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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
|_| TRANSITION REPORT UNDER 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 in its charter)
Delaware 22-3283541
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1090 King Georges Post Road, Suite 301
Edison, New Jersey 08837
(Address of principal executive offices)
Issuer's telephone number, including area code: (732) 738-3990
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units, each consisting of one share of Common Stock
and one Class A Warrant
Common Stock, par value $.001 per share
Class A Warrants
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. [X] Yes [ ]
No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X].
Issuer's revenues for the fiscal year ended December 31, 1997 were $0.0.
The aggregate market value of the voting stock held by non-affiliates of
the Issuer as of March 31, 1998 was approximately $13,844,500.
As of March 31, 1998, 3,686,280 shares of the Issuer's Common Stock, par
value $0.001 per share, were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 1998 Annual Meeting of Stockholders (to be filed
with the Securities and Exchange Commission on or before April 30, 1998) is
incorporated by reference in Part III hereof.
Transitional Small Business Disclosure Format (check one): Yes_______ No X .
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TABLE OF CONTENTS
Page
PART I
ITEM I. BUSINESS........................................................... 1
The Company............................................................ 1
Diseases of the Cornea and Therapeutic Treatment....................... 4
Refractive Disorders and Correction.................................... 5
The HRK Microkeratome.................................................. 6
Patents................................................................ 7
U.S. Government Regulation............................................. 7
Foreign Government Regulation.......................................... 8
Competition............................................................ 8
Employees.............................................................. 9
Product Liability Insurance............................................ 9
ITEM 2. PROPERTIES......................................................... 9
ITEM 3. LEGAL PROCEEDINGS.................................................. 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 10
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........... 10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.......... 11
ITEM 7. FINANCIAL STATEMENTS............................................... 12
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................... 14
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ................. 14
ITEM 10. EXECUTIVE COMPENSATION ............................................ 14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..... 14
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................... 14
ITEM 13. EXHIBIT LIST AND REPORTS ON FORM 8-K............................... 14
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THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). SUCH STATEMENTS INCLUDE A NUMBER OF RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS, EVENTS AND CIRCUMSTANCES TO
DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH STATEMENTS. EXCEPT AS OTHERWISE
REQUIRED TO BE DISCLOSED IN PERIODIC REPORTS REQUIRED TO BE FILED BY COMPANIES
REGISTERED UNDER THE EXCHANGE ACT BY THE RULES OF THE SECURITIES AND EXCHANGE
COMMISSION, THE COMPANY HAS NO DUTY TO UPDATE SUCH STATEMENTS. SUCH RISKS AND
UNCERTAINTIES INCLUDE THE COMPANY'S ABILITY TO GENERATE REVENUES FROM
OPERATIONS, THE COMPANY'S ABILITY TO PROFITABLY COMMERCIALLY MARKET ITS
PRODUCTS, THE UNCERTAINTY OF APPROVAL BY THE UNITED STATES FOOD AND DRUG
ADMINISTRATION (THE "FDA") AND OTHER REQUIRED GOVERNMENTAL AGENCIES OF THE
COMPANY'S OTHER PRODUCTS AND THE OUTCOME OF THE COMPANY'S RESEARCH AND
DEVELOPMENT ACTIVITIES. SEE "RISK FACTORS" IN THE COMPANY'S PROSPECTUS DATED
AUGUST 6, 1996 WHICH CONSTITUTES A PART OF THE COMPANY'S REGISTRATION STATEMENT
ON FORM SB-2 (FILE NO. 333-3184).
PART I
ITEM I. BUSINESS.
THE COMPANY
Medjet Inc. (the "Company"), founded in December 1993, is engaged in the
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. The basic technology
utilizes a hair-thin, 33 micron diameter, circular beam of saline water solution
moving in varying excess of supersonic speed, depending on the specific
application. In each application, the waterjet beam substitutes for a
conventional metal or diamond blade. In combination with other elements of the
device, it is capable of removing the epithelium (the front surface layer of the
cornea of the eye) in a procedure known as epithelial keratoplasty, removing
pterygium, a tumor-like growth covering the surface of the eye, or shaving thin
shaped layers from the cornea, in a procedure known as lamellar keratoplasty.
The device normally used to perform lamellar keratoplasty is known as a
microkeratome. The procedure with the new device potentially may be
used to treat diseases of the cornea as well as to correct vision deficiencies
such as nearsightedness ("myopia"), farsightedness ("hyperopia") or astigmatism
eliminating or reducing the need for spectacles or contact lenses. Internal
Layers of the cornea, either parallel or shaped (resembling contact lenses), are
excised in order to reshape the anterior cornea surface to achieve
close-to-ideal focusing. In combination with a proprietary template of
prescribed dimensions and shape, the shape of the layer to be removed can be
determined in advance.
The Company has demonstrated that its technology can be used to remove the
epithelium, a procedure called hydro-epithelial keratoplasty ("HEK") or to treat
diseased cornea in a procedure known as hydro-therapeutic keratoplasty ("HTK"),
in which diseased corneal tissue is removed. HEK may be used to treat diseases
of the epithelium or damage to the epithelium that sometimes occurs. Epithelial
removal is often the first step in surgery of the cornea. It may be used
beneficially as the first step in the currently-used laser refractive surgery
technique known as photo-refractive keratectomy ("PRK"). Management believes
that the HEK procedure is superior to currently used techniques. The device to
carry out HEK procedures, the Hydrobrush(TM) Keratome, has been cleared for
marketing by the FDA. Approximately 45,000 corneal procedures, primarily full
transplants, are performed annually in the United States. The Company believes
that HTK will make partial transplants, which would be more desirable and safer,
feasible. HTK may also be used to create a uniform thickness flap of corneal
tissue as the first step in a current modification of the PRK technique known as
the light ablation system for in-situ keratomileusis ("LASIK"). Currently,
blade-based microkeratomes are used to make the flap and, in management's view,
are somewhat unsafe, difficult to learn and have limited the use of LASIK as an
alternate to PRK. The Company's waterjet-based microkeratome is known as the
HydroBlade(TM) Keratome.
The Company believes that the HydroBlade(TM) Keratome, through the use of a
procedure known as hydro-refractive keratoplasty ("HRK"), has the potential to
reduce or eliminate a patient's dependence on eyeglasses or contact lenses by
modifying the shape of the anterior corneal surface to correct inherent vision
deficiencies. Based on feasibility studies on enucleated eyes and animal
studies, the Company believes that the HydroBlade(TM) Keratome cuts more
precisely, more quickly and with less tissue damage than the sharpest metal,
diamond or laser scalpels and that the HRK microkeratome, if cleared by the FDA,
will result in a safer, more accurate and more stable corneal adjustment that is
less painful for patients than other refractive surgery procedures currently
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available. The Company anticipates, based on its studies, that HRK could cost
less than other such procedures, although the cost to the patient is determined
by the surgeon.
The Company has not tested its HydroBlade(TM) Keratome on live human eyes
but has tested it on over 1,000 porcine and rabbit corneas, over two dozen
cadaver eyes and 22 live rabbits. The Company is currently readying its
prototype HydroBlade(TM) Keratome for studies on blind human eyes in a clinical
setting.
The Company has an issued patent on the method and device for HTK and HRK
and other patents, including one relating to HEK, are pending. Limited testing
of HTK has been done by others but, to the Company's knowledge, no other
relevant patents have issued to others in this field and the Company believes
that its patent will dominate.
HEK is performed with a device known as the HydroBrush(TM) Keratome, which
precisely and safely debrides the epithelial layer of the cornea (with a minimum
of debris or residue) down to the Bowman's layer (the layer of the cornea below
the epithelium), in a discrete circular region with a well defined boundary.
There is no discernible damage to the Bowman's layer using high magnification
scanning electron microscope imaging. In contrast, knife blade scrapes to
debride the epithelium leave substantial debris and damage to Bowman's layer. On
rabbits, the regrowth of the epithelium is observed to be about one-third faster
(typically two days instead of three) when the cornea is debrided with the
HydroBrush(TM) Keratome than when blade scraping is used. In addition, in
contrast to blade scraping, which takes a few minutes, the HydroBrush(TM)
debriding process takes a few seconds and requires minimal training or
experience, and no initial dehydration is observed. Thus, the Company believes
that HEK should be ideal for use with PRK procedures.
The HydroBrush(TM) Keratome utilizes a waterjet brush; a thin, high speed,
linear jet about 2 mm wide of sterile, saline water solution flowing on and
along the underside of a transparent applanator plate. A circular, passive,
globe alignment device (the "EyeMask") is placed against the anterior corneal
surface and an insert in the EyeMask defines the circular region, up to 8 mm in
diameter, to be debrided. The applanator, which directs the flow of water, is
brought into light contact with the corneal upper surface at the apex of the
cornea. The applanator is simply slid by hand across the EyeMask and the
waterjet brush gently removes the epithelium. The spent water is collected in an
absorbent material shroud placed against the nose.
The sterile, saline water solution comes from a small, flexible, sterile,
15 ml plastic bottle in the high pressure apparatus. When the device is
activated by pressurizing a working fluid around the outside of the bottle, the
bottle is pressurized, squeezed and emptied by the external hydrostatic pressure
of about 6000 pounds per square inch to produce a circular, 100 micron diameter,
constant, high speed saline waterjet which runs for 8 seconds, and then shuts
off automatically when the bottle is empty. The saline waterjet is converted to
the linear HydroBrush(TM) Keratome on the underside of the applanator plate.
The high hydrostatic pressure to activate the device is produced by a
miniature water pressure intensifier driven by a liquid CO2 air gun-type
cartridge. A small diameter, flexible tube carries high pressure water to the
device handle. The CO2 cartridge, the sterile saline bottle, the EyeMask inserts
and the spent water catcher constitute an inexpensive set of disposables.
The HydroBrush(TM) Keratome is intended to become the first commercially
available product using the Company's waterjet technology and may be both an
initial source of revenue for the Company and the basis for additional
applications to the FDA for permitted uses of the device. An application for use
in removal of pterygium is in process. Pterygium afflicts over 100 million
people world wide and is difficult to treat surgically with a low rate of
recurrence. If it can be demonstrated that the recurrence rate is reduced by
using this product the procedure could be several million per year. No
arrangements for commercial marketing of any HydroBrush(TM) application have
been finalized to date.
