================================================================================
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, 1999
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.
(Exact name of Small Business Issuer as Specified in its Charter)
DELAWARE 22-3283541
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
1090 King Georges Post Road, Suite 301
Edison, New Jersey 08837
(Address of Principal Executive Offices)
(732) 738-3990
(Registrant'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 May 7, 1999, 3,881,158 shares of Common Stock, par value $.001 per
share, were outstanding.
Transitional Small Business Disclosure Format: Yes [_] No [X]
================================================================================
MEDJET INC.
INDEX
-----
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Interim Balance Sheet as of March 31, 1999 (Unaudited)................... 1
Condensed Interim Statements of Operations for the three months ended March 31,
1999 and 1998 and the period from December 16, 1993 (date of inception) to March
31, 1999 (Unaudited)............................................................... 2
Condensed Interim Statements of Cash Flows for the three months ended March 31,
1999 and 1998 and the period from December 16, 1993 (date of inception) to March
31, 1999 (Unaudited)............................................................... 3
Notes to Condensed Interim Financial Statements (Unaudited)........................ 4
Item 2. Management's Discussion and Analysis or Plan of Operation.......................... 5
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 9
Item 2 Changes in Securities and Use of Proceeds.......................................... 11
Item 3. Defaults Upon Senior Securities.................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................................ 11
Item 5. Other Information.................................................................. 11
Item 6. Exhibits and Reports on Form 8-K................................................... 11
SIGNATURES.......................................................................................... 12
MEDJET INC.
(A Development Stage Company)
Condensed Interim Balance Sheet
March 31, 1999
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 219,331
Prepaid expenses 36,762
--------------
Total Current Assets 256,093
--------------
Property and Equipment - less accumulated depreciation of $283,502 189,785
Organization Costs - less accumulated amortization of $36,239 1,148
Patents and Trademarks - less accumulated amortization of $20,298 141,931
Deferred tax asset 594,209
Security deposits 4,837
--------------
Total Assets $ 1,188,003
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 260,146
Deferred revenues 120,000
Income taxes payable 150
--------------
Total Liabilities 380,296
--------------
Stockholders' Equity:
Common stock, $.001 par value, 7,000,000 shares authorized,
3,914,947 shares issued and 3,881,158 shares outstanding 3,915
Preferred stock, $.01 par value, 1,000,000 shares authorized,
no shares issued -
Additional paid-in capital 6,066,049
Accumulated deficit (including deficit accumulated during development
stage of $6,765,227 of which $1,556,204 was applied to additional
paid-in capital upon conversion from an "S" to a "C" corporation) (5,260,557)
Less: Treasury stock, 33,789 shares, at cost (1,700)
--------------
Total Stockholders' Equity 807,707
--------------
Total Liabilities and Stockholders' Equity $ 1,188,003
==============
See notes to the condensed interim financial statements.
1
MEDJET INC.
(A Development Stage Company)
Condensed Interim Statements of Operations
For The Three Months Ended March 31, 1999 and 1998
And The Period From December 16, 1993 (Date of Inception), to March 31, 1999
(Unaudited)
Three Months Ended Period from
March 31, December 16,
------------------------------------- 1993 (Inception) to
1999 1998 March 31, 1999
--------------- --------------- --------------------
Revenues:
License fee income $ 120,000 $ - $ 620,000
--------------- --------------- --------------------
Total revenues 120,000 - 620,000
--------------- --------------- --------------------
Expenses:
Research, development,
general and administrative 340,180 729,620 8,247,870
--------------- --------------- --------------------
Total expenses 340,180 729,620 8,247,870
--------------- --------------- --------------------
Loss from Operations (220,180) (729,620) (7,627,870)
Other Income (Expense):
Interest income, net 2,592 14,525 269,484
--------------- --------------- --------------------
Loss Before Income Tax (217,588) (715,095) (7,358,386)
Income tax - - (593,159)
--------------- --------------- --------------------
Net Loss (217,588) (715,095) (6,765,227)
Dividends on Preferred Stock - - 184,923
--------------- --------------- --------------------
Net Loss Attributable to
Common Shareholders $ (217,588) $ (715,095) $(6,950,150)
=============== =============== ====================
Net Loss Per Share $ (0.06) $ (0.19) $ (2.28)
=============== =============== ====================
Weighted average common and
equivalent shares outstanding 3,881,158 3,676,001 3,048,898
=============== =============== ====================
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, 1999 and 1998
And The Period From December 16, 1993 (Date of Inception), to March 31, 1999
(Unaudited)
For the Three Months Ended Period from
March 31, December 16,
----------------------------------------- 1993 (Inception) to
1999 1998 March 31, 1999
--------------- ------------------ --------------------
Cash Flows from Operating Activities $(115,777) $ (638,066) $(6,674,124)
Cash Flows from Investing Activities (8,486) (102,431) (679,479)
Cash Flows from Financing Activities - 37,748 7,572,934
--------------- ------------------ --------------------
Net Increase (Decrease) in Cash and Cash Equivalents (124,263) (702,749) 219,331
Cash and Cash Equivalents - Beginning of Period 343,594 1,491,040 -
--------------- ------------------ --------------------
Cash and Cash Equivalents - End of Period $ 219,331 $ 788,291 $ 219,331
=============== ================== ====================
Supplemental Disclosures of Cash Flow Information:
Cash Paid for:
Interest Expense $ 150 $ - $ 13,671
=============== ================== ====================
Income Taxes $ - $ - $ 400
=============== ================== ====================
See notes to the condensed interim financial statements.
