10QSB 1 p857188.txt FORM 10-QSB ================================================================================ 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 June 30, 2003 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 Identification No.) of 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) 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 August 11, 2003, 3,901,431 shares of Common Stock, par value $.001 per share, were outstanding. Transitional Small Business Disclosure Format: Yes |_| No X| ================================================================================ PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MEDJET INC. (A Development Stage Company) Condensed Interim Balance Sheet June 30, 2003 (Unaudited) ASSETS
Current Assets: Cash and cash equivalents $ 128,547 Prepaid expenses 7,183 --------------- Total Current Assets 135,730 --------------- Property and Equipment - less accumulated depreciation of $409,701 37,129 Patents and Trademarks - less accumulated amortization of $62,655 296,982 Security deposits 4,837 --------------- Total Assets $ 474,678 =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 113,764 Notes payable - Officer 160,000 Income Tax Payable - Deferred Rental Obligation 7,651 Deferred income-merger option - --------------- Total Liabilities 281,415 --------------- 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 7,985,298 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) (7,794,374) Less: Treasury stock, 33,789 shares, at cost (1,700) --------------- Total Stockholders' Equity 193,263 --------------- Total Liabilities and Stockholders' Equity $ 474,678 ===============
See notes to the condensed interim financial statements. 1 MEDJET INC. (A Development Stage Company) Condensed Interim Statements of Operations For the Six Months Ended June 30, 2003 and 2002 and the Period From December 16, 1993 (Date of Inception), to June 30, 2003 (Unaudited)
December 16, 1993 Three Months Ended June 30, Six Months Ended June 30, (Inception to) ---------------------------------- ---------------------------------- ---------------- 2003 2002 2003 2002 30-Jun-03 Revenues: --------------- --------------- --------------- --------------- ---------------- License fee income $ - $ 942,344 $ - $ 1,597,300 $ 4,884,303 ---------------- ---------------- ---------------- ---------------- ---------------- Total Revenues $ - $ 942,344 $ - $ 1,597,300 $ 4,884,303 Expenses: Research, development, general and administrative $ 186,213 $ 983,608 $ 380,214 $ 1,790,243 $ 15,754,644 ---------------- ---------------- ---------------- ---------------- ---------------- Total Expenses $ 186,213 $ 983,608 $ 380,214 $ 1,790,243 $ 15,754,644 Income (Loss) from Operations $ (186,213) $ (41,264) $ (380,214) $ (192,943) $ (10,870,341) Other Income (Expense): ---------------- ---------------- ---------------- ---------------- ---------------- Merger option income $ - $ 125,001 $ - $ 250,001 $ 500,000 Other income $ - $ - $ - $ - $ 5,154 Net interest income (expense) $ (1,406) $ (786) $ (2,422) $ (1,735) $ 248,484 ---------------- ---------------- ---------------- ---------------- ---------------- Income (Loss) Before Income Tax $ (187,619) $ 82,951 $ (382,636) $ 55,323 $ (10,116,703) Federal income tax $ - $ - $ - $ - $ - State income tax $ 130 $ 240 $ 1,150 $ 240 $ (817,660) (benefit) ---------------- ---------------- ---------------- ---------------- ---------------- Total income tax (benefit) $ 130 $ 240 $ 1,150 $ 240 $ (817,660) Net income (loss) $ (187,749) $ 82,711 $ (383,786) $ 55,083 $ (9,299,043) Dividends on preferred stock $ - $ - $ - $ - $ 184,923 Net Loss Attributable to ---------------- ---------------- ---------------- ---------------- ---------------- Common Stockholders $ (187,749) $ 82,711 $ (383,786) $ 55,083 $ (9,483,966) ================ ================ ================ ================ ================ Net (Income) Loss Per Share: Basic and Diluted $ (0.05) $ (0.02) $ (0.10) $ 0.01 $ (2.82) Weighted Average Common ================ ================ ================ ================ ================ Shares Outstanding: Basic 3,901,431 3,901,431 3,901,431 3,901,431 3,368,999 ================ ================ ================ ================ ================ Diluted 3,901,431 5,382,736 3,901,431 5,396,211 3,368,999 ================ ================ ================ ================ ================ 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 June 30, 2003 and 2002 And The Period From December 16, 1993 (Date of Inception) to June 30, 2003 (Unaudited)