The Company's HydroBlade(TM) Keratome, which consists of a waterjet nozzle
and a globe fixation device is used with a miniature high pressure system
similar to that used for the HydroBrush(TM) Keratome. However, it operates at an
initial pressure of 20,000 psi. In this case, scanning is accomplished by
sliding the nozzle along tracks on the globe fixation device.
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The Company believes that the HydroBlade(TM) Keratome, when used in HTK,
would be used similarly to other microkeratomes but would allow for safe removal
of layers of corneal tissue of a predetermined shape and thickness with a higher
degree of accuracy and far less tissue damage. This has already been
demonstrated on cadaver eyes. The Company intends to file an investigational
device exemption to perform clinical trials and then submit a Section
510(k) notification for a ruling of substantial equivalence to current
microkeratomes, resulting in permission for the Company to market the
HydroBlade(TM) Keratome for HTK.
A subsequent and potentially more commercially valuable use of the
HydroBlade(TM) Keratome is for refractive surgery through HRK. Subsequent to the
permitted marketing of the HydroBlade(TM) Keratome for HTK, the Company intends
to seek FDA clearance to market the device for HRK.
Upon clearance or other marketing approval by the FDA of its HydroBlade(TM)
Keratome for HRK, the Company intends to market this product to individual or
affiliated groups of ophthalmologists for treatment of patients in a clinical
setting. The Company expects to derive a significant part of its revenue by
selling a basic system and selling disposables. In addition to standard
templates for standard refractive corrections, the Company expects to make
available custom templates for individual patient treatment as required.
The Company believes that its proprietary waterjet technology has
additional surgical applications. However, only limited studies of such
applications have been carried out. The Company's current focus is on
applications to ophthalmology.
The Company is in the development stage and has not sold any products or
generated any revenues. To date, the Company's research and development
activities have been limited to constructing and testing experimental versions
of the keratome and conducting a limited number of feasibility studies using
porcine, rabbit and human cadaver eyes and live animals to prove that a
hair-thin beam of water can smoothly incise and shape the anterior surface of
the cornea and that the cornea will heal properly after the surgery. Human
clinical trials are currently being performed.
The FDA has recommended to the Company that it seek permission to market
the HTK microkeratome through a Section 510(k) notification together with a
limited number of clinical trials, and it is the intention of the Company to
file a notification with the FDA in the second half of 1998 relating to two uses
of the HTK microkeratome. Although there can be no assurance that this will
prove to be the case, permission granted for the 510(k) notifications should
enable the Company to commence its marketing efforts sooner than if the Company
had to submit to the FDA a pre-market approval ("PMA") application. To
obtain FDA clearance of a 510(k) notification, a company must prove its device
is substantially similar to a marketed product and that the device is safe. PMA
applications must demonstrate, among other matters, that the device is safe and
effective. Although human clinical trial data is sometimes required to be
submitted with a 510(k) notification, a PMA application is typically a more
complex submission which usually includes the results of clinical studies, and
preparing an application is a detailed and time-consuming process. Once a PMA
application has been submitted, the FDA's review may be lengthy and may include
requests for additional data. See "-- U.S. Government Regulation."
Although the therapeutic uses described above are the Company's initial
intended uses for its two devices, the Company recognizes that other uses may
eventually be made of the waterjet microkeratome. One such use, for which the
Company believes the potential market could be significant, is for refractive
surgical correction. Therefore, the later phase of the Company's FDA strategy
relates to the HRK microkeratome. Although the Company believes that the HRK
microkeratome may be considered for permission to market by the FDA through a
510(k) notification based upon the similarities of the microkeratome between the
HTK use and the HRK use, obtaining such permission for the HRK microkeratome is
likely to be somewhat more complicated than for HTK. There can be no assurance
that either the HTK use or the HRK use will be permitted for marketing by the
FDA. The differences between the two uses are found in the components, other
than the waterjet scalpel, which comprise the microkeratome. For the HRK
microkeratome, the Company may be required to show that the procedure is
effective, stable and does not decrease visual acuity to any significant extent.
The Company believes that, based on two features of the HRK microkeratome,
it may also be considered for 510(k) notification by the FDA. First, based on
the preliminary experimentation conducted with waterjet
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microkeratomes, there are no known or anticipated physical or chemical processes
that would impact on the safety of the HRK procedure. The waterjet microkeratome
cuts by mechanisms similar to that of conventional scalpels (although at speeds
of more than 100 times greater), except that the Company believes that HRK would
not produce certain side effects incident to other refractive surgery
procedures. Such side effects include the inferior cut produced by the
oscillating blade used in conventional microkeratomes, and the potential
carcinogenic effects, dehydration from overheating and high amplitude shock
waves to the eye resulting from the high energy, pulsed radiation used in the
PRK procedure. PRK could represent the strongest competition to HRK. As a result
of the anticipated safety issues, the FDA approval process for PRK involved
numerous clinical studies on human eyes and took several years to complete. The
Company believes that the FDA approval process for the HRK microkeratome should
be shorter and entail fewer clinical studies in light of the expected higher
level of safety and lack of anticipated side effects, in comparison to other
previously permitted products, but there can be no assurance that this will be
the case.
The second feature of the HRK microkeratome is the benign nature of the
waterjet cut. While a conventional scalpel tears the lamellae (layers of the
stroma) and PRK completely or partially destroys the surface lamellae, the
waterjet beam has a unique cutting action which separates the various lamellae
prior to cutting the targeted tissue, thereby preserving the integrity of the
remaining lamellae and both localizing and minimizing the damage to the lamellae
generally. The healing process following a waterjet cut is expected to be less
traumatic than that following a conventional scalpel cut or a PRK cut, as
observed in rabbits, although the improved healing process has not yet been
demonstrated in human eyes.
The Company may distribute its products internationally. Distribution of
the Company's products in countries other than the United States may be subject
to regulation in those countries. In some countries, the regulations governing
such distribution are less burdensome than in the United States and the Company
may pursue marketing its products in such countries prior to receiving
permission to market from the FDA. The Company will endeavor to obtain the
necessary government approvals in those foreign countries where the Company
decides to manufacture, market and sell its products. See "-- Foreign Government
Regulation."
The Company intends to continue the research and development of its
technology and related manufacturing processes and to commence human clinical
trials of the HRK microkeratome. If the HTK microkeratome or the HRK
microkeratome is permitted to be marketed or otherwise approved for marketing in
the United States, the Company will be required to establish a marketing
organization and production facilities, which will require additional financing,
unless the Company identifies third parties to perform such functions under
license or other arrangements. No assurance can be given that the Company's
research and development efforts will be successfully completed, or that the HTK
microkeratome or the HRK microkeratome will prove to be safe and effective for
the purposes intended, will be permitted to be marketed or otherwise approved
for marketing by the FDA or any other regulatory agency or will be commercially
successful.
The Company was incorporated under the laws under the State of Delaware in
December 1993. Its offices are located at 1090 King Georges Post Road, Suite
301, Edison, New Jersey 08837; its telephone number is (732) 738-3990.
DISEASES OF THE CORNEA AND THERAPEUTIC TREATMENT
The cornea is the clear window that, in addition to allowing light into the
eye for the purpose of vision, provides most of the focusing power of the vision
system of the eye. The anterior surface of the cornea is covered with a thin
layer called the epithelium. Although the epithelium has no blood cells, it has
nerve cell endings which can be a source of pain in the cornea.
There are several circumstances under which the epithelium is removed from
a cornea. An epithelium that is eroded, cut, damaged, dystrophied or diseased
can be partially or fully removed and will regenerate to cover the cornea with
healthy tissue. The epithelium is also removed prior to refractive surgery using
a laser. In addition, in certain diseases of the cornea that render it partially
or completely opaque, the cornea may be partially or fully removed and replaced
with a donor cornea from an eyebank. Certain of such transplants are performed
with a microkeratome that removes a partial thickness of tissue in a procedure
known as lamellar keratoplasty.
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Removal of the epithelium is typically done with a hand-held, steel scalpel
which is mechanically scraped across the cornea to accomplish the removal of the
epithelium in a rough and imprecise manner, often damaging the layer of tissue
underlying the epithelium. The Company has demonstrated that by adjusting the
water pressure to be used, its waterjet microkeratome can precisely cut only the
epithelium in the defined area targeted for removal by separating such area from
the adjoining underlying tissue without damaging such underlying tissue.
In the therapeutic application of the HTK microkeratome, the thickness and
diameter of the removed tissue can be predetermined. The smooth and precise cut
of the HTK microkeratome allows for relatively simple positioning of the
replacement (donor) tissue after removal of the targeted tissue and relatively
quick healing. Partial transplants greatly reduce rejection effects and allow
use of donors over age 65, thereby greatly increasing the donor pool.
REFRACTIVE DISORDERS AND CORRECTION
The human eye consists of a hollow, flexible globe approximately 25
millimeters in diameter, which is filled with a vitreous fluid. The optical part
of the eye functions much like an automatic focus video camera, incorporating a
variable focus lens system (the fixed focus cornea and the variable focus
internal lens) which adjusts the sharpness of the image on the retina, a
variable aperture system (the iris) which regulates the amount of light falling
on the retina, and a sensory array (the retina) which converts the focused image
into electrical signals which are transmitted through the optic nerve to the
brain for image processing and storage to achieve the best image. Approximately
70% of the focusing power of the eye resides in the cornea. The precise focusing
power of the cornea is a function of the curvature of the anterior corneal
surface. The internal lens of the eye also has focusing power and the ability to
adjust its focusing power to achieve the best focus for near or far objects;
however, its ability to so adjust is limited and tends to decrease with age,
ultimately disappearing.
Most common refractive problems result from an inability of the optical
system of the eye to focus images on the retina properly with normal
accommodation. The extent of this inability to focus is known as refractive
error. For instance, in the nearsighted eye, light rays from an object at a
distance of 20 feet focus in front of the retina, because the curvature of the
cornea is too great. People with uncorrected myopia see nearby objects clearly,
but distant objects appear blurry, even with accommodation. Conversely, in the
uncorrected farsighted eye, light rays from an object at a distance of 20 feet
focus behind the retina because the curvature of the cornea is too low. People
with hyperopia see distant objects clearly, but may need correction so that
nearby objects do not appear blurry. In the astigmatic eye, the curvature of the
cornea is not uniform. This lack of uniform curvature makes it impossible for a
person to focus clearly on an object at any distance without correction.
