became
due. These advances do not accrue interest and are to be repaid as soon as the
Company raises additional funds. As of February 29, 2000 and February 28, 1999,
the balance of the advances payable to Mr. Katevatis was $111,229 and $39,109,
respectively. Mr. Katevatis has loaned additional money to the Company
subsequent to February 29, 2000 in order to continue to sustain operations.

                                    Page 24
<PAGE>

MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999


In fiscal 1999, the Company borrowed $25,000 from Tami Adelstein and issued Mr.
Adelstein a warrant to purchase 100,000 shares of the Company's common stock at
$.25 per share. The warrant was valued at $11,400 and was recorded as interest
expense. The loan is due and payable by the Company without interest on or
before August 12, 1999, thereafter, interest is payable at the rate of 1.5% per
month. On August 12, 1999, the Company did not repay the note. On October 12,
1999, Peter Katevatis, advanced the funds for the repayment of the note and
accrued interest to October 12, 1999.

In fiscal 2000, the Company entered into two interest bearing convertible notes.
Both notes bear interest at the rate of 8.25% per annum and are convertible into
common stock on the basis of $.25 per share. The conversion option is unlimited
in duration. Both notes are demand instruments and the holder can demand and
receive payment in full including interest. The principal balance of the notes
amounted to $30,000 at February 29, 2000. Accrued interest on the notes at
February 29, 2000 totaled $726.

On November 17, 1999, the Company entered into a three-year employment agreement
beginning February 1, 2000 with Dr. Frank S. Castellana. Pursuant to the terms
of such agreement, Dr. Castellana became the President and Chief Executive
Officer of the Company and is to be paid $100,000 per annum. In addition, he was
issued options to purchase up to 914,373 shares of the Company's common stock at
an option price of $.32 per share and was issued a warrant to purchase up to
1,978,746 shares of the Company's common stock at an exercise price of $.05 per
share for the first 150,000 shares and at an exercise price of $.50 per share
for the remaining 1,828,746 shares. The 150,000 shares vested upon his first day
of work which was February 1, 2000. In connection with vesting on February 1,
2000, the Company recognized a charge of $98,079 which represented the fair
market value of the warrant on the vesting date since the warrant was issued
prior to the effective employment date. Dr. Castellana's ability to exercise
these options and remaining shares under the warrant is subject to a series of
milestones described in his employment agreement. The Company may have to
recognize compensation expense in the future on these options and warrants
calculated as the difference between the option and warrant prices and the fair
market value of the Company's common stock on the date the milestones are
achieved.

4.   ACCRUED LIABILITIES
     -------------------

Accrued liabilities consist of the following-

                                                    2000             1999
                                                ------------    -------------

       Legal and professional fees              $    258,600    $     165,937
       Research and development (see Note 7)         974,067          810,137
       Salaries and wages                            644,789          445,133
                                                ------------    -------------
                                                $  1,877,456    $   1,421,207
                                                ============    =============


5.   INCOME TAXES
     ------------

As of February 29, 2000, the Company has Federal operating loss carryforwards of
approximately $12,200,000 which may be used to reduce future income subject to
income taxes and expire in various amounts from 2000 to 2015. As of February 29,
2000, the Company had a deferred tax asset of approximately $4,000,000, for
which valuation allowances for the entire amounts were provided.

                                    Page 25
<PAGE>

MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999


6.   LOSS PER COMMON SHARE
     ---------------------

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

7.   COMMITMENTS AND CONTINGENCIES
     -----------------------------

In April 1992, the Company entered into a five year consulting agreement (the
"Agreement") with Dr. Robert R. Alfano, a principal shareholder of the Company
and Chairman of its Scientific Advisory Board. Pursuant to the terms of such
Agreement, Dr. Alfano is to be paid a consulting fee of not less than $150,000
per annum in exchange for services to be rendered for approximately fifty (50)
days per annum in connection with the Company's medical photonics business. The
Agreement further provides that Dr. Alfano is to be paid a bonus and fringe
benefits in accordance with policies and formulas provided to key executives of
the Company. In August 1999, the contract was extended to March 2007. All other
provisions of the agreement remained the same.

The Company has committed to fund approximately $295,000 over a twelve-month
period beginning June 1, 1995 for Mediphotonics Laboratory research at the City
College of the City University of New York ("CCNY") under a contract which is
renewed annually. The Company has funded CCNY approximately $157,565 and
$402,000 for each of the twelve-month periods ending May 31, 1999 and 1998. The
Company did not provide any funding during the year ended February 29, 2000
except for $50,000 to reimburse CCNY for patent costs.