For the Six Months Ended Period from June 30, December 16, ---------------------------- 1993 (Inception) to 2003 2002 June 30, 2003 -------------- ------------ ---------------------- Cash Flows from Operating Activities $ (270,608) $ 260,551 $ (7,834,912) Cash Flows from Investing Activities (10,534) (59,403) (1,028,408) Cash Flows from Financing Activities - (12,676) 8,991,867 -------------- ------------ ---------------------- Net Increase (Decrease) in Cash and Cash Equivalents (281,142) 188,472 128,547 Cash and Cash Equivalents - Beginning of Period 409,689 213,477 - -------------- ------------ ---------------------- Cash and Cash Equivalents - End of Period $ 128,547 $ 401,949 $ 128,547 -------------- ------------ ---------------------- Supplemental Disclosures of Cash Flow Information: Cash paid for: Income taxes $ 24,028 $ - $ 25,888 ============== ============ ====================== Interest expense $ 1,814 $ 2,320 $ 77,306 ============== ============ ====================== 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, utilizing small-diameter, liquid microjets moving at various speeds above supersonic, depending on the specific application, with a current emphasis on dental 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 six-month period ended June 30, 2003 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2003. 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 six months ended June 30, 2003 and for the period from December 16, 1993 (inception) to June 30, 2003, have not been included in the computation of dilutive loss per share as the effect would be anti-dilutive. 4 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. 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 a development stage company engaged in research and development for manufacture of medical technology and has developed a proprietary technology and derivative devices based on microjets. The Company expects, during the remainder of 2003, to continue its research and development activities, focusing principally on waterjet technology and equipment for surgery. However, the Company had no revenues in the three-month period ended June 30, 2003, and the Company anticipates that it has cash on hand to fund the Company's working capital and capital expenditure requirements only through September 2003. The report of independent certified public accountants to the Company's financial statements for the year ended December 31, 2002 contains an explanatory paragraph that there is substantial doubt as to the Company's ability to continue as a going concern. In August 2001, the Company, VISX, Inc. ("VISX"), a U.S. provider of equipment for the vision correction procedure known as the Laser Ablation System for In-situ Keratomileusis ("LASIK"), and a subsidiary of VISX ("Merger Sub") entered into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), which provided, among other things, for the potential merger of Merger Sub with and into the Company, at VISX's option. In connection with the execution of the Merger Agreement, the Company and VISX also entered into a separate one-year research and development agreement. VISX had the option to terminate the Merger Agreement at any time during the one-year period following the date of its execution for any or no reason. In August 2002, the Company and VISX amended various agreements in connection with the proposed merger of Merger Sub with and into the Company. The Company and a wholly-owned Cayman subsidiary of VISX ("Affiliate") entered into an amendment and assignment of the one-year research and development agreement originally executed in August 2001. The amendment extended the term of the research and development agreement to October 17, 2002, and granted VISX the option to extend the term to July 17, 2003, in order to allow the Company additional time to pursue the research and development activities set forth in the agreement. The Company and Merger Sub also amended the Merger Agreement to extend the termination date of the Merger Agreement to October 17, 2002, and provided for an automatic 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. In October 2002, Affiliate elected to extend the term of the research and development agreement to July 17, 2003, thereby extended the Merger Agreement to the same date. 5 In November 2002, VISX elected to exercise their right and terminate the Merger Agreement. On November 11, 2002, VISX paid the Company the $250,000 termination fee as provided in the Merger Agreement. In addition, Affiliate elected to terminate the research and development agreement. After the termination of the Merger Agreement, the Company initially sought another strategic partner, purchaser or licensee of its microjet microkeratome. However, during 2002, the number of LASIK procedures fell well below the anticipated rates and the prospects for 2003 and the years beyond were not encouraging. The price of LASIK procedures had also seen serious degradation. The Company believed that other companies with which it might have pursued a strategic relationship involving its microkeratome shared a similar view of the market and as a result, the Company discontinued its microkeratome development efforts until additional financing could be procured. The Company has, however, recently reviewed the vision correction market and developed a new marketing strategy for its microjet microkeratome. While it continues to focus its efforts on developing treatments of dental caries using its microjet technique, the Company has renewed its efforts to procure additional financing to continue to develop microjet vision correction devices. APPLICATIONS OF THE COMPANY'S TECHNOLOGY The Company believes that microjets can bring new surgical capability and performance to the clinic or operating room and may become the standard of care for the treatment of several diseases and conditions. The Company intends to develop additional product applications provided adequate funds become available. DENTISTRY