3
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 months ended
March 31, 1999 are not necessarily indicative of results to be
expected for the entire year ending December 31, 1999.
NOTE B - NET LOSS PER SHARE:
Net loss per share, in accordance with the provisions of Financial
Accounting Standards No. 128, "Earnings Per Share," is computed by
dividing net loss by the weighted average number of shares of Common
Stock outstanding during the period. Common stock equivalents have
not been included in this computation as the effect would be anti-
dilutive.
4
NOTE C - LICENSE AGREEMENT:
In July 1998, the Company entered into an agreement with Nestle S.A.
("Nestle") granting Nestle and its wholly-owned subsidiary, Alcon
Laboratories, Inc. ("Alcon"), an exclusive, worldwide license for the
use of the Company's proprietary microjet technology for corneal
refractive surgery. Under the terms of the agreement, Alcon will
register, manufacture, promote and market refractive microjet devices
and consumables developed by the Company.
In connection with the execution of the agreement, a payment in the
amount of $500,000 was made by Alcon to the Company. The agreement
provides for future payments and royalties based on the attainment of
certain milestones and upon sales by Alcon of the Company's products.
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 "anticipate," "expect,"
"intend," "management 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 and in the introduction to Part I of the Company's annual report on
Form 10-KSB for the fiscal year ended December 31, 1998 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 of medical technology, with a
current emphasis on ophthalmic surgical technology and equipment, and has
developed a proprietary technology and derivative devices for corneal surgery
based on microjets. The Company expects, during the remainder of 1999, to
continue its research and development activities, focusing principally on
ophthalmic surgical technology and equipment, and to commence early exploratory
work on dental applications of its microjet technology. The Company is a
development stage company.
5
RESULTS OF OPERATIONS
The Company has not yet initiated sales of its products and, consequently, had
no sales revenues during the three months ended March 31, 1999. Under the terms
of the license agreement with Nestle (as described under "License Agreement" in
Note C of Notes to the Condensed Interim Financial Statements), a total of
$240,000 was paid by Alcon to the Company during the three months ended March
31, 1999. This amount has been reflected as License Fee Income and Deferred
Revenues in the accompanying Condensed Interim Financial Statements.
Total costs and expenses during the three months ended March 31, 1999 decreased
by $389,440 (53.4%) to $340,180 from $729,620 for the comparable period of 1998.
This was primarily due to a net decrease in staff (to nine full-time employees
and one part-time employee from twenty full-time employees) and a decrease in
consulting and professional fees as the Company continued to curtail several
operational activities in order to husband and stretch its existing capital.
(See "Liquidity and Capital Resources" below). Expenses were also higher during
the 1998 period due to increased purchases for materials, testing and analysis
and other higher costs associated with the higher level of activity.
Other income/expense consists of interest income and interest expense and
finance charges. Net interest income for the three months ended March 31, 1999
decreased by $11,933 (82.2%) to $2,592 from $14,525 for the comparable period of
1998. This decrease principally results from income earned on the Company's
short-term investments which were lower in the 1999 period, reflecting the
utilization of these funds to continue the Company's research and development
activities.
LIQUIDITY AND CAPITAL RESOURCES
In April 1998, the Company sold and issued 110,000 shares of its Convertible
Preferred Stock for an aggregate price of $1,100,000, the net proceeds of which
were added to the Company's working capital. On October 8, 1998, these shares
were converted into 182,724 shares of Common Stock and the Company paid the
applicable dividend on the Convertible Preferred Stock by issuing a total of
12,154 shares of Common Stock.
Throughout the second half of 1998, the Company had been seeking additional
capital to finance its 1999 business plan. Pending obtaining additional
financing, the Company made the decision to curtail several operational
activities and to downsize its employee base in order to husband and stretch its
existing capital. In October and November, 1998, the Company dismissed nine of
its nineteen employees. It also significantly reduced the salary of the
management group, in some cases by up to 50%. The specific goal was to reduce
the Company's monthly expenditures by 60%, to approximately $100,000. The
6
Company currently is focused on fulfilling its commitments with respect to the
agreement with Alcon, although the Company may seek to license the
HydroBrush(TM) Keratome to a third party at some future date. The Company will
also consider submitting proposals to the government and to industrial
organizations to fund some of the costs of the study of other medical
applications of its technology platform. Finally, as its financial resources
permit, the Company will continue explorations and analyses of potential new
medical applications of its microjet technology.
