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================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______________________
to ____________________
Commission File Number: 1-11765
MEDJET INC.
(Exact name of Small Business Issuer as Specified in its Charter)
DELAWARE 22-3283541
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1090 KING GEORGES POST ROAD, SUITE 301
EDISON, NEW JERSEY 08837
(Address of Principal Executive Offices)
(732) 738-3990
(Registrant's Telephone Number, Including Area Code)
-----------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [_]
As of October 31, 1998, 3,881,158 shares of Common Stock, par value $.001
per share, were outstanding.
Transitional Small Business Disclosure Format: Yes [_] No [X]
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MEDJET INC.
INDEX
-----
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Interim Balance Sheet as of September 30, 1998 (Unaudited)............... 3
Condensed Interim Statements of Operations for the three and nine months ended
September 30, 1998 and 1997 and the period from December 16, 1993 (date of
inception) to September 30, 1998 (Unaudited)....................................... 4
Condensed Interim Statements of Cash Flows for the nine months ended September 30,
1998 and 1997 and the period from December 16, 1993 (date of inception) to
September 30, 1998 (Unaudited)..................................................... 5
Notes to Condensed Interim Financial Statements (Unaudited)........................ 6
Item 2. Management's Discussion and Analysis or Plan of Operation.......................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 14
Item 2 Changes in Securities and Use of Proceeds.......................................... 15
Item 3. Defaults Upon Senior Securities.................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders................................ 15
Item 5. Other Information.................................................................. 15
Item 6. Exhibits and Reports on Form 8-K................................................... 16
SIGNATURES.......................................................................................... 17
</TABLE>
2
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MEDJET INC.
(A Development Stage Company)
Condensed Interim Balance Sheet
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <S> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
- --------------- --------------------
Cash and cash equivalents $ 961,276 Accounts payable and accrued liabilities $ 343,695
Prepaid expenses 27,641 Preferred dividends payable 49,123
---------- Income taxes payable 150
988,917 ----------
---------- Total Liabilities 392,968
----------
PROPERTY, PLANT & EQUIPMENT -
- -----------------------------
Less accumulated depreciation of $244,277 260,714 STOCKHOLDERS' EQUITY:
----------
ORGANIZATION COSTS - Preferred stock, $.01 par value, 1,000,000 shares
- -------------------- authorized, 110,000 shares designated as Series
Less accumulated amortization of $33,222 4,165 A 10% Cumulative Convertible issued and
---------- outstanding 1,100
PATENTS and TRADEMARKS -
- ------------------------ Common stock, $.001 par value, 7,000,000
Less accumulated amortization of $14,500 114,041 shares authorized, 3,720,069 shares issued
---------- and 3,686,280 shares outstanding 3,720
SECURITY DEPOSITS 7,050
- ----------------- ---------- Additional paid-in capital 5,880,221
Total Assets $1,374,887 Additional paid-in capital - Beneficial conversion
========== feature on cumulative convertible preferred stock 133,389
Accumulated deficit (including deficit accumulated
during development stage of $6,541,892 of which
$1,556,204 was applied to additional paid-in
capital upon conversion from an "S" to a "C"
corporation) (5,034,811)
Less: Treasury stock, 33,789 shares, at cost (1,700)
----------
Total Stockholders' Equity 980,819
----------
Total Liabilities and Stockholders' Equity $1,374,887
==========
</TABLE>
See Notes to the Condensed Interim Financial Statements.
3
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MEDJET INC.
(A Development Stage Company)
Condensed Interim Statements of Operations
For The Three and Nine Months Ended September 30, 1998 and 1997
And The Period From December 16, 1993 (Date of Inception), to September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ -------------------------------------
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
License fee income $ 500,000 $ - $ 500,000 $ -
---------------- ---------------- ---------------- ----------------
Total revenues 500,000 - 500,000 -
---------------- ---------------- ---------------- ----------------
Expenses:
Research, development,
general and administrative 821,210 625,672 2,270,235 1,906,062
---------------- ---------------- ---------------- ----------------
Total expenses 821,210 625,672 2,270,235 1,906,062
---------------- ---------------- ---------------- ----------------
Loss from Operations (321,210) (625,672) (1,770,235) (1,906,062)
Other Income (Expense):
Interest income, net 16,326 32,150 45,444 118,106
---------------- ---------------- ---------------- ----------------
Loss before provision for
(benefit from) income tax (304,884) (593,522) (1,724,791) (1,787,956)
Provision for (benefit from)
income tax - 946,787 - -
---------------- ---------------- ---------------- ----------------
Net Loss (304,884) (1,540,309) (1,724,791) (1,787,956)
Dividends on preferred stock 182,512 - 182,512 -
---------------- ---------------- ---------------- ----------------
Net Loss Attributable to
Common Shareholders $ (487,396) $(1,540,309) $(1,907,303) $(1,787,956)
=============== ================ ================ ================
Net Loss Per Share $ (0.13) $ (0.42) $ (0.50) $ (0.49)
=============== ================ ================ ================
Weighted average common and
equivalent shares outstanding 3,869,004 3,669,785 3,792,659 3,655,783
=============== =============== ================ ================
<CAPTION>
Period from
December 16,
1993 (Inception) to
September 30, 1998
-------------------
<S> <C>
Revenues:
License fee income $ 500,000
-------------------
Total revenues 500,000
-------------------
Expenses:
Research, development,
general and administrative 7,298,119
-------------------
Total expenses 7,298,119
-------------------
Loss from Operations (6,798,119)
Other Income (Expense):
Interest income, net 257,077
-------------------
Loss before provision for
(benefit from) income tax (6,541,042)
Provision for (benefit from)
income tax 850
-------------------
Net Loss (6,541,892)
Dividends on preferred stock 182,512
-------------------
Net Loss Attributable to
Common Shareholders $(6,724,404)
===================
Net Loss Per Share $ (2.26)
===================
Weighted average common and
equivalent shares outstanding 2,976,815
===================
</TABLE>
See Notes to the Condensed Interim Financial Statements.
4
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MEDJET INC.
(A Development Stage Company)
Condensed Interim Statements of Cash Flows
For The Nine Months Ended September 30, 1998 and 1997
And The Period From December 16, 1993 (Date of Inception), to September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities $ (1,493,574) $ (1,842,842)
Cash Flows from Investing Activities (153,938) (107,575)
Cash Flows from Financing Activities 1,117,748 (138,898)
--------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (529,764) (2,089,315)
Cash and Cash Equivalents - Beginning of Period 1,491,040 4,241,985
--------------- ---------------
Cash and Cash Equivalents - End of Period $ 961,276 $ 2,152,670
=============== ===============
Supplemental Disclosures of Non-Cash Financing Activities:
Cash Paid During the Period for Interest Expense $ 487 $ 12,967
=============== ===============
<CAPTION>
Period from
December 16,
1993 (Inception) to
September 30, 1998
-------------------
<S> <C>
Cash Flows from Operating Activities $ (5,933,671)
Cash Flows from Investing Activities (677,969)
Cash Flows from Financing Activities 7,572,916
-------------------
Net Increase (Decrease) in Cash and Cash Equivalents 961,276
Cash and Cash Equivalents - Beginning of Period -
-------------------
Cash and Cash Equivalents - End of Period $ 961,276
===================
Supplemental Disclosures of Non-Cash Financing Activities:
Cash Paid During the Period for Interest Expense $ 38,423
===================
</TABLE>
See Notes to the Condensed Interim Financial Statements.