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 four years ended February 29, 2000.

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 four years ended February 29, 2000.

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 29, 2000. Any preferred stock issued will have
preferences with respect to dividends, liquidation and other rights, but will
not have preemptive rights.

                                    Page 26
<PAGE>

MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999


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

Private Placement and Other Offerings
-------------------------------------

During fiscal 1997, the Company successfully completed a private placement
offering (the "97 Offering") of 2,666,667 shares of its common stock for
proceeds to the Company of approximately $2,000,000. In connection with the 97
Offering, the Company issued warrants to purchase 400,000 shares of the
Company's common stock at an exercise price of $1.00 per share. The warrants are
exercisable, at the option of the holder, at any time through March 27, 2003.
During 1999, the Company issued 200,000 shares of the Company's common stock and
200,000 warrants to purchase the Company's common stock at an exercise price of
$.25 per share for $50,000. The warrants expire in 2003. During 2000, the
Company issued 300,000 shares of common stock and warrants to purchase 300,000
shares of the Company's common stock at an exercise price of $.25 per share for
$75,000. The warrants expire in 2003.

Common Stock/Warrants Issued for Service
----------------------------------------

During fiscal 1999, 1998 and 1997, respectively, the Company issued 132,512,
85,000 and 5,000 shares, respectively, of restricted common stock for various
legal and consulting services provided to the Company. The number of shares
issued were determined based on the fair market value of the services provided.

During 2000, the Company issued 300,000 shares of common stock and warrants to
purchase 266,666 shares of the Company's common stock at an exercise price of
$.25 to $.75 per share for cash and services. In addition, during 2000 the
Company granted CCNY a warrant to purchase 500,000 shares of the Company's
common stock at an exercise price of $1.00, which expires on 2003. The number of
shares under the warrant was determined based on the fair market value of the
services provided ($110,163).

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 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 27
<PAGE>

MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999


Stock option activity during the three year period ended February 29, 2000, was
as follows-

                                                                  Weighted
                                                 Exercise         Average
                                    Shares      Price Range    Exercise Price
                                  ----------    -----------    --------------
Outstanding, February 28, 1997      435,000     $1.00-$2.00        $1.25
Cancelled                          (200,000)       $1.00           $1.00
                                  ----------    -----------    --------------
Outstanding, February 28, 1998      235,000     $1.00-$2.00        $0.95
                                  ----------    -----------    --------------
Outstanding, February 28, 1999      235,000     $1.00-$2.00        $0.95
                                  ----------    -----------    --------------
Granted                             914,373         $.32            $.32
                                  ----------    -----------    --------------
Outstanding, February 29, 2000    1,149,373      $.32-$2.00         $.55
                                  ----------    -----------    --------------


Stock Warrants
--------------

Stock warrant activity during the three year period ended February 28, 2000, was
as follows-

                                          Shares          Exercise
                                        Available        Price Range

Outstanding, February 28, 1997          2,046,632        $.50-$1.20
                                       -----------      ------------
Outstanding, February 28, 1998          2,046,632        $.50-$1.20
Granted                                   300,000           $.25
                                       -----------      ------------
Outstanding, February 28, 1999          2,346,632        $.25-$1.20
Granted                                 3,045,412         $.05-$.75
Exercised                                (100,000)          $.25
                                       -----------      ------------
Outstanding, February 29, 2000          5,292,044        $.05-$1.20
                                       ===========      ============

9.   OTHER INCOME
     ------------

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

10.  WRITE-OFF OF INTANGIBLES
     ------------------------

Applying the criteria established by Statement of Financial Accounting Standards
No. 121, Accounting for the Impairments of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, the Company concluded that certain intangible assets
including goodwill and patents were impaired. Goodwill of $460,000 represented
the excess of the purchase price over the net assets acquired in the acquisition
of Laser and

                                    Page 28
<PAGE>

MEDISCIENCE TECHNOLOGY CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999


was being amortized over twenty years, using the straight-line method. In 1998,
as a result of the impairment, the Company recorded a non-cash charge of
$274,675, which represents the difference between the carrying value of these
assets and their fair value based on estimated discounted future cash flows. The
circumstances that led to this impairment relate primarily from the Company's
inability to generate revenue.