In January 1998, the State of New Jersey enacted legislation allowing emerging
technology and/or biotechnology companies to sell their unused New Jersey Net
Operating Loss ("NOL") Carryover and Research and Development Tax Credits ("R&D
Credits") to corporate taxpayers in New Jersey. The Company retained a third
party broker to identify a buyer for the Company's NOL Carryover and R&D
Credits. The anticipated net proceeds of this transaction ($594,209) have been
recorded as a non-current deferred tax asset in the accompanying condensed
interim financial statements. There can be no assurances, however, that this
proposed sale will occur. To the extent that the NOL Carryover and R&D Credits
are sold, they will be unavailable to the Company to offset future New Jersey
state taxes.
During March 1999, Dr. Gordon agreed to make available to the Company a loan of
up to $250,000. Under the terms of this arrangement, which has yet to be
finalized, it is anticipated that the Company will pay a market interest rate
and issue to Dr. Gordon warrants to purchase up to 50,000 shares of the
Company's Common Stock. To date, no funds have been advanced under this
arrangement.
The Company anticipates that its cash on hand, together with the payments to be
received by the Company in connection with the license agreement, plus the
proposed loan from Dr. Gordon and the sale of its New Jersey State NOL Carryover
and R&D Credits, will be sufficient to meet the Company's 1999 working capital
and planned capital expenditure requirements. If, however, the Company incurs
unexpected expenses, or if the New Jersey NOL Carryover and R&D Credits are not
sold as anticipated, the Company may require additional financing prior to the
end of 1999 in order to maintain its current operations. Assuming FDA marketing
clearance is obtained, minimum royalty payments under the licensing agreement
are anticipated to begin in early 2000. However, if the Company and Alcon fail
to obtain FDA clearance of the Company's HydroBlade(TM) Keratome device or
Alcon's manufacturing and marketing of the device is otherwise delayed, the
Company will need to raise additional capital to maintain its current scope of
operations beyond the second quarter of 2000. The Company currently has no
commitment or arrangement for any capital, and there can be no assurance whether
or on what terms it will be able to obtain any needed capital. If additional
financing is not available, the Company would be materially adversely affected
and be required to further curtail or cease altogether its current operations.
The Company's current strategy is to exclusively license its products. As of
the date of filing of this quarterly report on Form 10-QSB, the Company has
entered into one such
7
agreement, the Alcon Agreement, covering corneal refractive surgery. To the
extent the Company does not enter into licensing arrangements, it may undertake
the marketing and sale of its own products. In such event, 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, which information is
incorporated herein by reference.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's current strategy is to selectively license its ophthalmology
products where appropriate. To date, the Company has entered into one such
agreement to license its proprietary microjet technology for corneal refractive
surgery only. If the Company is unable or elects not to enter into additional
license agreements with respect to its other products, it may undertake the
manufacture and marketing of such products directly. If manufactured
internally, the Company's proposed products must be produced in commercial
quantities in compliance with regulatory requirements at acceptable costs.
Production in clinical or commercial-scale quantities will involve scale-up
challenges for the Company. The Company currently has no volume manufacturing
capacity or experience in manufacturing medical devices or any other products.
If the Company elects to manufacture certain of its potential products, it would
be required to establish its own manufacturing capabilities, which would require
significant scale-up expenses and additions to facilities and personnel. There
can be no assurance that the Company would be able to obtain the necessary
regulatory approvals on a timely basis, or at all, and delays in receipt of, or
failure to receive such approvals, or loss of previously received approvals,
would have a material adverse effect on the Company. There can be no assurance
that the Company will be able to enter into agreements with third parties with
respect to the manufacture of any products or develop its own manufacturing
capability at an acceptable cost.
The Company's dependence on third parties for the manufacture of its products
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 Company does not enter into additional license or distribution
arrangements with respect to its products other than those related to its
proprietary microjet technology for corneal refractive surgery, it may undertake
the marketing and sale of its own products. 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
8
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.
OTHER MATTERS
The Company has been assessing its "Year 2000" computer readiness and exposure
to Year 2000 issues. In connection with such assessment, the Company initiated
a review of all information technology systems utilized by the Company. The
Company uses no internally-developed systems, only those available from
commercial software vendors. As part of its review, the Company has received
confirmation from its principal software vendors that such systems are Year 2000
compliant. Based on its review to date, the Company believes there are no major
Year 2000 compliance issues with respect to its information technology systems,
and, therefore, the Company has not and does not intend to prepare a contingency
plan for these systems. The Company anticipates that the total cost for its
Year 2000 compliance efforts will not exceed $5,000.