5
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MEDJET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE
CONDENSED INTERIM FINANCIAL STATEMENTS
NOTE A - NATURE OF ORGANIZATION AND BASIS OF PRESENTATION:
(1) Nature of Organization:
----------------------
Medjet Inc. (the "Company") was incorporated in the State of Delaware
on December 16, 1993 and is in the development stage. The Company is
engaged in research and development of medical technology and, with a
current emphasis on ophthalmic surgical technology and equipment, has
developed a technology and derivative devices for corneal surgery.
The Company's technology is based on small-diameter, fluid or ice
microjets moving at high speeds. In each application, the microjet
beam substitutes for conventional, oscillating metal or diamond
blades. For example, in combination with other elements of the
Company's devices, the microjet beam is capable of removing the
epithelium (the front surface layer of the eye) in a procedure known
as epithelial keratoplasty and of shaving thin, shaped layers from the
cornea in a procedure known as lamellar keratoplasty. The Company
believes that the microjet produces less tissue trauma and is
potentially more accurate than blades or lasers for tissue separation
or removal. The Company also believes that such microjets will bring
new surgical capability and performance to the clinic or operating
room and may become the standard of care for the treatment of several
diseases and conditions.
(2) Basis of Presentation:
---------------------
The Condensed Interim Financial Statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted as permitted by such rules
and regulations.
The Condensed Interim Financial Statements included herein reflect, in
the opinion of management, all adjustments (consisting primarily only
of normal recurring adjustments) necessary to present fairly the
results for the interim periods. The results of operations for the
three and nine month
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periods ended September 30, 1998 are not necessarily indicative of
results to be expected for the entire year ending December 31, 1998.
NOTE B - EQUITY TRANSACTIONS:
(1) Initial Public Offering:
-----------------------
During the third quarter of 1996, the Company consummated an initial
public offering (the "Offering") in which it issued and sold to the
public a total of 1,232,143 Units (the "Units"), each Unit consisting
of one share of common stock, $.001 par value, of the Company (the
"Common Stock") and one Class A Redeemable Common Stock Purchase
Warrant (the "Warrants") to purchase one share of Common Stock at a
price of $10.00 per share for a 24-month period commencing on November
6, 1996. The Units became separable on that date and the Common Stock
and the Warrants began trading separately on November 8, 1996. In
July 1998, in connection with its private placement described in
paragraph (2) of this Note B, the Company agreed to extend the
exercise period of the Warrants for an additional 12 months. As a
result, the Warrants will expire on November 6, 1999, unless
exercised prior to that time.
The Company realized approximately $5,600,000 of net proceeds from the
Offering, which were used, in part, to repay outstanding indebtedness
of approximately $550,000. The balance of the net proceeds was used
to fund the Company's research and development activities and business
operations.
(2) Private Placement:
-----------------
In January 1998, the Company commenced a private placement of its 10%
Cumulative Convertible Preferred Stock, $.01 par value (the "Preferred
Stock"), at a price of $10 per share. At the closing for this private
placement, which was held in April 1998, the Company sold and issued
110,000 shares of Preferred Stock for an aggregate price of
$1,100,000. The net proceeds of the private placement have been and
will be used to augment the Company's working capital.
The Preferred Stock bears a cumulative annual dividend of 10% (subject
to increase to 12% in certain events) and is convertible into
approximately 1.66 shares of Common Stock for each share of Preferred
Stock, subject to adjustment for any stock splits, stock dividends,
recapitalizations, reclassifications and similar events.
7
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The private placement, which was terminated on July 31, 1998, was
carried out pursuant to available exemptions from registration under
Section 4(2) of the Securities Act of 1933 and rules promulgated under
that section.
On October 9, 1998, the 110,000 shares of Preferred Stock outstanding
were converted into 182,724 shares of Common Stock. At the same time,
a total of 12,154 shares of Common Stock was issued in payment of the
cumulative dividends on the Preferred Stock. The dividend was
computed at 10% per annum and totalled approximately $51,534.
NOTE C - NET LOSS PER SHARE:
Net loss per share is computed by dividing the net loss by the
weighted average number of shares of Common Stock outstanding during
the period, plus Common Stock equivalents from the assumed conversion
of Preferred Stock.
NOTE D - LICENSE AGREEMENT:
In July 1998, the Company entered into an agreement with Nestle S.A.
("Nestle") granting Nestle and its wholly-owned subsidiary, Alcon
Laboratories, Inc. ("Alcon"), an exclusive, worldwide license for the
use of the Company's proprietary microjet technology for corneal
refractive surgery. Under the terms of the agreement, Alcon will
register, manufacture, promote and market refractive microjet devices
and consumables developed by the Company.
In connection with the execution of the agreement, a payment in the
amount of $500,000 was made by Alcon to the Company. The agreement
provides for future payments and royalties based on the attainment of
certain milestones and upon sales by Alcon of the Company's products.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
This Quarterly Report on Form 10-QSB, including any documents that are
incorporated by reference, contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Generally, such
statements are indicated by words or phrases such as "anticipate," "expect,"
"intend," "management believes" and similar words and phrases. Such statements
are based on the Company's current expectations and are subject to risks,
uncertainties and assumptions. Certain of these risks are described or referred
to below under "Certain Considerations" and in the introduction to Part I of the
Company's annual report on Form 10-KSB for the fiscal year ended December 31,
1997 on file with the Securities and Exchange Commission and are incorporated
herein by this reference. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, expected, intended or believed.
GENERAL
The Company is engaged in the research and development of medical technology
and, with a current emphasis on ophthalmic surgical technology and equipment,
has developed a proprietary technology and derivative devices for corneal
surgery. During the remainder of 1998, the Company expects to continue its
research and development activities, with a principal focus on ophthalmic
surgical technology and equipment, and to commence early exploratory work on
orthopedic and other applications of its 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 sales revenues during the three months or nine months ended September 30,
1998. In connection with the execution of the license agreement with Nestle (as
described under "License Agreement" in Note D of Notes to the Condensed Interim
Financial Statements), a payment in the amount of $500,000 was made by Alcon to
the Company during the three months ended September 30, 1998. This amount has
been reflected as License Fee Income in the accompanying Condensed Interim
Financial Statements.
Total costs and expenses during the three months ended September 30, 1998
increased by $195,538 (31.3%) to $821,210 from $625,672 for the comparable
period of 1997. This was primarily due to a net increase in staff (to seventeen
full-time and two part-time employees from seventeen full-time employees) and an
increase in professional fees as the Company continued its research and
development and clinical trials activities, offset in part by a reduction in the
use of outside consultants (their duties being assumed by the
9
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staff). Expenses were also higher during the 1998 period due to increased
purchases for materials, testing and analysis and higher insurance costs
associated with the higher level of activity.
During the nine months ended September 30, 1998, total costs and expenses
increased by $364,173 (19.1%) to $2,270,235 from $1,906,062 for the comparable
period of 1997, generally for the same reasons as during the three-month period.
Other income/expense consists of interest income and interest expense and
finance charges. Net interest income for the three months ended September 30,
1998 decreased by $15,824 (49.2%) to $16,326 from $32,150 for the comparable
period of 1997. This decrease principally results from income earned on the
Company's short-term investments which were lower in the 1998 period, reflecting
the utilization of these funds to continue the Company's research and
development activities.