                                    Page 29
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

               None

                                    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        66         Chairman of the Board,
                                   Chief Executive Officer
                                    and Treasurer

John M. Kennedy        63         Vice President and Secretary

William Armstrong      83         Director

Mathew Culligan        80         Director

Michael N. Kouvatas    73         Director

John P. Matheu         78         Director

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

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

     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,

                                    Page 30
<PAGE>

Secretary-Treasurer and General Manager, of Pepco Manufacturing Co., a sheet
metal fabricator for the electronics industry located in Somerdale, New Jersey.
Mr. Kennedy also was a director and member of the Audit Committee of First
Peoples Bank of New Jersey from 1979 and also served as a member of its
executive board until 1994 when Core-States Bank purchased First Peoples Bank.
Mr. Kennedy is a member and the Chairman of the Mediscience Audit Committee

     William W. Armstrong has served as a director of the Company since 1978. He
has been in retirement since 1982 following a 36 year career as a research
scientist with Pfizer Inc, a world wide health care, personal care and specialty
chemicals manufacturer headquartered in New York City. Since his retirement, Mr.
Armstrong has continued to serve as a consultant to Pfizer concerning programs
involved with disperse systems and complex liquids his field of expertise. He
has been awarded 14 patents concerned in general with therapeutic agent dosage
delivery systems. Mr. Armstrong is a member of the Mediscience Audit Committee

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

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

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

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

Audit Committee CHARTER - "The audit committee is responsible for reviewing and
considering actions of the Company's Board of Directors in matters related to
audit functions; selecting and terminating the Company's independent accountants
and auditors, reviewing with the Company's independent accountants and auditors
the scope and results of their audit, reviewing the internal audits and the
effectiveness of procedures. The members of the audit committee who are
directors are "independent" as required by the SEC Rules and are financially
literate with accounting and financial experience appropriate for proper and
competent oversight."

Scientific Advisory Board

The Scientific Advisory Board's Chairman is Dr. Robert R. Alfano distinguished
Professor of Science and Engineering and the Director of the IUSL at the City
College of CUNY. He is co-author of a number of patents concerning the Company's
photonic technology and a principal stockholder of the Company. He supervises
the research and development of the Company's cancer diagnostic technology and
is principal investigator at CCNY. Since 1972, he has been affiliated with the
Physics Department of CCNY. He presently directs the institute for Ultra fast
Spectroscopy and Lasers and the Photonics Engineering Laboratories at City

                                    Page 31
<PAGE>

College. From 1964 to 1972, he was a member of the technical staff of General
Telephone & Electronics Laboratories. Dr. Alfano received an Alfred P. Sloan
Fellowship Research corporation Award and was made a Fellow of the American
Physical Society in 1976. In 1983 he received the Outstanding Italian-American
Award for Science. In May, 1989, Dr. Alfano was elected a Fellow of the Optical
Society of America for his studies of ultra fast phenomena. He has been a
consultant to several major corporations including GTE, Clairol, Phillips Dental
and Hamamatsu Photonics. Dr. Alfano is on the advisory board of Photonics
Spectra Magazine. He is a reviewer for prestigious professional journals in the
fields of physics, optics, photo biology, photochemistry and biophysics. He
received his B.S. and M.S. degrees in Physics from Fairleigh Dickinson
University in 1963 and 1964, respectively. He received his Ph.D in Physics from
New York University in 1972.

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

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

ITEM 10. EXECUTIVE COMPENSATION

     The following sets forth a summary of compensation paid or accrued to the
executive officers of the Company for fiscal years ending February 29, 2000,
February, 28 1999, February 28, 1998 and February 28, 1997 whose compensation
exceeded $100,000.

                           SUMMARY COMPENSATION TABLE

Name and                  Year ended                     Other Annual
Principle Position       Feb. 28 (29)     Salary         Compensation
------------------       ------------     ------         ------------
                          2000           $200,000        $ 67,614 (2)
Peter Katevatis           1999           $200,000        $ 61,936 (2)
Chairman and Chief        1998           $200,000        $ 64,865 (2)
Executive Officer         1997           $100,000 (1)    $523,231 (2)


--------------------

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

                                    Page 32
<PAGE>

(2)  Includes payment to Mr. Katevatis of $50,000 for legal services rendered
     during each of the fiscal years ending February 29,2000, February 28,1999,
     February 28, 1998 (fiscal years 2000, 1999, 1998 respectively), and fringe
     benefits under his employment agreement for 2000; automobile expense
     $10,535, auto insurance $2,828, and health insurance $4,251. Contract
     benefits paid in 1999; automobile expense of $5,464, automobile insurance
     of $3,541 and health insurance of $2,931. Contract benefits paid in 1998;
     automobile expense $12,721, automobile insurance $2,155 and health
     insurance $4,470. Included in 1997 $453,184 of stock compensation expense.
     See Note 3 to consolidated Financial Statements.