Refractive power is measured in diopters. The current ophthalmic
measurement technology and the techniques for manufacturing eyeglasses and
contact lenses produce a refractive correction that is within +/- 1/4 diopter of
the optimum value for ideal vision. This residual error is generally viewed as
acceptable for all purposes by ophthalmologists.
Vision disorders are currently treated primarily by eyeglasses, contact
lenses or surgery, all of which compensate for the existing refractive error.
Among the surgical techniques available to treat vision disorders are radial
keratotomy ("RK"), PRK and keratomileusis in situ ("KIS"). In RK, PRK and KIS,
the object of the surgery is to change the shape of the anterior corneal
surface, thereby eliminating or reducing refractive error.
RK is a surgical procedure used to correct myopia in which steel or diamond
knives are used to make a series of deep, perpendicular cuts in a radial
configuration around the periphery of the cornea outside the vision zone. The
incisions cause a flattening of the cornea and eliminate or reduce small to
moderate amounts of myopia. Tangential cuts are used to correct moderate
astigmatism, a technique known as astigmatic keratotomy.
PRK uses energy from a type of ultraviolet laser, known as an "excimer
laser," to correct various types of refractive disorders by changing the
curvature of the anterior corneal surface. The excimer laser emits ultraviolet
light in very short, high energy pulses and "photoablates," or vaporizes, part
of the anterior corneal surface to achieve a new curvature. PRK has been
approved for use in the United States by the FDA for the correction of low to
moderate myopia (i.e., under 6 diopters) and for astigmatism.
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KIS, which is also known as refractive lamellar keratoplasty ("RLK") or
automated lamellar keratoplasty ("ALK"), involves using an automated metal or
diamond scalpel in a microkeratome to cut and pull back a corneal flap
(consisting of the epithelium, the Bowman's layer and a portion of the stroma)
and to then shave away a portion of the exposed stromal area of the cornea in a
second cut, thereby changing the corneal curvature after the flap is replaced.
LASIK combines elements of KIS and PRK. In the LASIK technique, the corneal
flap is pulled back, and photoablation is performed directly on the exposed
stromal surface to change its curvature. In both KIS and LASIK, the hinged flap
is reset as close as possible to its original position, where it adheres to the
underlying stroma. Cutting errors in making the flap, occurring in about 50% of
the procedures, are a major disadvantage of LASIK.
RK and PRK produce corrections that are usually not optimum, typically
leaving the eye within +/- 1 diopter of optimum, but sometimes worse. The
corrections generally are not stable to within 1 diopter. This leaves the
patient able to function without eyeglasses or contact lenses but not with the
best possible vision and not under all conditions. The accuracy of KIS is
generally poorer, but it is typically used to correct larger myopia and is more
stable. See "-- Competition."
THE HRK MICROKERATOME
GENERAL
The HRK microkeratome, using the HydroBlade(TM) Keratome, uses a single,
hair-thin, supersonic water beam with a diameter of approximately 33 microns to
incise corneal material and a disposable template to support and shape the
cornea during surgery. Other parts of the HRK microkeratome include a miniature
high pressure water storage element and related equipment, which together
produce the water beam; a scanning mechanism to move the water beam across the
cornea; and a template designed to support and shape the eye during surgery. The
HRK microkeratome will be placed on the patient's eye during the surgical
procedure. Once the HRK microkeratome is placed into position on the eye
(directly over the area to be incised), to which it is attached by a globe
fixation device (a suction device to align and fix the eye in place relative to
a defining template and the waterjet parts during surgery), the surgical cut
takes less than one second.
The total water volume used during the procedure, including the amount
necessary to check the waterjet beam and its performance, is less than a few
drops. Involuntary motions of the eye, including saccadic movement in which the
eye makes minute, constant side-to-side movements to assist in imaging, have no
impact during HRK because the eye is fixed to the HRK microkeratome during the
procedure. The template for any procedure will be constructed according to the
specification provided by the ophthalmologist and will be provided to the
surgeon with the HRK microkeratome.
HRK, with the HRK microkeratome, can be done by three methods. In the first
method, HRK1, a shaped slice of corneal tissue is removed without damage to the
rest of the cornea. The shape and size of the removed portion corresponds to the
error in refractive power of the cornea to be corrected, having the effect of
the permanent removal of the equivalent of a contact lens. In the second method,
HRK2 a hinged flap is cut into the cornea and the underlying tissue is reshaped
before the flap is replaced. Thereafter, the HRK microkeratome may be used to
make a second shaping cut or PRK may be used for shaping. The Company believes
that the first method, without the creation of a flap, is the simplest and
safest and initially intends to seek FDA permission to market, or other
approval, with respect to that method alone. In the third method, HRK3, the one
the Company intends to exploit, the cut used to make the flap also shapes the
underside of the flap and stromal bed to produce the desired correction. With a
single cut lasting about 1 second, the entire procedure is complete. No laser is
required.
STATUS
Through December 31, 1997, the Company has spent approximately $5,000,000
in its efforts to make products based on waterjet technology commercially
available. Such expenditures include research and development costs and expenses
related to the HydroBrush(TM) Keratome and the HydroBlade(TM) Keratome. Research
and development activities have consisted of developing, designing and
constructing two experimental versions of the Company's keratome, and, since
July 1994, conducting feasibility studies on over 2,000 porcine and rabbit
corneas, dozens of human cadaver eyes and 22 live rabbits. The purpose of the
feasibility studies was to
6
<PAGE>
determine if the water beam could smoothly incise and shape the anterior surface
of the cornea and to determine if the incised eye would heal. A second major
objective has been to establish that HRK3 produces a full range of refractive
corrections. The Company has been highly satisfied with the results of the
feasibility studies conducted to date. Specifically, the Company, using light
and electron microscopes and post incision casts, has compared the cuts made by
the waterjet scalpel with cuts made by scalpels and lasers in other refractive
surgical procedures. The Company believes that the cuts made by the waterjet
scalpel are cleaner and much less damaging than those made by conventional
scalpels and lasers. The Company has found the corneal flaps created by the HRK
microkeratome to be extremely close to parallel, as desired, and of the desired
thickness (approximately 140 microns). The Company also found the shape of the
cut stromal bed to be the desired spherical shape and the restored flap to fit
the stromal bed with no discernable disparity in size or alignment. a full range
of myopic, hyperopic and astigmatic corrections have been demonstrated. The
Company's studies on rabbits have also shown that HRK incisions (resections)
heal with much less wound healing response and haze than results from PRK
removals.
The Company has constructed prototypes of a microkeratome designed for use
in surgery on non-human primates and humans in a clinical setting. The Company
has not yet constructed the necessary manufacturing equipment.
PATENTS
The Company has sought to protect its proprietary interest in the HRK
microkeratome by applying for patents in the United States and corresponding
patents abroad. In September 1994, a U.S. patent application was filed in the
name of Dr. Eugene I. Gordon and two employees of the Company, as inventors,
which application was assigned to the Company. The U.S. patent issued on
September 17, 1996 and covers a method and device for use of the HRK
microkeratome, including use of a template for corneal shaping and holding,
during use of a waterjet microkeratome device. A corresponding international
application has been filed, pursuant to the Patent Cooperation Treaty ("PCT"),
with designation of all member countries foreign to the United States, including
but not limited to Japan, the members of the European Patent Office, Canada,
Mexico, Australia, Russia, China and Brazil. The PCT filing was published on
October 16, 1996 and separate patent applications have been filed pursuant to
the PCT filing. In addition, for countries not currently part of the PCT, patent
applications have also been filed in Israel, Taiwan and South Africa. A U.S.
patent application is currently pending and relates to topographic corneal
mapping, which has utility for surgery utilizing the HRK microkeratome. A patent
application for the HydroBrush(TM) Keratome for HEK use is also pending. Other
U.S. patents on HRK3 and templates have been filed.
The Company received a license from the New Jersey Institute of Technology
("NJIT") for the patent right under a patent application assigned to it by Dr.
Gordon and two other individuals relating to a refractive correction procedure
based on the use of an isotonic waterjet, in the manner similar to PRK. Such
patent application was subsequently denied by the United States Patent and
Trademark Office and on August 15, 1996, such license agreement was terminated
by the Company. NJIT has indicated in correspondence and discussions with the
Company that it believes the Company's existing patent emanates from NJIT's
technology. The Company believes NJIT's claims are without merit and has
initiated an action to preclude NJIT from hindering or otherwise interfering in
the Company's use of its patent. Such matter is in its earliest stages. Based on
currently available evidence and information, the Company believes that it will
prevail in this matter.
U.S. GOVERNMENT REGULATION
The components of the Company's HTK microkeratome and HRK microkeratome are
medical devices. Accordingly, the Company is subject to the relevant provisions
and regulations of the Federal Food, Drug, and Cosmetic Act (the "FD&C Act"),
under which the FDA regulates the manufacturing, labeling, distribution, and
promotion of medical devices in the United States. The FD&C Act provides that,
unless exempted by regulation, medical devices may not be commercially
distributed in the United States unless they have been approved or cleared by
the FDA. There are two review procedures by which medical devices can receive
such approval or clearance. Some products may qualify for clearance under a
510(k) notification. Pursuant to that procedure, the manufacturer submits to the
7
<PAGE>
FDA a pre-market notification that it intends to begin marketing its product.
The notification must demonstrate that the product is substantially equivalent
to another legally marketed product (i.e., that it has the same intended use and
that it is as safe and effective as, and does not raise different questions of
safety and effectiveness than does, a legally marketed device). In some cases,
the 510(k) notification must include data from human clinical studies. In March
1995, the FDA issued a draft guidance document in connection with 510(k)
notifications for medical devices, "Addendum: How to Submit a Premarket
Notification [(510(k)]," which states that clinical data is not needed for most
devices cleared by the 510(k) process. However, the Company anticipates that the
FDA will require submission of human clinical trial data in connection with the
Company's 510(k) notifications.
A successful 510(k) notification results in the issuance of a letter from
the FDA in which the FDA acknowledges the substantial equivalence of the
reviewed device to a legally marketed device and clears the reviewed device for
marketing to the public. The Company has received successful 510(k) notification
with respect to its device to carry out HEK procedures. Under FDA regulations,
the FDA has a 90-day period to respond to a 510(k) notification, although such
response has been known to take longer.