For the nine months ended September 30, 1998, net interest income decreased by
$72,662 (61.5%) to $45,444 from $118,106 for the comparable period of 1997 for
the same reason as during the three-month period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company's working capital was $595,949. 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 Eugene I. Gordon, Ph.D., the founder of the Company
and its Chairman of the Board and Chief Executive Officer. All such loans were
repaid utilizing proceeds of the Offering. The Company has no long-term
indebtedness.
In January 1998, the Company commenced a private placement of its Preferred
Stock at a price of $10 per share. Pursuant to the private placement, the
Company sold and issued 110,000 shares of Preferred Stock for an aggregate price
of $1,100,000, the net proceeds of which were released to the Company following
a closing in April 1998 and added to the Company's working capital. The private
placement was terminated on July 31, 1998.
On July 23, 1998, the Company entered into an agreement with Nestle S.A.
("Nestle") pursuant to which the Company granted Nestle and its wholly-owned
subsidiary, Alcon Laboratories, Inc. ("Alcon"), an exclusive, worldwide license
for the use of the Company's proprietary microjet technology for corneal
refractive surgery. Under the terms of the agreement, Alcon will register,
manufacture, promote and market refractive microjet devices and consumables
developed by the Company. In connection with the execution of the agreement, a
payment in the amount of $500,000 was made by Alcon to the Company. The
agreement also provides for future payments based on the attainment of certain
milestones and upon sales by Alcon of the Company's products.
10
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The Company has not yet obtained marketing approval for the devices covered by
the license agreement, and the timing and amount of any future payments to the
Company under the agreement will depend upon the Company's success in obtaining
such approvals and certain other events, all of which cannot be predicted with
any certainty.
Throughout the second half of 1998, the Company has been seeking additional
capital to finance its 1999 business plan. The Company expects that this
activity will be successful but, because of the depressed equity and capital
markets since June, it is apparent this will take considerably more time to
complete. Pending obtaining additional financing, the Company made the decision
to curtail several operational activities as well as to downsize its employee
base in order to husband and stretch its existing capital to the next financing.
On October 30, 1998, the Company dismissed 7 of its 19 employees. It also
significantly reduced the salary of the management group, some reductions being
as large as 50%. The specific goal was to reduce the Company's monthly
expenditures by 60%, to approximately $100,000. The Company will focus on
fulfilling its commitment with respect to its agreement with Alcon. The Company
also intends to complete a filing with the FDA for Section 510(k) approval for
the use of its HydroBrush(TM) Keratome for treatment of pterygium, and complete
associated clinical studies. Assuming the application is approved, no attempt
will be made to manufacture or market the device until the necessary funding is
available. The Company has not excluded the possibility of licensing the
HydroBrush(TM) Keratome to a third party at some future date. The Company
will also begin to submit proposals to the government and to industrial
organizations to fund some of the costs of the study of other medical
applications of its technology platform. Finally, the Company will continue
explorations and analyses of potential new medical applications of its novel
microjet technology.
The Company anticipates that the remaining net proceeds from the private
placement of its Preferred Stock, together with the payment received by the
Company in connection with the execution of the license agreement, will be
sufficient to meet the Company's 1998 working capital and planned capital
expenditure requirements. The Company will need to raise additional capital in
late 1998 or early 1999 to maintain its current scope of operations. The
Company currently has no commitment or arrangement for any such capital,
however, and there can be no assurance whether or on what terms it will be able
to obtain any needed capital. If additional financing is not available, the
Company would be materially adversely affected and be required to further
curtail or cease its current operations.
CERTAIN CONSIDERATIONS
The Company's current strategy is to selectively license its ophthalmology
products where appropriate. To date, the Company has entered into one such
agreement to license its proprietary microjet technology for corneal refractive
surgery only. If the Company is
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unable or elects not to enter into additional license agreements with respect to
its other products, it may undertake the manufacture and marketing of such
products directly. At present, the Company has not decided whether to license or
manufacture and market its HydroBrush(TM) Keratome product for epithelial
removal and treatment of pterygium. If manufactured internally, the Company's
proposed products must be produced in commercial quantities in compliance with
regulatory requirements at acceptable costs. Production in clinical or
commercial-scale quantities will involve scale-up challenges for the Company.
The Company currently has no volume manufacturing capacity or experience in
manufacturing medical devices or any other products. If the Company elects to
manufacture certain of its potential products, it would be required to establish
its own manufacturing capabilities, which would require significant scale-up
expenses and additions to facilities and personnel. There can be no assurance
that the Company would be able to obtain the necessary regulatory approvals on a
timely basis, or at all, and delays in receipt of, or failure to receive such
approvals, or loss of previously received approvals, would have a material
adverse effect on the Company. There can be no assurance that the Company will
be able to enter into agreements with third parties with respect to the
manufacture of any products or develop its own manufacturing capability at an
acceptable cost.
The Company's dependence on third parties for the manufacture of its products
may adversely affect the Company's profit margins and its ability to develop and
deliver such products on a timely basis. Moreover, there can be no assurance
that such third parties will perform adequately, and any failures by third
parties may delay the submission of products for regulatory approval, impair the
Company's ability to deliver products on a timely basis, or otherwise impair the
Company's competitive position and any such failure could have a material
adverse effect on the Company.
If the Company does not enter into additional license or distribution
arrangements with respect to its products other than those related to its
proprietary microjet technology for corneal refractive surgery, it may undertake
the marketing and sale of its own products. In such event, the Company intends
to market and sell its products in the United States and certain foreign
countries, if and when regulatory approval is obtained, through a direct sales
force or a combination of a direct sales force and distributors. The Company
currently has no marketing organization and has never sold a product.
Establishing sufficient marketing and sales capabilities will require
significant resources. There can be no assurance that the Company will be able
to recruit and retain skilled sales management, direct salespersons or
distributors, or that the Company's marketing or sales efforts will be
successful. To the extent that the Company enters into distribution
arrangements for the sale of its products, the Company will be dependent on the
efforts of third parties. There can be no assurance that such efforts will be
successful.
12
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OTHER MATTERS
The Company has been assessing its "Year 2000" computer readiness and exposure
to Year 2000 issues. In connection with such assessment, the Company initiated
a review of all information technology systems utilized by the Company. The
Company uses no internally-developed systems, only those available from
commercial software vendors. As part of its review, the Company has received
confirmation from its principal software vendors that such systems are Year 2000
compliant. Based on its review to date, the Company believes there are no major
Year 2000 compliance issues with respect to its information technology systems,
and, therefore, the Company has not and does not intend to prepare a contingency
plan for these systems. The Company anticipates that the total cost for its
Year 2000 compliance efforts will not exceed $5,000.
In addition, although the Company has not yet initiated commercial production of
any of its products, the list of component parts used in those products was
reviewed and it was determined that multiple vendors, parts suppliers or
contract manufacturers are available to the Company for all of the critical
component parts of these products. Although there are no vendors currently
engaged by the Company for products to be manufactured, when engaging vendors,
the Company will ascertain that they are compliant. Based on its review to
date, the Company believes, in the most likely worst case scenario, that Year
2000 issues would have only a minimal impact on the Company.