Based on the Company's product-development criteria, the next area identified for development is treatment of dental caries. Development of such treatment began in February 2003. The dental caries is a progressive, infected and decayed portion of a tooth. An opening in the enamel allows the dentin (calcareous material similar to but harder and denser than bone that composes the principal mass of a tooth) to be infected. Unchecked, the decayed region enlarges, potentially leading to nerve involvement, pain, temperature sensitivity, and ultimately loss of the structural integrity of the tooth. The standard treatment for dental caries is to remove the decayed, infected portion within the dentin and to fill the resulting cavity. The removal process involves drilling out the affected area of the tooth until only sound dentin remains. More recently, dental lasers have come into limited use for removing the caries. Not all regions of the tooth are readily accessed by the drill or laser. Based on its limited experiments and observations to date, the Company has developed a patented technology whereby a fine beam of high-speed water quickly and quietly flushes out the dental carries dental through small holes drilled through the tooth enamel and dentine. No more than 2 oz. of fluid is used and the process takes seconds. The drilling process is free of vibration, heat, sound and smell and, the Company believes, is painless in most cases. Based on the Company's limited experiments and observations to date, the drilling process does not chip or crack the structure of the tooth. The holes created during this process should allow access to a cavity within the tooth containing carious material. The high-speed water beam then quickly washes out every trace of the carious material without damaging the dentin surrounding the cavity. The cavity is then ready for filling through the initial access hole. The Company believes 6 that the special filling material that can be used as an alternate to the conventional amalgam will be longer lasting and more esthetically pleasing. Based on its limited experiments and observations to date with a prototype device, the Company believes that a dental procedure based on this technology is feasible. This equipment could be more cost effective than both the old drill and burr technology and the new laser technology. The same equipment can be used to clean teeth of tartar, plaque and calculus and allow various procedures in periodontistry. Although the Company's experiments with dental procedures have been limited, and its prototype is in the early stages of development and has not yet been confirmed on live patients, the Company believes that the treatment, if perfected, may require no anesthesia in many circumstances and that the associated time and cost saving and the perceived advantages of the microjet technique over traditional treatments are potentially significant. Possible other advantages include reduced vibration and noise. An important feature of the Company's microjet technique is that the volume of dentin removed is greatly reduced compared to drilling, limiting the potential for nerve involvement and preserving as much as possible the integrity of the tooth. Hence, the capability may be called "microdentistry." Although a preliminary associated handpiece and pump have been developed and constructed, the Company has not yet constructed a complete working prototype of a microjet dental device. Based on its own internal market study, the Company believes that a significant market potentially exists for this procedure and product. The Company will pursue the other uses of the microjet, such as its the treatment of skin conditions and pain through a non-contact, broad area, subdermal injection of drugs, when funding is available. OPHTHALMOLOGY The Company's ophthalmic devices relate to surgery of the cornea to achieve correction of vision error. The cornea is the clear window that provides most of the focusing power of the vision system of the eye. Vision error occurs when the refractive power of the unaccomodated eye differs from what is needed to provide a sharply focused image on the retina for an object at 20 feet. Vision errors are currently treated primarily by eyeglasses, contact lenses or surgery, all of which compensate for the existing vision error. The shape of the cornea may be modified to produce a change in the refractive power of the eye. This is the basis for the well-known laser-based vision correction procedure known as LASIK. As discussed above, the Company has currently discontinued its microkeratome development and is focusing its efforts on developing treatments of dental caries using its microjet technique. However, the Company has developed a new marketing strategy for its microjet microkeratome and ophthalmic devices and has renewed its efforts to procure additional financing to continue to develop microjet vision correction devices. The Company anticipates that the Company's cash on hand will be sufficient to fund the Company's working capital and planned capital expenditure requirements through September 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. There can be no assurance that the proceeds obtained by the Company as a result of such financing would be sufficient to fund the Company's development efforts or that such efforts to develop products for dentistry, skin treatment or ophthalmology will be successful. 