Based on a recommendation from the FDA, the Company intends to file three
510(k) notifications in 1998 in which the Company will seek to demonstrate that
the HTK microkeratome is substantially equivalent to the currently available
keratomes having a metal or diamond scalpel used for two types of lamellar
keratoplasty and one use of the keratomes for treatment of pterygium. Under
current FDA regulations, a microkeratome is defined as a device for shaving thin
layers from the cornea and is classified as a Class I device, for which the
simplest and quickest approval process is available. The Company will seek to
demonstrate that, for the purpose of making lamellar, or substantially lamellar,
corneal incisions, the waterjet scalpel and template included in the HTK
microkeratome are substantially similar to a microkeratome with a metal or
diamond scalpel.
In addition to laws and regulations enforced by the FDA, the Company's
products may also be subject to labelling laws and regulations enforced by the
Federal Trade Commission. The Company is also subject to government regulations
applicable to all businesses, including, but not limited to, regulations related
to occupational health and safety, workers' benefits and environmental
protection.
FOREIGN GOVERNMENT REGULATION
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. The time
required to obtain approvals required by foreign countries may be longer or
shorter than that required for FDA approval, and requirements for licensing may
differ from FDA requirements. Export sales of investigational devices that have
not received FDA marketing clearance generally are subject to FDA export permit
requirements. Material failure to comply with any applicable regulatory
requirements could have a material adverse effect on the Company.
COMPETITION
The Company believes that primary competition for the HydroBrush(TM)
Keratome will be hand-held, steel scalpels, and for the HydroBlade(TM) Keratome
will be blade-based microkeratomes, all of which are mechanically scraped across
the cornea to accomplish the removal of the epithelium, and other mechanical
blades, which cut diseased tissue intended for removal. The use of such blades
requires a high degree of skill and training and often does not produce
satisfactory results.
If permitted or otherwise approved by the FDA and other regulatory
authorities, HRK using the Company's HydroBlade(TM) Keratome will compete with
other corrective means for refractive problems, including eyeglasses, contact
lenses, other refractive surgery procedures (such as RK, PRK and ALK), and other
technologies under development, such as LASIK, refractive intraocular lenses
(lenses which are inserted into the eye behind the cornea), intrastromal lenses
(lenses which are inserted into the stroma), corneal rings (transparent circles
of acrylic which are inserted within the cornea outside the vision zone in order
to correct the curvature of the corneal surface) and injection of hydrogel
materials into layers of corneal tissue to change the curvature of the cornea.
The healthcare field is characterized by rapid technological change. At any
time, competitors may develop and bring to market new products or surgical
techniques with vision correction capabilities superior to those of the
Company's products or which would otherwise render the Company's products
obsolete.
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<PAGE>
Generally, refractive surgical techniques are considered to be "elective"
surgery and are typically not reimbursed under healthcare insurance policies in
the United States. However, in certain countries outside the United States, such
as China, the costs of refractive surgery are paid by the government, because it
is believed that such surgery is, over time, less costly than glasses or contact
lenses. It can be expected that many individuals will choose to forego
refractive surgery, if not reimbursed, and instead obtain eyeglasses or contact
lenses, which are covered under some healthcare insurance plans and are
considerably less expensive than refractive surgery in the short term.
Other companies, most of which are larger and better financed than the
Company, are engaged in refractive surgery research. Two companies, Summit
Technology, Inc. ("Summit") and VISX Inc. ("VISX"), have received PMA approval
on PRK and are profitable. In addition to Summit and VISX, there are a number of
other large entities that currently market and sell laser systems overseas for
use in refractive surgery, including Aesculap-Meditec GmbH, Chiron-Technolas and
Schwind, each of Germany, and Nidek of Japan. Many of these companies have
substantially greater financial, technical and human resources than the Company
and may be better equipped to develop, manufacture and market their
technologies. In addition, many of these companies have extensive experience in
preclinical testing and human clinical studies. Certain of these companies may
develop and introduce products or processes competitive with or superior to
those of the Company. Furthermore, with respect to HEK and any other products
the Company may, in the future, be permitted to commercially sell, it will also
be competing with respect to manufacturing efficiency and marketing
capabilities, areas in which the Company has no experience.
The Company's competition will be determined in part by those refractive
surgery technologies that are ultimately approved for sale by regulatory
authorities. The relative speed at which the Company is able to develop the HRK
microkeratome, complete the necessary governmental and regulatory approval
processes, and manufacture and market commercial quantities thereof will be
important competitive factors. The Company is aware of ongoing research at
certain companies and institutions into a variety of procedures for corneal
adjustment, as noted above, and refractive surgery, including waterjet
technology under development by Visijet (Surgijet) Inc. Visijet (Surgijet) Inc.
holds a patent for certain waterjet technology utilized in connection with the
treatment of cataracts. Although Visijet (Surgijet) Inc. has not yet
commercialized any products, it is possible that Visijet (Surgijet) Inc. or
other companies will bring products to market prior to such time, if ever,
that the Company is able to economically market commercial quantities of
products.
Although the HRK microkeratome is still in the early stages of development
and has neither been tested on live human eyes nor received the regulatory
approval necessary for sale, the Company believes that it has the potential to
effectively compete with other refractive surgical techniques because of its
relative simplicity, safety, efficacy and reduced risk of significant pain.
In addition, HRK is expected to be less costly than PRK, because of the
high costs of the laser equipment and laser facility necessary for PRK, and to
be competitively priced with, or less costly than, other refractive surgery
procedures.
EMPLOYEES
As of December 31, 1997, the Company had sixteen full-time employees, the
majority of whom were engaged in research and development activities. As of such
date, the Company also had consulting arrangements with one medical consultant,
one marketing consultant, one FDA consultant organization and two strategic
planning and business development consultants. The Company's ability to design,
develop, manufacture, market and sell its products successfully will depend to a
large extent on its ability to attract and retain qualified personnel, for which
competition is or may be intense. None of the Company's employees are
represented by a union. The Company believes that its relations with its
employees are satisfactory.
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<PAGE>
PRODUCT LIABILITY INSURANCE
The use of medical devices, both in clinical and commercial settings,
entails the risk of allegations of product liability, and there can be no
assurance that substantial product liability claims will not be asserted against
the Company. The Company does not now have any product liability insurance, but
it expects to obtain such insurance prior to the commencement of clinical
testing. It is expected that such insurance will be in the amount of $1 million
per claim with an annual aggregate limit of $20 million. After any
commercialization of its products, the Company will seek to obtain an
appropriate increase in its coverage. However, there can be no assurance that
adequate insurance coverage will be available at an acceptable cost, if at all.
Consequently, a material product liability claim or other material claims with
respect to uninsured liabilities or in excess of insured liabilities would have
a material adverse effect on the Company.
ITEM 2. PROPERTIES.
The Company leases approximately 7,358 square feet of research and
development, manufacturing and office space in Edison, New Jersey. The term of
the lease expires December 31, 1999. The base rent is $93,550 per year. In 1998,
the Company began conducting certain pre-clinical research and development
activities in facilities located at the Department of Veterans Affairs New
Jersey Health Care System, East Orange, New Jersey ("VANJHCS"). The Company has
agreed to pay fees to the VANJHCS based on the Company's usage of the facility.
The Company believes the space currently available to it will be sufficient to
meet the Company's requirements for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which the Company is a party
which, in the opinion of Company management, are likely to have a material
adverse effect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF OUTSTANDING COMMON STOCK
On August 14, 1996, the Company consummated its initial public offering
(the "Offering") and, accordingly, issued and sold 1,071,429 units (the
"Units"). Each Unit consisted of one share of common stock, $.001 par value of
the Company (the "Common Stock"), and one redeemable Common Stock Purchase
Warrant (the "Warrants") to purchase one share of Common Stock at $10.00 for a
period of 24 months commencing on November 6, 1996. On September 13, 1996, the
Company issued and sold 160,714 additional Units in connection with the
underwriters' exercise of its over-allotment option. The Units, which became
separable on November 6, 1996, began trading on the Over-the-Counter ("OTC")
Bulletin Board on August 6, 1996. Prior to that date, there was no market for
the Units.
The following table sets forth the high and low bid quotations per Unit
(symbol MJETU) for the periods indicated as reported by the OTC Bulletin Board.
These quotations reflect interdealer prices, without retail mark-up, mark-down
or commission, and may not represent actual transactions.
10
<PAGE>
UNITS Bid
---
1996: High Low
---- ---
Period from August 6 through September 30, 1996 $8.25 $7.50
Fourth Quarter 8.50 6.75
The Common Stock and Warrants began trading on the OTC Bulletin Board on
November 8, 1996. Prior to November 6, 1996, there was no market for the Common
Stock or the Warrants. On December 31, 1997, there were approximately 47 holders
of record of the Common Stock and 16 holders of record of the Warrants. The
Company estimates that approximately 1,149 holders of Common Stock are
represented by nominees.
The following table sets forth the high and low bid quotations per share of
the Common Stock (symbol MDJTC) and the Warrants (symbol MDJTW) for the periods
indicated as reported by the OTC Bulletin Board. These quotations reflect
interdealer prices, without retail mark-up, mark-down or commission, and may not
represent actual transactions.
COMMON STOCK Bid
---
1996: High Low
---- ---
Period from November 8 through December 31, 1996 $7.375 $6.50
1997:
First Quarter 7.625 6.75
Second Quarter 8.625 7.625
Third Quarter 8.625 7.00
Fourth Quarter 8.875 7.125
WARRANTS
1996:
Period from November 8 through December 31, 1996 $1.50 .625
1997:
First Quarter 2.375 1.50
Second Quarter 2.375 2.25
Third Quarter 2.3125 2.00
Fourth Quarter 2.375 1.625
DIVIDENDS
The Company has never paid a cash dividend on its Common Stock and does not
presently anticipate doing so in the foreseeable future, but expects to retain
earnings, if any, to finance operations.
