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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 September 30, 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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
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 November 8, 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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<page>
Part l - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MEDJET INC.
(A Development Stage Company)
Condensed Interim Balance Sheet
September 30, 2002
(Unaudited)
ASSETS
<table>
<caption>
<s> <c>
Current Assets:
Cash and cash equivalents $ 136,780
Prepaid expenses 201,305
---------------
Total Current Assets 338,085
---------------
Property and Equipment - less accumulated depreciation of $384,034 58,158
Patents and Trademarks - less accumulated amortization of $58,300 276,848
Security deposits 8,661
---------------
Total Assets $ 681,752
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 284,495
Notes payable - Officer 160,000
Capital Lease Obligation -
Deferred Revenue -
Deferred income-merger option -
---------------
Total Liabilities 444,495
---------------
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 8,042,532
Deferred Consulting Services (58,917)
Accumulated deficit (including deficit accumulated during development
stage of $9,253,366 of which $1,556,204 was applied to additional
paid-in capital upon conversion from an "S" to a "C" corporation) (7,748,697)
Less: Treasury stock, 33,789 shares, at cost (1,700)
---------------
Total Stockholders' Equity 237,257
---------------
Total Liabilities and Stockholders' Equity $ 681,752
===============
</table>
See notes to the condensed interim financial statements.
1
<page>
MEDJET INC.
(A Development Stage Company)
Condensed Interim Statements of Operations
For The Three and Nine Months Ended September 30, 2002 and 2001
And The Period From December 16, 1993 (Date of Inception) to September 30, 2002
(Unaudited)
<table>
<caption>
Period from
Three Months Ended Nine Months Ended December 16,
September 30, September 30, 1993 (Inception) to
---------------------------- ------------------------------ September 30,
2002 2001 2002 2001 2002
------------- ------------ ------------- ------------- -------------------
<s> <c> <c> <c> <c> <c>
Revenues:
Revenue $ 430,700 $ 881,000 $ 2,028,000 $ 981,500 $ 4,260,500
------------- ----------- ------------- ------------ ----------------
Total revenues $ 430,700 $ 881,000 $ 2,028,000 $ 981,500 $ 4,260,500
------------- ----------- ------------- ------------ ----------------
Expenses:
Research, development,
general and administrative 664,911 605,684 2,455,130 1,121,059 15,029,242
------------- ----------- ------------- ------------ ----------------
Total expenses 664,911 605,684 2,455,130 1,121,059 15,029,242
------------- ----------- ------------- ------------ ----------------
Loss from Operations (234,211) 275,316 (427,130) (139,559) (10,768,742)
Other Income (Expense):
Merger Option Income 62,500 - 312,500 - 500,000
Interest Income 1,069 1,003 3,769 2,528 355,421
Interest Expense (3,363) (9,970) (7,797) (18,679) (97,596)
------------- ----------- ------------- ------------ ----------------
60,206 (8,967) 308,472 (16,151) 757,825
------------- ----------- ------------- ------------ ----------------
Income (Loss) Before Income Tax (174,005) 266,349 (118,658) (155,710) (10,010,917)
Income tax - - 240 200 (757,551)
------------- ----------- ------------- ------------ ----------------
Net Income (Loss) (174,005) 266,349 (118,898) (155,910) (9,253,366)
Dividends on Preferred Stock - - - - 184,923
------------- ----------- ------------- ------------ ----------------
Net Income (Loss) Attributable to
Common Shareholders $ (174,005) $ 266,349 $ (118,898) $(155,910) $ (9,438,289)
============= =========== ============= ============ ================
Earnings (Loss) per share:
Basic $ (0.04) $ 0.07 $ (0.03) $ (0.04) $ (2.78)
============= =========== ============= ============ ================
Diluted $ (0.04) $ 0.05 $ (0.03) $ (0.04) $ (2.78)
============= =========== ============= ============ ================
Weighted average shares used to
compute net income (loss) per
share:
Basic 3,901,431 3,901,431 3,901,431 3,901,431 3,398,470
============== ============= ============= ============== ====================
Diluted 3,901,431 5,028,048 3,901,431 3,901,431 3,398,470
============== ============= ============= ============== ====================
</table>
See notes to the condensed interim financial statements.
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<page>
MEDJET INC.