13
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 21, 1998, the Company was served with a complaint by the New Jersey
Institute of Technology ("NJIT") commencing a lawsuit in the United States
District Court for the District of New Jersey ("U.S. District Court"). Each of
the Company, Eugene I. Gordon, Ph.D. (the Company's Chairman and Chief Executive
Officer), a former employee of the Company, certain patent law firms and an
individual were named as defendants. The complaint alleges that the defendants,
with deceptive intent, failed to name an NJIT professor and/or NJIT research
associate as a co-inventor on the Company's U.S. Patent No. 5,556,406 on the
"Lamellar Surgical Device and Procedure" (the "Patent") and breached fiduciary
duties and contractual obligations owed to NJIT. The complaint seeks monetary
damages from the Company and an order directing that the Company's Patent (and
corresponding foreign patents and patent applications) be assigned and
transferred to NJIT. It further seeks an order that NJIT has not infringed any
claims of such Patent and a declaratory judgment that all of the Company's
claims under such Patent are invalid and unenforceable against NJIT.
NJIT's patent application relating to a refractive corrective procedure based on
the use of an isotonic waterjet had previously been denied by the Patent and
Trademark Office as inoperable. NJIT also learned that a similar invention had
been made and disclosed publicly prior to the NJIT invention. NJIT did not
contest the ruling and did not pursue a U.S. patent. The three inventors of the
subject of such denied patent application, one of which was Dr. Gordon, had
assigned such patent application to NJIT as part of a dispute settlement in
which NJIT agreed to grant an exclusive license to the Company of the patent
rights under such patent application. That license was terminated by the
Company. NJIT then claimed, without being specific, that the Company's Patent
emanated from the earlier invention. Prior to being served with the complaint
by NJIT, the Company and Dr. Gordon had filed a complaint, on March 27, 1998,
against NJIT in the Superior Court of the State of New Jersey, Middlesex County,
seeking a declaratory judgment that NJIT had no ownership or other interest in
the patent rights to the Company's Patent and seeking certain monetary damages.
NJIT has moved to have the Company's lawsuit removed to the U.S. District Court
and included in its lawsuit. The Company has moved to have the NJIT lawsuit
dismissed on the basis that NJIT has not been harmed by the Company's Patent and
therefore it cannot challenge its validity.
During October 1998, the lawsuit brought in U.S. District Court by NJIT was
dismissed on jurisdictional grounds. In addition, the U.S. District Court also
held that NJIT improperly removed the Company's state court action and ordered
that action remanded to the state court. NJIT has appealed the remand action
and has informed the Company that it intends to appeal the dismissal of its
lawsuit brought in U.S. District Court. These matters are in the preliminary
stages and no prediction can be made as to their final outcome.
14
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) The Company's Offering was consummated in August 1996. Since that
time, through September 30, 1998, the Company has applied all of the
net proceeds realized in the Offering (in the aggregate approximate
amount of $5,600,000) in the following manner: $362,000 for the
purchase and installation of machinery and equipment; $715,000 for the
repayment of indebtedness; $1,229,000 for working capital; $56,000 for
patent and trademark filings; and $3,238,000 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 $1,089,000). Other than the
repayment of 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 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10 Exclusive License Agreement, effective as of July 22,
1998, between the Company and Nestle S.A.
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
16
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 1998 MEDJET INC.
------------------------------
(Registrant)
/s/ Eugene I. Gordon
------------------------------
Eugene I. Gordon, Ph.D.
Chairman of the Board and
Chief Executive Officer
/s/ Terence A. Walts
------------------------------
Terence A. Walts
President and Chief Operating Officer
/s/ Thomas M. Handschiegel
------------------------------
Thomas M. Handschiegel
Chief Financial Officer and
Chief Accounting Officer
17
<PAGE>
MEDJET INC.
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
10 Exclusive License Agreement, effective as of July 22, 1998,
between the Company and Nestle S.A.
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
18
<PAGE>
EXHIBIT 10
----------
NOTE: THIS DOCUMENT OMITS CERTAIN INFORMATION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT. THE OMITTED INFORMATION HAS BEEN FILLED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATION OF THE OMITTED INFORMATION
IS INDICATED HEREIN BY AN ASTERISK.
EXCLUSIVE LICENSE AGREEMENT
---------------------------
This Agreement is made on the last date executed by a party ("Effective
Date"), by and between Medjet, Inc., a Delaware corporation with a principal
place of business at 1090 King Georges Post Road, Edison, New Jersey 08837
("MEDJET") and Nestle S.A., a Swiss business entity, having a place of business
at Case Postale 353, Avenue Nestle, CH-1800, Vevey, Switzerland ("NESTLE").
WITNESSETH:
WHEREAS, MEDJET is the owner or otherwise controls and has the right
to grant licenses and assignments of their interest in certain Waterjet
Technology defined hereinafter,
WHEREAS, MEDJET is the owner of U.S. Patent No. 5,556,406 claiming a device
using the Waterjet Technology;
WHEREAS, NESTLE wishes to obtain an exclusive license in the field of
corneal refractive surgery to said patent and any future patents relating to the
Waterjet Technology;
NOW, THEREFORE, in consideration of the following mutual promises and
obligations, the parties agree as follows:
ARTICLE I
---------
DEFINITIONS AND INTERPRETATION
------------------------------
Section 1.01 Defined Terms.
---------------------------
Unless the context otherwise requires, the following terms shall have the
following meanings for all purposes of this Agreement, such definitions to be
equally applicable to both the singular and plural forms and masculine, feminine
and neuter gender of any of the terms defined:
"Waterjet Technology" means the use of high pressure water to cut, dissect,
remove, ablate or otherwise manipulate corneal tissue, including the technology
and devices described in U.S. Patent No. 5,556,406, and any continuations,
divisions,
1
<PAGE>
continuation-in-part, substitutes, reissues, re-examinations and foreign
counterparts thereof.
"Know-How" means the trade secrets, manufacturing processes,
specifications, formulae, techniques, practices and technical data relating to
the manufacturing and packaging of Licensed Products; scientific, analytical and
clinical data; and all other technical and scientific information relating to
the Licensed Products, in each case which are or will be owned by MEDJET and
which may be useful in enabling NESTLE to obtain applicable regulatory
approval(s) and to manufacture, use, and sell Licensed Products.
"Licensed Patent Rights" means U.S. Patent No. 5,556,406, and any other
patent or patent application assigned to, owned by, applied for or licensed to
MEDJET which includes one or more Valid Claims that encompass either the
Waterjet Technology or the use of the Waterjet Technology in performing corneal
refractive surgery, and any continuations, divisions, continuation-in-part,
substitutes, reissues, re-examinations and foreign counterparts of such patent
application(s) or any patent(s) thereon.
"Licensed Products" means all devices, handpieces and disposables that fall
within one or more Valid Claims contained in the Licensed Patent Rights. NESTLE
may, at its sole discretion, create a pak or pak(s) related to specific surgical
procedures using the Waterjet Technology ("Waterjet Paks"). NESTLE may sell
Waterjet Paks or other Licensed Products in combination or conjunction with
other NESTLE paks or NESTLE products ("NESTLE Products"), and no royalty shall
be paid on such NESTLE Products. In the event that NESTLE sells Waterjet Paks
or other Licensed Products in combination or conjunction with NESTLE Products,
royalties on such included, but not separately invoiced, Waterjet Paks or other
Licensed Products shall be paid based on NESTLE's average selling price for
stand alone Waterjet Paks or other Licensed Products. In the event that no
stand alone Licensed Products are sold, then the royalty will be paid on the
incremental value of the Licensed Products sold in combination or conjunction
with other NESTLE paks or NESTLE products, such incremental value to be mutually
agreed between the parties and shall be based on similar NESTLE products. In no
event shall the portion of the sale attributed to the Licensed Product be less
that the value of the Licensed Product when sold alone.
