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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission File Number: 1-11765
MEDJET INC.
(Name of Small Business Issuer as Specified in its Charter)
DELAWARE 22-3283541
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1090 KING GEORGES POST ROAD, SUITE 301
EDISON, NEW JERSEY 08837
(Address of Principal Executive Offices)
(732) 738-3990
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
|_|
As of April 30, 2002, 3,901,431 shares of Common Stock, par value $.001 per
share, were outstanding.
Transitional Small Business Disclosure Format: Yes |_| No |X|
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Part l - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MEDJET INC.
(A Development Stage Company)
Condensed Interim Balance Sheet
March 31, 2002
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 386,719
Prepaid expenses 40,603
-----------
Total Current Assets 427,322
-----------
Property and Equipment - less accumulated depreciation of $364,037 73,784
Patents and Trademarks - less accumulated amortization of $53,107 258,866
Security deposits 8,661
-----------
Total Assets $ 768,633
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 182,112
Notes payable - Officer 160,000
Capital Lease Obligation 5,133
Deferred Revenue 138,044
-----------
Total Liabilities 485,289
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Stockholders' Equity:
Common stock, $.001 par value, 30,000,000 shares authorized,
3,935,220 shares issued and 3,901,431 shares outstanding 3,935
Preferred stock, $.01 par value, 1,000,000 shares authorized, 10,400 shares
designated as Series B Convertible Preferred issued and outstanding 104
Additional paid-in capital 7,365,932
Accumulated deficit (including deficit accumulated during development
stage of $8,589,560 of which $1,556,204 was applied to additional
paid-in capital upon conversion from an "S" to a "C" corporation) (7,084,927)
Less: Treasury stock, 33,789 shares, at cost (1,700)
-----------
Total Stockholders' Equity 283,344
-----------
Total Liabilities and Stockholders' Equity $ 768,633
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See notes to the condensed interim financial statements.
MEDJET INC.
(A Development Stage Company)
Condensed Interim Statements of Operations
For The Three Months Ended March 31, 2002 and 2001
And The Period From December 16, 1993 (Date of Inception) to March 31, 2002
(Unaudited)
Three Months Ended Period from
March 31, December 16,
---------------------------- 1993 (Inception) to
2002 2001 March 31, 2002
------------ ----------- ---------------------
Revenues:
Revenues $ 654,956 $ - $ 3,392,741
Total revenues $ 654,956 $ - $ 3,392,741
------------ ----------- ---------------------
Expenses:
Research, development,
general and administrative 652,636 295,938 12,999,497
------------ ----------- ---------------------
Total expenses 652,636 295,938 12,999,497
------------ ----------- ---------------------
Income (Loss) from Operations 2,320 (295,938) (9,606,756)
Other Income (Expense):
Interest Income 1,372 1,435 347,874
Interest Expense (2,320) (3,827) (92,120)
------------ ----------- ---------------------
(948) (2,392) 255,625
------------ ----------- ---------------------
Income (Loss) Before Income Tax 1,372 (298,330) (9,351,131)
Income tax - - (761,571)
------------ ----------- ---------------------
Net Income (Loss) 1,372 (298,330) (8,589,560)
Dividends on Preferred Stock - - 184,923
------------ ----------- ---------------------
Net Income (Loss) Attributable to
Common Shareholders $ 1,372 $ (298,330) $ (8,774,483)
============ =========== =====================
Earnings (Loss) Per Share $ 0.00 $ (0.08) $ (2.73)
============ =========== =====================
Weighted average common
shares outstanding 3,901,431 3,901,431 3,217,256
See notes to the condensed interim financial statements.
2
MEDJET INC.
(A Development Stage Company)
Condensed Interim Statements of Cash Flows
For The Three Months Ended March 31, 2002 and 2001
And The Period From December 16, 1993 (Date of Inception) to March 31, 2002
(Unaudited)
For the Three Months Ended Period from
March 31, December 16,
--------------------------- 1993 (Inception) to
2002 2001 March 31, 2002
------------ ------------ ----------------------
Cash Flows from Operating Activities $ 204,409 $ (191,709) $ (8,202,933)
Cash Flows from Investing Activities (31,167) (9,866) (914,891)
Cash Flows from Financing Activities - 19,500 9,504,543
------------ ------------ ----------------------
Net Increase (Decrease) in Cash and Cash Equivalents 173,242 (182,075) 386,719
Cash and Cash Equivalents - Beginning of Period 213,477 183,665 -
------------ ------------ ----------------------
Cash and Cash Equivalents - End of Period $ 386,719 $ 1,590 $ 386,719
------------ ------------ ----------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Income taxes $ - $ - $ 600
============ ============ ======================
Interest expense $ 2,320 $ 3,827 $ 65,628
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See notes to the condensed interim financial statements.
MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE
CONDENSED INTERIM FINANCIAL STATEMENTS
NOTE A - NATURE OF ORGANIZATION AND BASIS OF PRESENTATION:
(1) NATURE OF ORGANIZATION:
----------------------
Medjet Inc. (the "Company") was incorporated in the State of
Delaware on December 16, 1993, and is in the development
stage. The Company is engaged in research and development of
medical technology, with a current emphasis on ophthalmic
surgical technology and equipment.
(2) BASIS OF PRESENTATION:
---------------------
The Condensed Interim Financial Statements included herein
have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted as permitted by such rules and
regulations.
The Condensed Interim Financial Statements included herein
reflect, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to
present fairly the results for the interim periods. The
results of operations for the three-month period ended March
31, 2002 are not necessarily indicative of results to be
expected for the fiscal year ending December 31, 2002.
NOTE B - NET INCOME (LOSS) PER SHARE:
Net income (loss) per share, in accordance with the provisions
of Financial Accounting Standards No. 128, "Earnings Per
Share," is computed by dividing net income (loss) by the
weighted average number of shares of Common Stock outstanding
during the period. Common Stock equivalents for the three
months ended March 31, 2002 and 2001, and for the period from
December 16, 1993 (inception) to March 31, 2002, have not been
included in the computation of dilutive earnings per share as
the effect would be anti-dilutive.
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Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
THIS QUARTERLY REPORT ON FORM 10-QSB, INCLUDING ANY DOCUMENTS THAT ARE
INCORPORATED BY REFERENCE, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. GENERALLY, SUCH
STATEMENTS ARE INDICATED BY WORDS OR PHRASES SUCH AS "ANTICIPATES," "EXPECTS,"
"INTENDS," "BELIEVES" AND SIMILAR WORDS AND PHRASES. SUCH STATEMENTS ARE BASED
ON THE COMPANY'S CURRENT EXPECTATIONS AND ARE SUBJECT TO RISKS, UNCERTAINTIES
AND ASSUMPTIONS. CERTAIN OF THESE RISKS ARE DESCRIBED OR REFERRED TO BELOW OR IN
PART I, ITEM 6 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB/A FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2001, ON FILE WITH THE SECURITIES AND EXCHANGE
COMMISSION, AND ARE INCORPORATED HEREIN BY THIS REFERENCE. SHOULD ONE OR MORE OF
THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, EXPECTED,
INTENDED OR BELIEVED.
GENERAL
The Company is engaged in research and development for manufacture of medical
technology, with a current emphasis on ophthalmic surgical technology and
equipment, and has developed a proprietary technology and derivative devices
based on microjets. The Company expects, during the remainder of 2002, to
continue its research and development activities, focusing principally on
ophthalmic surgical technology and equipment for vision correction surgery. The
Company is a development stage company.
On August 17, 2001, the Company, VISX, Inc. and Orion Acquisition Corp., a
wholly-owned subsidiary of VISX, entered into an Agreement and Plan of Merger
and Reorganization, which provides, among other things, for the potential merger
of Orion Acquisition Corp. with and into the Company, at VISX's option. Under
the terms of the merger agreement, if VISX chooses to go forward with the merger
and subject to other customary conditions to closing, each outstanding share of
common stock of the Company would be canceled and extinguished and would be
converted automatically into the right to receive $2.00 in cash at the effective
time of the merger. Upon consummation of the merger, the Company would become a
wholly-owned subsidiary of VISX.
VISX may terminate the merger agreement at any time prior to the effective time
of the merger for any or no reason. In consideration for such termination right,
VISX paid the Company $500,000 concurrently with the execution of the merger
agreement. The Company also issued to VISX a three-year warrant to purchase
1,320,000 shares of the Company's common stock, at an exercise price per share
of $0.75. This warrant becomes relevant only if VISX elects to terminate the
merger agreement.
The closing of this transaction is contingent upon, among other things, the
receipt of any necessary third party consents and other customary closing
conditions. Notwithstanding the foregoing, VISX may elect not to consummate the
merger even if all of the other conditions set forth in the merger agreement are
satisfied by the Company. The merger agreement also
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provides for termination fees of $500,000 payable by one party to the other
under various conditions of termination.
Many of the Company's forward-looking statements and plans in this report are
based on the assumption that VISX will exercise its option to complete the
merger. If VISX elects not to proceed with the merger by August 2002, the
termination fee payable by VISX to the Company is expected to provide the
Company with the opportunity to evaluate its position and alternatives for
future operations.