(A Development Stage Company)
Condensed Interim Statements of Cash Flows
For The Nine Months Ended September 30, 2002 and 2001
And The Period From December 16, 1993 (Date of Inception) to September 30, 2002
(Unaudited)
<table>
<caption>
For the Nine Months Ended Period from
September 30, December 16,
---------------------------- 1993 (Inception) to
2002 2001 September 30, 2002
-------------- ------------ ----------------------
<s> <c> <c> <c>
Cash Flows from Operating Activities $ 1,277 $ (362,384) $ (7,868,591)
Cash Flows from Investing Activities (65,298) (66,426) (986,496)
Cash Flows from Financing Activities (12,676) (200,000) 8,991,867
-------------- ----------- ---------------------
Net Increase (Decrease) in Cash and Cash Equivalents (76,697) (628,810) 136,780
Cash and Cash Equivalents - Beginning of Period 213,477 1,063,749 -
-------------- ----------- ---------------------
Cash and Cash Equivalents - End of Period $ 136,780 $ 434,939 $ 136,780
-------------- ----------- ---------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Income taxes $ 240 $ 240 $ 1,780
============== =========== =====================
Interest expense $ 7,797 $ 18,679 $ 97,596
============== =========== =====================
</table>
See notes to the condensed interim financial statements.
3
<page>
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 nine-month period ended
September 30, 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:
---------------------------
Basic 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. Diluted net income per
share includes additional dilution from potential issuance of
common stock, such as stock issuable pursuant to the exercise
of stock options and warrants outstanding and the conversion
of preferred stock. Common Stock equivalents for the three and
nine months ended September 30, 2002, and for the nine months
ended September 30, 2001, and for the period from December 16,
1993 (inception) to September 30, 2002, have not been included
in the computation of dilutive loss per share as the effect
would be anti-dilutive.
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NOTE C - DEFERRED CONSULTING SERVICES
In August 2002, the Company entered into a consulting
agreement with an individual. At the signing of the agreement,
the consultant was granted options to purchase 100,000 shares
of the Company's common stock at an exercise price of $0.61
per share. The options have been valued at $60,600 using the
Black-Scholes pricing model. The options vest ratably over 36
months starting in August 2002. However, the options shall
become immediately fully vested upon the completion of the
proposed merger with VISX, Incorporated. The option value is
being amortized over the option vesting period.
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<page>
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/A2 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 27, 2002, the Company and VISX, Incorporated ("VISX") amended various
agreements in connection with the proposed merger of Orion Acquisition
Corporation ("Merger Sub"), a wholly-owned subsidiary of VISX, with and into the
Company, pursuant to an Agreement and Plan of Merger and Reorganization dated as
of August 17, 2001 (the "Merger Agreement"). The Company, VISX and VISX, a
Cayman corporation and wholly-owned subsidiary of VISX ("Affiliate") entered
into an amendment and assignment of the one-year research and development
agreement originally executed in August 2001 pursuant to which VISX agreed to
provide monthly funding to the Company in order to support the Company's
research and development work associated with the development of waterjet
related technology and products, including a waterjet microkeratome. The
amendment extended the term of the research and development agreement by an
additional two months, to October 17, 2002, and granted VISX the option to
extend the term for a subsequent nine month period, to July 17, 2003 (although
VISX was granted the right to terminate the agreement upon 15 days notice during
this nine month period for any reason or no reason), in order to allow the
Company additional time to pursue the research and development activities set
forth in the agreement. Pursuant to the terms of the amended research and
development agreement, the Company continued to receive minimum monthly payments
of $100,000. The amendment, among other things, also permitted VISX to assign
the agreement to any of its subsidiaries without the Company's consent provided
that certain conditions, including the guarantee by VISX of the full payment and
performance by an assignee of all of its obligations under the agreement, are
6
<page>
met. Pursuant to this provision, VISX assigned the research and development
agreement to Affiliate effective August 27, 2002.
The Company, VISX and Merger Sub also amended the Merger Agreement to extend the
termination date of the Merger Agreement by an additional two months, to October
17, 2002, and to provide for an automatic nine month extension of the
termination date of the Merger Agreement, to July 17, 2003, if the term of the
research and development agreement was similarly extended. This amendment
effectively extended the period of VISX's option to terminate the Merger
Agreement for any or no reason. In addition, the amendment reduced the
termination fees payable by VISX to the Company under various conditions of
termination from $500,000 to $250,000. The amendment, among other things, also
permitted VISX to assign the Merger Agreement to any of its subsidiaries without
the Company's consent provided that certain conditions, including the guarantee
by VISX of the full payment and performance by an assignee of all of its
obligations under the Merger Agreement and the transfer of all Company
securities held by VISX to the assignee, were met.