"Licensed Territory" means the entire world.
"Net Selling Price" means the gross selling price of the Licensed Products
reduced by (to the extent included in the gross selling price): (i) sales
commissions paid on international sales through third party brokers and/or
distributors; (ii) transportation charges or allowances, including air freight;
(iii) sales, use or value added taxes; (iv) normal and customary trade or volume
discounts; (v) any returns or allowances granted in lieu of returns; and (vi)
rebates paid to buying cooperatives.
2
<PAGE>
All deductions from gross selling price shall be consistent with NESTLE's prior
business practices for similar products. When calculating Net Selling Price,
goods placed in inventory or on consignment shall not be deemed sold until
invoiced to the customer. NESTLE's intracompany transfers or sales to subsidiary
or affiliated companies shall not be regarded as sales for the purpose of this
Agreement. Sales shall be deemed to have been made when title transfers to a
third party purchaser.
"Net Sales" shall mean the aggregate Net Selling Price for all Licensed
Products.
"Valid Claim(s)" means any claim of an issued patent contained in the
Licensed Patent Rights that has not been held invalid or unenforceable by the
unappealable or unappealed decision of a court of competent jurisdiction.
ARTICLE II
----------
GRANT OF LICENSE
----------------
Section 2.00 Grant of Exclusive Patent License.
-----------------------------------------------
MEDJET hereby grants to NESTLE and NESTLE hereby accepts from MEDJET upon
the terms and conditions herein specified the exclusive right and license in the
field of corneal refractive surgery under the Licensed Patent Rights and Know-
How to make, use, offer for sale and sell Licensed Products in the Licensed
Territory. This license shall include the right to grant sublicenses to
NESTLE's subsidiaries and affiliates.
Section 2.01 Further Obligations of the Parties.
-----------------------------------------------
NESTLE shall use its Best Efforts to register, manufacture, promote and
market the Licensed Products in all territories that NESTLE reasonably deems
commercially viable. For purposes of this Agreement, "Best Efforts" shall mean
the diligence, type, extent and intensity of efforts that NESTLE applies to
successfully manufacture and market/sell worldwide, products that NESTLE has
identified as being important to NESTLE's business. During the term of this
Agreement, NESTLE may conduct or cause to be conducted activities directed
toward the development and/or marketing of competing refractive surgical
products provided NESTLE does not preferentially promote such competing
product(s).
MEDJET shall diligently develop the Licensed Products to meet the
specifications provided by MEDJET to NESTLE and incorporated herein as attached
Exhibit A. MEDJET shall provide NESTLE with reasonable levels of technical
assistance, training and support as may be required to ensure the successful
introduction, manufacture and sale of Licensed Products. MEDJET shall also
provide
3
<PAGE>
support for NESTLE's efforts at manufacturable design, cost reduction or
marketing for Licensed Products for mutually agreed upon compensation.
MEDJET will keep NESTLE informed as to MEDJET's activities in the
ophthalmic and otic fields and hereby grants NESTLE a right to first refusal to
the distribution rights to other ophthalmic or otic products developed by
MEDJET. NESTLE shall respond promptly to such offers made by MEDJET.
ARTICLE III
ROYALTIES, RECORDS AND REPORTS
Section 3.00 Licensing Fee.
---------------------------
In exchange for the exclusive license granted hereunder, NESTLE shall pay
MEDJET a non-refundable licensing fee of * Dollars ($ * ),
------------- -------------
one half (1/2) of which is payable immediately upon signing this Agreement
with the remaining one half (1/2) payable upon: 1) * ; and 2)
-------------
jointly designed experimental verification in cadaver eyes or animal eyes
that the Licensed Product can achieve single pass targeted LASIK equivalent
stromal removal without unacceptable thermal damage meeting the refractive range
in the specifications listed on Exhibit A.
In addition, NESTLE shall pay MEDJET an additional non-refundable licensing
fee of * Dollars ($ * ) upon the successful
----------------- ----------------
completion (to NESTLE's reasonable satisfaction) no later than December 31,
2002, of clinical studies jointly designed by MEDJET and NESTLE demonstrating
that the HydroBlade keratome for refractive surgery meets all of the
specifications on attached Exhibit A. Such pre-FDA clinical study to include
blind human eyes and a limited number of healthy human eyes and will be
conducted by MEDJET.
All determinations of whether experimental verification has been achieved
or whether the completion of any clinical studies has been successful or whether
the Licensed Product meets the specification on attached Exhibit A shall be
determined solely by NESTLE, acting reasonably, using measurement methodology
mutually agreed to by NESTLE and MEDJET.
____________________
* Information omitted pursuant to a request for confidential treatment.
4
<PAGE>
Section 3.01 Royalties.
-----------------------
a) Royalty. In addition to the licensing fee set forth in Section 3.00,
-------
NESTLE will pay MEDJET a running royalty of:
i) * percent ( * %) of the Net Sales of Licensed Products if the
---- ---
cumulative annual Net Sales of Licensed Products are less than or equal to
Twenty-Five Million Dollars ($25,000,000.00); or
ii) * percent ( * %) of the Net Sales of Licensed Products if
---- ---
the cumulative annual Net Sales of Licensed Products are greater than
Twenty-Five Million Dollars ($25,000,000.00) but less than or equal to
Seventy-Five Million Dollars ($75,000,000.00); or
iii) * percent ( * %) of the Net Sales of Licensed Products if
---- ---
the cumulative annual Net Sales of Licensed Products are greater than
Ninety-Six Million Four Hundred Thousand Dollars($96,400,000.00); or
iv) a lump sum of * Dollars ($ * )
------------ ------------- if the
cumulative annual Net Sales of Licensed Products are greater than Seventy-Five
Million Dollars ($75,000,000.00) but less than or equal to Ninety-Six Million
Four Hundred Thousand Dollars ($96,400,000.00).
In the event that Licensed Products are sold in a country where Licensed
Patent Rights do not exist and a competitive waterjet product is being sold in
that country, then the running royalty rate shall be computed as set forth above
and then the royalty due to sales in non-patent countries shall be reduced by
one-half (1/2) on Net Sales in such country. (e.g., If cumulative Net Sales in
patent and non-patent countries is $25,500,000, with $10,000,000 coming from
non-patent countries, the total royalty dues shall be * % of $15,500,000
------
and * % of $10,000,000. In no event shall the reduction in royalties for
------
sales in non-patent countries result in the total royalty payment being greater
than the total royalty payment that would have been due if no reduction had been
made for sales in non-patent countries.
If MEDJET fails to deliver to NESTLE a corneal refractive surgery product
that meets all of the specifications on attached Exhibit A by December 31, 2002,
then the running royalty rates stated above shall be reduced retroactively by an
amount to be agreed upon by the parties.
_____________________
* Information omitted pursuant to a request for confidential treatment.
5
<PAGE>
b) Minimum Royalties. To maintain exclusivity, the running royalty
-----------------
specified in Section 3.01(a) shall be subject to a minimum annual royalty of
* Dollars ($ * ) beginning in 2000, paid quarterly. This
- ------------ ------------
minimum annual royalty shall be payable regardless of whether NESTLE has
commercially marketed any Licensed Product but shall be deducted from, and fully
credited against, any running royalty earned under Section 3.01(a), provided
that MEDJET has demonstrated progress (in NESTLE's sole opinion) in achieving
the specification in attached Exhibit A.