RESULTS OF OPERATIONS
The Company has not yet initiated sales of its products. The Company generated
revenues of $654,956 during the three-month period ended March 31, 2002 and
generated no revenues for the comparable period in 2001. The revenues generated
during the first three months of fiscal 2002 resulted from payments from VISX
under a research and development agreement pursuant to which VISX has agreed to
provide funding to the Company through August 2002 to pursue waterjet related
technologies and products, including the Company's waterjet microkeratome.
Total expenses during the three months ended March 31, 2002 increased by
$356,698 (120%) to $652,636 from $295,938 for the comparable period of 2001.
This increase was primarily due to an increase in purchases for materials,
testing and analysis and other costs associated with continuing development
activities.
Net interest expense for the three months ended March 31, 2002 was $(948)
compared to $(2,392) for the comparable period of 2001. This decrease resulted
principally from decreased interest expense relating to the loan provided by the
Company's Chief Executive Officer due to lower interest rates and a lower
outstanding principal balance on the loan in the three months ended March 31,
2002 compared to the three months ended March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2002, the Company's cash and cash equivalents was $386,719.
During March 1999, Eugene I. Gordon, Ph.D., the Company's Chairman and Chief
Executive Officer, agreed to make available to the Company an unsecured loan of
up to $250,000. Under the terms of this agreement, the Company issued to Dr.
Gordon warrants to purchase up to 50,000 shares of the Company's unregistered
Common Stock and agreed to pay a market interest rate on amounts borrowed.
Through March 31, 2002, amounts advanced under this agreement totaled $160,000.
As of March 31, 2002, the amount owed to Dr. Gordon is $160,000 with interest
paid monthly. Principal amounts outstanding under this loan are due and payable
on January 26, 2009.
In connection with the execution of the merger agreement with VISX, the Company
and VISX also entered into a one-year research and development agreement in
August 2001 pursuant to which VISX has agreed to provide monthly funding to the
Company in order to
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support research and development work associated with development of waterjet
related technology and products, including a waterjet microkeratome. This
agreement provides for minimum monthly payments of $150,000 for the first six
months and $100,000 for the second six months.
In 1998, the State of New Jersey enacted legislation allowing emerging
technology and/or biotechnology companies to sell their unused New Jersey net
operating loss carryover ("NOLs") and research and development tax credits ("R&D
Credits") to corporate taxpayers in New Jersey. Under this program, the New
Jersey Department of Taxation certifies annual NOLs and R&D Credits which may be
sold to third parties. Generally, corporations operating in New Jersey are
subject to a 9% tax on net operating profits. Companies meeting certain criteria
and that had NOLs may apply for certificates for 9% of their cumulative state
certified NOLs and 3% of their R&D Credits. The total value of the certificates
for all companies applying is limited to a fixed amount, as established by
statute. As a result, the value of the certificates issued is usually less than
the total NOLs and R&D Credit amounts for which applications are submitted,
depending on the number of companies applying for such certificates and the
amounts claimed. Any remaining amounts of NOLs and R&D Credits exceeding the
face value of the certificates issued can be carried over into subsequent years.
Whatever certificates are received may be sold for a percentage of their face
value, typically between 80% and 85%. The buyers of these certificates are then
entitled to use these certificates at 100% of their face value to reduce their
own New Jersey state income tax payments. The Company is permitted to apply for
such certificates beginning in June with respect to NOLs and R&D Credits
relating to prior fiscal years. The New Jersey Department of Taxation generally
takes about six months to process these applications and issue the certificates.
As a result, the Company generally does not sell its eligible NOLs and R&D
Credits relating to a given year until near the end of the following year. To
the extent that the NOLs and R&D Credits are sold, they will be unavailable to
the Company to offset future New Jersey state income taxes.
In 2002, the Company intends to apply for certificates totaling approximately
$57,000 which consists of tax benefits of approximately $47,000 for the year
ended December 31, 2001 and $9,269 in tax benefits carried over from the prior
year. Assuming the Company receives a certificate for the entire amount for
which it applies, and assuming the Company sells such certificate for 84% of its
face value, the Company expects to receive net proceeds of approximately $47,900
in late 2002 from the sale of its certificates.
The Company anticipates that its cash on hand, the monthly research and
development funding from VISX, and, to a lesser extent, the sale of its NOLs and
R&D Credits, will be sufficient to meet the Company's working capital and
planned capital expenditure requirements through 2002. If, however, the Company
incurs unexpected expenses, or if the proposed merger with VISX is not
completed, the Company may require additional financing prior to the end of 2002
in order to maintain its current operations. The Company has no current
arrangements with respect to any additional financing and, pursuant to the terms
of the merger agreement with VISX, is currently precluded from seeking such
additional financing. Consequently, there can be no assurance that any
additional financing will be available to the Company, on commercially
reasonable terms, or at all. The failure to obtain any needed financing would
have a material adverse effect on the Company, including causing a reduction in
the Company's operations.