Finally, various ancillary agreements were also amended to permit VISX to assign
the respective agreements to any of its subsidiaries without the Company's
consent provided that the assignee was also the assignee of the Merger Agreement
and that VISX guaranteed the payment and obligations under such agreements of
each assignee.
On October 16, 2002, Affiliate elected to extend the term of the research and
development agreement by the additional nine month period to July 17, 2003
(although Affiliate continued to have the right to terminate the agreement upon
15 days notice during this nine month period for any reason or no reason). As a
result of this extension, the Company continued to receive minimum monthly
payments of $100,000 from Affiliate while this agreement was in effect. As noted
above, the election effectively extended to July 17, 2003 VISX's option to elect
to merge Merger Sub with the Company or to terminate the Merger Agreement for
any reason or no reason.
On November 8, 2002, VISX elected to terminate the Merger Agreement pursuant to
the provision in the agreement which allowed VISX to terminate the agreement for
any or no reason prior to July 17, 2003. VISX has indicated to the Company that
it intends to pay to the Company the $250,000 termination fee as provided in the
Merger Agreement. In addition, Affiliate elected to terminate the research and
development agreement. In connection with the termination of these agreements,
Timothy R. Maier, VISX's Chief Financial Officer, resigned as a member of the
Company's board of directors.
RESULTS OF OPERATIONS
The Company has not yet initiated sales of its products. The Company generated
revenues of $430,700 and $2,028,000 during the three and nine-month periods
ended September 30, 2002, respectively, and generated $881,000 and $981,500 of
revenues for each of the comparable periods in 2001. The revenues generated
during the three-month and nine- month periods ended September 30, 2002 resulted
from payments from VISX under the research and development agreement described
above. The revenues generated during the
7
<page>
three months and nine months ended September 30, 2001 resulted almost entirely
from a prior research and development agreement with VISX. As a result of the
termination of the research and development agreement, the Company currently has
no sources of revenues beyond the fourth quarter of fiscal 2002.
Total expenses during the three months ended September 30, 2002 increased by
$59,227 (10%) to $664,911 from $605,684 for the comparable period of 2001. Total
expenses during the nine months ended September 30, 2002 increased by
$1,334,071(119%) to $2,455,130 from $1,121,059 for the comparable period of
2001. These increases were primarily due to an increase in purchases for
materials, testing and analysis and other costs associated with continuing
development activities. Total expenses for the three months and nine months
ended September 30, 2002 included charges of $77,001 and $385,000, respectively,
resulting from the amortization of the value of the warrant to purchase
1,320,000 shares of the Company's Common Stock issued to VISX in connection with
the execution of the Merger Agreement and the research and development
agreement. The total deferred charge of $616,000 in connection with the issuance
of this warrant was amortized over the one-year period corresponding to the
original one-year term of the research and development agreement.
Other income (expense) for the three months and nine months ended September 30,
2002 included $62,500 and $312,500 of merger option income, respectively, based
on the $500,000 payment by VISX to the Company made concurrently with the
execution of the Merger Agreement in August 2001. This $500,000 payment was
recognized over the original one-year period during which VISX had the option to
elect whether or not to proceed with the merger. This payment was made by VISX
in consideration for this option.
Net interest expense for the three months ended September 30, 2002 was $(2,294)
compared to $(8,967) for the comparable period of 2001. Net interest expense for
the nine months ended September 30, 2002 was $(4,028) compared to $(16,151) for
the comparable period for 2001. These decreases 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 and nine months ended September 30, 2002
compared to the three and nine months ended September 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002, the Company's cash and cash equivalents was $136,780
and its working capital was $(106,410).
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 September 30, 2002, amounts advanced under this agreement totaled
$160,000. As of September 30, 2002, the amount
8
<page>
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 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 86%. 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 applied for certificates totaling approximately $92,252
which consists of tax benefits of approximately $82,983 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 86% of its face
value, the Company expects to receive net proceeds of approximately $79,336 in
late 2002 from the sale of its certificates.
As a result of the termination of the Merger Agreement, VISX has indicated to
the Company that it intends to pay to the Company the $250,000 termination fee
as provided in the Merger Agreement. In addition, the Company is currently
seeking payment from Affiliate of at least $120,000 for amounts owed to
the Company pursuant to the research and development agreement.