In the event that, by December 31, 2002, MEDJET has failed to deliver to
NESTLE a product that meets all of the specifications on attached Exhibit A,
then the minimum annual royalties specified above shall be reduced to
* Dollars ($ * ).
----------- ------------
Beginning in the year 2001, in the event that NESTLE fails to pay the
minimum royalty due in any given year: 1) the exclusive license granted in
Section 2.00 shall become non-exclusive; and 2) MEDJET shall be free to grant
other non-exclusive licenses to the Licensed Patent Rights and Know-How to third
parties; and 3) NESTLE shall no longer be required to make minimum royalty
payments under this Section 3.01(b); and NESTLE and MEDJET shall, at the request
of MEDJET, negotiate in good faith, the termination of this Agreement, such
termination to include adequate mutually agreed upon compensation to NESTLE.
c) Unblocking License. In the event that NESTLE reasonably determines,
------------------
in its sole discretion, that a license is required from any third party in order
for NESTLE to make, use or sell Licensed Products, the royalties payable to
MEDJET under this Section 3.01 shall be reduced accordingly. The provisions of
this Section 3.01(c) shall not apply to any changes to the Licensed Products
made by NESTLE unless such change(s) were require to make the Licensed Product
meet the specification on attached Exhibit A.
d) Payment Schedule. Royalties due under Section 3.01 above shall be
----------------
paid by NESTLE to MEDJET in United States dollars within sixty (60) days after
the end of each calendar quarter. Partial calendar quarters, if any, shall be
treated as calendar quarters. If NESTLE fails to make any payment within the
prescribed period, such unpaid amount shall bear interest at an annual rate of
five (5) percentage points above the prime lending rate quoted by Citibank,
N.A., New York, New York on the date such payment is due, such interest being
payable from the date that the payment was due until the date the payment is
actually made.
_____________________
* Information omitted pursuant to a request for confidential treatment.
6
<PAGE>
Section 3.02 Records.
--------------------
NESTLE shall keep full, true and accurate books of account containing all
particulars which may be necessary for the purpose of showing the amount payable
to MEDJET by way of royalty as aforesaid. The books of account shall be kept at
NESTLE's principal place of business and the books of the supporting data
therefor shall be open at all reasonable times for two (2) years following the
end of a calendar year to which they pertain to the inspection of an independent
certified public accountant retained by MEDJET for the purpose of verifying
NESTLE's royalty statement or NESTLE's compliance in any respect with this
Agreement. Any such accountant shall sign an appropriate agreement prepared by
NESTLE to hold in confidence any and all information acquired in the course of
performing such inspection for MEDJET.
Section 3.03 Reports.
--------------------
NESTLE, within sixty (60) days after the close of each of its fiscal
quarters, shall deliver to MEDJET a true and accurate report giving such
particulars of the business conducted by NESTLE during the preceding three
months as are pertinent to an accounting for royalty under this Agreement.
Simultaneously with the delivery of each report, NESTLE shall pay to MEDJET
the royalty accrued for the period covered by such report. If no royalties are
due on the sale of Licensed Products, it shall be so reported.
Section 3.04 Tax Withholding.
----------------------------
NESTLE shall have no liability, and nothing shall be construed to create
any liability, for any income, franchise or similar taxes (including, but not
limited to, withholding taxes) which are the legal obligation of MEDJET, which
may be required to be paid or collected by NESTLE, and MEDJET agrees to pay same
and indemnifies NESTLE from any claim for payment of such taxes.
All payments to MEDJET required under this Agreement shall be made to the
name or account of MEDJET at the United States address designated by MEDJET.
Any and/or all of such payments shall be subject to such withholding tax laws,
rules and regulations as may be applicable and, if such laws, rules or
regulations require a withholding to be made, such payments(s) will be reduced
by such amount(s) and the payment of the reduced amount(s) shall constitute full
compliance with this Agreement. NESTLE shall provide to MEDJET appropriate
proof of payment of any and all such taxes withheld. To the extent that any
and/or all of such payments shall be subject to any currency control or other
restrictions, NESTLE's compliance with such currency control or other
restrictions shall not constitute a breach of this Agreement.
7
<PAGE>
Section 3.05 Health Registrations.
----------------------------------
NESTLE shall be responsible for obtaining and maintaining all governmental
approvals to sell Licensed Products in the markets that NESTLE decides to enter
and shall assume all related costs. MEDJET will cooperate with NESTLE in
seeking regulatory approval of Licensed Products.
ARTICLE IV
----------
TERM AND TERMINATION
--------------------
Section 4.00 Term.
-----------------
This Agreement shall have a term beginning on the Effective Date and
terminating on the date that the last patent contained in the Licensed Patent
Rights expires. In addition, NESTLE may terminate this Agreement upon three (3)
months written notice to MEDJET, provided all royalties due under Section 3.01
have been paid.
Section 4.01 Bankruptcy.
------------------------
If NESTLE shall become bankrupt or insolvent and/or the business of NESTLE
shall be placed in the hands of a receiver, assignee or trustee whether by the
voluntary act of NESTLE or otherwise, this Agreement shall terminate
immediately.
Section 4.02 Other Default.
---------------------------
Upon the breach of or default under this Agreement by NESTLE or MEDJET, the
non-breaching party may terminate this Agreement by providing sixty (60) days
written notice via certified mail to the breaching party. The notice shall
become effective at the end of the sixty-day period after actual receipt of the
notice by the breaching party unless during the period, the breach or default is
cured.
Section 4.03 Effect of Termination.
-----------------------------------
Upon termination of this Agreement for any reason, NESTLE may continue to
sell in the ordinary course of business for a period of one hundred and eighty
(180) days reasonable quantities of Licensed Products that are fully
manufactured and in NESTLE's normal inventory at the date of termination,
provided any royalties due under Section 3.01 are paid to MEDJET for such
Licensed Products.
Upon termination of this Agreement by NESTLE for cause, any unamortized
advance royalty paid by NESTLE to MEDJET under Section 3.01(b) shall be refunded
immediately by MEDJET.
8
<PAGE>
Upon termination of this Agreement by MEDJET for cause, NESTLE shall assign
to MEDJET any health registrations or government approvals for Licensed Products
owned by NESTLE.
ARTICLE V
---------
NOTICES AND ADDRESSES
---------------------
Section 5.00 Notices.
--------------------
Any written communication, notice, report or payment shall be addressed and
mailed to the addressed party at the appropriate one of the following addresses:
NESTLE: Nestle S.A.
Case Postale 353
Avenue Nestle, CH-1800
Vevey, Switzerland
MEDJET: Medjet, Inc.
President, COO
1090 King Georges Post Road
Edison, New Jersey 08837
Either party may change its mailing address for the purpose of this
Agreement by giving the other party notice of such change fifteen (15) days
prior to the date upon which the change is to become effective. All written
communications, notices, reports or payments shall be sent by first-class mail,
postage prepaid and certified.
ARTICLE VI
----------
PATENT PROSECUTION
------------------
Section 6.00 Patent Prosecution Expenses.