USE OF PROCEEDS OF THE OFFERING
Since the consummation of the Offering in August 1996 through December 31,
1997, the Company has applied net proceeds realized in the Offering (in the
aggregate approximate amount of $5,600,000) in the following manner: $198,000
for the purchase and installation of machinery and equipment; $715,000 for the
repayment of indebtedness; $973,000 for working capital; $50,000 for patent
filings; and $2,240,000 for research and development and human clinical trials
(which includes compensation expense attributable to employees performing solely
research and development functions in the amount of $763,000); $1,490,000 for
temporary investments, of which $1,112,000 is intended for research and
development and human clinical trials and $378,000 for working capital, and all
11
<PAGE>
of which has been invested in short-term money market instruments. Other than
repayment of certain indebtedness, in the aggregate amount of $415,000, none of
such payments were made to directors, officers, general partners of the Company
or their associates, to persons owning 10% or more of any class of equity
securities of the Company, or to affiliates of the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
The Company, founded in December 1993, is engaged in the research and
development of medical technology, with a current emphasis on opthalmic surgical
technology and equipment and has developed a proprietary technology and
derivative devices for corneal surgery. The Company expects, during 1998, to
continue its research and development activities focusing principally on
ophthalmic surgical technology and equipment and to commence early exploratory
work on orthopedic applications of waterjet technology. The Company is a
development stage company.
RESULTS OF OPERATIONS
The Company has not yet initiated sales of its products and, consequently,
had no revenues during the year ended December 31, 1997.
Total expenses during the year ended December 31, 1997 increased by
$1,391,780 (104.8%) to $2,719,991 from $1,328,211 for the prior year. This was
primarily due to the net increase in staff (from an average of 10 full-time
employees in 1996 to an average of fifteen full-time employees in 1997, with
sixteen full-time employees at December 31, 1997) and an increase in
professional fees and consultant costs as the Company continued its research and
development activities and pursued regulatory filings and initial clinical
trials. Expenses were also higher during 1997 due to increased purchases for
materials, testing and analysis and greater insurance, occupancy costs
(reflecting additional office and laboratory space assumed on April 1, 1996 and
on January 1, 1997) and advertising expenses, which includes costs associated
with the production of instructional and promotional materials for the Company's
products.
Other income/expense consists of interest income and interest expense.
Interest income increased by $60,867 to $147,569 in 1997 from $86,702 in 1996.
This increase is principally the result of income earned on the Company's
short-term investments which were greater after the consummation of the Offering
in August 1996. Interest expense decreased by $26,235 to $5,833 in 1997 from
$32,068 in 1996. This decrease is principally the result of a reduction in
interest charges on short-term borrowings made by the Company during 1996 which
were repaid during the third quarter of 1996 and the second quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
From its inception until the consummation of the Offering, the Company's
liquidity requirements were met through private sales of Common Stock and short
term borrowings from affiliates of the Company, including Dr. Eugene I. Gordon.
All such loans were repaid utilizing proceeds of the Offering. The Company has
no long-term indebtedness.
As a result of the Offering, the Company's liquidity position improved
significantly. However, as a result of operating losses incurred subsequent to
the Offering, the Company's working capital was reduced to $1,334,270 at
December 31, 1997.
In connection with a private placement (the "Private Placement") of the
Company's preferred stock commenced in the first quarter of 1998, the Company,
through its placement agent, has raised approximately $1,100,000 as of April 13,
1998. These funds are escrowed and will be released following a closing. The
Company anticipates that the net proceeds from the Private Placement, the
remaining net proceeds from the Offering, as well as projected cash flows from
operations, including fees the Company may earn from licensing its products,
will be sufficient to meet the Company's 1998 working capital and planned
capital expenditure requirements. There can, however, be no assurance that the
Company will realize cash flow from operations within the time period projected
by the Company, if ever.
The Company's current strategy is to exclusively license its ophthalmology
products. As of the date of filing of this Annual Report on Form 10-KSB, the
Company has not entered into any agreement to license or otherwise commercially
market any of its products. If the Company does not enter into such licensing
arrangements, it will need to engage in the manufacture and marketing of its
products. 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 would 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 would 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 expected dependence upon 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 any licensing arrangements, it will
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 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.
If the Company is unable to realize cash flow from operations, the Company
will be required to seek debt or additional equity financing to fund its
operations. There can be no assurance that such additional financing will be
available to the Company on commercially reasonable terms, if at all. If
required additional
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<PAGE>
financing is not available, the Company would be materially adversely affected
and would be unable to maintain its current operations or otherwise carry out
its business plan.
ITEM 7. FINANCIAL STATEMENTS.
Page No.
Independent Auditors' Report...................................... 14
Balance Sheet as of December 31, 1997............................. 15
Statements of Operations for the years ended December 31, 1996 and
1997, and for the period from inception to December 31, 1997...... 16
Statements of Stockholders' Equity for the period from inception
to December 31, 1997.............................................. 17
Statements of Cash Flows for the years ended December 31, 1996 and
1997, and for the period from inception to December 31, 1997...... 19
Notes to Financial Statements..................................... 20
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Medjet Inc. (A Development Stage Company):
We have audited the accompanying balance sheet of Medjet Inc. (A
Development Stage Company) as of December 31, 1997 and the related statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Medjet Inc. (A Development
Stage Company) as of December 31, 1997 and the results of its operations and its
cash flows for the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
ROSENBERG RICH BAKER BERMAN & COMPANY
Maplewood, New Jersey
March 19, 1998, except for
the "SUBSEQUENT EVENT" note
to the financial statements
which is dated April 13, 1998
<PAGE>
MEDJET INC.
(A Development Stage Company)
Balance Sheet
December 31, 1997
Assets
Current Assets
Cash and cash equivalents $ 1,491,040
Prepaid expenses 63,723
------------
Total Current Assets 1,554,763
------------
Property and Equipment
Leasehold improvements 21,286
Histological equipment 13,773
Ophthalmic equipment 35,151
Office furniture 19,458
Lab furniture 19,829
Computer equipment 77,428
Optical equipment 77,663
Waterjet equipment 46,320
Software 26,619
Mechanical equipment 23,256
Electronic equipment 8,311
------------
369,094
Less - Accumulated depreciation 180,025
------------
Total Property and Equipment 189,069
------------
Organization Costs - less accumulated amortization
of $27,614 9,773
Patents and Trademarks - less accumulated amortization
of $8,897 101,003
Security deposits 7,650
------------
Total Assets 1,862,258
============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses 218,749
Income taxes payable 150
Deferred rental obligation - current 1,594
------------
Total Current Liabilities 220,493
Deferred rental obligation, net of
current portion 3,698
------------
Total Liabilities 224,191
============
Stockholders' Equity
Common stock, $.001 par value, 7,000,000
shares authorized, 3,708,719 shares
issued and 3,674,930 shares outstanding 3,709
Preferred stock, $.01 par value, 1,000,000
shares authorized, no shares issued -
Additional paid-in capital 4,896,955
Accumulated deficit (including deficit accumulated
during development stage of $4,817,101 of
which $1,556,204 was applied to additional
paid-in capital upon conversion from an "S" to
a "C" corporation) (3,260,897)
Less: Treasury stock, 33,789 shares, at cost (1,700)
------------
Total Stockholders' Equity 1,638,067
------------
Total Liabilities and Stockholders' Equity $ 1,862,258
============
See notes to the financial statements.
<PAGE>
MEDJET INC.
(A Development Stage Company)
Statements of Operations
December
16, 1993
Year Ended December 31, (Inception)
--------------------------- to December
1997 1996 31, 1997
-----------------------------------------
Net Sales $ - $ - $ -
-----------------------------------------
EXPENSES:
Salaries 882,595 613,259 2,005,650
Consultant Fees 389,960 138,203 614,263
Professional Fees 354,506 126,042 528,963
Rent 98,148 49,405 189,332
Mechanical Supplies 402,165 97,919 558,460
Depreciation 76,585 56,313 180,025
Ophthalmology Research 14,099 12,776 46,524
Insurance 117,233 52,885 183,371
Amortization 13,850 9,228 36,511
Travel 50,443 22,440 93,214
Payroll Taxes 68,210 47,613 154,198
Optical Supplies 2,602 3,932 12,080
Telephone 22,678 10,810 43,172
Miscellaneous Expenses,
Fees and Taxes 26,488 21,882 62,762
Advertising 83,099 5,663 91,866
Biological Supplies 19,071 7,319 36,120
Freight 21,351 14,479 43,243
Office Supplies 7,261 8,375 21,462
Employee Welfare 27,562 11,750 51,015
Electrical Supplies 461 3,238 6,742
Chemical Supplies 10,293 6,736 21,688
Payroll Processing Fees 1,376 1,087 3,991
Bank Charges - 166 754
Postage 1,292 1,312 3,639
Blueprinting and Photostats 26,842 4,838 36,052
Security System 794 471 1,607
Membership Fees 1,020 70 1,180
-----------------------------------------
2,719,984 1,328,211 5,027,884
-----------------------------------------
OTHER INCOME/(EXPENSE):
Interest Income 147,569 86,702 249,534
Interest Expense (5,833) (32,068) (37,901)
-----------------------------------------
141,736 54,634 211,633
-----------------------------------------
Loss Before Income Tax (2,578,248) (1,273,577) (4,816,251)
Federal Income Tax - - -
State Income Tax 200 400 850
-----------------------------------------
Total Income Tax 200 400 850
-----------------------------------------
Net Loss $ (2,578,448) $(1,273,977) $(4,817,101)
=========================================
Net Loss Per Share $ (0.70) $ (0.43) $ (1.71)
=========================================
Weighted Average Common
Shares Outstanding 3,660,609 2,936,075 2,816,697
=========================================
See notes to the financial statements.
<PAGE>
MEDJET INC.