Option Exercises and Holdings

In April 1996, Messrs. Katevatis, Kouvatas, Kennedy and Armstrong, directors and
shareholders of the Company, collectively exercised options for 2,763,166 shares
of the Company's common stock at no cost in consideration for the cancellation
of the remaining 452,582 options held by these individuals. The exercise price
for these options was $0.25 per share and accordingly, the Company recorded
$690,792 as additional compensation expense.

The flowing table provides information regarding the number of shares covered by
both exercisable and non-exercisable stock options held by the Company's
executive officers at February 29, 2000 (see 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 $0.875 which was the closing price for the Company's Common
Stock in the over-the-counter market on February 29, 2000.

                     UNEXERCISED OPTIONS AT FISCAL YEAR-END

 Number of shares underlying                        Value of unexercised
unexercised options at year end              in-the-money options at year end
--------------------------------          -------------------------------------
Exercisable        Unexercisable          Exercisable             Unexercisable
-----------        -------------          -----------             -------------
    0                    0                      0                       0

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

ITEM 11. SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT

     The following table sets forth certain information at February 29, 2000
with respect to (i) those persons known by the Company to be the owners of more
than 5% of the Company's Common Stock, (ii) the ownership of the Company's
Common Stock by each director and (iii) the ownership of the Common Stock by all
elective officers and directors of the Company as a group. Except as otherwise
indicated, each of the stockholders named below has sole voting and investment
power with respect to the Shares of Common Stock beneficially owned by him:

<TABLE>
<CAPTION>
                                                    Amount of Beneficial            Percentage of
Name and Address                                        Ownership                      Class
----------------                                    --------------------            -------------
<S>                                              <C>                                     <C>
Peter Katevatis
P.O. Box 598
Woodcrest Cherry Hill NJ 08003                   4,725,595 (1)(2)(3)(4)(5)(12)           13.1%

John M. Kennedy
c/o Pepco Mfg.  Co.
100 Somerdale, NJ 08083                          2,677,933 (5)(6)(12)                     7.5

William W. Armstrong
P.O Box 607
Tupper Lake, NY 2986                               355,200 (5)(7)(12)                    0.09

Michael Kouvatas
27 Kings Highway
East Haddonfield NJ 08033                          684,666 (5)(8)(12)                     1.9
</TABLE>


                                    Page 33
<PAGE>

<TABLE>
<CAPTION>
                                                    Amount of Beneficial            Percentage of
Name and Address                                        Ownership                      Class
----------------                                    --------------------            -------------
<S>                                              <C>                                     <C>
Mathew Culligan
410 East 65 Street
New York, NY 10021                                  20,000 (10)                         0.005

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)                           4.0

All directors and officers as a group
7 persons                                        8,770,894 (13)                          24.6
</TABLE>

---------------------

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

(2)  Includes 824,500 restricted shares issued for past performance and services
     rendered to the Company; see Note 8 of Notes to Consolidated Financial
     Statements.

(3)  Includes 552,664 restricted shares issued in consideration for contractual
     reduction in salary described in Note 3 of Notes to Consolidated Financial
     Statements.

(4)  Excludes 200,000 shares owned by Mr. Katevatis's daughter as custodian for
     his grandchildren, and a total of 500,000 shares owned by his sons, as to
     all of which he disclaims beneficial ownership.

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

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

(7)  Includes the issuance of a net of 65,000 restricted shares acquired by Mr.
     Armstrong pursuant to the exercise of stock options described in footnotes
     (5) and (12). Also included are 6,000 shares registered 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 65,000 restricted shares acquired by Mr.
     Krum pursuant to the exercise of stock options on May 1, 1997; also
     includes 6000 shares registered in the name of his wife's IRA.

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

                                    Page 34
<PAGE>


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

(12) In April 1996, Messrs. Katevatis, Kouvatas, Kennedy and Armstrong,
     directors and shareholders of the Company, collectively exercised options
     for 2,763,166 shares of the Company's common stock at no cost in
     consideration for the cancellation of the remaining 452,582 options held by
     these individuals. The exercise price for these options was $0.25 per share
     and accordingly, the Company recorded $690,792 as additional compensation
     expense.

(13) Includes the shares described in notes (1), (6), (7), (8), (9) and (10)
     above.