7 RESULTS OF OPERATIONS The Company has not yet initiated sales of its products. The Company generated no revenues during the three-month and six-month periods ended June 30, 2003, and generated $942,344 and $1,597,300 of revenues for the comparable periods in 2002, respectively. The revenues generated during the three-month and six-month periods ended June 30, 2002 resulted from the prior research and development agreement with VISX. As a result of the termination of the research and development agreement with VISX, the Company currently has no source of revenues. Total expenses during the three months ended June 30, 2003 decreased by $797,395 (81%) to $186,213 from $983,608 for the comparable period of 2002. Total expenses during the six months ended June 30, 2003 decreased by $1,410,029 (79%) to $380,214 from $1,790,243 for the comparable period of 2002. This decrease was primarily due to decreases in purchases for materials, testing and analysis and other costs associated with continuing development activities. Total expenses for the three months ended June 30, 2002 included charges of $154,000 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, which term was from August 17, 2001 through August 17, 2002. Other income (expense) for the three months and six months ended June 30, 2002 included $125,001 and $250,001 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 June 30, 2003 was $(1,406) compared to $(786) for the comparable period of 2002. Net interest expense for the six months ended June 30, 2003 was $(2,422) compared to $(1,735) for the comparable period for 2002. These increases resulted principally from decreased interest income resulting from a decrease in cash and cash equivalents. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2003, the Company's cash and cash equivalents was $128,547 and its working capital was $(145,685). During March 1999, Eugene I. Gordon, Ph.D., the Company's Chairman of the Board, Chief Executive Officer, Secretary and Treasurer, agreed to make available to the Company an unsecured loan of up to $250,000. Under the terms of this agreement, the Company issued warrants to Dr. Gordon 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 June 30, 2003, amounts borrowed by the Company under this agreement totaled $160,000. As of June 30, 2003, the amount owed to Dr. Gordon was $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 8 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. Companies are 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. As of December 31, 2002, the Company sold all of its available NOLs and R&D Credits. The Company will not be eligible to receive any certificates in 2003. As shown in the accompanying financial statements, the Company incurred net losses of $187,749 during the three-month period ended June 30, 2003. As of June 30, 2003, the Company's cash and cash equivalents was $128,547. In light of the current market capitalization of the Company, it would be highly dilutive to the Company's current stockholders if the Company were to obtain the level of financing necessary to fund the Company's business plans and operation from an equity investor. However, management believes that the Company's technology is extremely valuable. The Company has identified three areas of importance: (1) dentistry, (2) the treatment of skin conditions and pain through a non-contact, broad area, subdermal injection of drugs and (3) vision correction surgery. The Company's current strategy is to create three new subsidiaries, one of which will target dentistry, one of which will target skin conditions and one of which will target vision correction surgery. The Company will prepare business plans and seek funding for each newly-created subsidiary. The subsidiaries would be partly owned by such new funding sources and partly owned by the Company. The individual subsidiaries will concentrate on the research, development, regulatory activity and marketing that is required for its identified line of business. The Company would then license the Company's intellectual property and make available other properties needed by each subsidiary. To the extent that the Company provides space, facilities and support, each of the subsidiaries will make payments to the Company for its services. The Company is actively seeking funding for each subsidiary. 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 of America. The preparation of these financial statements requires 9 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. At June 30, 2003, unamortized patent costs amounted to $295,442 and are included in the balance sheet under the caption Patents and Trademarks (trademark costs are $1,540). REVENUE RECOGNITION The Company had no revenues for the six months ended June 30, 2003. The Company's revenues for the six months ended June 30, 2002 were derived from payments from VISX pursuant to the research and development agreement that the Company and VISX executed in August 2001. ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS NEED FOR CURRENT FINANCING. The Company anticipates that its cash on hand will be sufficient to fund its working capital and planned capital expenditures requirements through September 2003. The Company will require additional financing in order to maintain its current operations beyond that date. As a result, the Company will be required to raise additional funds through public or private financing, including grants that may be available for its research and development. There can be no assurance, however, that the Company will be able to obtain additional financing on terms favorable to it, if at all. If adequate funds are not available to satisfy the Company's capital requirements, the Company will be unable to maintain its current operations and carry out its business plans. The Company has no current understandings or commitments to obtain any additional financing from the sale of its securities or otherwise. QUALIFICATION IN THE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS RELATING TO THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN; ACCUMULATED DEFICIT AND HISTORY OF OPERATING LOSSES; ANTICIPATED FUTURE LOSSES. The report of independent certified public accountants on the Company's audited financial statements for the year ended December 31, 2002 contained an explanatory paragraph stating that there is a substantial doubt as to the Company's ability to continue as a going concern. The audited financial statements did not include any adjustments that might result from the outcome of such uncertainty. The Company incurred operating losses of $186,213 and $41,264 for the three months ended June 30, 2003 and 2002, respectively, and, at June 30, 2003, had an 10 accumulated deficit of $7,794,374. The Company expects that it will continue operating at a loss until, at the earliest, the Company generates sufficient revenues to offset the cost of its operations, including its continuing product development efforts. The Company's future level of revenues and potential profitability depend on many factors, including the Company's ability to obtain additional financing. There can be no assurance that the Company will experience any significant growth in revenues (or even sustain historic revenue levels) in the future or that the Company will ever achieve profitability. DEVELOPMENT STAGE COMPANY. The Company is in the development stage and its 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 has not sold any products. Since February 2003, the Company's research and development activities are concentrated on dental procedures. The microjet microkeratome and ophthalmic device research has been discontinued until additional funding can be procured. NO SALES REVENUES; UNCERTAIN PROFITABILITY. No sales revenues are expected until, and only if, the Company begins commercial marketing of the Company's dental, 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 its devices or that, if such devices are cleared, it will be able to generate sufficient revenues to operate on a profitable basis. DEPENDENCE UPON A KEY OFFICER; ATTRACTION AND RETENTION OF KEY PERSONNEL. The business of the Company is highly dependent upon the active participation of its founder, Chairman of the Board, Chief Executive Officer, Secretary and Treasurer, Dr. Eugene I. Gordon, age 72. The loss or unavailability to the Company of Dr. Gordon would have a material adverse effect on the Company's business prospects and potential earning capacity. The recruitment of skilled scientific personnel is critical to the Company's success. There can be no assurance that it will be able to continue to attract and retain such personnel in the future. In addition, the Company's expansion into areas and activities requiring additional expertise, clinical testing, governmental approvals, production and marketing of the Company's products (which would be required if the Company does not enter into licensing arrangements) is expected to place increased demands upon the Company's financial resources and corporate structure. The Company expects to satisfy such demands, if they arise, through the hiring of additional management personnel and the development of additional expertise by existing management. NO ASSURANCE OF FDA AND OTHER REGULATORY APPROVAL OR CLEARANCE. The Company's proposed medical devices are subject to regulation by the FDA under the Federal Food, Drug and Cosmetics Act (the "FD&C Act") and implementing regulations. Pursuant to the FD&C Act, the FDA regulates, among other things, the development, manufacture, labeling, distribution, and promotion of medical devices in the United States. 