(A Development Stage Company)
Statement of Stockholders' Equity
Period From December 16, 1993 (Date of Inception) to December 31, 1997
<TABLE>
<CAPTION>
Total Common
Common Price Consider- Stock Paid- Accum-
Shares Per ation ($.001 In ulated Treasury
Date Description Issued Share Paid Par Value) Capital Deficit Stock
- ------------------- --------------- --------- ------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 12, 1994 Share Issuance $ 800,000 $0.10 $ 80,000 $ 800 $ 79,200 $ - $ -
April 21, 1994 Share Issuance 15,000 0.10 1,500 15 1,485 - -
May 1, 1994 Share Issuance 63,000 0.10 6,300 63 6,237 - -
May 25, 1994 Share Issuance 50,000 1.00 50,000 50 49,950 - -
May 31, 1994 Share Issuance 25,000 1.00 25,000 25 24,975 - -
June 6, 1994 Share Issuance 50,000 1.00 50,000 50 49,950 - -
June 7, 1994 Share Issuance 50,000 1.00 50,000 50 49,950 - -
June 13, 1994 Share Issuance 25,000 1.00 25,000 25 24,975 - -
June 20, 1994 Share Issuance 25,000 1.00 25,000 25 24,975 - -
July 28, 1994 Share Issuance 25,000 1.00 25,000 25 24,975 - -
September 23, 1994 Share Issuance 45,002 6.00 270,012 45 269,967 - -
October 20, 1994 Share Issuance 20,501 6.00 123,008 21 122,987 - -
October 28, 1994 Share Issuance 2,500 6.00 15,000 2 14,998 - -
November 10, 1994 Share Issuance 14,500 6.00 87,000 15 86,985 - -
November 16, 1994 Share Issuance 2,501 6.00 15,004 2 15,002 - -
Net Loss, Year Ended
December 31, 1994 - - - - - (287,291) -
--------- ===== -------- ------ -------- --------- -----
Balance, December 31, 1994 1,213,004 847,824 1,213 846,611 (287,291) -
August 8, 1995 Share Issuance 5,000 $6.00 30,000 5 29,995 - -
August 28, 1995 Share Issuance 4,000 6.00 24,000 4 23,996 - -
September 21, 1995 Share Issuance 5,000 6.00 30,000 5 29,995 - -
September 29, 1995 Share Issuance 5,000 6.00 30,000 5 29,995 - -
December 31, 1995 Share Issuance 833 6.00 5,000 1 4,999 - -
December 31, 1995 Stock Split:
1.987538926-to-1
Share
Outstanding 1,217,475 - - 1,217 (1,217) - -
Net Loss, Year Ended
December 31, 1995 - - - - - (677,385) -
--------- ===== -------- ------ -------- --------- -----
Balance, December 31, 1995 2,450,312 $966,824 $2,450 $964,374 $(964,676) $ -
--------- ===== -------- ------ -------- --------- -----
</TABLE>
See notes to the financial statements.
<PAGE>
MEDJET INC.
(A Development Stage Company)
Statement of Stockholders' Equity
Period From December 16, 1993 (Date of Inception) to December 31, 1997
<TABLE>
<CAPTION>
Total Common
Common Price Consider- Stock Paid- Accum-
Shares Per ation ($.001 In ulated Treasury
Date Description Issued Share Paid Par Value) Capital Deficit Stock
- ---------------- -------------- --------- ------- ---------- ---------- ------------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995, brought forward 2,450,312 $ 966,824 $2,450 $ 964,374 $ (964,676) $ -
August 6, 1996 Share Issuance 1,071,429 $5.60 6,000,002 1,071 5,998,931 - -
September 3, 1996 Share Issuance 160,714 5.60 899,998 161 899,838 - -
Reclassification of deferred offering costs - - - - (1,436,052) - -
Acquisition of treasury shares - - - - - - (1,700)
Reclassification of accumulated deficit for
change from S corporation to C corporation - - - - (1,556,204) 1,556,204 -
Net Loss, Year Ended December 31, 1996 - - - - - (1,273,977) -
--------- ------- ---------- ---------- ------------ ------------- --------
Balance, December 31, 1996 3,682,455 7,866,824 3,682 4,870,887 (682,449) (1,700)
July 18, 1997 Share Issuance 21,800 0.05 1,097 22 1,075 - -
July 24, 1997 Share Issuance 4,464 5.60 24,998 5 24,993 - -
Net Loss, Year Ended December 31, 1997 - - - - - (2,578,448) -
--------- ======= ---------- ---------- ------------ ------------- --------
Balance, December 31, 1997 3,708,719 7,892,919 3,709 4,896,955 (3,260,897) (1,700)
========= ========== ========== ============ ============= ========
</TABLE>
See notes to the financial statements.
<PAGE>
MEDJET INC.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
December
16, 1993
Year Ended December 31, (Inception) to
-------------------------- December
1997 1996 31, 1997
------------ ------------ --------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss $(2,578,448) $(1,273,977) $(4,817,101)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation and amortization 90,435 65,541 216,536
(Increase) Decrease in accounts receivable 2,083 (2,083) -
(Increase) Decrease in prepaid expenses (17,131) (44,049) ( 63,723)
Increase (Decrease) in accounts payable
and accrued expenses 41,227 112,769 218,749
Increase (Decrease) in accrued interest payable (7,167) 7,167 -
Increase in income taxes payable - - 150
Increase in deferred rental obligation 5,292 - 5,292
------------ ------------ --------------
Net Cash (Used) by Operating Activities (2,463,709) (1,134,632) (4,440,097)
------------ ------------ --------------
Cash Flows From Investing Activities:
Redemptions of marketable securities - - 320,605
Cash purchases of marketable securities - - (320,605)
Cash purchases of property, plant & equipment (94,542) (153,921) (369,094)
Cash purchase of organization costs - - (37,387)
Cash payments for patents and trademarks (53,789) (36,706) (109,900)
Cash payments for security deposits - (3,948) (7,650)
------------ ------------ --------------
Net Cash (Used) by Investing Activities (148,331) (194,575) (524,031)
------------ ------------ --------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock and
initial public offering 26,095 5,500,214 6,456,868
Purchase of treasury stock - (1,700) (1,700)
Proceeds from officer loans - 165,000 321,000
Repayment of officer loans (165,000) (150,000) (321,000)
Proceeds from notes payable - 400,000 400,000
Repayment of notes payable - (400,000) (400,000)
------------ ------------ --------------
Net Cash (Used) Provided by Financing Activities (138,905) 5,513,514 6,455,168
------------ ------------ --------------
Net Increase (Decrease) in Cash and Cash Equivalents (2,750,945) 4,184,307 1,491,040
Cash and Cash Equivalents at Beginning of Period 4,241,985 57,678 -
------------ ------------ --------------
Cash and Cash Equivalents at End of Period 1,491,040 4,241,985 1,491,040
============ ============ ==============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid for:
Income taxes $ 200 $ 200 $ 650
============ ============ ==============
Interest expense $ 13,000 $ 24,901 $ 37,901
============ ============ ==============
</TABLE>
See notes to the financial statements.
Medjet Inc.
(A Development Stage Company)
Notes to the Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
Medjet Inc. (the "Company") is a development stage company
incorporated in the State of Delaware on December 16, 1993.
The Company was organized as a medical device company with the
goal of developing, manufacturing and selling new cutting,
drilling, layer removal and shaping tools for a variety of
surgical procedures. The core technology is based on
small-diameter, fluid or ice microjets moving at high speeds.
The Company believes that such jets will bring new surgical
capability and performance to the clinic or operating room.
The initial product area is devices for surgical use in
ophthalmology.
On August 14, 1996, the Company consummated its initial public
offering (the "Offering") and, accordingly, issued and sold to
the public 1,071,429 Units (the "Units"), each Unit consisting
of one share of common stock, $.001 par value, of the Company
(the "Common Stock"), and one redeemable Common Stock Purchase
Warrant (the "Warrants") to purchase one share of Common Stock
at $10.00 for a period of 24 months commencing on November 6,
1996 (see "Warrants" note). In conjunction with an
over-allotment option granted to the underwriter of the
Offering, the Company issued and sold an additional 160,714
Units on September 13, 1996. The Units were separated on
November 6, 1996 and the Common Stock and the Warrants began
trading on November 8, 1996.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, cash
equivalents include all highly liquid instruments with
original maturities of three months or less.
Property and Equipment
Equipment and leasehold improvements are recorded at cost.
Depreciation is computed using primarily accelerated methods
based upon the estimated useful lives of the assets which
range from 5 to 7 years for equipment and 39 years for
leasehold improvements. Repairs and maintenance which do not
extend the useful lives of the related assets are expensed as
incurred.
<PAGE>
Medjet Inc.
(A Development Stage Company)
Notes to the Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Amortization
Organization costs are being amortized over sixty months on a
straight-line basis. Total amortization for the years ended
December 31, 1997 and 1996 was $7,477 and $7,476,
respectively.
Patents are being amortized over seventeen years on a
straight-line basis. These costs will be expensed if and when
it is concluded that non-approval or no future economic
benefits are probable. Total amortization for the years ended
December 31, 1997 and 1996 was $6,373 and $1,752,
respectively.
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.
Income Taxes
In accordance with the provisions of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," deferred
taxes are recognized for operating losses that are available
to offset future taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amount expected to be realized. The Company incurred net
operating losses for financial-reporting and tax-reporting
purposes. Accordingly, the benefit for income taxes has been
offset entirely by a valuation allowance against the related
deferred tax asset for the year ended December 31, 1997.
Pursuant to the Offering (see "Nature of Organization" note),
the Company's status changed from an "S" corporation to a "C"
corporation for Federal income tax purposes. Accordingly, the
deficits accumulated during the development stage were charged
against additional paid-in capital.
<PAGE>
Medjet Inc.
(A Development Stage Company)
Notes to the Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
CONCENTRATIONS OF CREDIT RISK
The Company maintains cash balances in several financial institutions.
Accounts at each institution are insured by the Federal Deposit
Insurance Corporation up to $100,000, of which the Company's accounts
may, at times, exceed the federally insured limits.
DEVELOPMENT STAGE OPERATIONS
The Company was formed December 16, 1993. Operations since then have
consisted primarily of raising capital, locating and acquiring
equipment, obtaining qualified staff, installing and testing equipment
and experimenting, testing and developing the procedures necessary to
produce positive results and to lay the foundation for specific
development for manufacturing and various regulatory approvals.
STOCK OPTION PLAN
On October 31, 1994, the Company adopted its 1994 Stock Option Plan
(the "Plan"). The Plan provides that certain options to purchase the
Company's common stock granted thereunder are intended to qualify as
"incentive stock options" within the meaning of Section 422A of the
United States Internal Revenue Code of 1986, while non-qualified
options may also be granted under the Plan. The initial plan and
subsequent amendments provide for authorization of up to 449,688 and
249,688 shares at December 31, 1997 and 1996, respectively. The option
price per share of stock purchasable under an Incentive Stock Option
shall be determined at the time of grant but shall not be less than
100% of the Fair
<PAGE>
Medjet Inc.