As shown in the accompanying financial statements, the Company incurred net
losses of $174,005 and $155,910 during the three and nine month periods ended
September 30, 2002, respectively. As of September 30, 2002, the Company's cash
was $136,780. As of September 30, 2002, the Company's current liabilities
exceeded its current assets by $106,410. As a result of these factors, as well
as the absence of a firm commitment for additional financing, the Company can no
longer be
9
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characterized as a going concern. Management of the Company is developing a plan
to reduce its costs and is evaluating financial and strategic alternatives in
light of the termination of the Merger Agreement by VISX. The Company's current
strategy to seek another strategic partner, purchaser or licensee of its
technology for vision correction surgery is based on its belief that its
technology to support vision correction surgery is superior to the current
blade-based, microkeratome techniques. The ability of the Company to continue
depends upon the successful implementation of this strategy or the Company
obtaining other sources of financing.
The Company anticipates that the termination fee to be received from VISX, any
additional amounts received from Affiliate pursuant to the research and
development agreement, the Company's cash on hand, and, to a lesser extent, the
sale of its NOLs and R&D Credits, will be sufficient to fund the Company's
working capital and planned capital expenditure requirements through February
2003. However, the Company will require additional financing in order to
maintain its current operations beyond that date. The Company has no current
arrangements with respect to any additional financing and, pursuant to the terms
of the Merger Agreement with VISX, was precluded from seeking such additional
financing while that agreement was effective. Consequently, there can be no
assurance that any additional financing will be available to the Company on
commercially reasonable terms or at all. In addition, the Company intends to
seek another strategic partner, purchaser or licensee of its technology to
support vision correction surgery. The Company intends to use the proceeds from
any such arrangement to develop products for dentistry and skin treatment based
on its patented waterjet approach. However, there can be no assurance that the
Company will be able to locate such a strategic partner, purchaser or licensee
or to enter into a definitive agreement with such a strategic partner, purchaser
or licensee on commercially reasonable terms or at all. Furthermore, there can
be no assurance that the proceeds obtained by the Company as a result of any
such agreement would be sufficient to fund the Company's future development
efforts or that such efforts to develop products for dentistry and skin
treatment will be successful. The failure to obtain additional financing or to
enter into a definitive agreement with respect to its vision correction surgery
technology would have a material adverse effect on the Company, including
causing a substantial reduction in or termination of the Company's operations.
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
10
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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 revenues for the nine months ended September 30, 2002 resulted
from payments from VISX pursuant to the research and development agreement that
the Company and VISX executed in August 2001 and extended in August 2002 and
October 2002. Pursuant to this agreement, VISX provided monthly funding to the
Company in order to finance costs to support research, development and
experimental work incurred to develop the Company's microjet related technology
and products. The monthly payments advanced by VISX were generally advanced at
the beginning of each month against a budget of costs expected to be incurred
during that month. If the advanced funds exceeded the amounts expensed at the
end of the month, the excess funding was recorded as deferred revenue until the
costs were incurred.
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.
No sales revenues are expected until, and only if, the Company begins commercial
marketing of the Company's microkeratome or other products or the Company sells
or licenses its technology to a third party. Commercial marketing of the
Company's products in the U.S. will be contingent upon obtaining FDA permission
or approval and possibly the approval of other governmental agencies.
Regulatory clearance procedures are often extremely time consuming, expensive
and uncertain. Accordingly, there can be no assurance that the Company will be
successful in obtaining marketing clearance of
11
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its devices or that, if such devices are cleared, it will be able to generate
sufficient revenues to operate on a profitable basis.
The Company's business remains subject to all of the risks inherent in the
establishment of a new business enterprise. The likelihood of success of the
Company must be considered in light of the problems, expenses, complications and
delays frequently encountered in connection with the formation of a new
business, the development of new products, the competitive and regulatory
environment in which the Company is operating and the possibility that its
activities will not result in the development of any commercially viable
products. There can be no assurance that the Company's activities will
ultimately result in the development of commercially saleable or useful
products.
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.
The Company may undertake the assembly, test and marketing of its microjet
products on a limited scale. However, it may 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/A2, 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.
Item 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including its Chief Executive Officer and Vice President - Finance and Human
Resources, the Company has evaluated the effectiveness of the design and
operation of the Company's disclosure controls and procedures within 90 days of
the filing date of this report, and, based on their evaluation, the Company's
Chief Executive Officer and Vice President - Finance and Human Resources have
concluded that these controls and procedures are effective. There were no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation.
Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by the Company in the reports that the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission's
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files under the Exchange Act is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Vice President - Finance and Human Resources, as
appropriate to allow timely decisions regarding required disclosure.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In April 1998, the New Jersey Institute of Technology ("NJIT") commenced a
lawsuit in the United States District Court for the District of New Jersey
("U.S. District Court") against the Company, Eugene I. Gordon, Ph.D. (the
Company's Chairman and Chief Executive Officer), a former employee of the
Company, certain patent law firms and an individual patent attorney. The suit
alleged that the defendants, with deceptive intent, failed to name an NJIT
professor and/or NJIT research associate as a co-inventor on the Company's basic
patent, Corneal template and surgical procedure for refractive vision
correction, Patent No. 5,556,406, for refractive surgery using a waterjet and
breached fiduciary duties and contractual obligations owed to NJIT.
In October 1998, the lawsuit brought in U.S. District Court by NJIT was
dismissed on jurisdictional grounds. Without appealing the first dismissal, in
April 1999, NJIT commenced a second action in U.S. District Court. NJIT again
alleged that the defendants failed to name a NJIT professor and/or a NJIT
research associate as co-inventors of the Company's patent and breached
fiduciary duties and contractual obligations owed to NJIT. As in the first
federal court action, NJIT sought monetary damages, an order directing that this
patent, related foreign patents and patent applications be assigned and
transferred to NJIT, a declaratory judgment that all of the claims of the
Company's patent are invalid and unenforceable against NJIT and an order
amending the named inventors of the Company's patent to include the NJIT
professor and/or the NJIT research associate. In June 2000, the U.S. District
Court granted the defendants' motion to dismiss the lawsuit on the ground that
the 1999 lawsuit is barred by res judicata as a result of the 1998 lawsuit
brought in the same court by NJIT. In July 2000, NJIT appealed this decision to
the Federal Circuit Court of Appeals. On October 1, 2002, the Federal Circuit
Court of Appeals ruled that res judicata did not apply to the 1999 lawsuit, and
therefore reversed the decision of the U.S. District Court and remanded the
lawsuit back to the U.S. District Court for proceedings on the merits.
The Company believes that NJIT's claim is without merit and that the Company
will prevail in the litigation. If, however, the Company is not successful in
its defense of the lawsuit, NJIT's employees will be declared to be co-inventors
and NJIT will have the right to use or non-exclusively license the patent. If
such event occurs, the Company's right to use the patent will remain.
Furthermore, in view of the Company's other related intellectual property that
would not be available for use by NJIT, the Company believes that the impact on
the Company resulting from a finding on the merits in favor of NJIT would not be
material.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment of Research, Development and Experimental
Cost Sharing Agreement, dated as of August 16, 2002,
by and between the Company and VISX, Incorporated.
10.2 Amendment Number Two of Research, Development and
Experimental Cost Sharing Agreement, dated as of
August 23, 2002, by and between the Company and VISX,
Incorporated.
10.3 Amendment Number Three and Assignment of Research,
Development and Experimental Cost Sharing Agreement,
dated as of August 27, 2002, by and among the
Company, VISX, Incorporated and VISX.
10.4 Amendment No. 2 to Employment Agreement between the
Company and Eugene I. Gordon, dated as of August 26,
2002.
99.1 Certification Pursuant to 18. U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
99.2 Certification Pursuant to 18. U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
(b) Reports on Form 8-K
On September 6, 2002, the Company filed a Current
Report on Form 8-K dated August 27, 2002 reporting in
Item 5 thereof the amendment of various agreements in
connection with the proposed merger involving the
Company, VISX, Incorporated and Orion Acquisition
Corporation.
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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: November 14, 2002 MEDJET INC.
/s/ Eugene I. Gordon, Ph.D.
---------------------------
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)
I, Eugene I. Gordon, Ph.D., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Medjet Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
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c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there was significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
By: /s/ Eugene I. Gordon, Ph.D.
----------------------------
Eugene I. Gordon, Ph.D.
Chief Executive Officer
I, Cheryl A. Blake, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Medjet Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known
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to us by others within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there was significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
By: /s/ Cheryl A. Blake
-----------------------
Cheryl A. Blake
Vice President - Finance
and Human Resources
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