In addition, although the Company has not yet initiated commercial production of
any of its products, the list of component parts used in those products was
reviewed and it was determined that multiple vendors, parts suppliers or
contract manufacturers are available to the Company for all of the critical
component parts of these products. Although there are no vendors currently
engaged by the Company for products to be manufactured, when engaging vendors,
the Company will ascertain that they are compliant. Based on its review to
date, the Company believes, in the most likely worst case scenario, that Year
2000 issues would have only a minimal impact on the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
New Jersey Institute of Technology
On April 21, 1998, the Company was served with a complaint by the New Jersey
Institute of Technology ("NJIT") commencing a lawsuit in the United States
District Court for the District of New Jersey ("U.S. District Court"). Each of
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 were named as
9
defendants. The complaint 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 U.S. Patent No. 5,556,406 on the "Lamellar Surgical Device and
Procedure" (the "Patent") and breached fiduciary duties and contractual
obligations owed to NJIT. The complaint sought monetary damages from the Company
and an order directing that the Company's Patent (and corresponding foreign
patents and patent applications) be assigned and transferred to NJIT. It further
sought an order that NJIT has not infringed any claims of such Patent and a
declaratory judgment that all of the Company's claims under such Patent are
invalid and unenforceable against NJIT.
NJIT has submitted a patent application relating to a different refractive
corrective procedure based on the use of an isotonic waterjet to the U.S. Patent
and Trademark Office. That patent has recently been allowed. The three inventors
of the subject of such patent application, one of which was Dr. Gordon, had
assigned such patent application to NJIT as part of a dispute settlement in
which NJIT agreed to grant an exclusive license to the Company of the patent
rights under such patent application. That license was terminated by the Company
because the Company believed that the device did not operate as claimed and
could be harmful to the patient. In its court pleas, NJIT claims, without being
specific, that the Company's Patent emanates from the earlier invention. Prior
to being served with the complaint by NJIT, the Company and Dr. Gordon filed a
complaint, on March 27, 1998, against NJIT in the Superior Court of the State of
New Jersey, Middlesex County, seeking a declaratory judgment that NJIT had no
ownership or other interest in the patent rights to the Company's Patent and
seeking certain monetary damages. NJIT removed the Company's lawsuit to the U.S.
District Court, seeking to have it consolidated with its lawsuit. The Company
moved to have its suit remanded to state court and to have the NJIT lawsuit
dismissed on the grounds that the federal court lacked jurisdiction over either
action, and that NJIT had not been harmed by the Company's Patent and therefore
could not challenge its validity.
During October 1998, the lawsuit brought in U.S. District Court by NJIT was
dismissed on jurisdictional grounds. In addition, the U.S. District Court also
held that NJIT improperly removed the Company's state court action and ordered
that action remanded to the state court. NJIT appealed the remand action and
appealed the dismissal of its lawsuit brought in U.S. District Court. These
appeals have been dismissed. On April 26, 1999, NJIT commenced a second
litigation in U.S. District Court seeking, among other things, an order amending
the inventorship designation regarding the Patent to include two NJIT employees.
The Company plans to move to dismiss this action as well. In the state court
action, the Company requested discovery in November 1998. To date, NJIT has
produced very few responsive and relevant documents, and only partial answers to
the Company's interrogatories. NJIT has asserted counterclaims and/or third
party claims against the Company, Dr. Gordon, a former employee of the Company,
and patent counsel. While the action is still in the discovery phase, the
Company believes that its Patent is valid and enforceable and that the Company
has valid defenses to each of NJIT's claims. The Company believes the
probability of an unfavorable outcome to be low, and therefore no amounts have
been accrued, with respect to this lawsuit.
Other
10
On April 16, 1999, the Company was served with a complaint commencing a lawsuit
in the United States District Court for the District of New Jersey by Robert G.
Donovan, a former officer and director, seeking payment of $129,500 for
undocumented services alleged to have been performed for the Company. A
compensation package offered by the Company for documented services had been
rejected by Mr. Donovan previously. Although the Company believes the
probability of a significant unfavorable outcome is remote, this matter is
currently in the preliminary stages and no prediction can be made of the
ultimate outcome.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
None
11
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 14, 1999 MEDJET INC.
/s/ Eugene I. Gordon
---------------------------------
Eugene I. Gordon, Ph.D.
Chairman of the Board and
Chief Executive Officer
/s/ Thomas M. Handschiegel
---------------------------------
Thomas M. Handschiegel
Vice President - Finance and
Human Resources
(Principal financial and accounting officer)
12
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
11 Statement regarding computation of per share earnings
27 Financial Data Schedule