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SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
General
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities. On an ongoing basis, the Company evaluates its
estimates, including those related to intangible assets, income taxes,
contingencies and litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Patents
Costs incurred in connection with patent applications, principally legal and
consulting fees, are capitalized. Once a patent is granted, these costs are
amortized over the lesser of the life of the patent, generally 20 years, or the
estimated future economic life of the technology underlying the patent. Once the
amortization period begins, management continues to evaluate the estimated
future economic life of the patents. Should it be determined that a shorter life
is estimated than the original estimated future life, the amortization period is
adjusted accordingly. Should a patent application be abandoned or not approved,
the costs incurred in connection with the application are expensed.
Revenue Recognition
The Company's revenue for the three months ended March 31, 2002 was generated
from the research and development agreement entered into with VISX in August
2001. This agreement provides that VISX will fund the Company's research and
development activities through August 2002. On a monthly basis, the Company
prepares a budget of planned expenditures for approval by VISX. The research and
development activities are then performed during the month with expenditures
made against the approved budget. At the end of the month, any unexpended budget
amounts are reflected as deferred revenue until such time as the expenditures
are made. While this agreement provides for the full funding of all of the
Company's operating activities, it does not provide for a profit margin to the
Company.
8
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company has been in the development stage and has not sold any products. To
date, the Company's research and development activities on vision correction
devices have been limited to constructing and testing experimental versions of
microkeratomes and associated console for eye surgery and conducting a limited
number of feasibility studies using enucleated porcine, rabbit and human eyes,
and live rabbits to prove that the beam of water can smoothly incise and shape
the anterior surface of the cornea, that there is no loss of tissue by erosion,
and that the cornea will heal properly after the surgery.
If the proposed merger with VISX is not completed, the Company will depend on
third parties for the manufacture of components of its products. This may
adversely affect the Company's profit margins and its ability to develop and
deliver such products on a timely basis. Moreover, there can be no assurance
that such third parties will perform adequately, and any failures by third
parties may delay the submission of products for regulatory approval, impair the
Company's ability to deliver products on a timely basis, or otherwise impair the
Company's competitive position and any such failure could have a material
adverse effect on the Company.
If the proposed merger with VISX is not completed, the Company intends to
undertake the assembly, test and marketing of its microjet products on a limited
scale. However, it would need to pursue other possible arrangements for
larger-scale manufacturing, marketing and distribution. To the extent that the
Company fails to enter into such arrangements, the Company would be subject to
the risks and uncertainties described under "Additional Factors That May Affect
Future Results - No Manufacturing Experience; Dependence on Third Parties," in
the Company's Annual Report on Form 10-KSB/A, which information is incorporated
herein by reference.
If the Company does not enter into license or distribution agreements with
respect to its products, it may undertake the marketing and sale itself. In such
event, the Company intends to market and sell its products in the United States
and certain foreign countries, if and when regulatory approval is obtained,
through a direct sales force or a combination of a direct sales force and
distributors. The Company currently has no marketing organization and has never
sold a product. Establishing sufficient marketing and sales capabilities will
require significant resources. There can be no assurance that the Company will
be able to recruit and retain skilled sales management, direct salespersons or
distributors, or that the Company's marketing or sales efforts will be
successful. To the extent that the Company enters into distribution arrangements
for the sale of its products, the Company will be dependent on the efforts of
third parties. There can be no assurance that such efforts will be successful.
Acceptance of the Company's products is difficult to predict and will require
substantial marketing efforts and the expenditure of significant funds by the
Company. There can be no assurance that the products will be accepted by the
medical community once they are permitted or approved. Market acceptance of the
Company's products will depend in large part upon the Company's ability to
demonstrate the operational advantages, safety and cost-effectiveness of its
products compared to other comparable surgical techniques. Failure of
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the products to achieve market acceptance will have a material adverse effect on
the Company's financial condition and results of operations.
At present, the Company's only products (although still in development stage)
are its microkeratomes, and the Company expects that its microkeratomes will be,
if and when commercially available, its sole products for an indefinite period
of time. The Company's present narrow focus on particular products makes the
Company vulnerable to the development of superior competing products and changes
in technology that could eliminate the need for the Company's products. There
can be no assurance that significant changes in the foreseeable future in the
need for the Company's products or the desirability of those products will not
occur.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2002 MEDJET INC.
/S/ EUGENE I. GORDON
---------------------------------------------
Eugene I. Gordon, Ph.D.
Chairman of the Board and
Chief Executive Officer
/S/ CHERYL A. BLAKE
-----------------------------------
Cheryl A. Blake
Vice President - Finance and
Human Resources
(Principal financial and accounting officer)