----------------------------------------
The expenses of preparing, prosecuting and maintaining the Licensed Patent
Rights shall be solely the responsibility of MEDJET. MEDJET shall add to or
maintain the Licensed Patent Rights when there is a demonstrated economic
incentive to MEDJET to do so, including foreign countries and new technologies.
Section 6.01 Ownership of Improvements in Know-How and the Waterjet
--------------------------------------------------------------------
Technology.
- ----------
The definition of Know-How and the Waterjet Technology shall be amended
automatically to include any future improvements in the Waterjet Technology or
Know-How developed, owned or controlled in any way by MEDJET. Any future
9
<PAGE>
improvements in the Waterjet Technology or Know-How developed solely by NESTLE
shall be NESTLE's sole property, and MEDJET shall have no ownership interest in
any such future improvements in the Waterjet Technology or Know-How developed by
NESTLE; however, NESTLE hereby grants MEDJET a non-exclusive, royalty-free
license outside of the fields of ophthalmology and otorhinolaryngology to use
such NESTLE-owned future improvements in the Waterjet Technology or Know-How
developed by NESTLE.
ARTICLE VII
-----------
INFRINGEMENT
------------
Section 7.00 Notices.
---------------------
If either party hereto becomes aware that any person is, or may be,
infringing the Licensed Patent Rights, that party shall immediately inform the
other of the infringement, in writing.
Section 7.01 Prosecution of Actions.
------------------------------------
MEDJET shall have the right but not the obligation to initiate and
prosecute at its own expense and for its sole benefit any action for
infringement of any of the Licensed Patent Rights. MEDJET shall also have the
right but not the obligation of conducting the defense against any action for
declaratory relief asserting the invalidity or non-infringement of the Licensed
Patent Rights brought by a third party against NESTLE and/or MEDJET. Should
MEDJET fail to institute such proceedings within ninety (90) days from receipt
by MEDJET of written notice from NESTLE of the existence of infringement or
within thirty (30) days from receipt of service of process from a third party,
NESTLE may, at its own expense, prosecute any such action in the name of MEDJET
and if NESTLE elects to pursue such action, NESTLE shall retain seventy-five
percent (75%) and MEDJET shall retain twenty-five percent (25%) of any moneys
collected through such action after deducting all costs and expenses, including
attorney fees, incurred by NESTLE in pursuing such action. Except as provided
above, MEDJET shall not be responsible for any legal expenses of NESTLE in
connection with the prosecution of any action contemplated hereby; however,
MEDJET may, at its own expense, participate in and be represented by its own
counsel in any action brought by NESTLE.
Section 7.02 Cooperation.
-------------------------
MEDJET and NESTLE agree to join in any legal action covered by Section 7.01
hereof where such joinder is necessary to permit the action to proceed. Any
settlement of any legal action covered by Section 7.01 hereof shall be mutually
agreed upon by the parties hereto, and neither party shall withhold unreasonably
such agreement.
10
<PAGE>
ARTICLE VIII
------------
CONFIDENTIALITY
---------------
During the term of this Agreement, either party may disclose to the other
party confidential information in the nature of trade secrets. Accordingly, all
information received by either party, directly or indirectly incident to this
Agreement, shall be held in strictest confidence, and the receiving party shall
not either directly or indirectly disclose or use, except in performance of its
obligations under this Agreement, any such information of any kind or character
as may be disclosed or otherwise imparted to the receiving party or as may be
developed during the course of this Agreement, and that all such information
shall be held in the strictest confidence. The foregoing obligations of
confidentiality and non-use shall remain in effect for a period of three (3)
years from the date of disclosure, and shall survive the expiration or
termination of this Agreement.
The obligations of confidence and non-use assumed by MEDJET and by NESTLE
hereunder shall not apply to:
(a) information which at the time of disclosure is in the public domain;
or
(b) information which thereafter lawfully becomes a part of the public
domain other than through disclosure by or through the receiving
party; or
(c) information which is already in the possession of the party receiving
same as shown by its written record; or
(d) information which is lawfully disclosed to either party by a third
party not under an obligation of confidentiality to the disclosing
party with respect to said Confidential Information; or
(e) information which is subsequently developed by an employee or agent
of the receiving party without actual knowledge of the disclosure;
or
(f) information which the receiving party is required by law to disclose,
provided that the receiving party gives the disclosing party
reasonable notice of its intent to disclose such information.
11
<PAGE>
ARTICLE IX
----------
MISCELLANEOUS
-------------
Section 9.00 Indemnification.
-----------------------------
NESTLE shall defend, indemnify and hold MEDJET, its officers, directors,
employees, agents, representatives, successors and designees harmless against
all claims alleging that any Licensed Product sold by NESTLE does not have the
approval of the applicable regulatory agency or any defect in materials,
workmanship or manufacture of Licensed Products sold under this Agreement or any
breach by NESTLE of its obligations under this Agreement and shall bear all
costs of defending such actions.
MEDJET agrees to make its employees and agents available as expert
witnesses at a mutually agreed upon rate to provide deposition and/or trial
testimony concerning the design and development of such products and to
otherwise assist NESTLE in preparing the defense of such product liability
actions, but responsibility for managing such litigation shall rest solely with
NESTLE.
Section 9.01 Assignability
---------------------------
This Agreement, or any of the rights or obligations created herein, may not
be assigned, in whole or in part, by either party, without the express, written
permission of the other party, such permission not to be withheld unreasonably
and permission shall be presumed to be granted thirty (30) days following
notice; however, this Agreement shall be assignable by either party without the
consent of the other party only to an affiliate or to the successors of the
assigning party's entire business or of substantially all of the assigning
party's assets relating to the manufacture and sale of Licensed Products. In
the event that NESTLE assigns any of its rights under this Agreement to an
affiliate of NESTLE, NESTLE shall remain secondarily liable for the obligations
assigned to the affiliate.
Section 9.02 Severability.
--------------------------
If any provision of this Agreement shall for any reason or to any extent be
invalid or unenforceable, the remainder of this Agreement shall not be affected
thereby, but rather shall be enforced to the greatest extent permitted by law.
Section 9.03 Counterparts.
--------------------------
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which shall be deemed one and the same
instrument.
12
<PAGE>
Section 9.04 Headings.
----------------------
The headings used in this Agreement are used for administrative purposes
only and do not constitute substantive matter to be considered in construing the
terms of this Agreement.
Section 9.05 Entire Agreement.
------------------------------
This Agreement embodies the entire agreement between the parties relating
to the subject matter hereof. All prior arrangements or understandings are
hereby superseded and canceled. No change, modification, or waiver of this
Agreement or any term thereof shall be valid or binding unless it is in writing
and signed by the party intended to be bound.
Section 9.06 Binding Effect.
----------------------------
Except as otherwise provided herein, the terms, obligations, covenants,
provisions, conditions and agreements herein shall bind and inure to the benefit
of the successors, legal representatives, transferees and assigns of NESTLE and
MEDJET.
Section 9.07 Use of Name.
-------------------------
NESTLE shall me the name of MEDJET in connection with the promotion and
sale of Licensed Products in a manner to be determined by NESTLE.
The parties shall issue a mutually agreed upon press release following the
execution of this Agreement
Section 9.08 Choice of Law.
---------------------------
The construction and performance of this Agreement shall be governed by the
laws of the State of New York.
Section 9.09 Obligation to Pay.