(A Development Stage Company)
Notes to the Financial Statements
STOCK OPTION PLAN -- (Continued)
Market Value of the stock on such date, or, in the case of a 10%
Stockholder, the option price per share shall be no less than 110% of
the Fair Market Value of the stock on the date an Incentive Stock
Option is granted to such 10% Stockholder.
Qualified and Non-Qualified
Shares Under Option
December 31,
---------------------------
1997 1996
-------------- --------
Outstanding, beginning of year 87,520 39,750
Granted during the year 67,500 47,770
Canceled during the year (37,000) -
Exercised during the year at $.05 (21,800) -
per share ------- ---------
Outstanding, end of year (at prices
ranging from $.05 to $8.47 per 96,220 87,520
per share ========= =========
Eligible, end of year for exercise
prices ranging from $.05 to $8.37
per share) 23,091 33,725
========= =========
At December 31, 1997, the weighted average exercise price and weighted
average remaining contractual life is $5.56 per share and 8 years 81/2
months, respectively.
At December 31, 1997 and 1996, there were 331,668 and 162,168 shares,
respectively, reserved for future grants.
<PAGE>
Medjet Inc.
(A Development Stage Company)
Notes to the Financial Statements
WARRANTS
The Company issued common stock purchase warrants separately and as a
part of the Offering (see "Nature of Organization") as follows:
Exercise Exercise Term
Date of No. of Price Per --------------------
Grant Shares Share Start Expiration Vesting Rights
------- ------ --------- -------- ---------- ----------------
05/20/96 97,389 $ 3.37 05/20/96 05/20/01 25% per year
07/19/96 4,464 5.60 07/19/96 07/19/99 50% at issue,
balance after
one year
08/14/96 1,071,429 10.00 11/06/96 11/06/98 100% on 11/06/96
08/14/96 107,143 10.00 08/06/97 08/06/99 100% on 08/06/97
09/13/96 160,714 10.00 11/06/96 11/06/98 100% on 11/06/96
----------
1,441,139 Outstanding at December 31, 1996
(4,464) Exercised during the year at $5.60 per share
---------
1,436,675 Outstanding at December 31, 1997
=========
At December 31, 1997 and 1996, there were 1,363,633 and 1,341,518
shares eligible for exercise at prices ranging from $3.37 to $10.00 per
share.
RETIREMENT PLAN
The Company sponsors a qualified 401(k) plan covering substantially all
full time employees under which eligible employees can defer a portion
of their annual compensation. The Company currently makes no matching
contribution to the plan.
<PAGE>
Medjet Inc.
(A Development Stage Company)
Notes to the Financial Statements
INCOME TAXES
The income tax provision is comprised of the following for the years
ended December 31, 1997 and 1996:
State current provision $200 $400
==== ====
The Company's total deferred tax asset and valuation allowance at
December 31, 1997 are as follows:
Total deferred tax asset $1,236,000
Less valuation allowance (1,236,000)
----------
Net deferred tax asset $ -
==========
The Company has available approximately $4,547,331 net operating losses
to carryforward which may be used to reduce future State taxable income
available through December 31, 2002 and approximately $2,904,139 of net
operating losses to carryforward which may be used to reduce future
Federal taxable income available through December 31, 2010.
OPERATING LEASES
The Company leases its building and office space and automobiles.
The following is a schedule by years of future minimum lease payments
as of December 31, 1997 under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year:
Year Ended December 31,
1998 $ 97,090
1999 95,654
--------
Total Minimum Lease
Payments Required $192,744
========
<PAGE>
Medjet Inc.
(A Development Stage Company)
Notes to the Financial Statements
OPERATING LEASES -- (Continued)
Rent expense under the operating leases totaled $98,148 and $49,405
for the years ended December 31, 1997 and 1996, respectively.
Beginning in 1997, the lease for the building and office space has an
annual escalation factor. The above rental commitments reflect the
periods during which the actual obligations arise (per the lease
agreement). Rental expense has been charged to operations on a
straight-line basis. The associated deferred rental obligation
liability of $5,292 is presented in the balance sheet as a current
liability of $1,594 and a long-term liability of $3,698 at December 31,
1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts payable and accrued expenses
The carrying amount approximates fair value because of the
short term maturity of these instruments.
Limitations
Fair value estimates are made at a specific point in time,
based on relevant information and information about the
financial instrument. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect these estimates.
EMPLOYMENT AGREEMENTS
Effective March 15, 1996, the Company entered into an employment
agreement with its President - Technology Development, for an initial
term of three years. The agreement, which was amended effective as of
January 1, 1997, provides for a base compensation of $160,000 per year,
bonuses aggregating a maximum of $75,000 for 1997 based upon the
attainment of certain goals and other additional compensation as may be
determined by the Board of Directors (without his participation) in its
sole discretion. The Board of Directors (without his participation) may
also increase such base compensation in its sole discretion.
<PAGE>
Medjet Inc.
(A Development Stage Company)
Notes to the Financial Statements
EMPLOYMENT AGREEMENTS -- (Continued)
The agreement may be terminated for cause and contains proprietary
information, invention and non-competition provisions which prohibit
disclosure of any of the Company's proprietary information and preclude
competition with the Company for two years after termination of
employment. The Company has procured life insurance in the amount of $1
million to compensate it for the loss, through death or disability, of
the Company's President - Technology Development.
Effective March 16, 1996, the Company entered into an employment
agreement with its Vice President - Finance and Human Resources, for an
indefinite term. The agreement, which was amended effective as of
January 1, 1997, provides for a base compensation of $101,100 per year.
The agreement may be terminated by either party at any time upon two
weeks' prior notice and contains proprietary information, invention and
non-competition provisions which prohibit disclosure of any of the
Company's proprietary information and preclude competition with the
Company for two years after termination of employment.
SUBSEQUENT EVENT
In connection with a private placement of the Company's preferred
stock, the Company, through its placement agent, as of April 13, 1998,
has raised approximately $1,100,000. The funds are escrowed and will be
released following a closing.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information appearing under the captions "Election of Directors,"
"Certain Transactions" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement for its 1998 Annual Meeting of
Stockholders (the "1998 Proxy Statement") is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
Information appearing under the caption "Executive Compensation" in the
1998 Proxy Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information appearing under the caption "Security Ownership of Beneficial
Owners and Management" in the 1998 Proxy Statement is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under the caption "Certain Transactions" in the 1998
Proxy Statement is incorporated herein by reference.
PART IV
ITEM 13. EXHIBIT LIST, AND REPORTS ON FORM 8-K.
(A) Reports on Form 8-K.
None.
(B) Index to Exhibits
The following is a list of all Exhibits filed as part of this Report:
Exhibit Description of
Number Document
------ --------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1
to the Registrant's Registration Statement on Form SB-2,
Registration No. 333-3184).
3.2 By-Laws of the Registrant (incorporated herein by reference
to Exhibit 3.2 to the Registrant's Registration Statement
on Form SB-2, Registration No. 333-3184).
+10.1 Employment Agreement between the Registrant and Eugene I.
Gordon, dated as of March 15, 1996 (incorporated herein by
reference to Exhibit 10.1 to the Registrant's Registration
Statement on Form SB-2, Registration No. 333-3184).
14
<PAGE>
+10.2 Employment Agreement between the Registrant and Thomas M.
Handschiegel, dated as of March 18, 1996 (incorporated
herein by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form SB-2, Registration No.
333-3184).
10.3 Consulting Agreement between the Registrant and Joseph F.
Carroll, III, dated as of April 1994 (incorporated herein
by reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form SB-2, Registration No.
333-3184).
10.4 Consulting Agreement between the Registrant and Joseph P.
Calderone, Jr., dated as of April 1, 1994 (incorporated
herein by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form SB-2, Registration No.
333-3184).
+10.6 The Medjet Inc. 1994 Stock Option Plan, as amended
(incorporated herein by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form SB-2,
Registration No. 333-3184).
+10.7 Amendment, dated January 1, 1997, to the Employment
Agreement between the Registrant and Eugene I. Gordon,
dated as of March 15, 1996 (incorporated herein by
reference to Exhibit 10.7 to the Registrant's Form 10-KSB
for the year ended December 31, 1996).
+10.8 Amendment, dated January 1, 1997, to the Employment
Agreement between the Registrant and Thomas M.
Handschiegel, dated as of March 18, 1996 (incorporated
herein by reference to Exhibit 10.8 to the Registrant's
Form 10-KSB for the year ended December 31, 1996).
10.9 Agreement of Lease between the Registrant and Linpro Edison
Land Limited, dated May 13, 1994 (incorporated herein by
reference to Exhibit 10.16 to the Registrant's Registration
Statement on Form SB-2, Registration No. 333-3184).
10.10 First Amendment to Lease between the Registrant and BCE
Associates, L.P., dated February 28, 1996 (incorporated
herein by reference to Exhibit 10.17 to the Registrant's
Registration Statement on Form SB-2, Registration No.
333-3184).
10.11 Second Amendment to Lease between the Registrant and BCE
Associates, L.P., dated December 13, 1996 (incorporated
herein by reference to Exhibit 10.11 to the Registrant's
Form 10-KSB for the year ended December 31, 1996).
10.12 Consulting Agreement between the Registrant and Steven G.
Cooperman, dated as of May 20, 1996 (incorporated herein by
reference to Exhibit 10.20 to the Registrant's Registration
Statement on Form SB-2, Registration No. 333-3184).
10.13 Consulting Agreement between the Registrant and Sanford J.
Hillsberg, dated as of May 20, 1996 (incorporated herein by
reference to Exhibit 10.21 to the Registrant's Registration
Statement on Form SB-2, Registration No. 333-3184).
10.14 Promissory Note from the Registrant in favor of Eugene I.
Gordon in the principal amount of $100,000, dated May 28,
1996 (incorporated herein by reference to Exhibit 10.22 to
the Registrant's Registration Statement on Form SB-2,
Registration No. 333-3184).
10.15 Promissory Note from the Registrant in favor of Eugene I.
Gordon in the principal amount of $65,000, dated June 26,
1996 (incorporated herein by reference to Exhibit 10.23 to
the Registrant's Registration Statement on Form SB-2,
Registration No. 333-3184).