11 The process of obtaining required regulatory clearances or approvals can be time-consuming and expensive, and compliance with the FDA's Good Manufacturing Practices regulations and other regulatory requirements can be burdensome. Moreover, there can be no assurance that the required regulatory clearances will be obtained, and such clearances, if obtained, may include significant limitations on the uses of the product in question. In addition, changes in existing regulations or guidelines or the adoption of new regulations or guidelines could make regulatory compliance by the Company more difficult in the future. The failure to comply with applicable regulations could result in fines, delays or suspensions of clearances, seizures or recalls of products, operating restrictions and criminal prosecutions, and would have a material adverse effect on the Company. UNCERTAINTY OF MARKET ACCEPTANCE; RELIANCE ON SINGLE TECHNOLOGY. Acceptance of the Company's proposed 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 instruments and techniques. Failure of 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 products (although still in development stage) are its dental waterjet and microkeratomes. The Company expects that these products 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. DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. The Company's success will depend in part on whether it successfully obtains and maintains patent protection for its products, preserves its trade secrets and operates without infringing the proprietary rights of third parties. The Company has sought to protect its proprietary interest in its products by applying for patents in the United States and corresponding patents abroad. The Company currently has eight issued U.S. patents and 21 U.S. and international patents pending. There can be no assurance that any other patents will be issued to the Company, that any patents owned by or issued to the Company, or that may be issued to the Company in the future, will provide a competitive advantage or will afford protection against competitors with similar technology, or that competitors of the Company will not circumvent, or challenge the validity of, any patents issued to the Company. There also can be no assurance that any patents issued to or licensed by the Company will not be infringed upon or designed around by others or would prevail in a legal challenge, that others will not obtain patents that the Company will need to license or design around, that the microkeratomes or any other potential product of the Company will not inadvertently infringe upon the patents of others, or that others will not manufacture the Company's patented products upon expiration of such patents. There can be no assurance that existing or future patents of the Company will not be invalidated. Additionally, patent applications filed in foreign countries and patents granted in such countries are subject to laws, rules and procedures, which differ from those in the United States. Patent protection in such countries may be different from patent protection provided by United States laws and may not be as favorable to the Company. 12 Also, there can be no assurance that the Company's non-disclosure agreements and other safeguards will protect its proprietary information and trade secrets or provide adequate remedies for the Company in the event of unauthorized use or disclosure of such information, or that others will not be able to independently develop such information. As is the case with the Company's patent rights, the enforcement by the Company of its non-disclosure agreements can be lengthy and costly, with no guarantee of success. There can be no assurance that the Company's program of patent protection, internal security of its proprietary information and non-disclosure agreements will be sufficient to protect the Company's proprietary technology from competitors. INFRINGEMENT CLAIMS; LITIGATION. The Company's competitors and potential competitors may intentionally infringe the Company's patents. Third parties may also assert infringement claims or other claims against the Company. The defense and prosecution of patent suits and other lawsuits are both costly and time-consuming, even if the outcome is favorable to the Company. If any of the Company's products are found to infringe upon the patents or proprietary rights of another party, the Company may be required to obtain licenses under such patents or proprietary rights of such other party. No assurance can be given that any such licenses would be made available on terms acceptable to the Company, if at all. If required licenses were to be unavailable, the Company could be prohibited from using, marketing or selling certain technology and devices and such prohibition could have a material adverse effect on the Company. Third parties may seek damages that exceed the Company's insurance coverage or that are not insured. If the Company sustains damages greater than its insurance coverage, or actions are brought for damages that are not insured, there could be a material adverse effect on the Company's cash available to maintain its current operations and carry out its business plans. The Company is currently involved in ongoing patent litigation and has recently been named as a defendant, among others, in an action initiated by a former employee of the Company, each as described under Part II, Item 1. "Legal Proceedings." COMPETITIVE TECHNOLOGIES, PROCEDURES AND COMPANIES. The Company is engaged in a rapidly evolving field. We believe there are companies, both public and private, universities and research laboratories engaged in research activities relating to dental drilling and cavity treatment. We believe that competition from these companies, universities and laboratories will be intense and will increase over time. The Company's potential products for dental drilling and cavity treatment will not compete with other presently existing forms of treatment for dental