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

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

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

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On December 1, 1988, the Company acquired from Dr. Robert Alfano, a principle
stockholder of the Company and Chairman of the Scientific Advisory Board, all of
the issued and outstanding stock of Laser Diagnostic Instruments, Inc. whose
only asset was US patent number 4,930,516 (previously defined as "LDI") in
exchange for 1,500,000 shares of the Company's Common Stock. Additionally, 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 be paid a bonus and fringe benefits in accordance with
policies and formulas applied to the key executives of the Company.

Ronald Krumm, resigned from the Board of Directors effective August 18, 1998.
Herbert L. Hugill terminated his tenure as President/CEO January 31, 1998,
whereupon Mr. Katevatis reassumed those responsibilities, and Mr. Hugill
resigned from the Board of Directors effective March 6, 1998. Mr. Clarence Wurtz
resigned from the board effective September 30, 1998.

Peter Katevatis Pres/CEO and Dr. Alfano principle scientific advisor have agreed
to forbear any and all collection action against Mediscience for accrued salary
and related contractually entitled items including forgiveness of interest in
exchange for the option of converting such accrued debts into MTC common stock
on the basis of (0.25 cents), which is above the average High Bid price on June
9 through the 12th 1998, which was 0.15 cents. Said option to be unlimited in
duration. Should MTC receive funding Katevatis and Alfano may elect to receive
all or part of such accrued debt in cash/shares. This right shall be assignable
in whole or in part without condition to any assignee or heirs and in no way is
intended to negate the corporate debt accrued and owing to Katevatis/Alfano.
This offer by Katevatis/Alfano was unanimously accepted by the Board of
Directors December 4, 1998 and continues in effect. On August 18, 1999 the board
of directors unanimously extended Mr. Katevatis's existing contract expiration
date from March 5, 2002 to March 5, 2007, maintaining all other original
contract terms and conditions, in recognition of his personal financial
investment in the Company, the periodic voluntary non-assertion of his
contractual anti-dilution rights and other significant consideration to the
Company. On August 18, 1999 Dr. Alfano agreed to extend his agreement, on the
same original contract terms and conditions, from its expiration date of March
5, 2002 to March 5, 2007.

On November 17, 1999 the Company entered into a three year employment agreement

                                    Page 35
<PAGE>

beginning February 1, 2000 with Dr. Frank S. Castellana, approved by Board of
Director action November 18, 1999. Pursuant to the terms of such agreement, Dr.
Castellana will assume the position as President and Chief Executive Officer at
a salary of $100,000 per annum with eligibility for an additional $50,000 annual
bonus based on milestone achievement. In addition, Dr. Castellana will be issued
options to purchase up to 914,373 shares of Mediscience Common Stock at an
option price of $.32 per share and may buy a warrant to purchase up to 1,978,746
shares of Mediscience Common Stock at an exercise price of $.05 per share for
the first 150,000 shares and at an exercise price of $.50 per share for the
remaining 1,828,746. Dr. Castellana is subject to a series of contractual
milestones described in his business plan (approved by Board of Directors
11/18/99)for development and marketing the registrant's platform technology with
Sarnoff Research Corporation, including the obtaining of funding on terms
favorable to the Company. The agreement provides for broad anti-dilution
protection for Dr. Castellana and founders Dr. Robert Alfano and Peter Katevatis
subject to adjustment in the event of stock splits, reverse stock splits and
other similar events and also in the event of the issuance of any shares of MDSC
common stock in lieu of salary, consulting fees, options, warrants or services
rendered.

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 Collage
         of the City  University of New York and the Research  Foundation of the
         City University of New York (4)

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

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

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

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

10.12    Amendment No. 3 to Agreement between the Registrant and City College
         of The City University of New York

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

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

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

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

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

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

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

                                    Page 36
<PAGE>

10.20    SBIR Grant Award effective September 30,1994 between the
         Registrant and the National Institutes of Health (17)


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 dated January 3, 1997 by the U.S. Food
         and Drug Administration (FDA) (23)

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

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

10.29    Employment Agreement between the Registrant and Dr. Frank S. Castellana
         dated November 17, 1999


(b) Reports on Form 8-K

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

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

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

See Exhibit 10.28
Research Agreement effective April 21, 1997 with General Electric Company and
the Research Foundation of the City University of New York (25)

See Exhibit 10.29
Employment Agreement dated November 17, 1999 between Registrant and Dr. Frank S.
Castellana (32)

------------------
(1)  Filed as Exhibit 10.1 to  Registrant's  Annual  Report on Form 10-K for the
     Fiscal year ended February 28, 1993

(2)  Filed as Exhibit 10.2 to  Registrant's  Annual  Report on Form 10-K for the
     Fiscal year ended February 28, 1993

                                    Page 37
<PAGE>

(3)  Filed as Exhibit 10.3 to  Registrant's  Annual  Report on Form 10-K for the
     Fiscal year ended February 28,1993

(4)  Filed as Exhibit  10.1 to  registrant's  Annual  Report 10-K for the fiscal
     Year ended February 28, 1989 and incorporated by reference thereto.