10.16 Consulting Agreement between the Registrant and Ophthalmic
Research Associates, Inc., dated as of July 1, 1996
(incorporated herein by reference to Exhibit 10.16 to the
Registrant's Form 10-KSB for the year ended December 31,
1996).
*11 Computation of Net (Loss) Per Common Share.
*24.1 Power of Attorney (included on signature page).
*27.1 Financial Data Schedule - December 31, 1997.
*27.2 Financial Data Schedule - December 31, 1996 (Restated).
- -----------------------
+ Management contract or compensatory plan or arrangement.
* Filed herewith.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 15th day of April 1998.
MEDJET INC.
By: /s/Eugene I. Gordon
-------------------
President - Technology Development and Chairman
of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Eugene I. Gordon and Thomas M.
Handschiegel, and each of them individually, his true and lawful
attorney-in-fact, proxy and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to act on, sign any and all amendments to this Annual Report on Form
10-K, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact, proxies and agents, and each of them individually, full
power and authority to do and perform each and every act and thing necessary and
appropriate to be done in and about the premises, as fully as he might or could
do in person, hereby approving, ratifying and confirming all that said
attorneys-in-fact, proxies and agents or any of his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 15th day of April 1998.
Signature Title(s)
--------- --------
/s/ Eugene I. Gordon President - Technology
- ---------------------------------- Development and Chairman of
Eugene I. Gordon the Board
/s/ Thomas M. Handschiegel Vice President - Finance and
- ---------------------------------- Human Resources
Thomas M. Handschiegel
/s/ James R. Adwers Director
- ----------------------------------
James R. Adwers
/s/ James J. Bialek Director
- ----------------------------------
James J. Bialek
Director
- ----------------------------------
Robert G. Donovan
/s/ Sanford J. Hillsberg Director
- ----------------------------------
Sanford J. Hillsberg
<PAGE>
Exhibit Description of
Number Document
------- --------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1
to the Registrant's Registration Statement on Form SB-2,
Registration No. 333-3184).
3.2 By-Laws of the Registrant (incorporated herein by reference
to Exhibit 3.2 to the Registrant's Registration Statement
on Form SB-2, Registration No. 333-3184).
+10.1 Employment Agreement between the Registrant and Eugene I.
Gordon, dated as of March 15, 1996 (incorporated herein by
reference to Exhibit 10.1 to the Registrant's Registration
Statement on Form SB-2, Registration No. 333-3184).
+10.2 Employment Agreement between the Registrant and Thomas M.
Handschiegel, dated as of March 18, 1996 (incorporated
herein by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form SB-2, Registration No.
333-3184).
10.3 Consulting Agreement between the Registrant and Joseph F.
Carroll, III, dated as of April 1994 (incorporated herein
by reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form SB-2, Registration No.
333-3184).
10.4 Consulting Agreement between the Registrant and Joseph P.
Calderone, Jr., dated as of April 1, 1994 (incorporated
herein by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form SB-2, Registration No.
333-3184).
+10.6 The Medjet Inc. 1994 Stock Option Plan, as amended
(incorporated herein by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form SB-2,
Registration No. 333-3184).
+10.7 Amendment, dated January 1, 1997, to the Employment
Agreement between the Registrant and Eugene I. Gordon,
dated as of March 15, 1996 (incorporated herein by
reference to Exhibit 10.7 to the Registrant's Form 10-KSB
for the year ended December 31, 1996).
+10.8 Amendment, dated January 1, 1997, to the Employment
Agreement between the Registrant and Thomas M.
Handschiegel, dated as of March 18, 1996 (incorporated
herein by reference to Exhibit 10.8 to the Registrant's
Form 10-KSB for the year ended December 31, 1996).
10.9 Agreement of Lease between the Registrant and Linpro Edison
Land Limited, dated May 13, 1994 (incorporated herein by
reference to Exhibit 10.16 to the Registrant's Registration
Statement on Form SB-2, Registration No. 333-3184).
10.10 First Amendment to Lease between the Registrant and BCE
Associates, L.P., dated February 28, 1996 (incorporated
herein by reference to Exhibit 10.17 to the Registrant's
Registration Statement on Form SB-2, Registration No.
333-3184).
10.11 Second Amendment to Lease between the Registrant and BCE
Associates, L.P., dated December 13, 1996 (incorporated
herein by reference to Exhibit 10.11 to the Registrant's
Form 10-KSB for the year ended December 31, 1996).
10.12 Consulting Agreement between the Registrant and Steven G.
Cooperman, dated as of May 20, 1996 (incorporated herein by
reference to Exhibit 10.20 to the Registrant's Registration
Statement on Form SB-2, Registration No. 333-3184).
10.13 Consulting Agreement between the Registrant and Sanford J.
Hillsberg, dated as of May 20, 1996 (incorporated herein by
reference to Exhibit 10.21 to the Registrant's Registration
Statement on Form SB-2, Registration No. 333-3184).
10.14 Promissory Note from the Registrant in favor of Eugene I.
Gordon in the principal amount of $100,000, dated May 28,
1996 (incorporated herein by reference to Exhibit 10.22 to
the Registrant's Registration Statement on Form SB-2,
Registration No. 333-3184).
10.15 Promissory Note from the Registrant in favor of Eugene I.
Gordon in the principal amount of $65,000, dated June 26,
1996 (incorporated herein by reference to Exhibit 10.23 to
the Registrant's Registration Statement on Form SB-2,
Registration No. 333-3184).
10.16 Consulting Agreement between the Registrant and Ophthalmic
Research Associates, Inc., dated as of July 1, 1996
(incorporated herein by reference to Exhibit 10.16 to the
Registrant's Form 10-KSB for the year ended December 31,
1996).
*11 Computation of Net (Loss) Per Common Share.
*24.1 Power of Attorney (included on signature page).
*27.1 Financial Data Schedule - December 31, 1997.
*27.2 Financial Data Schedule - December 31, 1996 (Restated).
- -----------------------
+ Management contract or compensatory plan or arrangement.
* Filed herewith.
19
<PAGE>
MEDJET INC.
EXHIBIT 11
COMPUTATION OF NET (LOSS) PER COMMON SHARE
Year Ended December 31,
1997 1996
---- ----
NET (LOSS) PER COMMON SHARE
(Loss) from Operations
applicable to Common Stock $( 2,578,448) $(1,273,977)
Weighted Average Common Shares Outstanding 3,660,609 2,936,075
------------ -----------
Net (Loss) Per Common Share $ (0.70) $ (0.43)
============ ===========
NET (LOSS) PER COMMON SHARE
- ASSUMING DILUTION (see "NOTE")
(Loss) from Operations $(2,578,448) $(1,273,977)
============ ===========
Weighted Average Common Shares Outstanding 3,660,609 2,936,075
(A) Assuming Exercise of Stock Options 56,231 39,438
(B) Assuming Exercise of Warrants 39,781 45,692
------------ -----------
Weighted Average Common Shares
Outstanding - as Adjusted 3,756,621 3,021,205
------------ -----------
Net (Loss) Per Common Share - Assuming Dilution $ (0.69) $ (0.42)
============ ===========
<PAGE>
MEDJET INC.
EXHIBIT 11
COMPUTATION OF NET (LOSS) PER COMMON SHARE, CONTINUED
NOTE:
The calculation for Net (Loss) Per Common Share - Assuming Dilution is submitted
in accordance with Securities Exchange Act of 1934 Release No. 9083 although not
required by Financial Accounting Standards Board No. 128 "Earnings Per Share"
("FASB 128") since the results are anti-dilutive.
(A) - For 1997, the dilutive options (i.e., the average yearly market price is
greater than the exercise price) assume that the 87,720 shares exercised
resulting in proceeds of $463,902 are reacquired using the treasury stock method
at the yearly average market price of $8.25 per share. Thus, $463,902/$8.25=
56,231 shares are assumed to be reacquired and are included as such in common
shares outstanding at the beginning of the year.
For 1996, the dilutive options (i.e., the average yearly market price is greater
than the exercise price) assume that the 87,520 shares exercised resulting in
proceeds of $304,852 are reacquired using the treasury stock method at the
yearly average market price of $7.73 per share. Thus, $304,852/$7.73=39,438
shares are assumed to be reacquired and are included as such in common shares
outstanding at the beginning of the year.
(B) - For 1997, the dilutive warrants (i.e., the average yearly market price is
greater than the exercise price) assume that the 97,389 shares exercised
resulting in proceeds of $328,201 are reacquired using the treasury stock method
at the yearly average market price of $8.25 per share. Thus, $328,201/$8.25=
39,781 shares are assumed to be reacquired and are included as such in common
shares outstanding at the beginning of the year.
For 1996, the dilutive warrants (i.e., the average yearly market price is
greater than the exercise price) assume that the 101,853 shares exercised
resulting in proceeds of $353,199 are reacquired using the treasury stock method
at the yearly average market price $7.73 per share. Thus, $353,199/$7.73=45,692
shares are assumed to be reacquired and are included as such in common shares
outstanding at the beginning of the year.
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1997 (audited) financial statements of Medjet Inc. and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,491,040
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,554,763
<PP&E> 369,094
<DEPRECIATION> 180,025
<TOTAL-ASSETS> 1,862,258
<CURRENT-LIABILITIES> 220,493
<BONDS> 0
0
0
<COMMON> 3,709
<OTHER-SE> 1,634,358
<TOTAL-LIABILITY-AND-EQUITY> 1,862,258
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,719,984
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,833
<INCOME-PRETAX> (2,578,248)
<INCOME-TAX> 200
<INCOME-CONTINUING> (2,578,448)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,578,448)
<EPS-PRIMARY> (.70)
<EPS-DILUTED> (.69)
</TABLE>
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,241,985
<SECURITIES> 0
<RECEIVABLES> 2,083
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,290,660
<PP&E> 274,552
<DEPRECIATION> 103,440
<TOTAL-ASSETS> 4,540,259
<CURRENT-LIABILITIES> 349,839
<BONDS> 165,000
0
0
<COMMON> 3,682
<OTHER-SE> 4,186,738
<TOTAL-LIABILITY-AND-EQUITY> 4,540,259
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,328,211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,068
<INCOME-PRETAX> (1,273,577)
<INCOME-TAX> 400
<INCOME-CONTINUING> (1,273,977)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,273,977)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.42)
</TABLE>