disorders, including mechanical drills and burrs, as well as other technologies under development. The main current technology, involving more than 90% of the practice, is the use of mechanical drills and burrs. There are expensive laser devices for removing caries and air abrasion systems for drilling holes. Neither have been well accepted. Based on experiments, the Company believes that its proposed dental waterjet system will be able to drill holes and remove areas of enamel and dentin, as well as clean out caries and remove tartar and plaque. There can be no assurance that the Company's competitors will not succeed in developing technologies, procedures or products that are more effective or economical than those being developed by the Company or that would render the Company's technology and proposed products obsolete or noncompetitive or that would allow for the bypassing of the Company's patents. Furthermore, in connection with the commercial sale of its products, the Company will also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which the Company has no experience. NO MANUFACTURING EXPERIENCE; DEPENDENCE ON THIRD PARTIES. Assuming additional financing is procured and the Company is able to continue its microjet development efforts, the Company may seek to undertake the manufacture and marketing of its microjet products on a limited scale. However, it would need to 13 pursue other possible arrangements for larger-scale manufacturing, marketing and distribution. To the extent the Company does not enter into such arrangements, it will need to engage in the manufacture and marketing of its products. Manufacturing will consist of purchasing existing parts, having parts formed by vendors, incoming inspection, assembly, qualification testing and packaging, i.e., virtual manufacturing. The Company has no volume manufacturing capacity or experience in manufacturing medical devices or other products. To be successful, the Company's proposed products must be manufactured in commercial quantities in compliance with regulatory requirements at acceptable costs. Production in clinical or commercial-scale quantities will involve technical challenges for the Company. If the Company is unable or elects not to pursue collaborative arrangements with other companies to manufacture certain of its potential products, the Company will be required to establish manufacturing capabilities. Establishing its own manufacturing capabilities would require significant scale-up expenses and additions to facilities and personnel. There can be no assurance that the Company will be able to obtain necessary regulatory approvals on a timely basis or at all. 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 develop clinical or commercial-scale manufacturing capabilities at acceptable costs or enter into agreements with third parties with respect to these activities. The Company's dependence upon third parties for the manufacture of its products may adversely affect the Company's profit margins and the Company's ability to develop and deliver such products on a timely basis. Moreover, there can be no assurance that such 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. NO MARKETING OR SALES EXPERIENCE. If the Company does not enter into license or distribution agreements with respect to its products, and assuming additional financing is procured and the Company is able to continue its operations, 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 or other strategic partnerships. The Company currently has no marketing organization and has never sold a product. Establishing sufficient marketing and sales capability 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. RISK OF PRODUCT LIABILITY LITIGATION; POTENTIAL UNAVAILABILITY OF INSURANCE. The testing, manufacture, marketing and sale of medical devices entails the inherent risk of liability claims or product recalls. As a result, the Company faces a risk of exposure to product liability claims and/or product recalls in the event that the use of its future potential products are alleged to have caused injury. There can be no assurance that the Company will avoid significant liability in spite of the precautions taken to minimize exposure to product liability claims. Prior to the commencement of clinical testing, the Company intends to procure product liability insurance. After any commercialization of its products, the Company will seek to obtain an appropriate increase in its coverage. There can, however, be no assurance that adequate insurance coverage will be available at an acceptable cost, if at all. Consequently, a product liability claim, product recall or other claims with respect to uninsured liabilities or in excess of insured liabilities could have a material adverse effect on the Company. 14 SURGICAL RISKS. There can be no assurance that the Company's products will be successful in supporting dental drilling and cavity treatment. As with all surgical procedures, the procedures for which the Company's products are intended entail certain inherent risks, including defective equipment or human error, infection or other injury. Such injury could expose the Company to product liability or other claims. The Company believes competing products have the same risks and have experienced a small number of these situations without undue impact on the commercial prospects of such products. There can be no assurance that the Company's product liability insurance, in effect from time to time, will be sufficient to cover any such claim in part or in whole. Any such claim could adversely impact the commercialization of the Company's products and could have a material adverse effect on the Company. 