-------------------------------
Termination of this Agreement shall not affect the obligation of NESTLE to
pay MEDJET any royalty or other payments which may be due and unpaid at the date
of termination, nor shall the same prejudice any other right of MEDJET under
this Agreement. Within sixty (60) days after termination, NESTLE shall render
to MEDJET a written statement of the kind required in Section 3.03 hereof
respecting the due and unpaid royalties and shall accompany such a statement
with payment to cover the same.
13
<PAGE>
Section 9.10 Attorney Fees.
--------------------------
If any party to this Agreement institutes legal proceedings against any
other party with respect to this Agreement or other transaction contemplated
hereby, the losing or defaulting party shall pay to the prevailing party
reasonable attorney fees, costs and expenses incurred in connection with the
prosecution or defense of such action.
Section 9.11 Warranty.
---------------------
MEDJET warrants that it is the sole and exclusive owner of the Know-How and
Licensed Patent Rights and has the right to grant the exclusive license
contained in this Agreement. MEDJET shall defend, indemnify and hold NESTLE
harmless against all claims by any third party alleging ownership of or any
rights to the Know-How and Licensed Patent Rights and shall bear all costs of
defending such actions, provided MEDJET is given prompt notice of such claim(s)
and MEDJET is given the opportunity to take over, control, settle and defend any
such claim(s).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
last day indicated below.
NESTLE S.A.
BY: /s/ Claude Rossier
-------------------
DATE: 22 July, 1998
------------- NAME: Claude Rossier
-------------------
TITLE: Vice-President
-------------------
MEDJET, INC.
BY: /s/ Eugene I. Gordon
DATE: July 15, 1998 ---------------------
-------------
NAME: Eugene I. Gordon
---------------------
TITLE: Chairman and Chief Executive Officer
-------------------------------------
14
<PAGE>
EXHIBIT A
Product Specifications for MEDJET Powercut Microkeratome.
*
___________________
* Information omitted pursuant to a request for confidential treatment.
15
<PAGE>
<TABLE>
<CAPTION>
MEDJET INC.
EXHIBIT 11
COMPUTATION OF NET LOSS PER SHARE
Three Months Ended Nine Months Ended
9/30/98 9/30/97 9/30/98 9/30/97
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
NET LOSS PER SHARE
Loss from Operations applicable
to Common Stock $ (487,396) $ (1,540,309) $ (1,907,303) $ (1,787,956)
============== ============== ============== =============
Weighted Average Common and
Equivalent Shares Outstanding 3,869,004 3,669,785 3,792,659 3,655,783
-------------- -------------- -------------- -------------
Net Loss Per Share $ (0.13) $ (0.42) $ (0.50) $ (0.49)
============== ============== ============== =============
NET LOSS PER SHARE - ASSUMING DILUTION
Loss from Operations $ (487,396) $ (1,540,309) $ (1,907,303) $ (1,787,956)
============== ============== ============== =============
Weighted Average Common and
Equivalent Shares Outstanding 3,869,004 3,669,785 3,792,659 3,655,783
Add: Assuming Exercise of Stock Options 22,380 52,066 39,150 52,066
Assuming Exercise of Warrants 51,674 57,205 55,808 57,205
-------------- -------------- -------------- -------------
Weighted Average Common Shares
Outstanding - As Adjusted 3,943,058 3,779,056 3,887,617 3,765,054
============== ============== ============== =============
Net Loss Per Share - Assuming Dilution $ (0.12) $ (0.41) $ (0.49) $ (0.47)
============== ============== ============== =============
</TABLE>
<PAGE>
COMPUTATION OF NET INCOME (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 1998, the dilutive options (i.e., the average market price is greater
than the exercise price), assume that options are exercised and proceeds
realized as indicated below. Next, using the treasury stock method with the
average market price per share during each period and the total shares assumed
to be reacquired as of the beginning of each period, the additional shares
included as outstanding are indicated below.
<TABLE>
<CAPTION>
Period Ended September 30, 1998
Three Months Nine Months
--------------- -------------
<S> <C> <C>
Options assumed exercised 254,050 398,693
Proceeds assumed realized $1,475,738 $2,448,489
Shares assumed reacquired:
- During three months ($1,475,738/$6.37) 231,670
- During nine months ($2,448,489/$6.81) 359,543
Net additional shares assumed outstanding 22,380 39,150
</TABLE>
For 1997, the dilutive options (i.e., the average market price is greater than
the exercise price), assume that options are exercised and proceeds realized as
indicated below. Next, using the treasury stock method with the average market
price per share during each period and the total shares assumed to be reacquired
as of the beginning of each period, the additional shares included as
outstanding are indicated below.
<TABLE>
<CAPTION>
Period Ended September 30, 1997
Three Months Nine Months
--------------- -------------
<S> <C> <C>
Options assumed exercised 219,863 219,863
Proceeds assumed realized $1,370,902 $1,370,902
Shares assumed reacquired:
- During three months ($1,370,902/$8.17) 167,797
- During nine months ($1,370,902/$8.17) 167,797
Net additional shares assumed outstanding 52,066 52,066
</TABLE>
<PAGE>
(B) - For 1998, the dilutive warrants (i.e., the average market price is greater
than the exercise price), assume that warrants are exercised and proceeds
realized as indicated below. Next, using the treasury stock method with the
average market price per share during each period and the total shares assumed
to be reacquired as of the beginning of each period, the additional shares
included as outstanding are indicated below.
<TABLE>
<CAPTION>
Period Ended September 30, 1998
Three Months Nine Months
-------------- ------------
<S> <C> <C>
Warrants assumed exercised 115,661 115,661
Proceeds assumed realized $407,600 $407,600
Shares assumed reacquired:
- During three months ($407,600/$6.37) 63,987
- During nine months ($407,600/$6.81) 59,853
Net additional shares assumed outstanding 51,674 55,808
</TABLE>
For 1997, the dilutive warrants (i.e., the average market price is greater than
the exercise price), assume that warrants are exercised and proceeds realized as
indicated below. Next, using the treasury stock method with the average market
price per share during each period and the total shares assumed to be reacquired
as of the beginning of each period, the additional shares included as
outstanding are indicated below.
<TABLE>
<CAPTION>
Period Ended September 30, 1997
Three Months Nine Months
-------------- -------------
<S> <C> <C>
Warrants assumed exercised 97,389 97,389
Proceeds assumed realized $328,300 $328,300
Shares assumed reacquired:
- During three months ($328,300/$8.17) 40,184
- During nine months ($328,300/$8.17) 40,184
Net additional shares assumed outstanding 57,205 57,205
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1998 (unaudited) and September 30, 1997 (restated) financial
statements of Medjet Inc. and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 961,276 2,152,670
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 988,917 2,246,554
<PP&E> 504,991 347,882
<DEPRECIATION> 244,277 159,246
<TOTAL-ASSETS> 1,374,887 2,538,394
<CURRENT-LIABILITIES> 392,968 109,835
<BONDS> 0 0
1,100 0
0 0
<COMMON> 3,720 3,709
<OTHER-SE> 977,099 2,424,850
<TOTAL-LIABILITY-AND-EQUITY> 1,374,887 2,538,394
<SALES> 0 0
<TOTAL-REVENUES> 500,000 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,770,235 1,906,062
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 487 5,738
<INCOME-PRETAX> (1,724,791) (1,787,956)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,724,791) (1,787,956)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,907,303) (1,787,956)
<EPS-PRIMARY> (.50) (.49)
<EPS-DILUTED> (.49) (.47)
</TABLE>