(5)  Filed as Exhibit 10.3 to  Registrant's  registration  Statement on Form S-1
     Filed on July 5, 1991 and incorporated herein by reference thereto.

(6)  Filed as Exhibit 10.3 to  Registrant's  Annual  Report on Form 10-K for the
     Fiscal year ended February 28, 1987 and incorporated by reference thereto.

(7)  Filed as Exhibit 10.5 to  Registrant's  Registration  Statement on Form S-1
     Filed on July 5,1991 and incorporated herein by reference thereto.

(8)  Filed as Exhibit 10.8 to  Registrant's  Registration  Statement on Form S-1
     Filed on August 24,1992 and incorporated by reference hereto.

(9)  Filed as Exhibit 10.9 to  Registrant's  Registration  Statement on Form S-1
     Filed on August 24, 1992 and incorporated herein by reference hereto.

(10) Filed as Exhibit 10.10 to  Registrant's  Annual Report on Form 10-K for the
     Fiscal year ended February 28, 1993.

(11) Filed as exhibit 10.11 to  Registrant's  Annual Report on Form 10-K for the
     Fiscal year ended February 28, 1993.

(12) Filed as Exhibit 10.13 to  Registrant's  Annual Report on Form 10-K for the
     Fiscal year ended February 28, 195.

(13) Filed as Exhibit 10.16 to  Registrant's  Annual Report on Form 10-K for the
     Fiscal year ended February 28, 1995.

(14) Filed as Exhibit 10.17 to  Registrant's  Annual Report on Form 10-K for the
     Fiscal year ended February 28, 1995.

(15) Filed as Exhibit 10.18 to  Registrant's  Annual Report on Form 10-K for the
     Fiscal year ended February 28, 1995.

(16) Filed as Exhibit 10.19 to  Registrant's  Annual Report on Form 10-K for the
     Fiscal year ended February 28, 1995.

(17) Filed as Exhibit 10.20 to  Registrant's  Annual Report on Form 10-K for the
     Fiscal year ended February 28, 1995.

(18) Filed as Exhibit 10.21 to  Registrant's  Annual Report on Form 10-K for the
     Fiscal year February 28, 1995.

(19) Filed as Exhibit  10.22 to  Registrants  Annual Report on Form 10-K for the
     Fiscal year February 28, 1995.

(20) Filed as  Exhibit A to  Registrant's  current  report  on Form  10-K  dated
     September 23, 1995.

(21) Filed as Exhibit A to Registrant's  current report on Form 10-K dated April
     23, 1996.

(22) Filed as Exhibit A to  Registrant's  current  report on Form 8-K dated June
     15, 1996.

(23) Filed as Exhibit A to Registrant's current report on Form 8-K dated January
     6, 1997.

(24) Filed as Exhibit A to Registrant's current report on Form 8-K dated Jan 13,
     1997

(25) Filed as Exhibit A to Registrants current report on Form 8-K dated January
     28, 1997

(26) Filed as Exhibit A to  Registrant's  current report on Form 8-K dated April
     21, 1997.

                                    Page 38
<PAGE>

(27) Filed as Exhibit A to Registrant's current report on Form 8-K dated May
     16.1997

(28) Filed as Exhibit A to Registrant's current report on Form 8-K dated Oat 21,
     1997

(29) Filed as Exhibit A to Registrant's current report on Form SEC13G dated Feb
     12, 1998

(30) Filed as Exhibit A to Registrant's current report on Form 8-K dated April
     8, 1998

(31) Filed as Exhibit A to Registrant's current report on Form 8-K dated May 29,
     1998

(32) Filed as exhibit A to Registrant's current report on Form 8-K dated Nov 23,
     1999

                                   SIGNATURES

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

                                      Mediscience Technology Corp.

                                      /s/ Peter Katevatis
                                      ------------------------------------------
Date:  June 19, 2000                  By: Peter Katevatis, Chairman of the Board
                                          and Chief Executive Officer