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 as of the end of the period covered by 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. 15 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS NJIT LITIGATION 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 of the Board, Chief Executive Officer, Secretary and Treasurer), a former employee of the Company, certain patent law firms and an individual patent attorney were named as defendants. The complaint alleged that the defendants, with deceptive intent, failed to name a NJIT professor and/or NJIT research associate as a co-inventor on the Company's U.S. Patent No. 5,556,406 on "Corneal Template and Surgical Procedure for Refractive Correction" (the "406 Patent") and breached fiduciary duties and contractual obligations owed to NJIT. The complaint sought unspecified monetary damages from the Company and an order directing that the Company's 406 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 the 406 Patent and a declaratory judgment that all of the Company's claims under the 406 Patent are invalid and unenforceable against NJIT. Prior to being served with the complaint by NJIT, the Company and Dr. Gordon had 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 406 Patent and seeking unspecified monetary damages In October 1998, the lawsuit brought in U.S. District Court by NJIT was dismissed on jurisdictional grounds. In April 1999, NJIT commenced a second action in U.S. District Court based on the same allegations NJIT had made in its April 1998 complaint. In June 2000, the motion filed by the Company to dismiss the action against the Company, Dr. Gordon and the former employee of the Company, was granted by the U.S. District Court. 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. On May 22, 2000, the Superior Court of New Jersey granted the Company's Motion for Summary Judgment, dismissing NJIT's claims to ownership of the 406 Patent. On June 30, 2000, NJIT filed a Motion for Reconsideration of the Superior Court's ruling. The Motion for Reconsideration was later dismissed. The Company subsequently filed a second Motion for Summary Judgment to dismiss additional claims that the Company, Dr. Gordon and the third party defendants, among other things, breached fiduciary duties. This motion was based on the ruling by the Superior Court judge overturning NJIT's claims of ownership and was heard by a new judge, who decided to await the outcome of NJIT's appeal of the U.S. District Court's dismissal of its lawsuit. NJIT had expressed an interest in avoiding the cost of a trial in the U.S. District Court and requested mediation. The Company agreed and a mediator was identified. A mediation meeting was conducted April 1, 2003 and the parties conducted additional meetings. A status conference was held on July 8, 2003 before the U.S. District Court. The mediation is continuing. 16 The Company believes that NJIT's claim is without merit and that the Company will prevail in the U.S. District Court litigation. If, however, the Company is not successful in its defense of the lawsuit, the Company believes that the impact on it resulting from a finding on the merits in favor of NJIT would not be material. ACTION BROUGHT BY FORMER EMPLOYEE In May 2003, the Company, Dr. Gordon (the Company's Chairman of the Board, Chief Executive Officer, Secretary and Treasurer) and one of its current directors, VISX and other parties were named as defendants in a lawsuit by a former employee of the Company filed in the Superior Court of New Jersey. The related complaint alleges, among other things, that defendants violated the New Jersey Law Against Discrimination, tortiously interfered with a contract between the plaintiff and the Company, tortiously interfered with the prospective economic gain of the plaintiff and intentionally inflicted emotional distress on the plaintiff. This lawsuit is in its earliest stages. While the Company believes it has meritorious defenses, it cannot predict the ultimate outcome of this lawsuit. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Eugene I. Gordon, Ph.D., Chairman of the Board, Chief Executive Officer, Secretary and Treasurer. 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Teresa R. Mathias, Vice President-Finance and Human Resources. 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Eugene I. Gordon, Ph.D., Chairman of the Board, Chief Executive Officer, Secretary and Treasurer. 32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Teresa R. Mathias, Vice President-Finance and Human Resources. (b) Reports on Form 8-K None. 17 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: August 14, 2003 MEDJET INC. /S/ EUGENE I. GORDON, PH.D. ----------------------------- Eugene I. Gordon, Ph.D. Chairman of the Board, Chief Executive Officer, Secretary and Treasurer (Principal Executive Officer) 18